You can read this article (almost) entirely for free. If you like what you read, consider becoming a paid member to get access to…

• All in-depth reports (15 companies profiled thus far, and growing)

• Earnings follow-ups

• Other investment related content

• A community of like-minded investors

• Complete access to my portfolio and transactions

• Occasional webinars

The in-depth reports of Stevanato and Deere are free to read to gauge the quality of the research.

Join today:

Subscribe now

Both indices were flattish/up this week but there was no shortage of news. From the potential restart of the war, to AI’s political woes, and going through Adobe’s earnings and SpaceX’s IPO. I go over all of these things in the market commentary section.

Without further ado, let’s get on with it.

Articles of the week

I published one article this week: SpaceX (SPCX): Defying Gravity.

Best Anchor Stocks

SpaceX (SPCX): Defying Gravity

For those of you who don’t know, I run a podcast called +FlowKCash with my good friend Javier from Edelweiss Capital Research…

Read more

5 days ago · 8 likes · Best Anchor Stocks

I recorded a podcast episode with my friend Javier from Edelweiss Capital Research and thought it would be a good idea to translate the transcript to English. We go over pretty much everything you need to know for the now-live IPO:

1. How SpaceX made it: the rockets that exploded, the contracts with NASA, Starlink…

2. The current segments: $19B in revenue, 10M Starlink subs, the xAI merger…

3. The future business: space datacenters, Mars, humanoids…

4. Red flags that nobody is discussing

5. Valuation scenarios

I continued working this week on my in-depth report on the next technological frontier which I expect to publish next week.

Without further ado, let’s see what the markets did this week.

Market Overview

The indices were up this week, but pretty flattish:

Several interesting things happened this week. For starters, the war in Iran was close to “restarting.” The truth is that the war never really ended despite many investors totally forgetting about it, but Trump cautioned Iran and claimed that the US would strike the country and take Karg Island if a deal was not reached. That was until he saw that the stock market did not like the escalation and decided to walk it back claiming that they were close to a deal and that strikes had been called off (can’t make this up!). Markets rallied. It’s honestly pretty interesting (and a great case study) how Trump has found the infinite money glitch. The war has been called on and off a couple of times, and even though it continues, markets are considerably above where they were trading in April and nobody seems to remember that there’s a conflict in the Middle East. Funny how that works.

Politics were also the protagonist in another relevant event this week. Anthropic announced that Fable 5 (its new, most capable model) had been banned by the US government for foreign nationals (including those living in the US and foreign Anthropic employees). Wow!

I don’t know what will happen on Monday, but two things seem clear…

1. Looks like it’s bullish software (at least conceptually) because it signals that politics are already limiting AI’s power

2. Probably leads to many countries trying to develop their own AI models

This is the AI bear case and my hunch is that the AI trade bleeds on Monday (I might be very wrong). Even though many confidently claimed that AI had no limits…they forgot the most relevant and never-ending limit: politicians. It’s interesting because Dario Amodei (Anthropic’s CEO) had been claiming for a while that AI would destroy a lot of jobs. Interesting strategy considering that he was ultimately telling politicians that AI would interfere with their employment campaigns, and well…that did not play out well. This was honestly something that one could see coming…

Anyways, this is likely just the beginning of the story so we don’t know what will end up happening, but very interesting to see that politicians are already meddling with AI long before we achieved AGI. In this case it wasn’t because AI was destroying society but because the US sees AI superiority as an important geopolitical tool, but regardless of how you want to spin it, the conclusion is similar. Now, what’s interesting is that if this creates significant drops in the stock market, we might see Trump walking it back. Politics are always a two-way road!

Speaking of software, Adobe, one of the most punished software stocks, reported earnings this week. The stock dropped considerably the following day (even after falling considerably the day before) despite what appeared to be strong headline numbers.

The company beat both the top and the bottom lines and ARR growth accelerated. Now, this acceleration needs context. ARR growth did indeed accelerate from 10.9% in Q1 to 12.5% in Q2, but the recent acquisition of Semrush was partly responsible for this, adding $480 million. Excluding Semrush, organic ARR growth actually decelerated from 10.9% to 10.5%. To this we must add that Adobe’s management maintained the ARR growth guide of 10.2% for the full year even after the inclusion of Semrush (so they implicitly took it down organically). This means that they expect ARR growth to decelerate significantly in H2. Now, while this sounds very negative, management provided some context:

What management is ultimately claiming here is that they are focusing more on user growth than leaning on monetization levers. This may well be the best long-term strategy, but investors must still make a judgement call here. There are two options. Adobe is expanding the freemium growth strategy because…

1. They actually want to focus on freemium growth

2. They have no choice but to do so because they are finding problems to monetize

I wouldn’t rule out any of these and as a long-term investor I’d choose the first one all day long, but I believe it’s reasonable for the market to doubt the strategy when both the CEO and CFO simultaneously leave the company.

I honestly think the sell-off might have been overdone and that sentiment is at all-time lows in Adobe, but I’ve heard a lot of people say that, at the current valuation, Adobe is a good investment even if organic growth goes to 0%. This, imho, is a pretty dangerous thing to claim because if organic growth goes to 0%, Adobe would most likely have a pretty dangerous talent problem. Probably no worthwhile engineer would want to work for a no-growth business.

I’ve seen a lot of people too negative on Adobe, but also a lot of people that are clearly emotional holders of the stock. It’s fine to own something and admit that earnings were not perfect, and it’s also perfectly fine to not own something and admit that there were green shoots in the earnings. I used to own Adobe, sold it a while ago, and have decided to stay on the sidelines for now. When a CEO and CFO leave in such a “disruptive” scenario, it’s not rare to find more than one cockroach in the kitchen, but we’ll see.

Then we also had Space X’s IPO! The stock rose more than 20% in its debut and is now trading considerably above the $2 trillion mark.

I believe the valuation is pretty stretched at current levels, but I have no clue what it will do over the coming months (if I had to guess I’d say that it goes down, but who knows). Recall that if you are interested in learning about the company (a good idea before it gets to an attractive valuation) you can read my latest article (free to read):

The industry map was mostly green this week outside of the Mag 7:

Despite flattish to up markets, the fear and greed index dropped more and remained in fear territory:

I trimmed a position this week

This week I decided to trim a position. The stock is almost a 2 bagger for a 30% CAGR but it’s simply very challenging to make a valuation argument at current levels:

Read more

The podcast is in Spanish, but we thought it would be a great idea to translate the transcript of this week’s episode to make it available to you. The reason is that it was a special episode about Space X and what is likely to be the largest IPO in history.

In case you want to watch it overdubbed by YouTube, here it is:

We touch on several topics…

1. How SpaceX made it: the rockets that exploded, the contracts with NASA, Starlink…

2. The current segments: $19B in revenue, 10M Starlink subs, the xAI merger…

3. The future business: space datacenters, Mars, humanoids…

4. Red flags that nobody is discussing

5. Valuation scenarios

You should understand all that there is to know about the IPO after reading this. That’s the goal.

You can read this article for free. If you like what you read, consider becoming a paid member to get access to…

• All in-depth reports (15 companies profiled thus far, and growing)

• Earnings follow-ups

• Other investment related content

• A community of like-minded investors

• Complete access to my portfolio and transactions

• Occasional webinars

The in-depth reports of Stevanato and Deere are free to read to gauge the quality of the research.

Next up will be a comprehensive report on a macro-trend that will most likely be with use for the coming decades.

Join today:

Subscribe now

Introduction & Contextual Framing

Javier: Today’s episode of +FlowKCash is a special about SpaceX, following its imminent IPO. We will talk about its history and the segments that compose it. In addition, we will discuss everything they want to build in the future, from data centers in space, terrestrial transport with rockets, bases on the Moon, and even a city of 1 million inhabitants on Mars. Lastly, we will look at the things that don’t smell good, the risks of investing at these valuations, and what our projections are for the future.

Leandro: Good morning to everyone and welcome to episode number 39 of +FlowKCash. Today we have a special episode. We already did a teaser last week. Today we are going to talk—well, everyone will have seen it already—but today we are going to talk about SpaceX because this is being published, if I’m not mistaken, two or three days before the IPO. I don’t know if the IPO also coincides with the start of the World Cup? In the end, it’s an important week.

Javier: Yes. No, it’s a universal moment. A universal moment.

Javier: Yes, let’s talk a bit today about everything, right? In the end, the idea is that the people who listen to the episode leave here with a reasonable idea of what SpaceX does, where it comes from, and also a bit of what we think. For now, we have the regulatory document, the S-1, which is the prospectus companies have to publish before going public. We are going to base our discussion on that, and also a bit on the history and on Elon’s vision, of course. Leandro, man, it’s very important. We are going to see that the valuation is a key point.

Javier: We are going to have a presentation for those of you listening. It’s not necessary to see it, we are simply going to have it as support, but it’s good because it gives a visual image of many things we are going to talk about: the different rockets, the numbers, and so on. Although we are going to mention everything, it also gives you an idea of how things have evolved in a visual way—really seeing what they have been achieving.

Javier: Leandro, we have to remind people of some things, right?

Leandro: Ah, yes, I had forgotten. It’s just that it’s a SpaceX special, you can’t talk about anything else.

Javier: Remember that we are recording for the second time. We are recording for the second time in the morning, and Leandro is still waking up, it seems.

Leandro: Remind people that if you like it—and I think especially this episode is a good one to share—if you think that people might be interested, because even if you aren’t very interested in investments, this episode can probably interest you. Also, if you want to become members of the channel, we have the option enabled, okay? We want to thank the two members we have. For now, they are few, but in the end, everything helps, right? We do this selflessly because Javi and I really are interested, and we like to talk about these things, but obviously right now the podcast is an expense. We are going to jump directly, Javi, if you think it’s right, into the history of the company.

Company Origins & First Principles Thinking

Javier: Come on, yes, we’ve told it a bit, right? We’re going to start with the history, how SpaceX has arrived up to here, because it’s a pretty incredible history. Moreover, it gives you a bit of context to understand the S-1 or the prospectus for the people who want to take a look at it, and the tone it has. It’s a slightly unusual prospectus, I would say.

Then, we will see what SpaceX does today, where the money comes from, and how the current businesses work. We are going to see what they want to do in the future because it’s a bit of science fiction, not suitable perhaps for cynics or non-visionaries—meaning it is not suitable for the majority of investors. But the same could have been said about SpaceX a few years ago for the people who invested in the private market at valuations that in their day seemed relatively quite crazy. Here we are today with an expected IPO at 1.75 or 2 trillion. Finally, we are going to look at some things to give a bit of criticism to Elon too, right? Some things that smell bad, without filters, and then we are going to finish by talking about the valuation, our thoughts, and there we can enter into a bit of a discussion.

Javier: So we start with the history. This all started in 2001. Musk has just sold PayPal to eBay for 1.5 billion dollars. He is 30 years old, he obviously has more money than he can spend, and based a bit on how he had grown up reading science fiction books and his own interests, he decides that he wants to go to Mars. Not that he wants to go to Mars himself personally, although that too, but rather that he believes it’s important for humanity to be an interplanetary species. Since he is a guy who is, in the good sense of the word, a bit crazy, he starts to talk with NASA, and NASA tells him that they don’t have a budget for missions to go to Mars.

Then Elon, the way he acts, says, “Well, then I’m going to buy a Russian rocket.” He goes to Moscow, he meets with the Russians, and the Russians want to sell him a converted ICBM rocket for about 8 million, okay? Musk thinks that it’s a bit crazy, and in fact, on the third trip he makes to talk with them, they double the price to 16 million, meaning they were pulling his leg a bit. Then Elon, on the flight back on the plane, takes a napkin and starts to calculate from first principles, as he does many times, how much it can cost to build a rocket from scratch by hiring the engineers. That is basically how SpaceX is born. June 2002, initial capital, 100 million from Elon himself.

Leandro: For people who don’t know, SpaceX is Space Exploration Technologies, the official name of the company.

Javier: The thesis that Elon has at that moment is: if the cost of accessing space drops by many orders of magnitude, humanity can become multiplanetary. It’s a thesis of first principles. It’s not “the launch market is worth X billions,” it’s “the cost of steel, fuel... it’s an abstraction of the price of the rocket.” Why? Because rockets are only single-use. For example, if you make rockets reusable, then obviously the unit price of launching collapses. And if the unit price of launching collapses, then space opens up to potential new projects.

Leandro: This is, in the end, Javi, how technology works in general, and what Moore’s Law has achieved, which we’ve talked about in other episodes. In the end, if you lower the barriers to entry, markets are created that today are impossible to imagine because they are prohibitively expensive.

The 2008 Financial Crisis & Near-Bankruptcy

Javier: And obviously, all this has not been easy, nor does it continue to be easy. SpaceX, until 2008—we are talking about the financial crisis almost 20 years ago—had a pretty fucking hard time because it started at a tough time to finance a project like that.

Leandro: That’s another thing, and now we’re going to see it. It’s just that they were on the verge of going bankrupt several times. Three times.

Javier: So they start with their first rocket, which is the one they called Falcon 1, and they do three launches and three failures. The Falcon 1 exploded once from an engine failure, another time a poorly adjusted screw, etcetera. By that time, we are talking about 2008, Elon had already spent almost all his money, the engineers weren’t getting paid on time, and the company was literally on the verge of bankruptcy—add 2008 to that. Then they launch the fourth Falcon 1 rocket in September 2008 and it is successful. The rocket managed to orbit around the Earth, okay? It is the first private rocket that manages to orbit the Earth.

Weeks later—notice that we are in 2008—NASA gives SpaceX a 1.6 billion contract to supply the International Space Station. SpaceX survives, but by the skin of its teeth. This is quite important to understand the mentality that the company has. SpaceX has almost died three times, and Elon himself said that in 2008 the company had like a 10% probability of surviving. Nonetheless, it iterated, it moved fast, and they achieved it. The same has happened to him with Tesla, basically the same has happened to him with all his companies.

Leandro: Yes. I mean, in the end, companies, especially technological ones that we see today, many people look at them and take for granted how easy it is to get there. But along the way, many others have been left behind that, for X or Y, for the same reasons these have triumphed, have failed.

Javier: Yes. And we will see one day when we talk about Nvidia, which won’t be long, we will see that Nvidia was on the verge of going bankrupt a lot of times too. Great businesses have been on the verge of going bankrupt. It’s something logical, and more so when spectacular things are done like the ones these people do, right?

Disrupting Launch Costs via Falcon 9 Reusability

Javier: So, after the NASA contract came a period in which they really started to execute. Ah, by the way, I forgot to change it—for those of you who are watching this, here you can see a bit of the evolution of SpaceX as a desktop background.

In 2010 arrives the first flight of the Falcon 9, which is the rocket that changes everything. Not only was it a better rocket, it was a rocket that was designed to be reusable, and that obviously was something revolutionary. Everyone in the industry thought it was impossible to land a rocket back. There is a video of the CEO, I think it’s from Ariane, which is a European rocket company, who literally laughs at Elon and his intention to make rockets reusable—literally laughing. Well, in 2015, they are also...

Leandro: Javi, as you said before, what Elon wanted was to lower launch costs. This is obviously key, because the problem with launches into space is that when you lose the rocket, a lot of money is lost.

Javier: Of course. We are going to see a bit how the launch cost has been dropping. In fact, in 2015 they are able to land a booster for the first time on land. In 2016 they land it on a barge in the ocean, and in 2017 they reuse one of those boosters for the first time, okay?

What does this mean in numbers? Today, 84% of Falcon 9 flights reuse the booster, and the same booster flies up to 25 times. Imagine the cost reduction that generates, right? That is a bit of what we are going to see now. Reusing a rocket 25 times makes the price go from about $54,000 per kilo that you launched before with the Falcon 9 down to $2,700 with the reusable Falcon 9. We are talking about a 95% reduction, okay? To give you an idea, a duopoly that existed called United Launch Alliance, which was basically a duopoly between Boeing and Lockheed, charged between 350 and 500 million per launch. SpaceX charges 67 million for the same destination, okay? Obviously, the market has noticed this, and in 2025, for example, SpaceX did 165 launches, which is 52% of all orbital launches on the planet. One out of every two is from SpaceX today.

Leandro: Today SpaceX would be the lowest-cost producer in the industry.

Peer Analysis: SpaceX vs. RocketLab & Manned Spaceflight

Javier: Yes, there is data, for example, we haven’t talked about it yet, but you have RocketLab. It’s a much smaller company, I think it’s at a 90 billion valuation with 500 in revenue, but losing money. Nonetheless, for example, RocketLab has rockets that are much smaller, but their attraction or value proposition—they aren’t reusable yet and so on—is that their rockets have a relatively low cost, and moreover, they make it dedicated for you. That is, if any company wants to launch something, they contract directly with them. It’s not like in a shared launch capsule where there are different satellites from different companies put into the orbit that is required. These guys from RocketLab do it dedicated for you. They are much smaller rockets, but what happens with these larger rockets like SpaceX or Blue Origin or any other is that many times you have delays. If you have a problem, then it delays your entire line of clients. So it’s not specific for you, you are simply working with many more clients, right? What RocketLab does is simply give you the priority because you are the only client per rocket, so to speak, at a price, obviously, much more expensive than what you can get here, but with that added value.

Javier: While the Falcon 9 was already starting to dominate the commercial satellite market around 2020, it also launched the first manned mission of SpaceX with two NASA astronauts going to the International Space Station in a capsule designed also by SpaceX called the Dragon. Since then, basically SpaceX has been NASA’s only orbital taxi, up to nine missions that they have carried with this Crew Dragon, as they call it. I suppose many of you will have heard, in fact, that SpaceX had to go rescue two astronauts that the competition, the Boeing Starliner, left trapped in the International Space Station 9 months ago because the capsule had structural problems. It’s almost acting as a savior for the screw-ups of others. A business that emerged as a result of this quasi-monopoly that SpaceX has with the theme of launches—and which is a bit, I think, for the people who are interested and want to invest in SpaceX—the thesis is: look, having efficient rockets at the lowest production cost is a massive barrier to entry. It’s very complicated, it’s not as easy as simply generating software. It’s something very complicated to build. If this gives you a monopoly on launching into space, basically everything that happens in space goes through you.

Leandro: You are the tollbooth for journeys into space, a critical infrastructure, if the space economy really develops at some point. Then you are a tollbooth, and how much is that worth?

Javier: Well, it seems like one, almost two trillions, Leandro.

Leandro: Yes, it’s true. If I’m not mistaken, SpaceX was the first to land an orbital rocket in the year 2015, and I think in the S-1 it says that they have a 10-year advantage because it hasn’t happened again, or another company hasn’t done it until the year 2025, could it be? Or something like that I seem to remember reading.

I think there are some Chinese companies that have achieved something.

Javier: There are some. I mean, in the end, it has been a monopoly for 10 years, right? It’s true that it carries an advantage, but now it does seem that they are matching it somewhat in terms of being able to lower the launch cost.

Javier: Sure, but we are comparing—later we are going to see the different rockets—we are comparing Falcon 9 with what some Chinese companies are achieving now, or you could say Blue Origin with the New Glenn and so on, which are still a bit obviously exploded. In the end, the 10 years of advantage, you carry it anyway. The thing is that it wasn’t just that it carried 10 years of advantage, it’s that nobody had even been capable of achieving what you had done in 2015.

