Valuation multiples above a P/E of 35 have historically signaled that the market is pricing in not only strong growth, but a near flawless scenario for margins, earnings and the macroeconomic environment. Such a valuation is not in itself a mistake. The problem arises when expectations diverge even slightly from reality.

According to long-term studies by Goldman Sachs, stocks trading at extreme multiples have a higher probability of a significant correction when growth slows. The typical risk is not business collapse, but valuation compression, i.e. a return of P/E to its historical average.

The current market is specific in that high multiples are not just concentrated in the technology sector, but across other sectors such as pharmaceuticals.

Each of the following companies has a different growth profile, different cyclicality and different sensitivity to macroeconomic factors. Yet they share one common point: the market is pricing them as if the current growth will last without major fluctuations for many years.

What does the past say about P/Es above 35?

Our team's analysis of long-term S&P 500 index data shows that the average forward P/E has historically ranged between 15-20. Levels above 30 have been particularly common:

• During the dot-com bubble (1999-2000),

• the post-2020 period of extremely low rates,

• high-growth titles in the early stages of expansion.

Interestingly, even quality companies like Microsoft $MSFTAmazon $AMZNonly experienced 30-50% corrections in the past due to overblown expectations, not due to problems in their business.

This creates a key question for 2026:
Is the current premium justified by a structural change in the market and demand, or are we once again in an environment where investors are overvaluing the short-term boom too much?

Nvidia $NVDA

NVIDIA is not just a graphics card manufacturer today. It's a key pillar of the global AI infrastructure. Founded in 1993, the company has gone through several transformations - from gaming GPUs to accelerating computing centers to its current dominance in AI training and model inference. The Data Center segment has become a major source of revenue and profitability and far exceeds the original gaming business.

In recent quarters, the company has reported year-over-year revenue growth in the tens of percentages, with gross margins at extremely high levels of over 70%. Free cash flow is at record levels and the balance sheet position remains very strong. Growth is being driven primarily by massive investments by hyperscalers - Microsoft, Amazon and Alphabet - who are building AI data centers at record scale. Studies by both IDC and Gartner confirm that spending on AI infrastructure will grow at a double-digit rate until at least the end of the decade.

In billions of USD

Source: Bloomberg

Valuation

A P/E above 35 for a company of this size does not represent just a premium paid. It reflects a valuation that assumes the current growth rate will be sustained longer than is historically common in the semiconductor cycle. NVIDIA is already generating tens of billions of dollars in revenue, and the company's market capitalization is the highest in the world. This significantly increases the challenge of continued growth in absolute terms.

Yet the history of the semiconductor sector is characterised by its cyclical nature. Even structurally strong companies have faced periods of sharp slowdown in the past. NVIDIA itself experienced a significant decline in sales and profitability between 2018-2019 and 2022 due to demand correction and inventory overhangs. Back then, it was gaming and cryptocurrencies. Today, it's AI. But the principle of the cycle remains.

The risk is not necessarily a decline in demand, but a slowdown in demand momentum. If revenue growth went from extremes to, say, 20-25% per year, it would still be a very solid pace. However, the market may react by compressing multiples, as current valuations immediately assume exceptional growth and margins over a longer period. Valuation compression for such "expensive" titles can mean tens of percent share price declines even without a fundamental deterioration in fundamentals. Indeed, at current levels they are well above fair value. The Fair Price Index shows that they are as much as 36% above their intrinsic value.

Key risks

The biggest structural risk is the investment cycle of hyperscalers. Historically, we have repeatedly seen that periods of massive CAPEX investment tend to be followed by a phase of optimization and slowdown. If large customers start to defer orders or look for cheaper alternatives, the impact would be immediate.

The second factor is competition. AMD is gradually strengthening its AI accelerators, big technology players are developing their own chips (e.g. Google TPU) and the custom ASIC segment (a chip designed for a specific purpose or a specific company) is growing. While NVIDIA has a strong CUDA ecosystem and a technology edge, pricing power is not guaranteed forever.

Geopolitics also remains a significant factor. Manufacturing is heavily dependent on TSMC $TSMregional risk around Taiwan cannot be ignored. In addition, export restrictions to China may affect part of the addressable market in the long term.

Apple $AAPL

Apple is a very different case than NVIDIA. It is not an explosive growth title, but a global ecosystem with extraordinary customer loyalty, high margins, and one of the strongest cash-flow profiles in the history of corporate America. The company generates hundreds of billions of dollars in annual revenue, has enormous cash on hand, and has a long track record of massive share buybacks.

The key to valuing Apple is not the sale of iPhones alone, but the entire closed ecosystem of services, software and devices. The services segment (App Store, iCloud, Apple Music, Apple Pay and others) has become a stabilizing element of growth and contributes to higher operating margins than hardware alone. In addition, Apple benefits from an extremely strong brand and the ability to monetize its user base repeatedly.

Unlike semiconductor companies, Apple is less cyclical but also significantly more dependent on consumer demand and global economic activity.

Valuation

A P/E above 35 for Apple cannot be interpreted in the same way as for fast-growing technology companies. Apple is not growing at a rate of 50-80% per year. Its growth is much more moderate and in some years even stagnant. The current valuation is therefore based primarily on cash flow stability, brand strength, and the assumption that the company can sustain high margins over the long term.

Historically, Apple has traded at lower multiples, often between 15-25. Low interest rates further encouraged this shift.

The question for the current environment is whether higher interest rates and slowing global growth will limit the market's willingness to pay such a high premium for a relatively low growth rate. If Apple, for example, were to grow at only low single-digit percentages per year, the current multiple may look expensive. According to the Fair Price Index, Apple is closer to its fair value than Nvidia, but still 26% above it.

Key risks

Saturation of the smartphone market remains the biggest risk. iPhones still account for a substantial portion of sales and any slowdown in the device refresh cycle has an immediate impact on results. Consumers are changing devices less frequently today and technological innovations are not as revolutionary as in the past.

Another important area is China, which is both an important manufacturing hub and a key market. Geopolitical tensions and regulations can affect both the supply chain and demand. However, sales of the iPhone 17 have exceeded expectations and the stock has gained solidly over the past week thanks to the strong results.

