Past literature has widely studied the effects of R&D investments, but academics and investors have different views on how R&D investments affect future revenue and firm valuation. This study proposes capitalization and accelerated amortization of R&D expenditure through exponential smoothing. We find the model provides significant advantages in predicting future revenue from R&D investments over traditional models. This study also introduces a heterogeneous R&D capitalization model that reveals unobserved characteristics behind the quality of R&D investments. We find that the unobserved heterogeneity provides statistically reliable and economically relevant information in the construction of investment portfolios.