Starlink’s Global Dominance & Satellite Economics

Javier: And now with the Starship, which is the last one you see there, the launch cost drops significantly. We are going to see it. It is even expected that they will be capable of lowering it even more, still. Okay, now we’ll talk. Before, I wanted to talk because it goes a bit earlier in the timeline, the theme of Starlink, which I suppose many people know, right? In the end, it’s the capacity to have internet via satellites with broadband for everyone, basically. When they launched it in 2015, the reaction of the market in general was, as always, skeptical. OneWeb had already tried it, Teledesic tried it, Iridium tried it, and all of them failed, or the use cases were relatively very niche, smaller, not something really very scalable. The difference, obviously, is that SpaceX could launch its own satellites with its own rockets for a fraction of the cost that any previous competitor had faced. That has made it so that today Starlink, or SpaceX, has 9,600 satellites in orbit, which is crazy, Leandro. Because if I tell you they have almost 10,000—they have lost some, they have launched I don’t remember if it was 12,000 or 15,000, 12,000 I would say, but they have about 10,000 satellites in orbit—what percentage do you think that is over the total of satellites in orbit around the Earth?

Leandro: Look, I don’t have the remotest idea, but I’m going to say 70% almost.

Javier: Correct.

Leandro: Oh, well look, it seems like I knew it, but I had no idea.

Javier: It’s almost 70%, it’s almost two-thirds of all the satellites there are. We talked about it in a program, in fact, now I’m going to give you a piece of data that I’m sure you do remember. It’s crazy to think that two-thirds of the satellites there are in orbit are from SpaceX and Starlink. They already have 10 million subscribers to the service and they are present in about 125 countries. The numbers, in fact, have been quite powerful. They have gone from 500 million in 2021 to 11 billion in revenue in 2025. It’s almost 22x in 4 years. Obviously, we are talking about a company that is going to come out at almost 2 trillions. 11 billion is not much, but let’s separate a bit the valuation from what they are achieving and the growth they have had with things like Starlink, okay? The theme of this that I was telling you about, let’s remember a number that we talked about when we discussed data centers in space, we mention it again because of the 10,000 they have, they have requested authorization to launch up to 1 million. 100 times more. Okay, we leave it...

Leandro: Let’s see, but if you think about it and launch costs are reduced so much, in the end, it’s just that for the same price you can launch that. This we will talk about a bit later in future projects and the things that they want to do or that they propose that they can do.

Starship Mechanics & Evolutionary Engineering

Javier: Finally, in this part of the history, is to talk about the Starship, which is the rocket that comes to change everything. Really they started to design it and build it in 2019, and basically Starship is the largest rocket ever built. It’s 120 meters in height, it can carry 150 tons to low orbit—to give you a bit of context, the Falcon 9 carries 22.

We are talking about seven times the amount, and they want to make it 100% reusable, both the booster and then what comes to be the Starship, which is the top part.

Leandro: Because on the Falcon, Javi, for now, the only thing that’s reusable is the booster but not the rocket as such, or how?

Javier: No, both parts are reusable.

Leandro: Okay, okay, okay.

Javier: In Starship they have managed to catch it. Have you seen it, surely? If someone hasn’t seen videos of how they are capable of catching the booster back to Earth, see it because the truth is that it’s spectacular. For now, the booster yes, they have recovered it. The Starship, sorry, not yet, but it’s in the project and that is the theme—as you know, these things take time.

The development of the Starship has cost 10 billion, not bad. They had 11 test flights. The first flights obviously exploded and even some on purpose. At SpaceX they say that if it doesn’t explode, you aren’t learning fast enough. What does the Starship do to the cost per kilo? If the Falcon 9 lowered the price from 54,000 to 2,700 per kilo, Starship aims to lower it to less than 100 per kilo, another factor of 27 times reduction. It’s just very crazy. For this, obviously, the Starship would have to be fully reusable. When accessing space costs you less than almost a transatlantic flight per kilo, the economy maybe reorganizes itself, right? And things that didn’t make sense to do today—we could say data centers in space, factories in microgravity, or space tourism—maybe they start to work economically. But the truth is that the Starship still hasn’t entered into service and moreover, they go with a lot of delay, like almost everything in general, so you have to take it into account too, okay?

I bring you a bit, to finish with this long introduction, how the valuation of SpaceX has been changing and what financing rounds they have had.

They have raised more than 10 billion in private capital. Let’s remember that for this IPO they propose to raise between 70 and 80 billion, okay? They have done series from 2008 until a series N in 2025. They have been raising capital, as you can see there, almost always, because in the end, there’s no choice. As many of you know, their investors include everything from pension funds, like the Norwegian pension fund, to Google, among many, many others. In each round, almost the valuation has more than doubled. Always Elon said that he didn’t want to go public. I don’t know if you remember when Tesla had problems, not problems where the quote dropped and so on, and Elon always said that he proposed even taking it off the market. He didn’t want to ever take SpaceX public, and look how things have changed. It’s also true that raising 80 billion... I understand that he wouldn’t have many problems in raising them in private markets, especially now, but he has decided to take it public. I can’t tell you very well why, because I don’t know. If you want, we can discuss that.

Public vs. Private Markets & The xAI Acquisition

Leandro: Let’s see, later we can talk about it, but it’s also true that he takes it public but it continues to be a controlled company. I mean, it’s not a public launch as usual of what we are used to, I would say.

Javier: That’s true. It’s also interesting that he has changed his mind, not wanting to have it public, now taking it out. Obviously he has the power, so it matters little, quote-unquote, but you control less... well, you don’t control the valuation, that’s the truth. While in private markets, you have much more power. In the private market, he controls the valuation because you don’t see it. Well, yes you see it, but when you have to raise money you have to put a valuation. What happens is that I think the demand that has always existed in private markets has been much superior to the supply, so you can put the valuation that you want.

Leandro: Yes. And I would say that in private markets it’s much more difficult for a narrative... you have a lot of time between financing rounds, or you can dominate the narrative in a very different way than in public markets where suddenly you find yourself with a narrative against you and the price starts to react on a daily basis.

Javier: Yes. And finally, to talk about the timeline that we were mentioning, because there have been a couple of facts that don’t come out here since this only goes until 2024, but as many of you know, in recent years things have happened that are relatively important. We talk above all about xAI, which came when in 2022 Elon put the blanket over his head and bought Twitter for 44 billion. I don’t know if you remember that era, because Twitter now is part of SpaceX. We are going to tell a bit what has happened today in case there is anyone who hasn’t found out.

So, we are in 2022, Elon, to defend the capacity of people to... how do we say it? How did he mention it? Freedom of expression. Sorry, I was going to say, to defend freedom of expression, Elon decides to put 44 billion to buy Twitter and to end all the Woke ideology. Obviously, he didn’t put the 44 billion entirely himself, but he did put part, and then he raised capital and debt on the part of many investors, 44 billion. He renames Twitter to X, that surely we all know, with the idea of building a superapp in the style of WeChat. Advertising revenues collapse from 5 billion in 2021 to two in 2025, a drop of 65%. It’s very crazy.

Leandro: I must say, Javi, as a user of X, when Elon bought it, the first months you could tell a lot that the application was worsening, that was so. You noticed the change a lot. Evidently, he was also doing it with much less staff because it was like a disruptive process. He had fired a lot of people, thought it could be done with much less, and yes I must say that the application lately you notice that it’s improving quite a bit. Many people complain that the content is worse. Well, but that’s the human being. If you see the content there is in reels on Instagram, each time it’s worse or more nonsense. But it’s because of what people see, it’s not the fault of the one who puts the means of distribution.

Javier: Yes, that’s a debate that could be very long, truly, but yes, it is the fault of distribution because in the end it’s pushing those things, but it’s pushing those things because it knows that’s what keeps people in the application, it’s not doing it for any other reason.

Leandro: Yes.

Javier: So, let’s go back to the financial case. Think of the investors who put money in the purchase of Twitter—from Andreessen Horowitz to the Saudi funds, to say some—they were sitting on enormous losses. The value of Twitter as a brand had dropped completely, and Elon doesn’t like when his investors are losing money, that’s something that at least you have to give him. Then, in 2025, you already know that X or Twitter started also to develop its own language model, an LLM, and changed the name of the company from X to xAI. What Elon decides in February 2026, 6 months before the SpaceX IPO, is that SpaceX is going to acquire xAI in an operation completely with shares, valuing xAI at about 300 billion. He had bought it at 44, now it’s worth 300.

And he was valuing then SpaceX, all the part of Starlink and the rockets, at a trillion. So joint valuation 1.3 trillion, now it’s going to come out at 1.75, going up. Conclusion: the xAI investors are happy. Everyone is happy because now you are integrating vertically your artificial intelligence platform with SpaceX.

Leandro: Which there, Javi, do you think... I mean, I, for example, think of the three segments, right? Which we have already commented on a bit. We have the launch part, like the pure one of SpaceX. Then we have the communication part, which would be Starlink, and then we have xAI, the AI/X part. I understand completely the synergies between SpaceX and Starlink. In the end, this launch method is vertically integrated into the part of Starlink, but it costs me much more... I mean, evidently in the future you can see connections, because if you start to launch data centers into space, the xAI part can also be understood. I didn’t understand the rationale for the X acquisition until you told me this about the investors, which now I understand much better—I understand much better the motive for the integration of xAI inside SpaceX.

Cash Burn, Compute Infrastructure & The Anthropic Deal

Javier: Now I’m going to give you another motive. xAI was burning almost a billion a month, okay?

Leandro: Okay.

Javier: In infrastructure expenses, the compute, creating a laboratory like it can be an Open AI or an Anthropic, plus all the infrastructure layer because they have mounted Colossus, which is the largest data center in the world. That burns a lot of money and Twitter wasn’t working well—later we are going to see the numbers also of Grok and how many users it has and so on—but you were burning money, the money runs out. However, SpaceX was profitable and it generated cash. What do you do? You merge them, problem solved.

Leandro: And now we are going to see. SpaceX is profitable because of Starlink, right?

Javier: Correct, correct. Now we’ll see the numbers for each one. And what you have said, right? The potential synergies in the future. In the end, Elon has always been characterized by trying to integrate vertically and the vision he has obviously in the end is that AI is going to allow him also to iterate much faster all his designs—what we have mentioned of rockets, data centers in space, etcetera, simply holding an empire.

I think you also have to think about it from the point of view that Elon also has Tesla, because with Tesla, you are seeing Terafab. You are seeing how even arriving at the fabrication of the chips themselves... vertically integrated to the extreme, to the point that people say, “This guy is stupid.” But in the end, he can be stupid or he can be a visionary. We aren’t going to know until we see the future, but that’s another of the reasons. Right now the betting markets give, I think it’s above 70%, that Tesla and SpaceX are going to merge this year. I don’t know if it’s this year or the next, but in the next 12 months, 70%. It seems like it’s, quote-unquote, pretty clear that they are going to merge, and then you have the Holy Trinity almost mounted there. I was commenting this to you as a result of... I forgot.

Javier: No, I don’t remember. Now it doesn’t come to me, but later it will come to me I think. Later it will come to me.

So we are going to start to see now each of the current business lines to understand a bit where they come from, where they go, how it’s growing, to then understand a bit also the valuation and see if this makes sense or not, okay? So let’s start. By the way, for the people who are watching it, we have especially quite a few slides for the SpaceX part showing the differences between the Falcon 9, how the launch cost has been dropping, all that type of things that we aren’t going to comment on very in depth because we don’t have time.

But if anyone wants, simply we are going to pass them as we talk, and if anyone wants, pause it and take a look at the data because there are interesting things simply to have a bit more knowledge, okay? And whoever is listening, it’s not necessary because they can go in to look at it later, but the important data more or less we are going to mention, right? So we have here the main numbers of the space segment, which are the launchers, basically, and we have a business as we can see it where we only have the data for 2023, 2024, 2025 and how the first quarter of 2026 evolved compared to that of 2025. They report what is the amount of kilos that have been launched into orbit, the number of launches, and what are the metrics both of revenue and of operating profit or adjusted EBITDA. You already know that EBITDA in these cases that are so capital-intensive, and on top of that adjusted, I wouldn’t take them into account to understand how the business really works, right?

There are things that draw one’s attention. Obviously, the number of launches has grown, but it’s not crazy either. We can see that in 2023 they launched 100 rockets, in 2025 170, and so far in 2026, for example, they have launched less than in 2025. The market currently is what it is, it’s not something super booming either, nor does it grow at very crazy paces. The same look at the revenue. Besides, we have to think that if SpaceX is launching Starlink without stopping, although the number of launches increases, if you launch for yourself, that doesn’t generate revenue. That’s why we see, for example, that in 2026 the revenues have dropped, for example, with respect to 2025.

Leandro: I mean, Javi, launches are counting also their own?

Javier: Sure.

Leandro: Okay. They launch their own but they don’t generate revenue. Ya, ya, ya. It seems to me the KPI is fine, but it would be better if you saw the launches that generate revenue versus those that don’t.

Javier: Well, you could say that then they generate revenue for you through Starlink, you know? So yes, yes. As you can see, the operating losses are almost the same as the revenue. You generate 600 million almost in... sorry, no, I made a mistake, it’s 600 million and in revenue, you lose more or less... 600 is basically the number. It doesn’t make sense. In the end, this is a segment that allows you to do the rest of things, at least in the Starlink part, right?

What type of launch are they doing here? In the end, commercial launches, satellites for companies, governments, telecommunications operators, you have government contracts with NASA, with the Department of Defense. The Falcon 9 continues to be the rocket that you use the most, with 165 launches in 2025. You have the Falcon Heavy, which is basically the same capsule on top but with almost three times the boosters, and the Starship, which obviously still is in the testing phase, right? It’s important to know that the most important client is the United States government, the Department of Defense, and what is the interesting thing about this business?

In the end, it’s what we commented on before, that it’s almost a tollbooth that many companies or governments or whoever have to pass through to be able to launch things outside, okay? It’s as easy as that. Obviously, when the Starship is in operation, it’s going to cannibalize the Falcon 9 too, because it’s simply going to be much cheaper. So you have to take it into account.

Without further ado, what was said, I’m passing some slides so that people see it, and here you can see the difference between the Falcon 9, Falcon Heavy, Starship, and some differences. Well, I pass them forward, okay? Whoever wants to, stop it. And above all, Leandro, when later we talk about valuation and you tell me something about whether it’s very expensive or whatever, I’m going to tell you how much this is worth because the images are spectacular. I repeat again to the people that if they haven’t seen truly how they catch the boosters and so on, it deserves to be seen, or it deserves to see a launch. Finally, to finish the space part, it’s a bit to show you... I don’t know if to say that it’s the culture of Tesla or SpaceX, or it’s a bit how Elon works, which is, I think, independently of whether you believe that his companies are overhyped or very overvalued or whatever...

Leandro: You know what happens? I think here it happens a bit—and I’m going to mention another company—what happened with let’s say with Palantir. In the end, when Palantir was, let’s say, at $10, everyone said that it was overvalued because it quoted at multiples of 60 times. Okay, people continue saying it today when it’s trading at $150 because the multiple continues to be high, but what is evident is that at $10 it wasn’t overvalued. You can’t have the two points of view because in the end, yes, the multiple continues to be high, but if you take the $10 and take today’s numbers, it wasn’t overvalued, right? Because they have grown above what everyone expected. I think that with Elon’s companies it happens a bit the same. In Tesla, many people say, “No, it’s just that it’s hyper-overvalued,” okay, but the same one who says it today was saying it 15 years ago when things are already quite different, right? So there have been advances too, and the bears from 10 years ago maybe weren’t right, which doesn’t mean that today’s aren’t right. But you also have to take it into account.

Javier: Yes. All this is quite complicated. I agree. How much is what Elon is building worth? I don’t know if it’s two trillions. It’s hard for me to see it, but maybe we are mistaken. I also would have told you 3 years ago that 300 billions was crazy.

And here we are discussing if two trillions... Is the market crazy? I don’t know, but independent of that, we leave that for the end. I think that what he is achieving, what he has achieved, right? Although he has gone with many years of delay, because that is a fact, what he has achieved is incredible and that is what we are trying to tell here, and then we’ll see if the valuation makes sense or not. But this is the evolution that the Raptor engines have had, which seems to me spectacular, how they have been evolving it.

It’s very interesting to read also the biography of Elon. Have you read it, Leandro? I suppose so.

Leandro: No, no, I haven’t read it.

Javier: It’s worth it. How the guy tackles all these types of problems, or how he thinks about problems. I think these images of the three engines, the evolution, is a clear example, okay? It’s quite spectacular. I think this image is very visible, that’s why I put it in.

Come on, let’s go to the part that is a bit the crown jewel, in fact, the one that generates benefits, what is financing the rest of things, which nobody believed, but here it is. It’s that maybe what people don’t understand with Starlink is that each new generation of satellite has more capacity and you have lower cost per bit. That means that as you go replacing the constellation, the margin of the business improves automatically, and more obviously the adoption, but you don’t need to grow much to improve profitability.

Leandro: I, in this, Javi... I in this segment have my skepticism. I mean, it doesn’t seem reasonable to me, in the same way that it doesn’t seem reasonable to me to look at the losses of the space part because really many of the losses you are assuming them to generate benefits here in the Starlink part. Neither does it seem reasonable to me to take Starlink, take the profits, and say, “Look at how profitable it is.” Because in the end, you need the other part to be able to make it real.

Javier: Yes, yes, yes, yes, correct. It’s correct.

Leandro: And then also that Starlink today is a monopoly that is not going to continue being so. I mean, those are the two things that would squeak at me most about this part, but evidently from today’s numbers it seems like a very good business.

Javier: Yes. Let’s see, sure... I think you have to take both as consolidated, right? In the end, I mean, I don’t know how they will be accounting for it, I’m going to be honest, if they are putting the costs... maybe here we have the costs, they charge it to the space segment. It could be, sure, I’m not sure, so I’m not going to launch into it, but you can consider both and be able to have a better idea. Nonetheless, we can see how basically the number of Starlink subscribers has doubled. It’s also true that they have started... we told it in the case of AST, we told how Starlink was going also, which is a bit the value proposition of AST directly to the phone without need for the antenna and so on that Starlink had before, and they have collaborations with... right now I don’t remember if it was T-Mobile in the United States or which was the operator they were using to give this service, right? I am also a bit skeptical. Now the movement that Starlink is making is trying to go directly to the phone so as not to have to have all the additional hardware. It’s a different functioning, okay? And it’s still in the development process and launching the new constellation of satellites. There is a lot of stuff to disentangle there, but it’s wanting to have an approach to the business model relatively similar to the one we told in the case of AST, which was a few programs ago, okay? In case anyone wants to listen to it.

Leandro: Yes, if I’m not mistaken, Javi, Starlink is direct distribution, while AST is distribution through mobile operators, so I would understand that at first Starlink is going to have better margins for the fact of not having to pay a “commission” to anyone.

Javier: It should, yes. No, two things. Yes, Starlink originally was direct distribution, now Starlink with the directly-to-the-phone is going through T-Mobile in the United States, and it also has partnerships with... similar to AST, which I think there are many people who say, “No, it’s just that AST has directly the partners with a lot of operators.” Yes, it’s true, and in fact they form part of the shareholding, but in the case of Starlink, for example, it already has also 27 partnerships with operators, Deutsche Telekom in Europe, for example, it rings a bell that it also has it with AT&T.

Leandro: I mean, I think that here what you have to see is in the end, Starlink before was alone and now you have AST coming, you have Amazon Kuiper... in the end, more are coming and you don’t have an exclusive distribution agreement. In the end, if the technology becomes commoditized, they will use one would think the one that costs less.