Regulation of digital platforms is also a growing theme. Both the European Union and the United States are increasing pressure on the openness of ecosystems and the App Store business model. Any restrictions on monetization of services could erode margins.

The structural issue around innovation cannot be ignored either. Investors partly value Apple as a company that will be able to come up with the next big product or monetize AI within its ecosystem. If these expectations do not materialize, valuations may be reassessed. Already, a portion of the market is quite nervous about how Apple is lagging behind on integrating AI into Siri.

Walmart $WMT

Walmart has traditionally been seen as a defensive pillar of American retail. With a history dating back to the 1960s, the company now generates sales in excess of hundreds of billions of dollars a year and is one of the largest employers in the world. Its business model is built on low prices, a massive logistics infrastructure and a strong bargaining position with suppliers.

In recent years, however, Walmart has undergone a significant transformation. It has invested heavily in e-commerce, digitization and logistics, trying to compete not only with traditional chains but also with Amazon $AMZN. The online segment is growing faster than brick-and-mortar stores, while the company is also expanding its activities in advertising, marketplace platforms and fintech services.

This evolution has led investors to partially value Walmart as a hybrid between a defensive retail giant and a technology-driven platform. And this is where valuations start to get interesting.

Valuation

A P/E of over 35 for a company operating in a retail sector where margins are low has historically been uncommon (it's even over 50 for Walmart today!). Retail has traditionally been characterized by high competition, sensitivity to consumer spending, and relatively tight margins. While Walmart has long exhibited stable cash flow and resilience in recessions, its growth rate (in terms of business) has typically been in the low single digits of percentages.

The current premium valuation reflects several factors:

• investors value stability of income in an environment of heightened economic uncertainty

• higher share of e-commerce and advertising services is expected to gradually increase operating margins

• Walmart benefits from the fact that in an inflationary environment it often wins customers seeking cheaper alternatives

However, the question remains whether this combination is enough to justify such a high multiple in the long term. Historically, Walmart has traded at significantly lower P/Es, often between 15-25. If growth slows or margin expansion fails to meet expectations, valuation compression could be gradual.

Key risks

One of the key risks is margin pressure. Retail is an extremely competitive segment and a price war can quickly erode profitability. While Walmart has a strong cost structure and logistical advantage, it operates with very low margins where even small changes can have a significant impact on results.

Another factor is sensitivity to the macroeconomic environment. Although Walmart is considered a defensive title, weaker consumer confidence or a decline in real household income can affect the shopping structure and margin mix.

The capital intensity of transformation or competitors such as Target $TGT is also a risk. Investments in technology, warehouse automation and e-commerce infrastructure are high, and returns from these projects are dependent on the long-term growth of the online segment.

Not to be overlooked is the structural pressure from Amazon and other digital players who operate with different cost and innovation dynamics.

Eli Lilly $LLY

Eli Lilly is one of the most dynamic pharmaceutical companies of recent years. It has grown from a traditional drugmaker to one of the most watched companies in the global market in a short period of time. Primarily due to its breakthrough products in the field of obesity.

Drugs like tirzepathide (Mounjaro/Zepbound) have opened up a huge market. Obesity and metabolic diseases are a global structural problem and the potential of these therapies goes far beyond the original diabetes segment. Analyses by Morgan Stanley $MSGoldman Sachs $GSthat the market for GLP-1 drugs could reach hundreds of billions of dollars annually within a decade.

Eli Lilly's revenue growth has accelerated significantly in recent periods, margins are expanding, and the market has begun to value the company as a winner in the new pharmaceutical era. The traditional pharmaceutical company has become a growth title.

Valuation

The current P/E of over 50 for this company means that investors are valuing not only current earnings, but more importantly, expected long-term market share in GLP-1 and other innovative therapies.

The market assumes that:

• Demand for these drugs will continue for many years,

• the company will be able to increase production capacity without major problems,

• competitors (in particular Novo Nordisk $NVO) will not fundamentally disrupt the market with their drugs,

• regulatory pressure will not significantly constrain margins

However, the pharmaceutical sector is specific in its dependence on patent protection, clinical trials and regulation. Even highly successful companies can face a sharp change in sentiment in the event of unexpected trial results, safety issues or pricing pressure from governments. This can currently be seen in Novo Nordisk $NVO, once Europe's most valuable company, whose shares have already fallen 67% since the peak.

Key risks

If there is a slowdown in GLP-1 drug adoption, production capacity issues or price regulations, valuations could react very sensitively.

Another factor is competition. Novo Nordisk is a strong player with its own successful products and global pharmaceutical companies are investing massive resources in the development of alternative therapies.

In addition, regulatory pressure in the US is a long-standing theme. Debates on drug pricing and healthcare reform can affect the margin profile of the sector as a whole.

The risk associated with extreme expectations cannot be overlooked. Should revenue growth gradually slow from very high rates to more standard levels, multiple compression could occur even with solid fundamentals.

ASML $ASML

ASML is one of the most important, perhaps the most important, companies in the global semiconductor ecosystem. It is not a chip manufacturer, but a supplier of a key piece of equipment - lithography systems - without which the most advanced processors cannot be produced. Its EUV (Extreme Ultraviolet Lithography) technology represents a technological barrier that competitors have not yet been able to overcome.

The company has a de facto monopoly in the segment of the most advanced manufacturing processes. Its customers include TSMC $TSM, Samsung and Intel $INTC. Every advanced chip for AI, data centers or high-end mobile devices today is indirectly dependent on ASML technology.

This unique position creates high margins, strong bargaining power and long-term structural demand. The outlook for the semiconductor sector, supported by the AI boom and geopolitical pressure to localize chip production (US, Europe, Japan), is driving increased investment in manufacturing capacity. And every new fab means potential orders for ASML.

EUV machine demonstration

Source: CNBC

Valuation

ASML's current P/E ratio of 49 is a reflection of its almost irreplaceable position. Investors appreciate the technological dominance, high barriers to entry and long-term growth of the addressable market.

