Happy Memorial Day.
Our sincerest thank you to all service members and veterans. To those reading that have lost a loved one defending our country β we are sharing our appreciation with you & yours, today & always.
Given this short week in the markets, the next Investing Week Ahead post will be delivered tomorrow.
Portfolio Updates:
No material changes have been made to the portfolio just yet. I shared the below post earlier last week. It detailed a few names I was excited about β so stay tuned to learn more.
With that being said, Iβm thrilled to see my Broadcom (AVGO) position up +61% YTD β itβs so interesting to see βThe Big Techβ trade be something that has taken over many portfolios in 2023.
Broadcom (AVGO) is part of my Dividend Growth Portfolio β and is carrying the performance of this portfolio YTD as Big Tech companies like Google, Nvidia, Apple, Amazon, Microsoft, and others rip higher.
With that being said, I think βBig Techβ is becoming a crowded trade β itβs time to focus on other (much smaller) technology companies such as the ones shared above.
Iβm not at all saying I plan to exit my positions in my βLong Technologyβ subcategory, but instead that I plan to increase the weighting of my βLong Riskyβ subcategory in the coming months.
This subcategory is where I believe substantial alpha will be generated over the next 18-24 months as more and more βBig Techβ companies are stuck between a rock and a hard place, as I alluded to in this post re: Apple.
Week in Review β Too Long, Didnβt Read:
Nvidia reaches ridiculous valuations, but nobody truly knows if itβs overvalued yet, Palo Alto Networks continues to impress, the management team at Loweβs is doing a quality job of controlling costs, Warren Buffett likes Capital One despite banking sector woes, Uber teams up with Alphabetβs Waymo, Meta receives a big fine from the EU and sells Giphy at a loss, Core PCE is ridiculously sticky, itβs becoming a coin flip whether the Fed will hike rates again in June, and high rates havenβt stopped New Home Sales as much as expected.
Key Earnings Announcements:
Nvidia soars, Palo Alto remains a favorite, and Loweβs remains in my batch of stocks that I love to DCA into.
Nvidia (NVDA)
Key Metrics
Revenue: $7.2. billion, compared to $8.3 billion last year
Operating Income: $2.1 billion, an increase of +15% YoY
Profits: $2.0 billion, an increase of +26% YoY
Earnings Release Callout
βA trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process.
Our entire data center family of products β H100, Grace CPU, Grace Hopper Superchip, NVLink, Quantum 400 InfiniBand and BlueField-3 DPU β is in production.Β We are significantly increasing our supply to meet surging demand for them.β
My Takeaway
Unless you live under a rock, youβve likely seen that NVDA blew their revenue expectations out of the water β causing the stock to skyrocket and hit all-time-highs. Personally, I didnβt see this coming.
Instead, I bet on ASML Holdings (ASML) β the company that makes the devices that chip companies like NVDA, AVGO, AMD, and others use to make their chips. I guess you could say I was betting on the manufacturer of the picks and shovels during the AI Gold Rush β thinking these folks would go back and purchase more picks and shovels over time.
ASML is up +40% YTD, while AVGO and NVDA are up much more than that.
Regardless, NVDA is now quickly approaching the $1 trillion market cap club β making it the 6th largest company in the S&P 500. But, at this new all-time-high, is the stock a βbuy?β
Before I answer that question, check out this 2017 semiconductor report I found about the β4th Tectonic Shiftβ published by Jefferies predicting NVDA to become the biggest beneficiary.
Their newest report predicts NVDA taking 80% market share in data centers over the next 5 years β catalyzing $17 in EPS by 2026 (compared to NVDAβs $3.27 in 2023).
With that being said, itβs hard to say if NVDA is βover-valuedβ at the moment. For the best results, dollar cost average into the name over the long-term. Thatβs what Iβll begin doing in the coming weeks myself.
Palo Alto Networks (PANW)
Key Metrics
Revenue: $1.7 billion, an increase of +24% YoY
Operating Income: $78.7 million, compared to -$47.6 million last year
Profits: $107.8 million, compared to -$73.2 million last year
Earnings Release Callout
βWe continued to demonstrate our commitment to profitable growth in Q3. As a result, we are raising our cash flow margin and operating margin guidance for FY'23 as we balance driving efficiency goals while investing for medium-term growth."
My Takeaway
As you all remember from this deep-dive post shared over a year ago now, Iβve been long-time bullish on cybersecurity. Specifically, Palo Alto Networks, Crowdstrike, and most recently SentinelOne.
Palo Alto Networks is up +52% YTD and remains a large position in my portfolio.
Annual recurring revenue (ARR) grew +60% YoY, outpacing expectations of just +56% β while free cash flow margins rose as well. While the microenvironment remains challenging, itβs obvious that PANW is gaining market share.
ARR will remain the most important metric to base PANWβs success against going forward, as itβs a precursor for free cash flow growth. As you can see in the results above, the company is finally operating in a profitable manner β this is largely due to the fact that 30% of the companyβs revenue this quarter was software in nature, compared to only 10% of revenue just 3 years ago.
The company is trading around 20X forward free cash flow (EV/24FCF) which I believe is still attractively priced given their secular growth trend and opportunity to grow top line revenue by +20% YoY for the foreseeable future.
Iβll continue to dollar-cost average into an ever-expanding position. The below chart does a great job illustrating the future of this company in relation to its current stock price.
Donβt sleep on this one.
Loweβs (LOW)
Key Metrics