Javier: It’s true that how they are approaching the problem of providing this service between AST and Starlink is different. AST are few mega-large satellites; Starlink are many satellites. To be completely sincere with you, I don’t have a clue which proposition is better. I mean, I understand that each one has its advantages, its inconveniences.

Leandro: And if we look at the future a bit, I evidently here yes that I see synergies with the Elon ecosystem because if you are building humanoids and autonomous cars, you need connectivity in any place always. So there I can see a certain synergy, right? Which in the end is part of the vertical integration that Elon looks for.

Javier: Yes, later we see it a bit in future projects, but that’s the idea, right? Well, I’m the same, passing several images. We aren’t going to enter into detail on each one of the different satellites, the different versions and how they have been improving, okay? And we are going to pass this.

Look, this is a bit the footprint they have and so on. Well, for whoever wants, let them stop it and take a look. Let’s go...

Leandro: Interesting what we commented in the episode of ASTS. We said “Hey, yes, but if the use case of this is for less developed geographies, the revenue per user is not going to be able to be very high.” And that is seen in Starlink, right? Because they have been expanding to less developed geographies, and the revenue per user has been dropping in a relatively consistent manner.

Javier: This is something that has happened in cases as simple as Spotify or Netflix. Since growth comes from emerging regions, you see that the ARPU has remained constant or has even dropped prices in developed markets. That’s simply part of how this works, okay?

Finally, the part of artificial intelligence, which as we have commented before, basically it’s three businesses in one. You have X, Twitter, with advertising, which generates about 1.8 billion a year. What we said has dropped from five since 2021. It has the subscriptions... well, no, that would be the second business, which would be X Premium and Super Grok. X has like about 4 million premium subscribers, which is not that much, I would have thought it was more, and about 900,000 subscribers to Super Grok, a month, $30 a month respectively, well, you have combined revenues that are quite modest. By comparison, ChatGPT has I don’t know if more than 15 million users, meaning quite far, right? And in fact, staying a bit behind.

And finally, you have the layer of computing infrastructure, the Colossus, that SpaceX has like 325,000 Nvidia GPUs under management, and just before the IPO—and this is quite interesting because the bulls of SpaceX took it as a super, super bullish piece of news—the fact that xAI has signed a contract with Anthropic of 1.25 billion a month to use part of the infrastructure until May 2029, okay? And people say, “Holy shit, how smart Elon, who has offered that capacity he had.”

Leandro: In the end, he has become a hyper-scaler just like that out of nowhere.

Javier: Yes. And the theme is, “Wow, what a guy, how he saw it coming, how good. These are 1.25 billion more a month. Incredible.” Sure, but what this tells you is that Grok is not working as expected. They built capacity to spare, correct? And it is detrimental to Grok and its development of artificial intelligence that it’s not going as well as they had planned. And well, I mean, so that we see how the narrative can be used in any way. If they didn’t have that capacity or because it was being used by their own business, maybe they were giving worse numbers in theme of revenue, or even yes, because maybe they go out a lot at losses, but nevertheless, the business would be going better than what maybe it’s going now. I don’t know if I’m explaining myself but...

mean, so that we think about it, 1.5 billion coming from Anthropic a month assumes about 14 billion annually, which is almost doubling the revenue that SpaceX does. Just for this, so that we are conscious of the numbers so small, quote-unquote, of which we are talking, that SpaceX is still taking in, that only... and if you put it at 3 years, well, that’s about 45 billion in 3 years, the contract, which later can be canceled along the way or whatever, but it’s quite significant if you look at the current numbers.

Financial Analysis: Consolidated Margins & Aggressive CapEx

Javier: And finally, we have the consolidated numbers. What we said, last year they did 18.6 billion of revenue for some operating losses of 2.5 billion, and this is going to shoot up this year because this is not consolidated yet, xAI, which as we have seen, has some losses in the quarter of 2.5 billion.

Leandro: Well, these are the numbers for the first quarter of 2026. We see the business has grown 15%, I mean, it’s difficult to justify a multiple of 50 times revenue, I think it is if we take 20 billion depending on the valuation that comes out, but about 50 times revenues with a business growing at 15%. Obviously, who knows what is going to happen in the future and what Elon is going to manage to do if he truly lowers launch costs so much.

Javier: Well, it’s much more, right? Than 50 times they are going to do this year, they are going to do almost 40 this year or close to 40. But it’s what was said, that now you generate revenue for Anthropic because another part of your business is not going so well is positive, right? That’s why I say that the multiples, it’s relative what it means, but if you do 40 billion at 2 trillions, 50 times. Okay? And the last thing I wanted to show you was the CapEx.

Leandro: Well, the CapEx has fascinated me because in many companies you think, “Ah, look, the CapEx is...” in hyper-capital-intensive companies, the CapEx is a 20-30% of sales. How much is it for SpaceX, assuming that they are going to do about 40 billion in 2026 or 30?

In the end, it’s more than one times revenue, the CapEx, right?

Javier: No, where? Let’s see, it has 18 billion of revenue and CapEx of 20 billion in 2025. Ah, okay, yes, sorry, you’re right. Yes, correct. Crazy. Correct. And later we are going to see some very interesting things regarding CapEx, because in the launch part they are accounting for some rocket development expenses, they are passing them through the P&L as research and development expenses instead of capitalizing them, okay?

Leandro: To me, at first you tell me that way and it seems to me a more conservative accounting in the sense that you are assuming that all of it you lose and that it doesn’t report revenue to you. But maybe at this moment what they want to show is, “Hey, right now I’m losing money but I’m not spending so much on CapEx to generate future profits.”

Javier: I don’t know, it could be... you can see it both ways as you want, but yes, they have spent in the first quarter of 2026 10 billion. Annualize it, it’s almost 40 a year, which is basically what we expect them to have in revenue. We all understand now why they are raising 70-80 billion, right? Yes, it’s clear. I mean, it’s necessary.

Theoretical Markets: Satellite Scaling & Lunar Infrastructure

Javier: Come on, this we can leave it here and we are going to talk a bit, Leandro, about future business lines, what the prospectus says a bit of the things that can happen, okay? And all this, of course, it’s important to understand that the key to everything is Starship. When you are capable of carrying a cost of 1 kg of weight into space passing from $2,700 current to less than 100, that is the key to everything and that is what has to happen to start to build everything they are talking about. Because we are talking about, for example, data centers in space, which we have an episode in which we talk about that, we talk about the physics behind the opportunities, and why truly it makes sense from a point of view of first principles, if you want to say it, but also what are the risks and the difficulties of achieving it, and we have talked about it. So I would recommend that if you are interested in this part, that you go see that one because there we explain it a bit more thoroughly and it doesn’t make sense that we repeat it now.

And this is what I was telling you before too, about the petition that SpaceX has made to the FCC to reach up to 1 million satellites in space from the 10,000 current, let’s not forget. We have commented on it before, it’s Starlink. This doesn’t come out directly in the S-1 but obviously it’s one of the main reasons for which Amazon also is in this war to have capacity of connectivity from satellites to potentially control an, quote-unquote, army of humanoids, right?

Leandro: It’s the capacity of the satellites that Amazon already is putting it from this point of view. If I am capable of having a network of satellites in space, my data center clients know that there is always a backup to the connectivity problems that can happen on Earth and that it can always be operative, that in the end, the failures in data centers cost billions of dollars every time they occur.

Javier: Later it’s also important to take into account, and it’s a bit, I think, where things are going. You know that the American government has said now that it wants to have a base on the Moon. I think it’s as space starts to become a part of the critical infrastructure, be it for commercial infrastructure, the armies obviously want to have a position there, and yes that truly it could become a strategic asset to control space, quote-unquote, right? And now I’m going to give you a couple of comments in that regard. The first thing you have is the lunar base, what we have said, simply operational to extract resources, potentially water ice from the poles, produce propulsion fuel, use the Moon simply as a gas station. If you can produce fuel on the Moon with lunar resources, you can refuel spaceships without having to raise fuel from Earth, and that multiplies by a lot the operational radius that you could have in the solar system. I know that we are talking about craziness, but in Elon’s head, these aren’t crazies, these are things that are going to happen. We’ll see when, but they are things that are going to happen.

Leandro: And I must tell you that I also am convinced that they are going to happen. I mean, we don’t know when.

Javier: Yes, there is the theme of jurisdiction and property in space. There is a treaty from 1967 that says that no state can claim sovereignty over the Moon, but it doesn’t say anything about private companies, and SpaceX is on it, obviously, right? Then I suppose you have seen images also of...

Leandro: Sure, Javi, you are telling me that it’s two trillions, but you have the Moon. Maybe it’s not so bad... Moon, and the next thing, Mars... it’s not so bad, eh?

Javier: There we go, a trillion each.

Rocket Earth Travel & The Mars Colony Timeline

Javier: Also, apart from this, you have... I don’t know if you have seen they brought out in one of the last presentations like launchers from the Moon. Obviously, gravity is much lower, you have like a catapult basically and it’s capable of sending... Well, they also have in the S-1, it comes out also, journeys point-to-point on Earth with rockets. What happens if you use a rocket to go from New York to Tokio in 45 minutes? They claim that Starship can do that. Technically the numbers work at Mach 25. Obviously the initial target market would be luxury travel, high-level executives, military obviously, the Department of Defense for sure has interest in being able to move troops and equipment to the other side of the world in half an hour. In fact, there exists a program called Rocket Cargo on the part of the American army, and SpaceX is in it. And SpaceX says that for the mid-2030s it could have some route operational. We’ll see, because if they say mid-2030s, maybe it’s mid or late 2040s, but imagine boarding wherever and in half an hour being wherever, basically, because it doesn’t matter because you arrive in a moment. They are science fiction ideas, but well.

And then you have, of course, Mars, which has always been Elon’s dream and it continues being there. What the S-1 says in reality is... I don’t know if you know it, but the launch windows from Earth to Mars due to the alignment of the planets and being able to catch the correct orbits to be able to use the different orbits and be able, in fact, for it to be effective... The launch windows from Earth to Mars open only... they happen every more or less 26 months, and 2026 is one of those years in which there is a window to be able to launch to Mars, and they have as an objective to launch the first uncrewed cargo mission to Mars this 2026. It has surprised me to read it because it seems very soon, no? They talk also of the first manned mission in 2028 and an initial city for the decade of 2030. City, okay?

And in fact, Elon Musk has...

Leandro: We have to solve, Javi, we have to solve the housing problem.

Javier: Yes, Mars, there is space, and on the Moon too. In the incentives of Elon for his remuneration package, he has 15 blocks which are activated with different milestones. The last of them, for his retribution to be equivalent—because it’s also through shares and so on, but it would be the equivalent of a trillion dollars—would be to have 1 million inhabitants on Mars. It’s very crazy, it’s very crazy.

Leandro: And this, what year... in what year would it be unlocked or is it by KPI without limit of years?

Javier: I think it’s without limit of years. Another is a valuation, I don’t remember now if it was of 7.5 trillions or something like that, it has different tranches, okay? But the last would be a million of inhabitants on Mars. So that we see where the guy goes.

Leandro: In the end, if you see this, it’s evident that Elon is a small child trying to make his dream reality, and probably he has achieved it up to a point that nobody would expect that he was going to achieve it 10-20 years ago. And here we are, right? At the same time it seems like craziness, but he has also earned the right for people to believe in him, I think.

Javier: Yes, I totally agree. You also have to be very conscious that what Elon cares about is achieving this, not what the share does. The share is a means.

Leandro: Yes. The companies are a means for him to be able to finance it.

javier: Yes, and he is focused on achieving this, which is his vision of what humanity needs, and for it he goes. That’s why you have to be careful, right? And now SpaceX goes public precisely because it’s a good opportunity to raise a mountain of capital to be able to do these things.

The Tesla/SpaceX Conglomerate & The Terafab Joint Venture

Javier: Finally, and related to the slide we have here, these are Elon’s companies:

SpaceX with xAI now together, Tesla, what we talked about before, potential to merge them both, it would make relatively quite a bit of sense. And this is also important for investors. Ah, now I remembered! Do you remember that before I told you that something I had forgotten? Now I’ll tell you. Now I have it here in the notes. So, two important things. Well, and already to also show on this slide, we have the theme of the Boring Company, which I think is not gaining much traction, but above all Neuralink. Maybe one day we have to do an episode about Neuralink, because what Elon is doing is another madness, very crazy, and they have achieved things that are spectacular already—very, very crazy at another completely different level.

Well, the case of Tesla and SpaceX and their possible union in the coming months makes a lot of sense, probably for him. In fact, it would be a way that he would be capable of having also absolute control over Tesla, doing a merger. You don’t have to discard it also in that sense, because right now he doesn’t have absolute control over Tesla. That’s why the theme of the remuneration came also, and the courts of Delaware throwing back the remuneration that the board had assigned him, and then the shareholders of Tesla to be able to have control over the company. A merger with SpaceX, given that he has a great political power in SpaceX, would be basically establishing control over the joint company. So it makes sense plus all the synergies or complementations that both can have.

And a very important thing to take into account, and what I mentioned to you before, is the theme of the Terafab that you have mentioned before yourself, and it is the new thing of Elon of wanting to be a TSMC, basically, or at least have the capacity to be vertically integrated and not depend on TSMC for the manufacture of chips. This is a joint venture, the Terafab, between SpaceX and Tesla, in which obviously already enter into conflict... you have two balance sheets, who puts the money, who has then how things are divided. Doesn’t it make sense that you merge everything so that there is no conflict of interest between the two businesses?

Leandro: In fact, I think that the fact that the possibilities of a merger have risen so much is precisely because of the Terafab—the fact that they are of the two companies and everyone has said, “Okay, well if this is the first step for everything to end up under the same roof.”

Javier: It’s just that it makes sense. That is what we have said about the capacity of control over the joint company, which right now he doesn’t have in Tesla—he has quite a bit but he doesn’t have full control. And what I wanted to mention was to all the shareholders of Tesla because I think it’s quite relevant, right? If you are a shareholder of Tesla and it’s going to merge with SpaceX, you have to consider that maybe the merger happens when SpaceX is quoting at whatever—it’s going to come out at 1.75 or at two, but it’s just that maybe in a week we are at three trillions of valuation and Tesla quotes at 1 point something, each one let them estimate what the reasonable values are for each of them. But if they merge it for you at current market prices, you have to be conscious if it interests you to be a shareholder of the conglomerate when SpaceX is valued at the valuation that it’s going to be valued at. It’s a thing also to take into account because I understand that there is a lot of people who listen to us who potentially are shareholders of Tesla and maybe see the valuation of Tesla as something reasonable and that of SpaceX not. To consider, okay?

The Cursor Acquisition & Developer Engines

Javier: The other thing is that there are thousands of things here. As you know, SpaceX or xAI have entered also into an agreement with Cursor. Cursor is an artificial intelligence code editor, to be able to acquire Cursor at a valuation of 60 billion. Already we talk here of billions as if they were peanuts, but it’s madness. Cursor basically is like the Copilot of Microsoft but for developers who know what they are doing, okay? I don’t remember what revenue Cursor had.

Okay, then, why would SpaceX want Cursor? They have arrived at an agreement in which basically SpaceX, or sorry, xAI is using Cursor. It pays Cursor I don’t know if it was a few billions a year with a penalty... with a possible payment of 10 billion if they don’t execute the purchase option at 60 billion. And at 60 billion paid in large part, I think if I remember correctly, with shares. Then, why would SpaceX want Cursor? And it is basically because if you are the provider of an infrastructure of compute for artificial intelligence, well obviously having development tools that artificial intelligence developers use...

Leandro: In the end, I think, Javi, if we think of Open AI which has Codex and in Anthropic which has Claude Code, for me those are the engines of AI right now. If you take that away from them, AI is not reporting so much to you. In the end, yes, obviously it’s a very good tool even if you don’t have the capacity to write code, but really where you are taking off is in Codex and in Code. Then, if you are Grok, the normal thing is that you want something similar for yourself.

Javier: Yes. Well, I’m putting a slide here of what comes out in the S-1 of SpaceX about its TAM... so that you see it. It seems spectacular to me, and besides it has seemed very conservative to me because where is Mars?

Leandro: It seems to me evidently that it can be greater, but I don’t understand a TAM in this way. A TAM I understand it as: this is the current size and this is what I think it can grow to in the future. In the end, because the TAMs are growing, and more for a company like SpaceX, right?

Javier: I agree, the TAM should be current, and then you say that each one, but yes, simply I put it to illustrate. And as you can see, 22 trillions are from Enterprise applications.

Technical Challenges, Related Party Transactions & Cash Runways

Javier: So, I’m going to put this slide which is the last one we have to discuss the rest of things, okay? But it seems important to me so that we see where we are. We are going to talk about some things that smell bad, Leandro, okay? Some red flags. We have... I think we have mentioned almost all, but they are things that for a valuation of 2 trillions, it costs a bit. For example, we have already mentioned it: how much money is SpaceX burning annually? 9 billion in the first quarter of 2026. If things continue like this, it looks like they are going to dilute you a few times. Potentially yes.

Leandro: Yes, totally. Well, that’s one, right? You have to be conscious that the valuation in function to multiples or current fundamental realities is, quote-unquote, unreal. Simply you have to be conscious that one cannot value SpaceX—or it’s not that you can’t, but rather traditional valuation multiples cannot be taken into account to value SpaceX. It can be or not, simply it’s going to lead you to not even being able to consider it because it’s not your type of investment. Or you have to invest thinking simply that interplanetary life can generate new economies and that SpaceX can be... because it doesn’t necessarily have to be the only one, but it could be a great beneficiary of a completely new economy.

Javier: How I see it, the valuation is madness. If you take into account the current environment, yes, it’s madness. The potential market is so large that if everything goes well, the valuation could be very cheap looking at many years out too. And in the end, all the valuation... I wouldn’t say that traditional multiples can’t be used, but rather that the discounted cash flow model depends on how optimistic you are, it’s going to seem very distinct, because you are going to have very crazy growths if in the end Elon manages to make this be reality. But of course, it does seem that the current valuation leaves little margin for error for any of the big bets to fail.

Leandro: And as you have said, besides, another of the risks is that this all depends on Starship. Then in the end, you have there a point of failure. If it works all well, it unlocks many things; if not, it blocks many more things for you than unlocking.

Javier: I would say that Starship seems like it’s going to work because already it is launched, it works. Let’s see what it takes because as always, all this is very complicated engineering, but I think it will end up happening in the next few years. Then, does a demand exist to send such an amount of assets into space? That is what you have to see, right? And then if launching something is difficult, mounting a base on the Moon is much more difficult, and mounting a whole ecosystem up there is extremely hard.

Leandro: Yes. And it’s going to take many years. Then you also have to think that right now the company doesn’t generate cash. It has quite a bit of debt if we consider the revenues and not the valuation. The thing is if at some point the capital market drains a bit, you are in a tough spot because in the end, your engine for creating cash, which is Starlink, is going to have competition in the coming years. So let’s see how it maintains the rhythm of cash generation, right? In the end, it can be that temporarily the objectives are met but they take too long to be met in relation to the liquidity that you have. Evidently, he is Elon and I don’t think he has problems raising money in the capital market, but you never know. In the end, everything can go crooked.