At the same time, it is important to note that ASML is strongly tied to the semiconductor industry's investment cycle. Although it has a unique technology, its revenues are dependent on CAPEX spending by chip manufacturers. These have historically shown significant cyclicality.

In the past, we have seen periods of rapid growth followed by a slowdown or temporary decline in orders. If investment in manufacturing capacity slows, for example due to overcapacity, weaker demand for end devices or geopolitical constraints, results can fluctuate significantly.

Key risks

One of the biggest risks is geopolitics. Export restrictions to China have already affected some orders in the past. As China represents a significant market for the semiconductor industry, further tightening of regulations may impact the company's growth profile.

Another factor is the cyclicality of chipmakers' investments. Should there be excessive capacity building during the AI boom, a period of consolidation and weaker orders may follow. This could lead to fluctuations in sales and margins.

Technological evolution is also a risk. Although ASML is virtually indispensable in the EUV segment today, long-term development of alternative technologies or changes in manufacturing architectures could theoretically reduce dependence on extremely expensive lithography systems.

Micron Technology $MU

Micron is probably the most cyclical player on today's list. The company is a key manufacturer of DRAM and NAND memory chips, which are essential components of servers, data centers, mobile devices, and AI accelerators. However, the memory segment has historically been characterized by extreme volatility. Periods of scarcity have been interspersed with periods of excess inventory and sharp price declines.

In the last cycle (around 2000), Micron went through a deep slump (up to 92%) when memory prices came under pressure and the company showed a significant deterioration in profitability. But then came a recovery in demand, fuelled by the AI boom, which is increasing memory capacity requirements in data centres. High Bandwidth Memory (HBM) modules have become a key element of AI infrastructure and Micron is one of the suppliers in this segment.

This turn in the cycle has led to a sharp improvement in expectations and a rise in the share price.

Valuation

A P/E above 54 for a memory manufacturer has historically been the exception rather than the norm. The memory sector tends to be more conservatively valued precisely because of its cyclicality. The high multiple today reflects that expectation:

• The AI boom will create higher structural demand for memory over the long term,

• Industry pricing will be stronger than in the past,

• Capital intensity and market consolidation will reduce the risk of overproduction.

The question is whether this time it really is a structural change or just another phase of the traditional memory cycle. The history of DRAM and NAND sales shows that periods of high prices motivate manufacturers to increase capacity, which in turn leads to oversupply and pressure on prices.

Memory companies are usually the first to experience a slowdown in investment in servers, PCs or mobile devices. In the event of a weakening of global demand or a temporary saturation of AI investment, the response can be swift.

This week, however, the $MUshare price target was raised to $600. That would correspond to a rise of up to 50% from current levels. But this is at odds with the Fair Price Index, which now reports that Micron's stock is already significantly overvalued.

Key risks

The biggest risk remains memory price volatility. Even small changes in supply and demand can significantly affect average selling prices and margins. While Micron has technological quality and a strong position, it operates in a segment where pricing power is more limited than, for example, ASML $ASMLNVIDIA $NVDA.

Another factor is the capital intensity of production. The investment in new production lines is extremely high and the returns depend on steady growth in demand. Any slowdown can negatively affect cash flow.

The geopolitics and export restrictions that have affected some US semiconductor companies in the past cannot be ignored either. The memory market is global and sensitive to trade tensions.

Conclusion

The current environment shows that the market is willing to pay a significant premium for growth, stability and future prospects. High multiples, however, automatically increase the sensitivity of stocks to any disappointment, whether it be a slowdown in growth rates, margin pressure, regulatory intervention or a change in macroeconomic conditions. The history of capital markets repeatedly confirms that periods of valuation expansion tend to be followed by valuation normalisation without necessarily worsening the business itself. Thus, the risk is often not a fundamental collapse but a compression of multiples.

It is therefore crucial for investors to perceive the difference between a quality company and an attractive price. Premium valuations can be sustainable over the long term if supported by stable real growth and a strong competitive advantage. However, if expectations begin to exceed realistic earnings scenarios, volatility becomes a natural part of the stock's evolution. Thus, in an environment of elevated rates and geopolitical uncertainty, disciplined valuation work remains one of the most important factors in managing risk across the equity market.

Context, however, matters. Year-over-year comparisons are becoming tougher, regulatory pressure on short-term rentals is increasing in several major cities, and competition within online travel remains intense. Against that backdrop, a roughly 30% EBITDA margin, nearly 40% free cash flow margin for the year and renewed booking growth form the backbone of the investment case. The question is not about demand resilience, but about how durable this margin structure remains as growth scales.

How was the last quarter?

The fourth quarter of 2025 was the strongest in terms of momentum in two years. Revenues reached $2.8 billion, up 12% year-over-year (11% excluding the impact of foreign exchange rates). The company beat the high end of its guidance.

Gross Booking Value (GBV) rose 16% to USD 20.4 billion, or 13% excluding FX. This is the fastest growth rate in more than two years and a clear signal of accelerating demand compared to previous quarters. The number of nights and seats booked reached 121.9 million, up 10% year-on-year and a sequential acceleration from Q3.

Average rate per night (ADR) reached USD 168, +6% y-o-y (3% ex-FX). Growth was driven by both price appreciation and a favourable mix. This means that Airbnb is not only growing in volume, but also in quality of revenue.

Profitability remained very strong:

• Net profit: USD 341 million

• Net margin: 12%

• Adjusted EBITDA: USD 786 million

• EBITDA margin: 28%

• Free cash flow: $521 million

• FCF margin: 19%

Airbnb $ABNB thus reaffirmed its ability to generate strong cash flow even with investments in product, AI and expansion.

• Full presentation with results.

Management commentary

Management highlighted that Q4 was the result of improvements to the core product - better search, more flexible payments, adjusted cancellation terms and greater local relevance in expansion countries.

CEO Brian Chesky openly communicated that 2026 is set to be an acceleration year. The company wants to further improve the user experience, expand its service offerings (including hotel pilots) and massively integrate AI into search and customer support. The goal is to increase conversion and reduce customer service costs.