Javier: It’s a very important point because SpaceX has 29 billion in debt that matures in 3 years. Obviously, they are going to raise 70-80 billion now, but of course they are going to burn also 40 or 50, we don’t know. So what Leandro mentioned, there can be a moment in which the capital market really dries up, and it can happen. One would always say that he’s going to be capable of raising because of what he has achieved already—he has demonstrated many things—so he is going to be capable of raising, but we’ll see at what valuations. What I do believe is that it’s very, very probable that there will be a lot of volatility and that in one or two years you are capable of buying SpaceX at another valuation very different from today’s. That would be my bet, very different.

Leandro: You mean 10 trillions, no?

Javier: Yes, and at 500 billions too. Maybe I’m mistaken, but we’ll see, right?

Leandro: These things portray why in investing you always have to do the work before the opportunity arrives. You look at SpaceX at 2 trillions, you can’t make sense of the valuation, well, there is a lot of volatility in the market. I think people aren’t conscious that if they took their portfolio and calculated the dispersion between the maximum and the minimum of the companies in their portfolio, they would be amazed at how shares move within the same year. There can be differentials for companies capitalizing more than half a trillion in the 50 to 60% every year, it’s madness, it’s madness.

Javier: We have commented already before the accounting note about research and development versus CapEx and so on. Another thing, you have to be conscious that not everything Musk touches works. We have, for example, the case of Twitter. It hasn’t worked well, despite the fact that later Elon reinvented himself a bit with the part of artificial intelligence and so on, but Twitter as such, he took it and as a business it still hasn’t taken off, so to speak. You could understand that Twitter was a whim that went wrong. These are whims that some can go out well, and many are going out well, but it can also be a whim that Elon gets infatuated with something that ends up going out poorly simply because he would like to have it.

Then there is some note, for example, related party transactions, which means transactions with interested persons of the company, okay? You have, for example, that SpaceX has bought 130 million in Tesla Cybertrucks, 500 million in Tesla Megapacks, 500 million in Tesla data bought by xAI to train Grok, sorry. Let’s see, it’s a billion and a half... that’s why we say that probably the merger between Tesla and SpaceX ends up happening because this has no... Then you have to be conscious that the fusion of SpaceX with xAI was a bailout, a very, very clear bailout, and also a capacity to put cash flow to be able to invest. You have to be conscious that this type of things can happen with Elon and can continue happening. Maybe investors in SpaceX, if Elon, for example, hadn’t merged xAI diluting the investors of SpaceX, and SpaceX went public, maybe the profitability of the investors of SpaceX would have been much higher than what it is now with xAI, potentially. Then you have to be conscious also that Elon with his universe of companies is going to do and undo a bit at his will. Later, the AI of SpaceX, Grok, has a very, very limited traction, and it is a constant expense of cash too. What is going to be the profitability of those investments? We’ll see. The bulls will say that now giving it to Anthropic is a master movement.

IPO Structures: Float Dynamics, Lockups & Index Rules

Javier: Well, what we commented on before, only 3.3% of the float is going to come out in the IPO, it’s very, very little. There are different lockups, periods in which the investors who are inside cannot sell. Elon has a year, I think, but there are other investors who have 180 days, there are different blocks.

Leandro: Isn’t it that this is going to be madness, the final lock-up?

Javier: Yes, it can be. Depending on where the price of the share is too, we’ll see, right?

The 5% of the shares go to employees and friends, families without lockup, and that means that from day 1 of the IPO there are people with shares who can sell, okay? You have to be conscious of what that 3.3% of the float means. It’s that if there is a demand of about 50-75 billion waiting, competing for that float of 50-75 billion of shares available, the price really can go to any place in the first days. But I expect to see it at three trillions. My bet is that it’s going to go to 3 trillions at some point in the coming days, and when the lockups expire between one year and 2 years, even some more I think, the float is going to multiply too.

By the way, another of the things we haven’t commented on is the change in the conditions that the indices have to be able to buy shares of SpaceX. Normally you had to wait a few months for an index to participate, these companies or a new IPO in the index. This has been changed so that indices can buy SpaceX in the days following the IPO.

Leandro: I thought you couldn’t enter into an index being a controlled company up to a point, but that can be in some European indices or something like that.

Javier: It can be. And in general, the Americans go by the float—meaning capitalization by float—but the specifications have been changed a bit to make room for SpaceX. It is what it is, okay?

Leandro: Let’s see, yes it’s true that as an index, neither can you ignore a company that has 2 trillions of capitalization because then it’s not representative of the market that is out there. That’s so. They are 2 trillions, it’s one of the largest companies in the world.

Multi-Decade Modeling Constraints & Key Man Risk

Javier: Then you have to be conscious of things like, for example, we have talked about data centers in space as a future business, but if you do a bit of mathematics, we have 10,000 active satellites and SpaceX says that it wants to reach 1 million. That requires launching obviously 990,000 additional satellites. The Falcon 9 carries about 60 Starlink satellites per launch of the small ones. With 165 launches a year, which is more or less what it’s doing, those are about 10,000 new satellites a year. To reach 1 million you need 100 years. With Starship, obviously, the cadence and the payload increase dramatically, but even so, you require launches of Starship, hundreds of launches of Starship a year sustained during a decade to reach the million this that we talk about, okay? Obviously, maybe the million, whatever.

What I am claiming is that you don’t know if the Starship 3 is going to come out within 10 years that accelerates it for you in a considerable way. You have no idea. But we are talking about decades in general in all these things, which you have to be conscious of. And if in a year what you say, the stock varies 50-60%, imagine in a decade. Be conscious. The risk of Elon, it’s not necessary even to mention it, right? I don’t even know what to say. Obviously, SpaceX has an incredible amount of engineers who surely are very good, but if something happens to Elon, we don’t know if the thing is worth the same.

Leandro: I would say that you also have to take into account that many of those engineers are there because Elon is there, because they share his vision and share the way in which he does things. If Elon is not there, many of your best engineers probably won’t be there either.

Javier: And well, Leandro, I don’t know, do you have any more things to comment regarding the red flags? Not red flags, but comments like that?

Leandro: Let’s see, I think the business right now is what it is and as we have commented, it cannot be valued with the eyes of the present and the past. Here you have to be a visionary to try to make the valuation make sense, and it can make sense if you make your estimations out to the future. But evidently if you give someone these financial statements without giving them context about Elon and about his vision, they wouldn’t pay 2 trillions. I am pretty sure about this, but of course, the business of investment is about buying profits, future cash flows, not those that are in a regulatory document.

Javier: Yesterday I listened to Ron Baron—Baron Capital, a giant fund in the United States. Ron Baron invested in SpaceX many years ago. I think he is going to buy... how much was it? A billion or something like that that he was going to participate... meaning being already an investor, he was going to buy a billion or more additional in the IPO at IPO prices, and he came out speaking. Basically there is a video on Twitter of half an hour in which Ron Baron comes out speaking and he comments a bit how Elon is and the reason that he gives to be able to invest and believe himself that the valuation is correct, for what gives you permission to participate.

Regarding the valuation, I think we have already mentioned a lot, each one has to think if it makes sense or not. And maybe if you look 30 years out, as always it matters little one trillion than two, almost, but if you don’t want to see your portfolio in 4 years... maybe in 4 years it doesn’t work well. It’s very difficult.

Emotional Capacity & Navigating Drawdowns (The Amazon Paradigm)

Leandro: I think here, Javi, enters the never-ending problem. In the end you see companies that you say, “Okay, the opportunity is enormous,” they seem expensive to you, and you say, “Well, but I prefer to wait for it to be a more reasonable valuation.” That moment may not arrive and then you stay with the face of a fool, quote-unquote. But yes it can arrive, which doesn’t mean that it’ll end up in a different place over the long term. Many people say, “No, but it matters little because then the long term you are going to end up winning.” You say, “Yes, but you have to face a drawdown...” that people say it very lightly, you have to face a 60% drawdown to know what it feels like to be in one, and then it’s not so easy. Many people when they say, “No, if you had invested in Amazon in ‘97 now you would have made 100x times whatever, okay?” Yes, but would you have held through a -90% drawdown in the dot-com bubble? Well, probably not. How many investors held from ‘97 until today Amazon? Well, probably very few. How many investors held Amazon buying it when the valuation was destroyed? Well, probably many more. I mean, in the end, I think you also have to take into account that not only is what is going to happen in the long term, but what is going to facilitate me carrying something in the long term in my portfolio, and for that conviction evidently helps.

Javier: I don’t know if it was in the interview with Ron Baron or I have seen it in some tweet from some famous investor, they mention that buying SpaceX now in the IPO is like having bought Google or Meta in their IPOs, okay? You have to be conscious. Meta came out at 100 billions and Meta, that same first year, I think it went on to a 60% drawdown. What I want to say is that one thing has nothing to do with the other, and you have to be conscious and you have to be careful because….

Leandro: Meta from May to September has a 51% drawdown after the IPO. Well, that in 5 months. The same can happen here, and it doesn’t mean that in the long term it can’t make sense. Who knows, we aren’t saying that it’s going to have it, we don’t know, each one has to... and I don’t think you have to enter into the game of, “No, but it’s just that if you are long-term, that has to matter little to you.” Each one has to know themselves and be conscious of how they manage the emotions of a significant drop. And it’s not enough to have read things about significant drops, you have to feel them. Because evidently when Meta did a minus 50 after going public, probably the narrative wasn’t the best. Then you have to take those things into account and you don’t have to let yourself be carried away also by simplistic arguments of “2 trillions is madness, you have to be an asshole to invest in this.” The two things.

The law of large numbers has been demonstrated to be a fallacy. 10 years ago someone would have said that a trillion was impossible for it to grow more, and we have Nvidia at 5 trillions. You have to be conscious which are the companies that really are capitalizing much more the advent of artificial intelligence, which are the companies that really can implement in their business models artificial intelligence much faster than any small company, etcetera. You have to be careful with simplistic narratives in general.

Industry Shifts: Value Substitution & ASML Unmapped Ocean Logic

Leandro: Yes. What I see in technological themes is that many people look at the law of large numbers but don’t realize that what is being seen is, apart from growth, substitution. If the AI is capable of substituting parts of the labor and software markets, you have to take into account that the law of large numbers doesn’t apply much there because it’s not that value is being generated out of nothing, it’s that a transmission of value is being seen from certain industries to others thanks to technology, right? And here also the same can happen. In the end, if you can do many more things in space than before you did on Earth, it’s not that suddenly a new market has come out and you say, “Wow, the economy can’t take this...” It’s that there are several things that before would have been done on Earth that maybe start to be done in space, and you have to think about it that way too.

Javier: And Leandro, it’s not only substituting, it’s new paths that we aren’t conscious of yet, and above all the blue ocean that opens up that people... that we aren’t capable of seeing and that really can come.

Leandro: Look, this is the best phrase... Well, this on an investor day of ASML, the previous CEO, Peter Wennink, when the analysts wouldn’t stop telling him, “Yes, but always that you give a guidance, some projections are very conservative... they end up being very conservative,” and the guy told them, “Yes, but because as you will understand, if I make better chips, markets will appear that today for me it’s impossible to forecast” I mean, ASML in 2010 or in 2008 cannot give you a projection taking into account data centers because there wasn’t the capacity to have data centers and for AI to be cheap up to a point that so many people used it. That happens above all in technological markets, and that is applicable to why the indices are doing so well, because big tech continues finding new niches in which to enter and grow like crazy.

Yes, that is going to change a bit. I think there is a lot of people who are old-fashioned in the sense that they say, “No, but it’s just that growing like that is not sustainable.” Agreed. I agree that growing at certain rhythms is not sustainable, but we have to take into account that all the history of humanity we have been limited by physical infrastructure. Now it is in a certain way a bit also similar, but what you can scale right now with physical infrastructure is 10 times, 100 times, 1000 times greater than what could be done before. You before to grow many years ago needed capital on the ground, now you don’t need capital on the ground to achieve those same growths. I think the environments are very distinct and you have to take into account the environment in which we are, without going crazy. Because you also see some people who say, “The new industrial revolution, now nothing is impossible, now nothing can stop growing.” Let’s see, neither now is different nor now is equal to before. That’s it. Capital cycles apply today and applied 30 years ago with their nuances, and you have to take into account that there are nuances and that’s it, but also take into account that the human being is how he is. When the narrative is great, bubbles are generated in the market, and when the narrative disappears, depressions are generated.

That is not going to change. Another thing is up to what point bubbles arrive and up to what point depressions arrive, but what is clear is that the human being moves by narratives and by FOMO and that until there are humanoids this is not going to change.

Target Valuation Allocations & Day One Pricing Predictions

Javier: Final question, Leandro. Are you going to go to the SpaceX IPO? Are you going to buy?

Leandro: No.

Javier: Now ask me, Leandro.

Leandro: And you, Javi?

Javier: No, but I could be an investor in SpaceX maybe at some point in the future too, I don’t rule it out. At 2 trillions... Maybe it’s 2 trillions but in 10 years.

Leandro: Never say never in the world of investment. What I do believe is key is what we commented before about understanding how much more or less you think you would be willing to pay for a business before that valuation arrives, because when that valuation arrives, things are not going to be beautiful, no, they aren’t going to be. If you look superficially at a company you say, “I would buy it 50% lower,” but you have looked at it superficially. When the minus 50 arrives, you are going to be saying, “Wow, the risks are very real, it’s not worth the pain.” And you are going to convince yourself not to do it, I think, although it’s worth the pain.

Javier: At what valuation would you buy SpaceX today?

Leandro: I have no idea because I haven’t looked at it enough to have a valuation, but we are talking about 40 billion of sales...

Javier: You have to buy the image that I’m putting for you. For how much do you buy that?

Leandro: I would say that for the Elon premium and optionality premium, I could give you between 300 and 500 billion. I could think about it.

Javier: I am also there. Between 300 and 500 I could put a small percentage like a long bet, and yes, 300-500. Not two. 300-500, yes. 300-500, I think it’s the range in which I would be comfortable. Maybe a bit...

Let’s see where it goes. Let’s see where it goes because yes, my bet is that it goes to 3 trillion. Now you have to tell me your bet, but if it goes to the 3 trillion and we say to buy it at 300 billions, we are in a minus 90. I don’t think it will happen, unfortunately. Where do you think it’s going to go, first day of quoting or first day?

Leandro: I think the first day it does a 30% or a 30-35% and that it doesn’t continue rising, that it starts to fall.

Javier: Two trillions and down, okay?

I am more... I go for the three. Come on, I say it. I would love 300 but I think it goes to 1.5, between 1.2 and 1.5 I think it goes. We are talking about a year, right? Yes, a year. Okay, I say that it’s going to go to 3 trillions and that it’s going to drop below the trillion in the next year. Okay, here remain the bets. We aren’t playing for anything, but here they remain. Very well, Leandro. Well, until here the episode of SpaceX. I hope you liked it, I hope you understand better what Elon’s vision is and what it is that he tries to achieve, and a bit how the businesses work, and we see each other next week with a special guest.

You can read this article (almost) entirely for free. If you like what you read, consider becoming a paid member to get access to…

• All in-depth reports (15 companies profiled thus far, and growing)

• Earnings follow-ups

• Other investment related content

• A community of like-minded investors

• Complete access to my portfolio and transactions

• Occasional webinars

The in-depth reports of Stevanato and Deere are free to read to gauge the quality of the research.

Join today:

Subscribe now

I also wanted to thank everyone who makes this project possible. The KPIs for Best Anchor Stocks are looking good. ARR is up almost 60% YoY with free readers up 20% YoY:

Thank you!

It was an interesting week in the market as the AI trade began to show some cracks. I discuss why I believe there were additional signs of exuberance this week and why the game of investing is so tough.

Let’s begin with some in-house news.

More improvements to the PMT (Portfolio Management Tool)

Last week, I unveiled the Portfolio Management Tool; a dashboard app for Best Anchor Stocks that I had been working on for a while. Last week, the tool included the following:

• A risk/IRR matrix to understand at a glance how the portfolio is positioned and to help an investor maximize the portfolio’s risk-adjusted return

• My portfolio with weights, returns…

• A transaction log that includes all the transactions and the activity over the last 3 months

• The portfolio’s industry and factor exposure

• The watchlist and how it’s evolving

• An event calendar with all the relevant events for the portfolio companies

I’ve added a couple of new features:

• A portfolio news tab that will be updated weekly with the relevant news for portfolio companies. News come from two sources: AI generated and from the NOTW I publish every week (there’s a tag to show which one is which!)

• An “On the radar” tab where I share all the companies featured on my on the radar series with their respective returns. The goal is to see these businesses drop as for one reason or another, most don’t make it into the portfolio initially

• I’ve added more valuation models

I expect to continue to iterate on the tool over the coming weeks/months but I’d say it’s looking pretty good thus far!

Articles of the week

I published one article this week: the fourth issue of “On The Radar.”

Best Anchor Stocks

On The Radar #4

Welcome to the fourth issue of “On The Radar.” If you want to know what this series is all about, I recommend reading the first issue. I have already shared nine companies across the first three issues, and today’s issue brings another three (one for free and the remaining reserved for paid subscribers). Here’s what you can expect today…

Read more

12 days ago · 6 likes · Best Anchor Stocks

I bring 3 new interesting companies to watch out for:

1. A Swiss industrial with a leading position in a key product in the data center buildout (who knows if the current AI-downturn will bring it back to interesting territory)

2. A cybersecurity company with defensible competitive advantages (and that has positive GAAP earnings!)

3. A rather special serial acquirer (you probably don’t expect the name) with a great track record and in a defensible industry

The goal of the “On The Radar” series is to find interesting businesses that make it into the watchlist and (potentially) the portfolio. Out of the 12 companies I’ve profiled so far in the series, one has made it into the portfolio, and with good results thus far.

I also found it interesting that the series is resonating with subscribers because it brings a diverse set of US and non-US businesses to the table. This is what a subscriber told me this week:

The next in-depth report (not what you think probably)

I am currently working on a comprehensive article about the next technological frontier which I expect to publish soon. The article will explain what this frontier is and will bring a comprehensive list of companies involved (that I believe are interesting).

I continue looking for new companies to add to the portfolio, and even though I am looking at a lot every week, I’m struggling to find anything interesting right now. The same was happening before I published my Eurofins and Rosebank reports in a short period of time, so stay tuned.

Without further ado, let’s see what the markets did this week.

Market Overview

It seems that last week’s NOTW titled “10 signs of exuberance” was quite prescient: both indices dropped significantly this week as money fled the AI trade:

Now, before victory-lapping anything, let’s admit that this drop means ultimately nothing. I mean, both the S&P and the Nasdaq are still up considerably YTD and we know (as a fact) that 5%-10% corrections happen quite regularly in financial markets. In short: this might just be a bump along the road rather than the start of a major crash (this is almost always the case!). I am not a permabear, by the way, but that doesn’t get in the way of trying to be rational. It’s pretty obvious that many things (high beta names and bottlenecks) were quite over-extended.

Despite being significantly diversified across factors and industries, the Best Anchor Stock portfolio has shown good outperformance as soon as trouble started to hit the indices/AI-trade. I believe the portfolio is still pretty cheap and that it should do very well from here regardless of what the AI trade decides to do, but it’s definitely overexposed to healthcare, which is starting to do well (we’ll see how long it lasts!). Healthcare showed an >800 bps outperformance against the Nasdaq this week:

One might think: why not be 100% healthcare if you believe in your thesis? Well, I believe the future is unknowable and being diversified makes sense. Is this strategy of being diversified across factors going to maximize the return of your portfolio? Probably not, but it’ll likely maximize my risk-adjusted return. I could argue (likewise) that the start of the year would’ve been pretty harsh if I had not owned anything in semis/AI.