Outlook

Q1 2026

Airbnb expects:

• Revenue of $2.59-2.63 billion

• Year-on-year growth of 14-16% (including approx. 3 p.p. FX upside)

• GBV growth in the low double-digit percentages

• High single-digit bookings growth

• Stable EBITDA margin year-over-year

Full year 2026

The company expects:

• Acceleration of revenue growth into the low double digits at a minimum

• Stable Adjusted EBITDA margin

• Continued strong cash generation

In other words, management does not expect a slowdown, but rather a further acceleration in growth.

Long-term results

A look at the last four years shows a significant transformation of the company. In 2021, revenues reached $5.99 billion. A year later, they rose to $8.40 billion, in 2023 to $9.92 billion and in 2024 to $11.10 billion. Airbnb has thus almost doubled the size of its business in three years.

Gross profit rose from $4.84 billion in 2021 to $9.22 billion in 2024. Operating profit increased from $429 million to $2.55 billion. Adjusted operating profit before depreciation and amortization increased from $276 million in 2021 to $2.62 billion in 2024. This shows a significant improvement in operating leverage, with revenue growth delivering above-average profit growth.

Net income has moved from a modest loss in 2021 to strong profitability. 2023 was particularly strong, with net profit reaching $4.79 billion, while 2024 brought in $2.65 billion. Despite normalization, the company remains steadily profitable and generates strong free cash flow.

The gradual reduction in the number of shares outstanding is also a significant factor, supporting earnings per share growth. The combination of revenue growth, improving operating efficiencies and strong cash flow is creating a more stable financial profile than in the post-pandemic period.

News

Airbnb significantly expanded its offerings beyond traditional short-term rentals during the year. The Airbnb Services and Airbnb Experiences project is gaining momentum, and nearly half of experience bookings in the fourth quarter were not tied to accommodation bookings, suggesting the emergence of a separate demand segment.

The company has also begun piloting with boutique and independent hotels in select cities where the supply of apartments is limited by regulation. The goal is to expand the addressable market, capture some of the demand that would otherwise go to traditional hotel platforms, and increase the frequency of return users.

The integration of artificial intelligence remains a major strategic priority. AI customer support already works in multiple languages and regions, significantly reducing the time to resolve requests. In the future, Airbnb wants to use AI in search as well, so that users can describe what they are looking for in natural language and get a more personalized offer.

Shareholder structure

Airbnb has a strong institutional base. Approximately 85 percent of shares are held by institutional investors, while insiders hold roughly one and a half percent. The largest stakes are held by Vanguard, BlackRock, and State Street, all long-term global asset managers. Such high institutional participation typically means a greater emphasis on capital discipline, return on capital and steady growth in profitability.

Analyst expectations

Analysts will primarily be looking at the sustainability of double-digit bookings growth in 2026 and the firm's ability to maintain high margins while continuing to invest in product and technology. Regulation of short-term rentals in major cities and its impact on supply is also a key theme.

The market expects Airbnb to be able to maintain a growth rate above ten percent even in a slowing global economy. If the company manages to confirm acceleration in the first half of 2026 while maintaining an EBITDA margin of around 35 percent on an annualised basis, this could boost investor confidence in its long-term growth trajectory.

Fair Price

Microsoft $MSFT I’ve had on my watchlist for a while with a clearly defined entry price of 390 USD. It’s one of those “must-have” stocks I don’t currently hold in my portfolio. I’m prepared to invest 1.8% of the total value of my USD portfolio once it reaches that level. My long-term target price is 520 USD.

Two main positives for MSFT

1. Dominant position in cloud and AI Azure continues to gain market share and the integration of OpenAI technologies supports accelerating growth in the Intelligent Cloud segment. Growth of around 15–18 % year‑over‑year is expected in the coming quarters.

2. Exceptional financial strength Stable double-digit earnings growth, operating margins around 45 %, massive free cash flow and an extremely strong balance sheet make Microsoft one of the highest-quality long-term “compounder” stocks on the market.

Two potential drawbacks

1. Premium valuation Even at 390 USD the stock trades at roughly 32–33× forward earnings, which means a smaller margin of safety if growth slows or macroeconomic conditions worsen.

2. Regulatory and competitive pressures Antitrust scrutiny, especially in cloud and AI, and strong competition from AWS and Google Cloud could gradually put pressure on margins and growth.

For now I’ll patiently wait for the 390 USD level before opening a position. This approach fits my disciplined, value-oriented strategy—buying quality companies when they’re available at a reasonable entry price.

How do you view $MSFT at current levels? Are you waiting for a better price or do you already have a position open? What is your target price?

The more important shift lies in business quality. BAT added 4.7 million smokeless users, bringing the total to 34.1 million, while smokeless products accounted for 18.2% of group revenue, up 70 basis points year over year. This is no longer just a transformation narrative; it is a measurable and steadily growing share of revenue that is reshaping the earnings profile of the company.

How was the last quarter?

$BTI publishes preliminary results for the full year, but some key trends are evident in just how the firm describes the second half of the year and the regional drivers. In 2025, "new category" momentum improved - particularly modern oral products - while the firm also mined surprisingly strong performance from traditional cigarettes in the U.S. thanks to price and mix. That's the combination investors paradoxically want in tobacco companies: a transformation toward smokeless products, but without breaking up the traditional cash cow faster than the new business can grow.

At constant currencies, group sales grew 2.1%, and the driver was clearly in the US, where sales grew 5.5%. BAT says the US was helped by a combination of a strong price/mix effect in cigarettes, and a very strong ramp-up of Velo Plus, where modern oral products jumped 310% year-on-year to £327m. That's an extremely high rate, which in tobacco often means two things at the same time: firstly the 'launch effect' and rapid share gain, and secondly that the company is investing in promotion and distribution and looking to make this a long-term category.

Vaporizer performance, on the other hand, is the weaker part of the story. The company admits a decline in vaporizer sales, mainly due to the proliferation of illegal products in the US and Canada and also due to regulatory and tax changes in some European countries. This is important because vaporizers have historically been seen as the main "alternative" to cigarettes. BAT is now effectively saying: our Vuse product has good potential in the long term, but in the short term the category is distorted by the illicit market and without better enforcement of the rules we cannot expect smooth growth.