I believe Friday’s drop surfaced other signs of exuberance. These portrayed that many are not prepared for what might come (because it’s always a possibility that a crash of factor rotation is round the corner). Many claimed that, if you were not down 5% on Friday, “you are a loser.” Even though I get the premise of this claim (i.e., you are probably not exposed to all the things that have skyrocketed in the past few months), I must say that what it actually portrays is that many still believe that they can’t lose. I think this is a very dangerous thing to believe in financial markets.

Yet another sign of exuberance could be found in screenshots. Screenshots did not show great performance but rather people “flexing” by how much they were down (weird flex). If your portfolio was down 20%+ yesterday (I’ve seen plenty of cases) then you are probably not going to make it. Yes, you are going to make a lot of money on the way up by being leveraged long 3-5 semiconductor/bottleneck companies, but the downfall will most likely be quite violent.

I’ve always viewed investing as a “game” in which one must survive over the long-term to reap the benefits of compounding (i.e., one needs to stay in the game). Now, the game is tough because it requires a balancing act; it all comes down to trying to maximize returns while not blowing up. Sounds easy, but there are two sides of the spectrum, and neither of them are great:

1. Maximizing for return too much so that you end up blowing up

2. Diversifying and being extra-safe so that you end up surviving but with subpar returns

Investing is a game of assuming risk. Yes, a game of assuming the appropriate level of risk, the amount of risk that you are being compensated for, but nevertheless risk. Go to too-safe territory and you might end up with poor returns; go to to- risky territory and you might end up blowing up. Balance is key although attention tends to flow to those people who end up blowing up (someone will take their spot eventually).

The industry map was pretty much a sea of red this week with the exception of healthcare and other defensive industries:

The fear and greed index dropped considerably and went from greed to fear inside a week:

Company-specific news

Read more

1. A Swiss industrial with a leading position in a key product in the data center buildout

2. A cybersecurity company with defensible competitive advantages (and that has positive GAAP earnings!)

3. A rather special serial acquirer (you probably don’t expect it) with a great track record and in a defensible industry

All of these businesses get included in the “On The Radar” tab of the Portfolio Management Tool with their respective price evolution since the issue. These are companies that I don’t own but I find interesting, so in most cases what I want to see is stock prices dropping across the board. Some have unfortunately done very well before I’ve taken action and I’ve included one company in this list to my portfolio so far:

So, without further ado, let’s jump into today’s issue!

Belimo Holding (SWX:BEAN)

Brief description of the business

This fourth issue starts with a Swiss company, just like the last. Belimo is specialized in HVAC equipment, and even though this might seem quite boring at first glance, digging deeper is advised.

Two products are responsible for the great majority (+90%) of the company’s sales, and they rely on a very similar technology:

1. Damper actuators: a device that controls the opening and closing of a damper to control the airflow

2. Control Valves: basically the same as a damper actuator but instead of controlling air they control gas and liquid

Even though the above might not seem like rocket science, Belimo has carved itself a leadership position on both products thanks primarily to its focus. Unlike competitors who typically offer them as part of E2E portfolios, Belimo is specialized only on these two critical products. Why are Belimo’s products so critical? Because ultimately the delivery of the HVAC system is entirely dependent on how the actuators and valves work. This is pretty straightforward if we use the human body as a proxy: there’s little use for the heart beating if there are no valves controlling the blood flow.

Due to its expertise and technological advantage, Belimo boasts global market shares in the 20-30% range. So, it seems like a pretty good business!

Why it caught my attention

The business caught my attention for two main reasons. First, the underlying business is good in its own right. Now, the second (and most important) reason was that it’s exposed to several secular tailwinds that could accelerate the business’ growth profile (we are already seeing this play out). Belimo is exposed to secular tailwinds like…

1. Liquid cooling in data centers

2. Semiconductor fabs

3. Pharma manufacturing

4. Energy efficient construction (both commercial and residential)

All of these segments have two requirements, which is precisely where Belimo excels: energy efficiency and reliability. Seeing an apparently “boring” company directly exposed to so many long-term secular tailwinds is great news, but it comes with a drawback that I’ll discuss later.

What I like

There are a lot of things I like about Belimo. Namely:

• It’s exposed to many long-term secular tailwinds (discussed above)

• The founding family still retains a 20% stake

• Management has a significant tenure (the CEO has been serving since 2015), which means that long-termism spans the organization

• Compensation is based on sales growth, EBIT margin, and ROCE, so it’s unlikely there’s a growth-at-all-costs mentality

• The company is currently undertaking a significant capacity expansion plan in the US and Asia, which portrays the believe there’s demand durability

• It has a defensible position due to technological leadership and the high cost of failure of its products

• The company trades in Swiss francs, which one might think that it can continue its long-term appreciation against the Euro and the Dollar (I’m not in the business of forecasting FX, though)

There are lots of things to like about Belimo, but there’s one thing to dislike: its valuation.

What gives me pause

The only thing that I don’t like much at this point is the company’s valuation. Management has set a LT growth target of 6-9%, but it has grown above this target for two consecutive years and expects to do so for a third year in a row:

• 2024: +13% YoY

• 2025: +23% YoY

• Expected 2026: mid-teens growth

This has evidently resulted in multiple expansion, with Belimo currently trading at 9x sales and 45x EBIT. The company has historically traded at seemingly “rich” multiples (likely due to its defensible competitive position), but this seems a bit on the high side:

If I assume that EBIT growths at a 20% CAGR over the next 5 years (significantly above its LT history) and that I exit at a 30x EBIT multiple (still pretty high), my CAGR would be around 10%. It’s not disastrous, but that’s some heavy assumptions one has to make to get to a double digit return.

What I am watching

I will include the company in my watchlist in case the valuation comes back to more acceptable levels. Things can move fast in this market and you can see this in the graph above: the EBIT multiple was close to 30x just this year! Patience will most likely get rewarded, and if not, we’ll move on to the next one!

Read more

You can read this article (almost) entirely for free. If you like what you read, consider becoming a paid member to get access to…

• All in-depth reports (15 companies profiled thus far, and growing)

• Earnings follow-ups

• Other investment related content

• A community of like-minded investors

• Complete access to my portfolio and transactions

• Occasional webinars

The in-depth reports of Stevanato and Deere are free to read to gauge the quality of the research.

Join today:

Subscribe now

Both indices were up this week again, although today I put my “pessimistic” hat on and brought 10 signs of exuberance. I believe that, despite significant optimism in certain pockets of the market, the environment is the exact opposite in other pockets. I discuss what industry I am “overexposed” to and why.

Without further ado, let’s get on with it.

The new portfolio management tool

This week I unveiled the Portfolio Management Tool. I’ve been working for a while on a dashboard app for Best Anchor Stocks and it finally “saw the light” this week (albeit in beta version). The app includes:

• A risk/IRR matrix to understand at a glance how the portfolio is positioned and to help an investor maximize the portfolio’s risk-adjusted return

• My portfolio with weights, returns…

• A transaction log that includes all the transactions and the activity over the last 3 months

• The portfolio’s industry and factor exposure

• The watchlist and how it’s evolving

• An event calendar with all the relevant events for the portfolio companies

The tool is not finished and I expect to continue adding (useful) features. The next thing I’ll be working on is a way to be able to see all the valuation models in one place.

I also held a webinar for subscribers this week, focused among other things on explaining how the tool works. The webinar has been already published in case you missed it.

Articles of the week

I published two articles this week. The first one was Deere’s earnings digest.

Best Anchor Stocks

Bouncing along

Last quarter, I ended Deere’s earnings digest with the following…

Read more

21 days ago · 8 likes · Best Anchor Stocks

The company reported acceptable earnings but the market did not like them much. I don’t think the Deere thesis is a one-quarter thesis, but there’s no denying that the stock had run a bit ahead of itself.

The second article of the week was an article in which I shared the 4 companies that I bought this week.

Best Anchor Stocks

I am buying these 4 companies today

The portfolio currently stands at an interesting crossroads. I believe there’s a significant difference in valuation across the companies in my portfolio (similar to what we see in the market). After trimming some positions and bringing my cash balance to around 10%, I wanted to share…

Read more

19 days ago · 10 likes · Best Anchor Stocks

I also included two honorable mentions that I’d had loved to add to but for which the conditions I am looking for are not yet satisfied. I still have a bit of cash and don’t rule out having even more cash if I trim some high-flyers in the portfolio. I know Peter Lynch would say that one shouldn’t trim the flowers to water the weeds, but there are certain themes that seem to have grown ahead of themselves and others that have been left considerably behind.

Market Overview

Both indices were up again this week:

Even though indices are at ATHs showing no signs of slowing down and the fact that I believe that AI is a real disruptive technology that’s here to stay, I do think that there are several signs of exuberance in the market. Let’s go over some of these:

1. Hyper-concentrated portfolios around one theme: every time one starts to see that investors are concentrating their portfolios around one theme (crazy that some actually think that holding 20 names in the same factor is being diversified), watch out. I’ve also seen a considerable amount of one-stock portfolios, which is also a sign that risk management is nowhere to be seen.

2. Leveraged thematic ETFs everywhere: several leveraged ETFs have appeared around topics like AI, memory chips, optics…This is never usually a sign that valuations are low, but who knows!

3. Sell side upgrading companies based on 13Fs: the actions of a very prominent AI investor (who some people claim is the Cathie Wood of the current generation, although I don’t necessarily agree with this) are clearly influencing sell side price targets, which not only is a sign that things are hot, but also doesn’t say anything good about the professionalism of some sell-side analysts.

4. YTD screenshots daily (and investors being “humble”): this might actually be one of the most solid indicators. We are seeing a constant flow of people sharing their YTD returns which in some cases are astronomical (upwards of 1,000%). This would be, in and of itself, a strong sign, but the best people are those who are up 30% YTD and say that “it could be better.” Return expectations are out of the charts, and this is also visible in the following “topping” signal.

5. Stocks that are up 20% YTD categorized as “not moving“. Return expectations are so high that AI-stocks that are up 20%+ YTD are categorized as “stale” or a source of opportunity cost. People are in for a rough surprise when stocks eventually stop returning 100% every month!

6. 13Fs moving stocks double digits: when prominent AI investors reveal new AI positions in their 13Fs or other regulatory fillings, stocks are moving 10%+. This is not a sign of a healthy market.

7. People believe that under no circumstances can the AI trade falter: despite all these signs, some people believe that AI is unstoppable and that it can only go up. The reality is that, despite AI being very real, the AI trade can falter anytime and there are many ways that AI slows down that have little to do with the technology per se. Of course, this doesn’t mean it has to happen but it does show that many are not even considering the potential risks.

8. PTs based on “vibes”: Price targets are being updated based on questionable 2030 multiples. The only thing you need to enjoy such optimistic multiples from the sell-side is being categorized a “bottleneck.”

9. Luxury car dealerships in Korea are full: memory chips are doing so well that Korea is experiencing an incredible wealth effect. This in and of itself is not a sign of anything, but definitely not a sign of a bottom!

10. All the AI/space companies considering an IPO: this is always a strong indicator that things have run ahead of themselves.

None of these constitute a top in and of themselves, but all together I do think they do demonstrate that some things might have run ahead of themselves. Maybe I am very wrong and AI still has legs and stocks will continue going up 20% per week, but what does not seem sensible is to have 100% exposure to AI, more so considering the above and the fact that there are other sectors/industries that have fared poorly and seem very attractive. One of these sectors I believe is healthcare. This is something I’ve discussed several times in the past, but the healthcare industry…

• Is trading at trough multiples on trough earnings after the pandemic

• Is accelerating top lines

• Is pretty resilient to any king of economic environment

• Enjoys a positive skew to AI (more discovery leading to more volumes down the line)

This doesn’t mean that the entire healthcare industry is attractive and we’ll most likely need a rotation for stocks to do well, but I do believe certain pockets are very attractive and this is the reason why my portfolio is significantly exposed to the topic (the entire weight is 94% because the rest is cash):

We are seeing some early signs of this rotation to industries like healthcare and software, but who knows how long it will last.

The industry map was mixed this week:

Source: Finviz

The fear and greed index remained in greed territory:

Source: CNN

My purchases this week

Like I discussed above, I added to 4 companies this week. I added to…

• Two software businesses

• An entertainment business

• A healthcare business

So, pretty varied:

Read more

When will the inflection come? What’s the catalyst? I have no idea, but I do know that narratives can change on a dime and that, sometimes, one just needs the stock price to perform well for the narrative to shift (plenty of examples over the past couple of years).

Just for context…

• Three of the companies mentioned here are trading at appealing valuations while growing their earnings at mid-teens or higher rates (with no signs of slowing down).

• Three are run by “outsiders” and, in all but one, there is significant insider ownership.

So, here they are.

Read more

I’m going to host yet another Best Anchor Stocks Webinar. It will be held tomorrow, Wednesday the 27th, at 2:00 PM Eastern Time, and will have a duration of one hour.

I’ll cover the following topic in this webinar:

• A brief introduction to Eurofins (my most recent in-depth report)

• The new risk/IRR matrix, which should help you structure your portfolio and understand how I view mine

• All of your questions

The webinar is exclusive for paid subscribers and will be recorded and uploaded alongside the others.

Below you can find the links to submit your questions and access the Webinar.

Subscribe now

Read more

The shares were doing great back then thanks to the expectation of an imminent inflection point and momentum, but the reality was that the business was not yet inflecting materially (the market tends to anticipate inflections). I partially sold my stake at $647, but the shares are trading today around 20% lower, which begs the question: is Deere a good opportunity again?

The goal of this article is to (a) provide an overview of Deere’s most recent earnings, and (b) update the valuation exercise to understand whether Deere is again an attractive opportunity. Recall that you can read my Deere in-depth report for free here and access more than 8 updates here.

Best Anchor Stocks

Deere: Cultivating Technology

You can read the PDF version of this deep dive here…

Read more

2 years ago · 65 likes · 18 comments · Best Anchor Stocks

Without further ado, let’s get on with it.

Deere’s Q2 earnings

I would characterize Deere’s most recent earnings as “uneventful” despite the market’s reaction (the shares dropped around 5-6% following the release).

Q1 earnings (the prior earnings) were stronger than expected and management voiced their optimism around 2026 being the bottom of the large ag cycle in North America, but Q2 earnings were weaker and came with a more cautious management team. This probably made investors worry about a potential deterioration of the industry, which presented itself in large ag.

Before going into more detail, here’s Deere’s summary table:

Deere reported its third consecutive quarter of top line growth despite large agriculture still humming along the bottom of the cycle. The reason is diversification: Small Ag & Turf and (especially) construction are doing pretty well. Management believes that the three segments are currently in very different stages of the cycle with two of these still being below mid-cycle (PPA and SAT):

Deere definitely needs large ag to recover, but there were also several good news on the Large Ag front. Despite an expected significant deterioration in the ag industry due to the conflict in Iran, Deere maintained its expectations for large ag in North America, raised those of APAC, but significantly lowered those of Brazil. Let’s try to unpack this a little bit.

The conflict in Iran has created a surge in fertilizer prices, which has a more significant and immediate impact on Brazilian farmers. The main reason is that there are more harvest seasons in Brazil and therefore farmers are more exposed to fertilizer spot prices.

Higher fertilizer prices are bad for the industry, but might even be a net positive over the medium/long term for Deere. When fertilizer prices go up, crop yields go down because farmers use less fertilizer but plant the same acres. This eventually makes crop prices rise (somewhat protecting farmer profitability). Over the long term, I believe it also makes farmers more open about adopting technology because certain Deere products offer significant savings in inputs.

Despite the relative weakness in large ag, I believe there were two highlights:

1. Deere did not change the full year guide despite the conflict in Iran, which I’d say not many people expected. I’ll discuss later why this might have been the case

2. Despite doing worse than expected and being below trough-cycle levels, equipment operating margins in large ag remain above double digits (including in Brazil)

So yes, not the best environment for large ag, but still a pretty profitable business for Deere. There is also good news in terms of the potential recovery. First, management alluded to new biofuel regulation potentially becoming a significant tailwind for corn demand:

This should give you some context on what this means:

This seems more like a longer term demand driver, but management also believes there is significant replacement demand coming sooner:

Higher demand should result in higher volumes, which together with tariff costs unwinding should bring considerable operating leverage (already apparent in non-PPA segments), but then we also have to add higher tech penetration (which evidently brings higher margins). There were several interesting tidbits on this front:

• Engaged acres increased 10% YoY

• Highly engaged acres increase by more than 10% YoY

• Monthly active digital users are close to 440,000

• Precision essentials renewal rates for 1 year customers is 70%, for second year customers is over 90%. This means that those who find value stick with it

Now, all of the above allowed Deere (despite PPA not doing great) to maintain the full year guide but I’d argue there was some sort of implicit lowering of the guide. The reason is that Deere recovered around $300 million from the IEEPA tariffs (like Keysight), which means that the actual net tariff impact this year is closer to $900 million than $1.2 billion. With the guide unchanged this means that it’s implicitly $300 million lower, that management is being considerably more conservative (we’ll only know in hindsight), or that the impact of the Iran conflict was softened by the tariff tailwind. Now, I would say this is not a bad outcome considering that large ag (Deere’s most important segment) is expected to remain in a downcycle through FY 2026.

So, what will we get in (potentially) the last year of the downcycle? Management argued that they expect H2 revenue to be slightly ahead of H1 revenue. H1 revenue was around $22.98 billion (+8% YoY), so let’s assume that H2 revenue comes in at $23.5 billion. This implies a 3.6% revenue decrease in H2, or a 2% growth rate in FY 2026. Not great, but not bad either considering it should be the trough year (we’ll see). At $5 billion in net income, that would result in an 11% net income margin, which is pretty acceptable considering tariffs and the stage of the large ag cycle.

Let’s take a look at the valuation.

Is Deere a good opportunity again?

Read more

You can read this article (almost) entirely for free. If you like what you read, consider becoming a paid member to get access to…

• All in-depth reports (15 companies profiled thus far, and growing)

• Earnings follow-ups

• Other investment related content

• A community of like-minded investors

• Complete access to my portfolio and transactions

• Occasional webinars

The in-depth reports of Stevanato and Deere are free to read to gauge the quality of the research.

Join today:

Subscribe now

Both indices were up again this week, with tech leading the way. One thing I found interesting is that the bull market seems to be finally broadening out. Will it last? We’ll see. I also discuss Nvidia’s case in the brief market commentary.

Without further ado, let’s get on with it.

The new in-depth report

I didn’t publish a NOTW last weekend, but I did publish my new in-depth report on Eurofins Scientific (EPA:ERF) last Thursday:

The report is available to paid subscribers and goes over the following:

• Section 1: What Eurofins does

• Section 2: The growth levers and the lost credibility

• Section 3: The transformation (?) of the financials

• Section 4: Management, Incentives, & Capital Allocation

• Section 5: The valuation

Best Anchor Stocks

Eurofins (EPA:ERF)

Testing is important, it’s like having a fire detector…

Read more

a month ago · 12 likes · Best Anchor Stocks

Eurofins is one of those companies that fits my investment mold to perfection: outsider/founder led, ignored by the market, and in a defensible industry offering pretty appealing returns. I share my model in the report and explain why I believe the company is positioned to deliver a 15% IRR over the next 5 years.

A webinar next week

Next week I will be hosting a webinar to discuss some changes I’ve made to the spreadsheets that paid subscribers have access to. I have built a new IRR vs Risk Score grid that should help frame the portfolio management decisions I make. I’ll share more details during the webinar and I’ll also…

• Give a brief presentation on Eurofins

• Answer all the questions you have

I’ll share more details with paid subscribers this week and will provide some means so you can ask your questions. The webinar will most likely take place Wednesday or Thursday.

Articles of the week

I published two articles this week. The first one was the 3rd edition of “On The Radar,” in which I shared three companies I have recently come across and which I believe are interesting:

1. A company that owns several monopolies that benefit from network effects (no, it’s not Meta)

2. A platform company currently viewed by the market as an AI loser (I don’t think the market is right on this one)

3. A network equipment business run by what I would consider a very unconventional outsider

Best Anchor Stocks

On The Radar #3

Welcome to the third issue of “On The Radar.” If you want to know what this series is all about, I recommend reading the first issue. I have already shared six companies across the first two issues, and today’s issue brings another three (one for free and the remaining reserved for paid subscribers). Here’s what you can expect today…

Read more

a month ago · 8 likes · 2 comments · Best Anchor Stocks

The first one is shared for free with the remaining two being reserved for paid subscribers.

The second article of the week was Keysight’s earnings digest. The company reported again spectacular earnings driven by AI, but Keysight is much more than AI. I explain why in the article.

Best Anchor Stocks

Optionality for the win

I published my in-depth report on Keysight on January 2025. You can read it below if you are a paid subscriber…

Read more

a month ago · 8 likes · Best Anchor Stocks

Without further ado, let’s see what the markets did this week.

Market Overview

Both indices were up again this week, with the Nasdaq leading the way once again:

All eyes were on Nvidia’s earnings this week. Investors were wondering whether the company would report a spectacular quarter to keep the AI trend going, or if it would report a “disappointing” quarter that suddenly stopped the AI trade. Well, the outcome was probably not what many expected. Despite reporting a spectacular quarter once again, Nvidia’s stock dropped more than 3% during the week, but the SMH/SOXX did well overall (strange?):

Is Nvidia, the king of AI, being left behind in the AI trade? If we look a bit further out, we can see that this seems to be indeed the case. After doing considerably better than the semis industry, Nvidia has underperformed pretty significantly the semiconductor indices over the 1Y and shorter time frames:

This is pretty amazing especially when considering the spectacular earnings that Nvidia has been posting lately. This hasn’t stopped the stock from not doing much since November 2025, but of course, the spectacular earnings together with the company’s spectacular performance has led to significant multiple compression. Nvidia has a LTM EV/EBIT multiple of 32x, but because the company is growing EBIT at a 147% clip, its forward EV/EBIT multiple is just 18x:

One can have several concerns regarding Nvidia (margins, growth sustainability…) but it seems undeniable that if the growth is sustainable or simply compresses to a more moderate clip, the shares are cheap. I’ve been reading more about Nvidia, its physical AI strategy and how it’s building ecosystems (which positively impacts other companies in the portfolio) and I am liking what I see (and importantly, also learning a lot of things that could lead me to other interesting companies).

Now, the fact that the AI trend continues to be alive doesn’t mean that there can’t be a “rotation” outside of semis/tech to other sectors. One thing that continues to surprise me is that we are jointly seeing semis/tech go up along with other sectors that have historically been the other side of the coin. This is evident in the 5-day chart…

…but also if we go a bit further out:

So, semis continue leading, but it seems like the bull market is broadening and that investors are starting to believe that several industries can do well at the same time. We’ll see how this ages!

The industry map was pretty much green this week with some exceptions:

Source: Finviz

The fear and greed index remained in greed territory:

Source: CNN

I trimmed one position this week

This week I trimmed one of my positions for the third time. The company is outstanding but has skyrocketed driven by the AI trade and I don’t view the risk/reward as enticing as it was in the past.

I still hold it and it has been a great investment, delivering a 120% return in less than a year and a half for an 80% CAGR:

Read more

Best Anchor Stocks

Keysight Technologies (KEYS)

Hi reader…

Read more

a year ago · 11 likes · 2 comments · Best Anchor Stocks

Keysight reported (once again) phenomenal earnings. The objective of this article, however, is not to pat ourselves on the back about how exceptional these were (I have already done that in prior occasions). I believe that the quality of the report is apparent just looking at the headline numbers and how these fared compared to market estimates.

One must consider that analyst expectations have risen pretty considerably for Keysight over the past few quarters on AI-driven demand. This means that we could consider the current expectations pretty optimistic or at least updated to the current demand wave…

…which didn’t deter Keysight from beating these yet again:

• Q2 revenue came in at $1.71 billion for a 0.7% beat. This was despite a $40 million revenue headwind from tariff refunds (which Keysight is likely using to pay customers back).

• Q2 adjusted EPS came in at $2.67 for a 24% beat. Operating margin incrementals are incredible for Keysight and they are tough to model at these “unprecedented” revenue growth rates.

This said, the beats over already “inflated” market estimates are not what made these results impressive. Let’s take a look at orders. Despite Keysight posting 31% revenue growth in Q2 (+24% organic), management saw orders grow a whopping 56% (+48% organic). Not only are orders growing twice as fast as revenue, but management also claimed that the pace at which these orders will convert into revenue is unchanged (6 month delivery). This means that further acceleration is likely upon us.

This “sudden” AI wave has logically surfaced several concerns around sustainability and whether this is a “supercycle” that will eventually leave Keysight’s financials in dire shape once it turns around. Note that Keysight is a fixed-cost business that enjoys significant operating leverage. The company experienced operating margin incrementals of 49% in Q2, which caused an operating margin expansion of 520 basis points. There’s another side of the coin: if revenue falters going forward, decrementals are going to be significant as well. So, in short, the way up is great, but if there’s no sustainability, then the way down will be painful. There was also “good” news here (evidently one mustn’t ask a barber if he needs a haircut).

Let’s start with AI. Keysight is evidently benefiting from the AI data center buildout through its Communications Solutions segment (“CSG”). Management claimed that “momentum is accelerating” and that AI-related revenue in H1 2026 has already surpassed the levels of the entire 2025 (wow). Now, this doesn’t mean that it’s the only thing that’s working. Two examples…

• Within CSG, the AI buildout is bundled in “commercial” which grew 40% YoY, BUT the aerospace, defense, and government portion of CSG also grew considerably: +24%

• EISG (which also has a semi component so not entirely unrelated to AI) grew 24% YoY

The above, in my view, clearly portrays that Keysight is much more than AI. Management believes the AI trend is durable…

…but we will only know in hindsight how durable it really is. Seeing orders growth + management qualitative comments around “accelerating momentum” surely makes it seem like a cliff is not upon us. The 6-month visibility that the order book provides led management to raise full year revenue growth expectations to “high 20s,” which honestly seems sandbagged if orders turn into revenue at the pace they expect, but that’s around a 500-800 bps raise to their expectations barely three months ago. The current AI wave (+ strong demand elsewhere) is also making management consider raising the LT growth algo of 5-7% growth:

To all of the above we must add potential optionality. Even though I evidently did not expect Keysight (a historically MSD/HSD grower) to be growing revenue at a 30% clip in FY 2026, the reality is that it was all part of the plan, a plan that rested on optionality.

When I released Keysight’s in-depth report, one could purchase Keysight at a reasonable valuation assuming historical growth + historical incrementals while getting the company’s vast optionality for free. The returns would’ve been fine without the optionality playing out, but in hindsight we know that some of it ended up playing out in the form of AI. Now, AI is not the only form of optionality one gets with Keysight, there are many other long-term trends like robotics, autonomous driving, quantum, satellites…Keysight is exposed to pretty much every advanced technology and therefore has latent optionality:

Let’s size some of the opportunities/risks. Management mentioned that AI was a $500-$600 million business for Keysight in the first half. The company generated revenue of around $3.3 billion in the first half, so despite AI’s incredible growth, it’s still around 16% of the entire company. This does seem like it’s about to become significantly larger over the coming Qs.

Now, there were other interesting nuggets around non-AI revenue sources. Let’s start with space/satellites. Space is currently less than 1% of the company’s revenue, but management believes the opportunity is significant:

What took me by surprise, however, was quantum:

Seems impressive that Quantum is a triple digit business (so one would suppose that $100 million+) despite the industry being still so early. Management believes the opportunity here is also significant:

So, the bottom line is that…not only does the AI trend seem durable for the time being, but also that something might come in the future that will substitute AI if and when its participation in growth diminishes.

The valuation: are we still getting optionality for free?

Read more

1. A company that owns several monopolies that benefit from network effects (no, it’s not Meta)

2. A platform company currently viewed by the market as an AI loser (I don’t think the market is right on this one)

3. A network equipment business run by what I would consider a very unconventional outsider

So, without further ado, let’s jump into today’s issue!

Swiss Marketplace Group (SWX:SMG)

Brief description of the business

SMG owns and operates several leading online marketplaces in Switzerland (the company’s name seems quite appropriate). The company owns…

• The two leading real estate marketplaces: Homegate and InnoScout24

• The leading automotive resale platforms: AutoScout24, MotoScout24, and Car For You

• Several leading C2C goods resale platforms: Ricardo, tutti, and anibis

The business model of online marketplaces (also known as classifieds) is pretty straightforward: two users transact, and the marketplace operator (in this case SMG) takes a cut of the transaction and offers other services to the buyers and sellers.

SMG was born pretty much “overnight” in 2021 through a joint venture that seems almost impossible to think of now (were the regulators sleeping at the wheel?). Prior to 2021, Switzerland’s Classifieds Industry was dominated by several players, namely…

1. TX Group: owned Homegate, Ricardo, Tutti, and Car For You

2. Ringier and Die Mobiliar: jointly owned Scout24

These businesses were good businesses in their own right, but knowing that the Classifieds market tends to exhibit winner-take-all dynamics, the three parties decided to contact General Atlantic (a PE firm) to merge both platforms with the goal of making them more efficient and dominant. The result was a Swiss monopoly: SMG.

Why it caught my attention

The business caught my attention primarily because classifieds are very attractive businesses that exhibit winner-take-all dynamics thanks to network effects. If the “supply” is using a given marketplace, then it’s highly likely that the “demand” is also going to be using that marketplace. More supply brings more demand and viceversa, which feeds into a network effect that creates formidable entry barriers.

What’s more intriguing/exciting about this story is the huge margin differential that exists between SMG and its peers. Classified businesses in other countries exhibit very high margins. The reason is that, once the infrastructure is in place and the network effect reduces customer acquisition costs, revenue growth falls pretty much in its entirety to the bottom line. Many of these businesses have shown that EBITDA margins in the 60%-70% range are not out of the question, but SMG reported an Adjusted EBITDA margin of 54% in FY 2025. This means there’s a long margin expansion runway (and all while the company continues to grow its top line in the double digits!).

The belief that 60%-70% margins are “doable” also feeds into management’s medium-term growth algorithm:

The fact that is doable is also already apparent in the company’s own numbers, with Real Estate and Automotive already performing above the 60% mark:

Source: SMG Annual Report

The company is currently trading at around 17x 2025 Adjusted EBITDA and 21x reported EBITDA, which doesn’t seem expensive for a business expected to grow its top line low double digits and with (potentially) 1,000 bps in margin expansion ahead.

What I like

I believe that what I like has already been encompassed above, but let me summarize it here:

• It’s a good, defensible, business that enjoys “monopoly” status and where a good chunk of the EBITDA growth will come from the margin expanding to “industry norms”

• Management is focused on the margin expansion opportunity but the business continues to grow at a good pace (I’d imagine that taking significant price)

• The valuation appears attractive

Now, there are also several things that I don’t like as much.

What gives me pause

There are mainly three things that I worry about, two of which are related. Let’s start with the ones that are related: regulatory pushback and organic opportunity.

Even though the regulator allowed the merger to pass (incredible), SMG is already facing some pushback around its dominant position. The company announced in January that it had reached an “amicable” agreement with the Swiss Price Watchdog:

While this is good news “for the next three years” the reality is that the regulator is already keeping an eye here and this can potentially constrain the organic growth opportunity. The good thing about owning classifieds is that one is likely to be protected from external competition. The bad news about owning classifieds is that expanding abroad is very challenging because there’s likely established classifieds elsewhere. This means that once you become dominant the opportunity basically becomes one of cross-sell and price hikes.

The other thing that “worries” me is the IPO hangover. The first lock-up has already expired (March 2026) but there’s another one coming up in September so we’ll have to see how the shares react to that.

What I am watching

I have to gain more clarity into the regulatory aspect here. The reality is that every good “monopoly” is likely to face regulator/political scrutiny, but that in and of itself is a great indicator of how dominant a business is.

Let’s go with out next business.

Read more

Testing is important, it’s like having a fire detector.

Gilles Martin, Eurofins’ Founder and CEO

After successes and, above all, mistakes, I have become increasingly comfortable with my current (and now more polished) investing philosophy: searching for good businesses (not necessarily great) trading at reasonable valuations that are run by (preferably) outsiders. Sounds easy enough, right?

Outsiders are understood by some as a synonym of “polarizing managers” (love them or hate them), but my definition of an outsider is the following:

Capital allocation is a simple enough topic to understand (invest as much cash as possible in value generating projects, return the rest to shareholders), but yet very few executives of publicly traded corporations apply rigorous and counter-cyclical capital allocation (in many cases because they don’t even know what their business is worth and they are not incentivized to know it). I believe that, when an investor finds the rare combination of…

1. Someone who “gets it”

2. That is meaningfully aligned with shareholders

3. That is willing to unlock shareholder value (typically the outcome of combining (1) and (2))

4. In a company that is trading at a more-than-reasonable valuation

…that investor is likely to do well over long periods of time. I firmly believe today’s company satisfies each and every one of these characteristics.

The investment thesis in Eurofins is pretty straightforward. It can be summarized across the following bullet points which will be discussed in more depth later in the report:

• Eurofins is a well-managed and (very) resilient business

• It’s run by an outsider who owns a significant stake and is willing to unlock value for shareholders (maybe, just maybe, because he remains the largest one)

• It trades at a demonstrably low valuation

The thesis is not free of risks and execution has not been perfect, but one thing outsiders have in common is that they don’t let their mistakes get in the way of countercyclical capital allocation. This report will go over the following:

• Section 1: What Eurofins does

• Section 2: The growth levers and the lost credibility

• Section 3: The transformation (?) of the financials

• Section 4: Management, Incentives, & Capital Allocation

• Section 5: The valuation

By the end of this report you should understand why I believe Eurofins is poised to deliver a >15% IRR for its shareholders.

Without further ado, let’s jump right into the first section. I’ll share the PDF below.

Section 1: What Eurofins does

Read more

Now, even after this minor upswing, Nintendo remains down 35% YTD and 55% off ATHs.

So, what earnings did Nintendo report? I believe they were a tale of two halves and we must differentiate between FY 2026 earnings and the FY 2027 guide. These two were night and day but are also somewhat related (I’ll explain why later but I’ll give you a clue: “anchoring”). Nintendo reported very good FY 2026 earnings, with the first “year” of the SW2 cycle significantly beating the most optimistic of expectations. Sales grew almost triple digits and operating profit rose 27.5%:

Nothing here should surprise investors directionally. During the first year of a console cycle, it’s normal to see sales grow significantly faster than operating profit as margins compress due to an elevated hardware proportion (which carries lower margins).

These results were possible thanks to the spectacular debut of the SW2. Nintendo sold 19.9 million SW2 units and 3.8 million SW1 units (down 65%) in FY 2026. Software also did well, selling 48.71 million units in the SW2 and 137 million units in the SW1:

People sometimes forget that the SW1 business also belongs to Nintendo and that it’s still a thriving business; 3.8 million hardware units sold and 137 million software units sold in an eighth year of a lifecycle is a feat not many have achieved before.

Anyways, before discussing the guide in more detail, I believe we should use Nintendo’s initial FY 2026 forecast as the initial sign of conservativeness. Nintendo guided for the following financial objectives at the beginning of the year:

If we compare these to what Nintendo ended up achieving, we can see that the company ended the year 22% ahead of its initial revenue guide and 12.5% ahead of its operating profit guide (and this is despite increased tariff costs). Things don’t change much when looking at the hardware/software guide. Nintendo began the year with the following expectations:

The company delivered SW2 sales 32% ahead of its expectations and software units sold 8% ahead of their expectations. The company also incredibly sandbagged software sales for the SW1, which ended up being 30% ahead of their expectations. I heard someone say that if someone using the SW2 buys a SW1 game, it’s counted as a SW1 sale (which might explain the divergence), but adding both platforms together what we can conclude is that Nintendo expected 19.5 million hardware units sold and 150 million software units sold at the beginning of the year (SW1 + SW2) but ended up delivering 23.66 million hardware units (21% beat) and 185.62 million software units (24% beat).

Nintendo’s ADR was at $20 when it set its FY 2026 guide and later went to $24. It’s at $11 today after having blown through those estimates, although it’s true that there are other problems today that are impacting forward-looking guidance (more on this later). Nevertheless, the sheer outperformance that Nintendo managed on its FY 2026 targets should help us contextualize the recent guide.

The market’s focus: the guide

It seems like Nintendo’s expectations took many by surprise (myself included). This is the company’s financial guide for FY 2027:

And this is the guide in terms of hardware/software:

I believe that the exercise I did above should’ve demonstrated that Nintendo is typically conservative with its guide, but the guide was “soft” even for Nintendo’s sandbagging standards. Many things are required to fully understand the guide, let’s go over these.

First, Nintendo is expecting a 100 billion yen impact in FY 2027 from tariffs and component pricing (i.e., higher memory prices). Should this impact be absent, operating profit expectations would’ve been around 470 billion yen for 30% YoY growth. Imho, and despite this impact, this financial guide lets the Nintendo thesis shine through: it’s software that eventually drives the margins as the system scales.

Now, there’s no denying that timing has been very unfortunate and Nintendo has to live with higher memory chip costs. Management now believes that memory pricing is a longer-term problem than previously anticipated, so they decided to raise prices:

There’s a lot to discuss about these price increases. The first interesting aspect is the timing. Even though prices are going up almost “automatically” in Japan (where the SW2 was cheaper to start with), Nintendo has decided to wait until September to raise prices in Europe/US. Before reading the Q&A, I speculated that this was being done because Nintendo wants to announce a strong software line-up for the holiday season that would justify higher prices. Management later “confirmed” in the Q&A that there are unannounced games for the second half of the year (not a surprise to anyone tbh). He also told consumers/investors that they’ll release software to justify the higher price in what I would consider a “bold” claim for Nintendo’s standards.

The second interesting aspect of the price increases is what it can cause in terms of pull forward of demand. SW2 prices are increasing relatively soon in Japan and the SW2 (at the current price) is being sold out across many stores. Hopefully, Nintendo has enough inventory to satisfy a pull forward that might also come in Europe/US.

I honestly don’t think that these price increases change the thesis much, but I believe it’s also evident that management is unsure how they will impact demand and therefore likely took a negative impact into account in the guide. Nintendo is not known for lowering prices, but it’s also not know for raising prices soon after launch, so we could consider this uncharted territory.

What’s interesting is that, if management believes that it would make the SW2 less “affordable,” this should be reflected in higher SW1 sales (which doesn’t seem to be the case either in the guide). Anyways, the bottom line is that Nintendo is now planning for a world where memory prices continue to go up over the long term and that’s good news because there’s now upside to whatever happens going forward:

The second thing I’d like to comment on is that Nintendo’s management seems fixated on the SW1 rollout as a proxy for the SW2 (i.e., it seems they are using the SW1 launch as a benchmark). Both on the prepared notes and the Q&A, management talked about the SW1 cycle when contextualizing the SW2 guide.