• Full presentation with results.

Top points:

• Revenue: £25.610bn.

  • -1.0% YoY

  • +2.1% at constant exchange rates

• New categories - revenue: £3.621bn.

  • +7.0% at constant exchange rates

• Smokeless products as a proportion of sales: 18.2% (+70bps)

• Operating profit (reported): £9.997bn.

  • +265 %

• Adjusted operating profit: +2.3%

• Reported operating margin: 39.0%

• Adjusted operating margin: 44.0% (stable y/y)

• Earnings per share (diluted EPS, reported): 349.1p

  • +157 %

• Adjusted earnings per share: +3.4%

• Net cash flow from operations: £6.342bn

CEO comment

Tadeu Marroco is building the whole 2025 story on "accelerating momentum" and the fact that the company delivered results at the top end of its outlook. In practice, this is communication like: we have the traditional part of the business under control, growth and margins are improving in smokeless products, and cash is giving us room to both invest and pay out.

What he says is most valuable is a specific detail from the US: the Velo Plus had triple-digit sales growth, the Velo brand was second in volume and value share and - crucially for the market - achieved 'categorical profitability' within a year of launch. This suggests that it is not just a costly acquisition phase, but that the product can generate a profit contribution relatively quickly.

With Vuse, the tone is more cautious but structured: the performance improvement is encouraging, it's just that the whole segment is hampered by illegal supply. Marroco is essentially betting that, in time, tougher enforcement of rules will come at the federal and state level, and legal players will benefit. That's a significant "regulatory bet": without it, vaporizer growth may stall further.

Regionally, the CEO says AME (Americas and Europe) continues to pull more product categories, while APMEA (Asia-Pacific, Middle East, Africa) has been hit by fiscal and regulatory issues in Bangladesh and Australia.

Outlook for 2026

The outlook is written fairly straightforwardly, and at the same time the firm has its back: it expects to perform at the lower end of its medium-term outlook.

For 2026, BAT expects global cigarette market volume to fall by around 2%. Yet it is targeting constant-currency sales growth of 3-5%, with new category sales expected to grow at a low double-digit rate. Operating profit on an adjusted basis is expected to grow 4-6% and be "second half of the year stronger than the first", which usually means that some of the investment and costs will come earlier and the benefit will come later. Adjusted earnings per share is expected to grow 5-8%, but again at the lower end.

Currency-wise, the company says outright that it expects about a 1% negative impact of the transaction rate on earnings and about a 3% headwind to adjusted EPS growth from currency translation. This is exactly the type of thing that may seem like a detail, but for a global firm, it often determines whether or not the headline numbers "look good" even though the operating reality is fine.

From a balance sheet perspective, the important thing is the commitment to reduce debt to the 2.0-2.5× net debt to EBITDA range by the end of 2026. The company is currently around 2.48×, so already virtually inside the target, and plans to achieve this thanks to very high operating cash conversion, where it is targeting over 95%. That's more important to the dividend title than one-time revenue growth percentage: the ability to generate cash while keeping leverage in check.

Long-term results

The four-year track record confirms the company's structurally strong but accounting-volatile profile. Revenues rise from GBP25.684bn in 2021 to GBP27.655bn in 2022, then fall slightly to GBP27.283bn in 2023 and GBP25.867bn in 2024. Gross profit holds steady above GBP21bn. GBP 21.087 billion in 2021, GBP 22.851 billion in 2022, GBP 22.392 billion in 2023 and GBP 21.431 billion in 2024, reflecting the strong pricing and high margin of the traditional tobacco business.

The largest fluctuations are at the level of operating and net profit. Operating income was GBP 10.234 billion in 2021 and GBP 10.523 billion in 2022, but fell to - GBP 15.751 billion in 2023 due to massive exceptional items, before returning to positive territory in 2024 at GBP 2.736 billion. We see the same picture for net profit: GBP 6.801 billion in 2021, GBP 6.666 billion in 2022, a loss of GBP -14.367 billion in 2023 and a return to profit of GBP 3.068 billion in 2024. This confirms that it is crucial to separate structural operating performance from accounting one-offs when assessing BAT.

What has really changed in the mix of the business in 2025

The strongest structural signal is the shift in smokeless products to 18.2% of sales and growth in users to 34.1 million. This is important for three reasons. Firstly, it increases the share of growth categories in total sales, reducing the reliance on declining cigarette volumes. Second, the company explicitly says it is investing in the most profitable markets and the priority is to grow profit contribution, not just chase sales. And third, 'new categories' are no longer just an expense but are starting to be a significant profit chapter - category contribution from new categories rose 77% to £442m and contribution margin rose to 11.8%.

This is exactly the point at which the transformation changes from marketing story to accounting reality: revenue growth is fine, but profit contribution growth is what can protect the dividend and buybacks in the long term.

Shareholder structure

Compared to US blue chips, BAT is less "institutionally loaded". Institutions hold roughly 13.5% of the stock, insider holdings are minimal. The largest institutional holdings include Capital International Investors (c. 2.96%), GQG Partners (1.31%), Capital Research Global Investors (1.03%) and FMR (0.94%). For UK titles, this is often related to the holding structure through various nominee accounts and specifics of recordkeeping, but the point for investors is more practical: the exchange rate may be more sensitive to capital flow with a smaller "hard" institutional core than is common with, say, Coca-Cola.

Capital allocation and shareholder return

BAT for 2026 confirms two things that dividend investors want to hear: dividend growth and buybacks. The dividend per share is rising 2% to 245.04 pence, while the firm plans a £1.3bn share buyback in 2026. To this it adds a commitment to get debt into the 2.0-2.5x target range by the end of 2026 and to hold a very high cash conversion. This is the typical "cash return" profile of tobacco companies: earnings growth tends to be moderate, but return on capital is the main investment thesis.

What to watch in 2026

Most importantly, there are three specific monitoring points that tell us if the investment thesis is being met.