It seems that they believe that the SW2’s launch year has been “too good to be true” and that, as they are in uncharted territory, they’ve decided to anchor in the velocity of the SW1 cycle (can’t blame them). Now, this may or may not be true, but I find it unlikely that SW2 sales will be down in FY 2027 IF (big IF) there’s a strong 1P system seller in the year. A Mario 3D game makes a lot of sense considering that…

• It’s Mario’s 40th anniversary

• It would come after the Mario movie and therefore would benefit from the “Halo”

If I had to guess I’d say that a Mario 3D game is highly likely, which makes the guide look even more conservative, why? Because a Mario 3D game is the kind of system seller that moves the needle. Let’s review some former 3D Mario releases:

• Super Mario Odyssey, launched in October 2017 and sold 29 million units. Nintendo took advantage of its Mario 3D franchise to push the sales of the SW1 early on because the company could not afford a flop after the Wii U. The environment today is pretty different because Nintendo knew that the SW2 would not be a flop and therefore could save the system sellers for years 2/3

• Super Mario 3D World + Bowser’s Fury, launched in 2021 and sold 13.47 million units

Management is also very aware that it’s these 1P releases that will allow them to grow the hardware business. During the call management claimed that after a weaker-than-expected holiday season outside of Japan, things started to trend in the right direction thanks to Pokemon Pokopia and Tomodachi Life. It’s the software that sells the hardware and we’ve had little exclusives this year (which has incredibly not weighed on hardware sales)...

…but we know for a fact that more things are coming in H2 2027…

…which management is unlikely to have taken into account when setting the guide this early on, especially since they typically sandbag software sales despite them being Nintendo’s bread and butter. The quality of Nintendo’s IP became strikingly evident in the earnings release with the great successes of Pokopia, Tomodachi Life, and Pokemon Fire and Leaf. To this we must add potential optionality from 3P system sellers…is GTA VI coming to the SW2? Some rumours point out it will, but we still don’t know.

All in all, even though the guidance was soft even for Nintendo’s standards and the fact that the memory crunch has come at a very unfortunate time (when hardware has just started scaling), I believe these are “solvable” problems. The guide seems pretty conservative and it’s evident that it’s set based on what the SW1 did, whereas the memory crunch will not last forever (regardless of what people claim). This means that Nintendo might be in for some short to medium term “pain” (which seems to have been taken into account in the guide) but that the thesis remains alive and well. I am considering adding to my position at current levels.

Have a great day,

Leandro

As you may know, Best Anchor Stocks has a partnership with Fiscal.ai (the research platform I personally use), through which you can enjoy a 25% discount on any plan, for a limited time.

Use this link to claim yours!

You’ll find KPIs, Copilot (a ChatGPT focused on finance) and the best UX….and related to this discount, Finchat has launched brokerage connections:

Both indices were up considerably this week (shocker!). Another thing that didn’t change was that the rally was driven by (you guessed it) semiconductors and momentum. I share what I think about this and also share plenty of company specific news (it was a hectic earnings week).

Without further ado, let’s get on with it.

A new in-depth report coming out next week (hopefully)

After a lot of looking I have finally found something I am willing to include in my portfolio. I will most likely release the in-depth report Thursday/Friday next week and start a position soon after.

Here you have a small teaser:

The report will be reserved for paid subscribers. Becoming a paid subscriber also gives you access to all the historical content and in-depth reports.

Join now:

Subscribe now

Articles of the week

I published three articles this week, all earnings digests. The first one was an update on Topicus.

The company reported again very solid earnings and, soon after, announced a rather significant acquisition in the US (which is “uncharted” territory for them).

The second article of the week was Stevanato’s earnings digest.

Earnings were very solid but I don’t think they were up to the standards of the market after a 40% 1-month run (they were indeed up to my standards). I still believe the company is significantly undervalued.

The third and final article of the week was Shift4’s earnings digest.

The company reported considerably better earnings than feared and the stock rose significantly…only to lose it all after Toast (its main competitor in the restaurant vertical) reported weaker than expected earnings. This is kind of funny but at the same time is a reality and hurts:

Without further ado, let’s see what the markets did this week.

Market Overview

Surprise, surprise, both indices were up considerably this week. The S&P rose 2.7% whereas the Nasdaq rose a whopping 5.7%:

I’m not going to make this a long market commentary because there are plenty of company specific news, but I do believe we had the first hints of market euphoria this week. The SPMO (S&P 500 momentum) also allows us to see that this rally is being driven purely by momentum:

And this momentum is currently concentrated in everything that has to do with data centers. The SOXX (the semiconductor ETF) is up 40% in just one month and 67% YTD. Does this mean that everything in the SOXX or in the data center theme is overvalued? No, but I mean, I don’t think vertical moves in many companies that still don’t have earnings and are trading based on future promises is a healthy sign. Only time will tell, but the feed on social media is sounding a lot like: “you are absolutely retarded if you are not long semis (especially memory) with leverage.”

We can also get a glimpse of euphoria in upcoming IPOs. Cerebras’ (a semiconductor company that plans to use single wafers to make full chips) IPO is coming soon. They not only raised the IPO range, but some rumours point out to the offer being 20x oversubscribed. What’s the reading here? Everyone wants to have exposure to the next shiny thing. Now, I do have exposure to the data center theme, but I think this is getting a bit out of hand and that we will see a “breather” soon (I might be wrong though). Trimming against momentum makes you look stupid for a while, but there comes a time when fundamentals must end up delivering for stocks to hold, and I don’t know if this is going to be the case for a long of things that have gone parabolic. Oh, another sign of market euphoria is that people are being “humble” and pretty much saying “sorry” while they are up 50%+ YTD. Things like “I could’ve done better” or the sort. While I can’t say I don’t envy these people, I surely know that I would not be saying sorry for being up 50% YTD, which sort of tells you where returns expectations have gone.

What does seems increasingly clear (and is also interesting), is that semiconductors and software can sort of go up at the same time. The IGV (+5%) and the SOXX (+11%) were both up this week! Maybe people have forgotten that only one of the two can live? (I am being ironic here, of course). Looks good, but again, we are only one Anthropic release away from software being totally dead again!

The industry map was pretty much green this week for tech, and red elsewhere:

The fear and greed index remained at the same level as last week, but I’d say certain pockets of the market are in extreme greed territory:

Company-specific news

This week, we had news from a wide variety of businesses, some of these earnings digests.

Read more

1. Payment peers were not reporting great earnings and were getting smoked by the market

2. Global Blue was going to surely be impacted by the conflict in the Middle East as its business depends on tourist flows

Both of these remain true even after Shift4’s earnings, but the company still managed to deliver good earnings. Most KPIs were in-line or ahead of management’s expectations. The stock (surprisingly enough) reacted positively, although it’s still trading at a similar level than it was post-Q42025 earnings:

Let’s begin by sharing the first page of the shareholder letter as a summary of the quarter:

Pretty healthy numbers all around, but it’s not these where I want to focus on today. The first KPI (not highlighted in the slide above) that I want to focus on is organic growth. Two positive things happened here. First, Shift4 is going to start calling it by its name and seems like it will start disclosing it recurringly. This is great news because it’s what the market wanted as there has been historical skepticism about Shift4’s ability to grow organically.

The second good news concerning organic growth was the number per se: +11%. Despite the Global Blue softness and despite a 400 bps drag from the “grandfathering” of legacy revenue sources, Shift4 managed to grow double digits organically. Trends were even healthier in the America’s region (in which the reported number is basically a proxy of organic growth): +15%. This is interesting considering that it’s Shift4’s most mature geography, but I believe this is precisely what makes Shift4’s story appealing:

There’s still a lot of cross-selling to be done across Shift4’s customer base, and even though it’s true that this organic opportunity is somewhat reliant on M&A (at least its durability), one also has to understand that it’s all a tradeoff. What the market understands as pure organic growth (i.e., organic growth not reliant on M&A) would arguably be higher if Shift4 redirected the funds it invests in M&A into organic initiatives. Management simply doesn’t believe this is the best use of cash.

The other focus of the release was Global Blue. As I have discussed in several recent NOTW, the conflict in Iran promised to be a pretty significant headwind for Tax Free Shopping. Well, TFS actually came in at +4% YoY despite this impact (only slightly below the MSD growth guided for the year). The impact promises to be higher in Q2, but the conclusion here is…yes, Global Blue came in weaker, but the conservative guide and the outperformance in other segments was enough to help maintain the yearly guide. Good news.

Also note that Global Blue gives Shift4 something unique: the Shift4 One payment terminal. This product combines payments, DCC, and Tax Free Shopping and management expects it to be critical in converting Global Blue’s customer base to payments:

This product is already live in 7 countries and will be in 15 by the end of the year. What’s interesting is that management told investors not to expect any meaningful revenue synergies from Global Blue in FY 2026 (if I recall correctly) but they seem to be executing pretty fast. Early customer wins were companies like Breitling and Swatch, and it also seems that features such as the ones that Shift4 One enables will probably be very relevant for the World Cup this summer.

Management also said something interesting regarding margins:

The company has been investing aggressively in international expansion (which is scaling nicely and showing good prospects) but believes margin expansion is in the books once these investments start to show returns. The 50% Adjusted EBITDA margin objective is not dissimilar to what the company achieved in 2025 (48.9%), so what they are basically saying here is that the Adjusted EBITDA margin delivered in Q1 2026 of 43% is probably not representative of what can be achieved over the long term. The admission that Adjusted EBITDA margins might expand 110 basis points is good, but I don’t think it’s game changing considering the company’s valuation and the fact that it’s growing organically double digits (i.e., it’s not critical but good news nonetheless).

Another historical bear case for Shift4 (and payment companies in general) were spreads. Some people seem to believe that payments are unequivocally a race to the bottom, but Shift4 continues to experience stable spreads. I know this might be a total narrative violation, but Shift4’s spreads have been stable for a pretty long while despite the fast growth. Management believes that the Street doesn’t really understand competitive dynamics inside of Shift4’s industries and used the restaurant example (the most competitive industry) to illustrate their point:

While the market remains skeptical about the Shift4 story, management is doing what they have to do: repurchasing shares:

The topic of buybacks is interesting, more so when viewed in the context of the newly announced compensation plan. Shift4 published its Proxy Statement a couple of weeks ago. In it, they shared what the PSUs (Performance Share Units) would be based on. I conducted an exercise to understand what needs to happen to the “organic” business so that management achieves 100% vesting of the PSUs. The goal here is pretty much to understand whether the objective tough to achieve or not (i.e., whether management is being “handed” these PSUs).

Calculating FY 2027 FCF growth from the PSU program

Read more

Seeing stocks rise so much into earnings in such a short period of time is not something I particularly like because I feel it messes up my expectations. It worked this way: I was pretty uncomfortable coming into earnings.

Stevanato reported pretty good earnings all things considered. The main highlight was that total revenue (+10% YoY in CC) and BDS revenue currency (+16% YoY in CC) both accelerated 300 bps sequentially (and this was on top of a pretty strong Q4 2025). I would’ve considered this spectacular if the stock had not run up into earnings (still do), but seeing management not raise guidance (with companies like WST and LLY doing so due to strength in injectables) left me a bit disappointed (maybe wrongly so). This shouldn’t have caught me by surprise considering that it’s Q1 and that Stevanato’s management is not precisely known for being overly optimistic!

Overall, the quarter played out as expected: very strong growth in BDS driven by HVS (+22% YoY at CC) and a very weak engineering segment (-31% YoY):

My hunch is that Stevanato could be growing faster should its capacity be aligned with current demand. First, Latina and Fishers continue to ramp up, with the bulk of capacity probably coming online late 2026/early 2027. Secondly and, interestingly, management shared that they’ve requalified an RTU vial line into an RTU cartridge line to align with demand. The line is expected to go live in at the end of Q2:

This (imho) implies two things:

1. More capacity is coming online late 2026 / early 2027 (Latina and Fishers)

2. The current capacity doesn’t seem to be aligned with current demand and Stevanato is working on this (but it’s probably impacting growth)

While point #1 would not necessarily result in higher revenue over the short term, I do think that #2 would result in faster immediate revenue growth. I mean what Stevanato is basically saying is that they can’t satisfy current demand (not future projections). In short: demand > supply. Good news to see Stevanato take proactive measures to address this.

I believe there were three main “lowlights” in the release. The first one was (as always and expected) engineering. Engineering revenue dropped 31%, although the bright spot was that margins which improved quite considerably. Seems like engineering can’t get much worse, but one never knows.

The second lowlight could be found in BDS margins. Despite management claiming that margins came in line with their expectations, BDS gross margins dropped a whopping 300 bps. Margins still improved at the consolidated level, but this is not what one would expect with 15%+ revenue growth. Anyhow, management explained the BDS margin drop as follows:

So, recapping, the drop in BDS margins came from higher depreciation, FX, a one-time project included in Q1 2025, and tariffs. We don’t know (neither quantitatively nor qualitatively) what the impact of each component was. The one that seems most interesting is the pilot project (management discussed these a while ago in a press release). If we look at Q1 2025 we can see that Stevanato indeed experienced stronger-than-usual margin expansion a year ago: BDS gross margin expanded 420 bps on an 11% revenue growth. This projects (even though accretive to growth and margins) do seem to introduce some sort of lumpiness that the market did not expect. In fairness, management did not promote that strong margins in Q1 2025 were aided by said projects, which makes today’s admission come along as an “excuse.”

The third “lowlight” or actually not a lowlight but something that the market might have not liked was non-GLP1 growth. Even though several data points have “derisked” somewhat the oral thesis (LLY and NVO claiming strength in injectables and market expansion from orals, strong injectable earnings from WST, ATR, etc), it’s pretty evident that the market/analysts continue focused on STVN’s GLP-1 exposure. Management started disclosing its exposure in Q4 2025, claiming 19-20% exposure back then. Exposure this quarter was 21-22%, meaning that GLP-1 revenue “took” share of the overall company. They said the following about the non-GLP1 business:

While 6% is somewhat in-line with what I estimated last quarter…

…it was probably not enough for a market that still believes that GLP-1s are not as sustainable as Stevanato believes. Management actually shared something regarding the durability of GLP-1s and the oral “risk”: the pipeline is active and orals are tracking their expectations:

All in all and despite the TEC pilot project lumpiness, it was a good quarter for Stevanato. The stock is down 5% today as we speak, but it was considerably up over the last month (I still believe it remains significantly undervalued) and I don’t think this changes much of the thesis. I do believe communication could’ve been better (i.e., preparing the market for the gross margin lumpiness) and the call overall was uninspiring. One could clearly tell that Franco did not attend (due to temporary illness), but the good news is that Stevanato has three investor conferences coming up in which we’ll probably get more details.

Have a great day,

Leandro

Without further ado, let’s jump right into the numbers.

The numbers

Topicus’ revenue accelerated to 23% YoY in Q1, and interestingly this acceleration came with significant EBITA margin expansion (expenses grew 20% YoY):

This is what I wrote in last quarter’s article:

Staff expenses showed some interesting dynamics. Topicus’ revenue grew ahead of its staff expenses, but within these staff expenses, R&D staff expenses grew considerably faster than the rest:

Source: Topicus’ MD&A

One data point does not make a trend, but it’s nonetheless interesting that staff as a % of revenue has decreased throughout the entire year (it was even lower at 52% this Q) despite the year being a strong one in terms of capital deployment.

Something similar could be said this quarter. Staff expenses grew again slower than revenue, but R&D staff expenses grew at a similar pace than revenue:

Just like one data point does not make a trend, two data points don’t make a trend either. Nevertheless, it’s interesting to see Topicus become more efficient in terms of labor without cutting on R&D staff (maybe an AI-narrative violation, who knows). Organic growth also continued to discredit the AI narrative. Both consolidated and maintenance and recurring organic growth accelerated in Q1:

The same way that I don’t believe that this acceleration entirely discredits the AI narrative, I must say that not giving fuel to the bears seems like a good-enough outcome at current valuations. One could claim that the AI impact will be felt in the future, but the reality that bears can’t ignore is that Topicus has grown maintenance and recurring revenue at >6% rates for over two years now. The AI narrative is one that will take some time to dissipate but at least investors can find “comfort” knowing that bears will have to continue to look ahead.

Another thing that makes me want to think that the AI narrative has probably been a tad exaggerated is capital deployment. Topicus’ capital deployment was relatively weak in Q1 (and so far in Q2):

While the evident reaction would be one of worry (as Topicus is a serial acquirer), I don’t think that the above is coherent with the fact that VMS businesses are getting disrupted. First things first, capital deployment at Topicus has historically been lumpy and cyclical (as it should be), so one shouldn’t read too much into the trend in any given quarter. I mean, this was precisely the “bear” POV in 2024, but then Topicus delivered an absolute stunner of a 2025 in terms of capital deployment.

Secondly, I don’t think that holding the view that AI is disrupting VMS businesses is coherent with the thought that this capital deployment level is structural. Should AI be disrupting VMS businesses, we would most likely see more appealing valuations in private markets (they’ve had time to adjust by now) and stronger capital deployment from Topicus.

What seems evident is that there’s a disconnect between public and private market valuations, so who is right? We’ll only know the answer in hindsight and we might just need time for the narrative to shift, but there’s no denying that something doesn’t add up (in the meantime both Topicus and CSU through PEMS are trying to take advantage of the “arbitrage”). Topicus’ has suffered the multiple compression caused by the AI-narrative, but its M&A activities have not risen to structurally elevated level (which means the targets have not received the cut). Weird, but things may change throughout the year and we’ll most likely get more details next week during CSU’s call.

The other “lowlight” of the release could be found in cash flows. Despite strong revenue and EBITA growth, cash flows stayed somewhat flat: +3% in cash flow from operations and +2% in free cash flow. This “poor” performance could be attributed to two things:

1. Operating net working capital was not as much of a benefit in Q1 2026 as in the comparable period (Q1 2025)

2. Cash taxes rose

The slimmer benefit from non-cash operating working capital was driven by a 32% increase in accounts receivable and a shift from a benefit of 32 million euros in accounts payable to a headwind of 4 million euros:

I don’t view any of these as worrying for a very simple reason: it has happened before and it was a nothing burger. Topicus’ cash flow generation is inherently cyclical and cash conversion was stronger than usual in Q2 and Q3 last year:

The (still) decent cash generation combined with the lower-than-usual capital deployment allowed Topicus to pay-off a portion of its credit facility. This caused net debt to decrease by almost €250 million:

Let’s assume the company can lever itself to 2x operating cash flow should it need to (a very reasonable leverage level for a business of these characteristics). TTM operating cash flow is 422 million euros, so the company has dry powder of around 850 million euros to conduct acquisition. Subtract 117 million euros (the current net debt) from this amount and you get to around 730 million euros. Bottom line? Topicus has a lot of dry powder to conduct acquisitions over the coming months should opportunities present themselves (I hope they do).

Now, with all this in mind, let’s take a look at the valuation.

Topicus’ valuation

It’s no secret that Topicus’ stock has dropped significantly from ATHs, purely driven by multiple compression. Now, this by itself doesn’t mean the stock is cheap, but let’s take a closer look.