The first is the growth rate of advanced oral products, particularly in the US, not just at the level of sales but at the level of profit contribution. If Velo maintains a high pace while improving profitability, it will be the fastest way to move the smokeless mix towards a higher share.

The second thing is the Vuse vaporizer and the evolution of the illicit market. This is not so much about marketing as it is about regulatory enforcement. Once the market starts to clear of illegal products, the legal players have a chance to step up. If that doesn't happen, vaporizers may remain the weak link.

The third is APMEA and regulatory risk. The company itself says Bangladesh and Australia hurt it in 2025. If the environment stabilises, the region may make a partial comeback. If not, it will continue to hamper consolidated growth.

Fair Price

What Wall Street Is Predicting

Ahead of the release, consensus estimates suggest Vale is likely to post earnings per share around $0.56 to $0.58 for the quarter, a figure that analysts will be keen to see beat or miss relative to expectations. These forecast figures will be juxtaposed with broader production data and commodity pricing to determine whether Vale’s net income reflects operational execution or continues to show sensitivity to iron ore, copper and nickel market pressures.

Vale’s trailing valuation metrics including a price-to-earnings ratio near the low teens highlight the company’s cyclical nature and create the potential for sharp moves on positive or negative earnings surprises.

Production and Sales Strength in Q4

Vale enters the earnings release with strong operational metrics already reported for the quarter, which could underpin a solid top-line performance irrespective of commodity price volatility. According to the company’s own production and sales release, iron ore output in Q4 reached 90.4 million tonnes, a 6 percent year-over-year increase, while iron ore sales hit 84.9 million tonnes, up 5 percent, illustrating robust operational momentum. These production gains come amid Vale’s strategy to prioritize quality iron ore products and optimize cost structures.

Beyond iron ore, Vale has also been increasing output in other base metals. Recent reports indicate that copper production climbed to roughly 108,100 tonnes in Q4, alongside a 2 percent rise in nickel output, suggesting diversified contributions from multiple commodity streams.

Commodity Prices, Guidance and Strategic Shifts

Commodity price fluctuations remain a key influence. Iron ore and base metals markets have seen mixed signals this year, with global steel production and Chinese demand dynamics shaping realized pricing environments. A strong production backdrop may offset weaker price realizations, but margins will remain sensitive to unit price changes.

Investors are also watching capex guidance and cost expectations for 2026, with Vale previously trimming investment plans for growth segments to focus on high-return assets. A leaner capital expenditure profile may support improved free cash flow generation, particularly if realized commodity pricing stabilizes.

Dividend and Shareholder Returns

Vale’s commitment to returning capital has been another focal point for investors. The company’s Board approved shareholder remuneration packages in 2025, with dividends and interest payments totalling approximately R$ 3.58 per share scheduled for early 2026 a yield notable in the materials sector. A strong dividend, combined with a potential share buyback program, may help cushion share price volatility post-earnings and attract income-oriented investors.

Broader Market Context and Sector Rotation

Vale’s earnings come at a time when cyclicals and value stocks are gaining attention amid a rotation away from pure tech growth stocks toward commodity-linked names and basic materials. This backdrop could amplify reactions to Vale’s reported numbers, with iron ore producers often acting as bellwethers for global industrial demand.

$VALE shares have already seen heightened volatility in early 2026, navigating swings tied to production news, permit risks and broader macro sentiment. A positive earnings surprise particularly one tied to stronger revenue or guidance could reinforce bullish narratives and position Vale among cyclical outperformers in materials.

What Investors Will Be Watching After the Print

When Vale’s earnings are released, several data points and narrative cues will influence market reaction:

Revenue and EPS Beats: Whether net sales and earnings per share exceed expectations, especially in light of recent production strength.
Cost Metrics and Margins: Impact of realized commodity pricing and unit cost trends on operating margins.
Guidance and Forward Outlook: Management’s commentary on 2026 production targets, pricing expectations and capex plans.
Dividend and Capital Return Plans: Clarity on dividend sustainability and potential enhancements to buybacks.

This earnings release could serve as a pivotal moment for Vale’s stock trajectory, offering investors clarity on how operational execution is translating into financial results amid an evolving commodity cycle.

Marvell Technology sits firmly in that second category. It is not the face of AI hype, but embedded deep inside hyperscale infrastructure—where the focus is on moving data faster, cheaper and more efficiently between compute clusters. The long-term opportunity is substantial, yet near-term visibility is inherently limited. That tension explains why analysts can simultaneously point to significant structural potential while trimming ratings. The debate is not about the relevance of the technology, but about the gap between total addressable market and reliably modelable cash flow—and whether that gap narrows over time or remains a structural feature of the business.

Top points of analysis

• Marvell is not the direct beneficiary of AI demand, but the supplier of the optimization layer

• Custom silicon can generate hundreds of millions of USD per year per project, but with a limited lifespan

• Company's results are more sensitive to timing than absolute market size

• Networking and electro-optics are not a bonus, but a necessary counterbalance to ASIC volatility

• Current valuations imply that the market is pricing in continued uncertainty

• True rerating requires a reduction in the dispersion of results, not more "one-off wins"

Company profile - Marvell as an engineering partner, not a product vendor

Marvell $MRVL cannot be analyzed in the same way as a standardized chip manufacturer. The company is inherently project oriented. Most of its value is not created by selling a finished product, but by participating in the design of a solution that becomes part of the customer's internal infrastructure. This has several implications that are key for investors but often overlooked.

First, the development cycle is long. A typical custom project involves 24 to 36 months of intensive R&D, during which Marvell bears the cost but generates no revenue. These costs show up on the books immediately, while the benefits come with a delay. This creates a time mismatch between investment and revenue that complicates the interpretation of margins and cash flow in each year.

Second, successful integration does not mean automatic continuity. Once one generation of chip is deployed, work on the next begins almost immediately. Each generation, however, is a new customer decision - they can continue with the same partner, split the order, or change the architecture altogether. This means that lock-in exists, but it is limited in time.

Third, project economics are extremely asymmetric. A single successful project can generate $300-600 million per year at its peak. However, if the next generation does not follow, the revenues from that project can drop to zero within 12-24 months. This profile is fundamentally different from companies with recurring contracts or a subscription model.

Market breakdown, breakdown of numbers, breakdown of expectations

The addressable market for custom AI chips is often presented in the order of $30-50 billion per year over a few years. Even if Marvell only captures 3-4% of this market in the long term, this would mean USD 1-2 billion in annual revenues from this single area alone. This is a number that in itself justifies the investment interest.

The problem is not the size of the market, but the pace of its monetisation. Revenues do not accumulate linearly. On the contrary, they come in shock waves. If one project peaks in 2025 and the next project does not take off until 2027, there is a 'gap' in 2026 that will show up in the accounts as stagnation or even a decline. This is exactly the scenario that more conservative analysts are working with.

TD Cowen therefore assumes in its models that ASIC revenues will be roughly flat year-over-year in 2026, while the consensus still expects growth in the high single digits to low single digits of a percent. The difference between the two views could mean a difference of $400-600 million in revenue and $0.60-1.00 in EPS over a two-year horizon.

From an investment perspective, that's a huge difference. Not because one view is "right" and the other is "wrong," but because it shows how wide the range of possible outcomes is.

Data-center networking and electro-optics - why they must work flawlessly

If custom silicon is not contributing to growth in a given year, all the pressure shifts to the rest of the data-center portfolio. TD Cowen estimates that networking, DSP and electro-optics account for approximately 50% of non-ASIC data-center revenue. For Marvell to meet market expectations with ASICs stagnating, this segment needs to grow 18-22% per year.

This is not an "optimistic scenario". That's the minimum necessary to keep the overall story together. Any shortfall - technological, competitive or price - will immediately show up in the overall numbers. For example, a loss of 3 percentage points of market share in this segment can mean $80-120 million in lost revenue per year, which directly impacts EBIT and EPS.

Moreover, this segment is in the midst of a technological transformation. The move to 1.6Tb transmissions is increasing pressure on power consumption and opening up space for new architectures such as linear pluggable optics. These changes are not marginal - they could rewrite the competitive map within a few years. For Marvell, this means the need to continuously invest in R&D, which further increases the fixed cost base.

How to perceive all this?

Most investors are now fixated on Marvell that the key to the stock's performance is the success or failure of custom AI chips. This view is understandable but incomplete. In fact, there is a second, less visible part of the datacenter business that plays a critical role in how stable the company's future results will be - networking and electro-optics.

These segments address data transfer within AI clusters, latency, energy efficiency, and infrastructure scalability. These are not one-off projects, but a technology layer that must be refreshed and expanded with each incremental increase in computing power. That's why their growth is slower but significantly more predictable than custom ASIC solutions.

If the custom business were to stagnate in any given year, while networking and electro-optics were to grow at a rate of 15-20% per year, which is consistent with realistic AI datacenter expansion scenarios, with these segments accounting for roughly 50% of Marvell's datacenter revenue, this would mean a $400-600 million increase in revenue over two to three years. That's a volume that has a real impact on the company's overall picture.

At an operating margin of around 15%, this growth translates into an additional $60-90 million of EBIT, which equates to roughly $0.20-0.25 of annual earnings per share. In other words, even without a "win" in custom chips, the company can generate visible EPS growth if it maintains its technology and market position in this infrastructure tier.

Operating leverage - the math that both scares and entices

Marvell has a high proportion of fixed costs, especially in development. This is inevitable - without massive investment in R&D, the company would lose relevance. But it also means that its financial results are extremely sensitive to relatively small changes in revenue.

Put simply:

• +10% of sales can mean +25-30% of EBIT

• -5% of sales can mean -15-20% of EBIT

This asymmetry is key to understanding why the stock behaves so volatile. It's not that the business is weak. It's that the dispersion of possible outcomes is wide and investors are unwilling to pay premium multiples without clear visibility.

Why the market is paying for uncertainty, not technology

Marvell's current valuation is best understood as a weighted average of scenarios. The market is allowing for the possibility of the company becoming a stable pillar of AI infrastructure, but it is also hedging against a scenario where it remains project volatile.

If volatility could be reduced and predictability increased, the implications for valuation would be dramatic. Not because the technology would change, but because the expectation interval would narrow. That is the main driver of rerating - not the growth of the AI market itself.

Forecasting the markets in which Marvell operates

1) Broader megatrend: AI servers and AI chips (context for why the whole chain is picking up)

• AI servers: growth estimate of roughly $140bn (2024) to $800-850bn (2030), a CAGR of over 30%. This is the "fuel" that drives networking and optics (no AI cluster scales without it).

• AI chips for data centres and cloud: forecast ~$453bn by 2030 (IDTechEx), with a reported CAGR of ~14% (2025-2030). This is an extremely broad category (GPU/CPU/ASIC/memory-adjacent), but it anchors well that this is not a short shot.

What Marvell is taking from this: not primarily a "GPU story" but an infrastructure story - data transfers (switching/optics) and custom silicon for hyperscalers.

2) Custom silicon / datacenter ASICs: most direct "Marvell leverage" on AI capex

• The TAM of datacenter ASICs (custom accelerators / custom silicon) is estimated to be ~$50-70 billion, according to MediaTek's CEO's statement related to AI (and this is exactly the type of space where the "build vs buy" in hyperscalers is addressed).

How to apply this to projections for Marvell (illustratively, scenario-wise):
If TAM was $60B and Marvell was a long-term buy:

• 2% share → ~$1.2 billion per year

• 4% share → ~$2.4 billion per year

• 6% share → ~$3.6 billion per year

3) AI "back-end" networks: a giant spend that defines the need for switches and optics

• Dell'Oro reports that the AI back-end switch market is set to exceed US$100 billion by 2030.