Read more

You can read this article (almost) entirely for free. If you like what you read, consider becoming a paid member to get access to…

• All in-depth reports (15 companies profiled thus far, and growing)

• Earnings follow-ups

• Other investment related content

• A community of like-minded investors

• Complete access to my portfolio and transactions

• Occasional webinars

The in-depth reports of Stevanato and Deere are free to read to gauge the quality of the research.

Join today:

Subscribe now

It was an interesting week in the market as the Mag 5 (MSFT, GOOG, META, AMZN, and AAPL) reported earnings in the space of 2 days. These companies’ earnings can be bifurcated in two distinct groups, but I’d imagine that a lot of people expected a much more volatile week than we got. Markets are still trading at ATHs and the music seems to have some legs (this might age poorly!).

Without further ado, let’s get on with it.

Articles of the week

I published two articles this week, both earnings digests. The first one was Texas Instruments’ Q1 update.

The company reported outstanding earnings (despite the forecasts of many semiconductor “experts”) and rose to fresh ATHs. It has been a rocky path, but shares have finally responded.

The second article of the week was Amazon’s Q1 earnings update.

The company again reported a significant acceleration, but the acceleration was not isolated to AWS this time. There are reasons to believe that AI is positively impacting each and every one of Amazon’s operating businesses, to which we must add a new revenue stream coming live later this year.

Market Overview

Both indices were up again this week (surprised? ha):

It was a pretty relevant week for financial markets. The Mag 5 reported earnings: Microsoft, Google, Meta, Amazon, and Apple. Someone could’ve claimed that this was a “crucial” week for financial markets, but the reality is that it was a pretty calm week all things considered. Microsoft, Google, Meta, and Amazon reported somewhat “similar” earnings in the sense that they are all spending significant Capex on AI and that they plan to continue doing so in the years to come. Many of these companies claim that AI is “a revolution unlike any other” and that the Capex is money well spent/invested. While this is something that we’ll only know in hindsight, I don’t think that all investor skepticism around this Capex is misguided.

Apple, on the other hand, reported earnings in line with what everyone expected from them (in the Capex sense): very little Capex and strong returns of capital to shareholders. The strategies of Apple and the rest of the Mag 5 are strikingly different, but there’s no denying that Apple holds a large chunk of the hardware through which AI is distributed. Tim Cook claimed that the Mac Mini has seen heightened demand from AI and I believe that Apple is raising prices (maybe led by higher demand as well as higher memory costs). So, Apple is not spending the Capex but it’s “clearly” benefiting from AI. Who will be right long term, Apple or the rest of the Mag 5? I believe that this question is a tad useless because both can be right in owning different parts of the value chain. We’ll see.

Even though this week was important for markets in general, the real important weeks for my portfolio are the next two (especially the one that’s coming up right now). I have around 40% of my portfolio reporting next week and I am excited for earnings season (this might age poorly!). I believe my two top positions will put their respective narratives to (hopefully) rest, although I must say that, for my top position, there are already significant signs that point to a flawed narrative (more about this in the company-specific news section).

In other news, Adobe’s CEO, Shantanu Narayen, sold around $18 million worth of shares this week:

A couple of weeks ago, I published the following on X:

I don’t want to be overly critical on Adobe (as I don’t own it anymore and it can appear to be opportunistic), but this is precisely what I discussed in my post. It might be great that Adobe’s management is repurchasing shares at historical low valuations (we’ll only know in hindsight), but a much stronger sign of management confidence would be if insiders were also putting their money (not yours) where their mouth is. The reality is that Adobe has not seen a single insider purchase over the last year and that the CEO just filed to sell $18 million worth of stock at the historical low valuation (plus the fact that he left without succession, which seemed weird). In my most recent Amazon update I shared two interesting quotes I found in Meta’s and Amazon’s earnings call that “impact” Adobe. There’s food for both the bulls and the bears:

Software had a relatively good day on Friday after Atlassian reported what appeared to be great earnings. Its stock was up almost 30% and the IGV was up 3%. Does this invalidate the fact that Adobe might be in “trouble” due to AI? No, the reality is that, within software, there will be companies that thrive thanks to AI and others that disappear (not claiming Adobe will be in the latter group!). What I do think that many of these SaaS stocks reactions prove is that the market has thrown the baby out with the bathwater and that there are likely interesting opportunities in the sector.

The industry map was mixed this week, coherent with the fact that we are in earnings season:

The fear and greed index remained in greed territory:

One trim and one new position

I made two moves this week. First, I decided to trim one of my long-standing positions. The stock had risen to the #2 spot in my portfolio due to its great performance, and I was not comfortable with that at the current valuation. Peter Lynch would say I “trimmed the flowers” and he might be right, but I believe there are ample opportunities to deploy this capital in.

I also started a fresh new position which I expect to hold over the long term. Management is very aligned with shareholders on this one and has the track record to back their confidence in the model:

Read more

I honestly did not end up doing much (just continued to hold my Amazon shares), but it’s becoming evident that I should’ve and that it’s getting incrementally harder not to own Big Tech. This is what the stocks of Google, Microsoft, Amazon, and Meta have done since the date that article was published (February 10th):

The fate of the Big 4 has been markedly different: only Amazon and Google are up significantly from that date, with Microsoft and Meta falling behind. If one considers that these business are growing at a good pace and are accelerating their top line growth, and the fact that there are no evident signs (at least not yet) that AI investments will deliver sub-par ROIC (more on this later), their risk reward seems to only be getting better (or at least not deteriorating much).

Anyways, this article will review Amazon’s earnings. I hope you understand why I decided to give it the title I did. One could argue that Amazon is one-of-a-kind in terms of being a company that…

1. Is accelerating its growth at a +$700 billion run rate

2. Has so much potential growth ahead despite its $700 billion run rate (something unthinkable several years ago)

It’s a very rare/special combo, but one that’s not a coincidence.

Amazon earnings

Before jumping into AI and semiconductors (because I am going to mostly talk about this today), let’s take a quick look at Amazon’s summary table:

I believe the table speaks for itself: Amazon delivered a great Q1 across all metrics. The only three reds in the table above need some context. Let’s take the easy one out of the way: the operating income guide came 4% below the market’s expectations. Amazon is well known for sandbagging this metric and I must say that I am surprised that the sell-side has not caught up to this sandbagging. The Q2 top-line guide came considerably above consensus but it’s worth noting that Prime Day this year will take place in Q2 whereas it took place in Q3 last year. I’d imagine part of the consensus took this into account, but no clue.

The other two reds are both related and probably sum up the market’s “concerns”: Capex and AWS’ margins. Capex is not a straightforward one because if one believes that Amazon can invest this Capex at high ROICs, a 77% increase shouldn’t be counted as “red” but actually as “green.” A rational investor would want its companies to invest as much as possible as long the ROIC is worthwhile. The only problem here is that the ROIC on current investments requires some qualitative assessments. The question one should try to answer is:

Seeing AWS margins come down 250 basis points as Amazon expands capacity is surely fuel for the bears. These might think that it proves they are right, but the reality is that Amazon is investing significantly ahead of being able to monetize its AWS capacity, which ultimately means that margins are not entirely normalized through the investment cycle. Then, bulls could also argue that a 35% operating margin (or even a 30% operating margin) singlehandedly justifies the increased investment Amazon is undertaking. The ultimate reality, though, is that we’ll only know in hindsight.

It does seem like Amazon’s business is benefitting from AI in many more ways than investors envisioned. The most straightforward and direct one is AWS (+28% YoY). AI workloads take place in the cloud and hyperscalers are very well positioned to monetize their infrastructure. Not only is Amazon generating direct AI-revenue in AWS (which is growing triple digits), but management also argues that AI is invigorating the “core” business. If you want to jump in the AI train and you are not yet in the cloud, then you got yourself a pretty relevant reason to begin the transition. In short, AI is accelerating the shift to the cloud. What all of this means is that AWS is accelerating at a $150 billion run rate (wow):

Amazon also sized its AWS backlog at $464 billion (including the recently announced +$100 billion deal with Anthropic). Even though this sounds spectacular, I would caution against fixating too much in it. This backlog is based on commitments and not take or pay contracts. This means that, even though demand is still very elevated, it could evaporate in the blink of an eye (not saying it will).

Many people were likely surprised by the fact that Amazon stayed put with the Capex guide despite the rise in memory component pricing. Meta, for example, raised its Capex guide claiming that it was mostly related to higher memory chip pricing (not necessarily increased capacity). With much of the market expecting higher Capex figures as a sign of growing demand and seeing what memory prices have done, one could argue that Amazon “implicitely lowered Capex” while Meta ultimately “maintained” it. I believe Andy Jassy would disagree here as he alluded to front-loading their memory chip investments, but the truth is that this is something that AI bears can hold on to. All this said, the post-2026 commentary by most of the hyperscalers was unidirectional: they expect to spend a lot of Capex on AI over the coming years.

These memory pricing comments, however, are not great news for Nintendo (which dropped considerably again in Japan). It seems like it’s not only margins that might be at stake but also availability (which would be much worse):

Nintendo reports earnings next week, so we’ll see then. In a recent podcast, Jensen Huang (Nvidia’s CEO) mentioned that chip shortages should be, at most, a 2-3 year problem. He also claimed that the real long-term bottleneck is power. This ultimately means that, while not taking place at the best time possible for Nintendo, the chip shortage can prove to be a temporary problem rather than a structural one.

I also thought there were some interesting read-throughs in Amazon’s and Meta’s earnings for a past investment of mine: Adobe. I believe these comments by Amazon and Meta, by the way, hold things for the bears and the bulls. Amazon claimed that creating digital assets is now more accessible than ever, which will lead to a huge rise in advertisers:

Meta, on the other hand, claimed that they are seeing traction with the gen AI ad creative tools across their advertisers:

A bull would say that creative assets are exploding (which is true and part of the Adobe thesis), and a bear would point out that (at least for individuals) the surfaces on which these assets are created might be shifting (might also be true). The more Amazon and Meta continue outgrowing the ads industry, the most likely it is that an independent creative tool gets disintermediated (although one could argue there’s still a long way to go until this happens).

Amazon’s “other” businesses

A growing subset of AWS revenue is in-house chips. Amazon shared some interesting data around its chips business: it’s already at a $20 billion run rate, growing triple digits year over year, and 40% quarter over quarter. The future looks even brighter: commitments for Trainium are already +$225 billion. Andy Jassy also claimed that the business would be at a +$50 billion run rate if Amazon were to be selling Trainium racks to third parties, which they interestingly plan on doing going forward:

Now, I honestly don’t know what competitive advantage will Trainium racks have against Nvidia’s across the “independent” neoclouds (as Trainium’s competitive advantage rests on the fact that the customer’s data is already on AWS), but it’s interesting optionality nonetheless. The good news is that Trainium doesn’t “need to work” with external providers because it’s already delivering measurables benefits to Amazon and its customers:

Continuing on the topic of AI, I think it’s becoming increasingly evident that AI (and technology in general) is impacting Amazon’s entire business (not just AWS). Take retail. The eCommerce business posted above-average growth and margins (and this despite lower prices YoY). It’s impossible to know for sure, but one could attribute a portion of the accelerated top-line growth to better AI recommendations and initiatives like Rufus or Amazon Now.

One could naturally think (if Meta is any guide) that the Ads business should also improve its performance thanks to AI. Ads growth has not accelerated meaningfully like it has for Meta, but the business continues to grow at +20% rates despite its growing scale. A valid question to make here is whether AI is accelerating the shift to eCommerce by being able to provide better digital experiences that take increased wallet share from shoppers. Based on what we are seeing lately, it surely seems to be the case!

So, while the bears argue that Amazon’s AI investments will not bear fruit, the reality is that Amazon is…

• Enjoying accelerated growth across all of its business lines (especially, but not only, AWS)

• Seeing margins of the entire business expand while those of AWS remain “stable” considering the investment cycle

Bears will always point to the future as the timeline when they’ll be right, but the facts are not currently supporting their narrative. Will this change? Could be, but nobody has a crystal ball. Now, we should ask ourselves what would happen if bears are right. Let’s assume AI demand eventually cools down. In that scenario, Amazon could potentially stop investing as much in capacity, which would result in significant Free Cash Flow generation. P&L margins would most likely be pressured over the short term, but this would not be something new for Amazon (remember the excess capacity period in eCommerce in the post pandemic period?). Overall, I am not overly worried long-term. I suspect that those who should be more worried are the companies whose business model is currently based on monetizing the capacity that the hyperscalers can’t meet (as those would most likely be the first ones to go).

It’s also worth noting that AI (and everything AI brings with it) is not Amazon’s only optionality. The company an accelerating retail business and initiatives like Amazon Leo. Amazon announced a couple of weeks ago its intention to acquire GlobalStar. GlobalStar gives Amazon two relevant things: scarce direct-to-device capabilities and a strong relationship with Apple (not a small feat considering the installed base).

Now, management also shared several relevant highlights. First, they expect to generate the first Leo commercial revenues in a couple of months. This will be good both for the top line and P&L margins. Amazon is currently incurring P&L expenses related to Leo despite this being a “pre-revenue” initiative. This changes in a couple of months. I am not an expert on satellite networks, but I do believe that Leo comes with some differentiation points unique to Amazon (among the other providers):

All in all, outstanding earnings by Amazon which trades at an EV/EBIT of around 35 while it accelerates its growth and margin expansion and in the verge of yet another revenue stream (Leo). Does Amazon seem incredibly cheap at current levels? No, it doesn’t. Is there enough optionality to support the current valuation? I believe there is.

Have a great day,

Leandro

• Revenue of $4.83 billion (up 19% YoY) beat analyst expectations by $300 million (7% beat)

• EPS of $1.68 beat analyst expectations by $0.32 (24% beat)

Even though these beats are outstanding in their own right, it would not be the first time that Texas Instruments benefits from a pull forward which allows the company to take analysts off-guard. This is why the beats should be understood in the context of the outlook. There were also good news here.

Texas Instruments guided for Q2 revenue of $5.2 billion, $330 million ahead of consensus expectations. The EPS guide for Q2 of $1.91 also came significantly above the consensus of $1.57. The market reaction was one would expect after seeing these numbers: Texas Instruments’ stock rose almost 20% to fresh new ATHs and is now up more than 50% YTD:

Texas Instruments is a great example of how the stock market rarely grants investors with linear returns. The past 5 years have been pretty rough for TI shareholders. The destocking took longer to play out than expected and, when it was over, many end markets were already in a downturn. This eventually translated into flat returns for the past 3 years or what Wall Street would coin “dead money.”

The recent run has changed things pretty significantly. The stock is now up 82% over the past 3 years, delivering a 22% CAGR (total return). Let’s take a look at my particular case. I started a position in TI on May 2022. This position had been flat for a pretty long time and was honestly quite exhausting because it was pretty volatile. After the recent run (and including dividends), the position has compounded at around a 15% CAGR. Patience was needed and the path was rocky, but the outcome was the one that was intended in the first place. Where am I going with all of this? Where the stock price has been in the past and what it’s doing in the current time says little about the CAGR one can realize in the future: stock returns are typically non-linear.

Texas Instruments is also a great example of how the investment world “lives off” opportunism (because it sounds very smart at the time). I remember that when the pull forward took TI’s management by surprise and led them to miss earnings (barely a couple of Qs ago), many (opportunisitically) claimed that management had run shareholders over a cliff and that TI “had lost the plot.”

While this might or might not have been true, TI acknowledged their lack of visibility due to their short lead times. The outcome that investors should’ve cared about (even though being an opportunist sounds smart) was that the timing was irrelevant for long-term investors (pretty evident at the time). These people, however, did not miss the opportunity to sound smart (aided by the stock price). Unsurprisingly, one can’t find these same people discussing TI’s earnings today (maybe has to do with the stock price, shocker).

This doesn’t mean that they’ll not return. Management acknowledged again their lack of visibility but mentioned that they had embedded conservativeness in the Q2 guide (which is astonishing considering the magnitude of the beats):

They also alluded to holding their pricing expectations (LSD to MSD decline) unchanged but that the year is constructive of better pricing (another upside lever).

The goal of the article is to briefly go over the earnings and to discuss the valuation. In the last update on TI, I concluded with the following:

With the shares today trading around 30% higher, it begs the question:

I believe the answer to this question is not as direct as it seems, and I’ll aim to explain why in the second section of the article. Now, one thing that I wanted to discuss before jumping into the article is the relative attractiveness of cyclical (but secular) companies for long-term investors. I believe that, in the short-term oriented world that we currently live in, these business can provide pretty appealing opportunities to the patient investor.

For these kind of businesses, investors tend to forget (mostly during downcycles) that operating leverage cuts both ways. When numbers are dropping everyone (including Wall Street analysts) is likely to focus on reported numbers and forget that things can improve relatively quickly once the cycle turns. Many wait until the inflection is already here, but by then, the market has already realized that profits also use the elevator to go up. Texas Instruments is also a good example of this, let’s see why.

Texas Instruments’ quarter

I believe TI’s summary table clearly portrays how good the quarter was:

The first thing that jumps out from the table is that growth is back in full force, which seems to indicate that the cycle has improved materially. TI reported yet another double-digit growth quarter after an encouraging few quarters of double digit growth, but this one was the first that suffered significantly tougher comps (as TI was already growing DDs in Q1 2025):

Management argued that the strength was driven by industrial (+30% YoY) and data center (+90% YoY). They gave several interesting details around these two end markets. On industrial (which recall is the company’s largest end market), management mentioned that (despite the ongoing strength) the company remains 15% below the 2022 peak. If you believe (like I do) that this is a secular market, one would think that the 2026-2027 peak should be around 30%-40% higher than where the company currently stands (the 15% below peak + the secular growth on top). This ultimately means that, despite the recovery, there’s still a long way to go.

On data center, management explained why they believe they have a right to win:

This great growth evidently resulted in considerable operating leverage. For the past two years, I’ve discussed numerous times that TI is a fixed-cost business. This ultimately means that when revenues drop, margins drop significantly, and therefore profits drop considerably more than revenue. I also claimed that the good news was that operating leverage cuts both ways, and this is what we are (positively) experiencing now: operating profits rose 37% on a 19% YoY revenue increase. It seems like operating leverage will continue next quarter: management expects a 35% operating profit increase on a 17% revenue increase.

This profitability improvements are being further amplified on the company’s cash flow statements through lower Capex (as the capacity buildout gets to an end) and unwinding inventory. Recall that both of these things were discretionary hits to cash conversion. Management decided to undertake a massive capex cycle during the downturn due to the belief that its markets are secular and also aided by the fact that the US government was “kind enough” to pay for part of this expansion plan. This expansion phase is now ending, and therefore Free Cash Flow is naturally improving.

The other sleeve of the strategy is inventory. TI ran through the downcycle with an elevated inventory level, for two reasons:

1. The company’s inventory has a low obsolescence risk (i.e., they can carry significant inventory)

2. Management trusted the secular nature of its markets and believed it would allow them to gain share once the market turned

The second thing is already happening: inventory days were down sequentially following the market’s shift and allowed TI to gain share from more capacity-constrained competitors.

Inventory days coming down means better cash flows, which seems pretty evident in the numbers: operating cash flow rose almost 80% this quarter. If there was one misleading metric for TI throughout this entire downcycle, that was Free Cash Flow (and I hope it’s clear why).

These better FCF trends can have potential implications for the 2026 targets set by management during the Capital Management Update. Management believes that, at current growth rates, $8 in FCF per share is probably a tad conservative…

So, what does this imply for the valuation? Let’s take a look.

Is TI still a good deal at current prices?

Read more