Important for the article: this number is a bet on network infrastructure/switches, not pure "silicon TAM". But it's extremely relevant to Marvell because:

• the more AI fabric is built (both scale-out and scale-up)

• the more there is a growing need for switch ASICs, retimers/DSPs, optical modules, coherent solutions

4) Optics for AI clusters: the fastest growing "visible" layer

LightCounting describes a new segment of optics for AI clusters (optical transceivers + LPO + CPO):

• ~$5 billion (2024) → more than $10 billion (2026), a doubling in 2 years, with growth to slow briefly after the first wave and then return to double-digit growth again 2028-2030.

What Marvell takes from this: this is exactly the "electro-optics" space (retimers, PAM4 DSPs, possibly parts around optical modules), a layer that needs to grow even if custom ASICs are just "waiting for the next generation".

5) Optical communication chipsets (PAM4 + coherent DSP)

This is a key one for Marvell:

• LightCounting expects the IC chipset market for optical communications to grow from roughly ~$3.5B (2024) to >$11B (2030), at a CAGR of ~17% (2025-2030).

How to translate this into "stock" math:

• If the market is at $11 billion in 2030 and Marvell should:

  • 10% → ~$1.1 billion.

  • 15% → ~$1.65 billion

  • 20% → ~$2.2 billion

Investment scenarios 2026-2029: three paths for Marvell

For Marvell, the main question is not "will the AI market grow?", but how smoothly the custom business will build on next-generation projects and whether networking + optics will maintain momentum in years when custom chips don't exactly "contribute". The scenarios below are not clear predictions - they are three realistic "maps" of how the story may unfold depending on whether the company can reduce the volatility of results.

Optimistic scenario: results settle down, "gaps" between projects disappear and the market overvalues the company

What's happening in the business: Marvell continues to win and, more importantly, advocate for next-generation custom chips at hyperscalers. While growth is not perfectly linear, there are no annoying "holes" between generations. At the same time, networking and optics are growing so fast that they act as a stabilizer in the worse quarters. This makes the company more predictable for investors - and that's exactly what unlocks higher earnings multiples.

What has to fit:

• Custom projects follow on (there is no significant "overflow" of earnings between generations)

• networking + optics keep the pace high (simplified "AI clusters are growing and need to connect")

• mix gradually improves and operating leverage starts to work (better margins on revenue growth)

• Most important: the market starts to see the company less as a "project lottery".

Projections (indicative):

• 2026: revenue ~$6.8 billion, operating margin ~15%, EPS ~$2.40

• 2027: revenues ~ USD 7.6 billion, operating margin ~ 16%, EPS ~ USD 2.90

• 2028: sales ~ USD 8.5 billion, margin ~ 17%, EPS ~ USD 3.40

• 2029: sales ~ USD 9.5 billion, EPS ~ USD 4.00

What this may mean for valuation: once uncertainty is reduced, the market is typically willing to pay a higher earnings multiple. In an optimistic scenario, a range of roughly 22-25x earnings makes sense as the company operates more stably. This is a scenario in which "rerating" towards higher price levels (typically the upper teens, or even $85-100 in the long term, depending on how much the market values predictability) can be defended.

Realistic scenario: AI grows, but Marvell remains project volatile - without much "repricing"

What's happening in the business: AI infrastructure continues to expand, it's just that custom projects aren't coming in at the "right pace". Sometimes they help, sometimes they shift, or some of the volume gets diluted. Networking and optics are growing, but not flawlessly - sometimes competition or price pressures hit. So the company grows, just more slowly and with occasional swings that still make the market refuse to pay a significant premium.

What needs to fit (to be a "base", not a bear):

• networking + optics continue to grow, though not extremely

• custom business is not a disaster, more "flat" in some years

• margins are improving only slowly, but not getting worse structurally

Projections (indicative):

• 2026: revenue ~$6.2 billion, EPS ~$2.00

• 2027: sales ~ USD 6.6 billion, EPS ~ USD 2.20

• 2028: sales ~ USD 7.0 billion, EPS ~ USD 2.45

• 2029: sales ~ USD 7.4 billion, EPS ~ USD 2.70

What this may mean for valuation: here, the market usually remains cautious and keeps the company more in the "normal" multiple range (say around 16-19x earnings). Earnings then stand more on the company working off growth than a big jump in valuation.

Pessimistic scenario: timing fails, custom projects create a "hole" and networking doesn't cut it

What's happening in business: it's not that AI is going away. It's about a few key customers shifting or reshuffling projects in a way that creates a generation gap for Marvell - and revenue from custom chips visibly weakens. Networking and optics may be growing, but not fast enough to make up for the shortfall. Price pressure can add to this, and the company bears high fixed development costs - so even a small revenue shortfall will hit profits uncomfortably hard.

What goes wrong (typical triggers):

• A custom project gets delayed by 6-12 months (looks like "stagnation/decline" in accounting)

• customer splits the contract or changes the architecture

• networking/optics slow down (competition, pricing pressure, slower rollout)

• fixed costs remain, so margins and profits fall faster than sales

Projection (indicative):

• 2026: revenue ~$5.8-6.0 billion, operating margin ~10-12%, EPS ~$1.40-1.60

• 2027: revenues ~ USD 5.9-6.2 billion, EPS ~ USD 1.50-1.80

• 2028: sales ~ USD 6,2-6,6 billion, EPS ~ USD 1,80-2,10

• 2029: sales ~ USD 6,6-7,0 billion, EPS ~ USD 2,10-2,40

What this may mean for valuation: In a pessimistic scenario, the market typically "punishes" uncertainty and depresses multiples (e.g. 12-15x earnings). Even if the company continues to make sense technologically, the stock may behave like a title without clear visibility - i.e., long "trapped" in a low valuation.

Final framework

Marvell is not a bad company in the right market. It is a complex company in the toughest part of the right market. Its potential is real, but the path to monetizing it is fraught with disruption, delay and uncertainty. That's why investors are hesitant - and why this title is of interest to those who want to go beneath the surface.

On Tuesday, we addressed the rotation of capital out of software companies in this analysis and how investor attention in 2026 is starting to expand beyond a narrow group of the biggest growth and AI titles. Today, we'll pick up on that specifically through the lens of the Dow Jones Industrial Average $^DJI, which is holding near all-time highs and has outperformed the S&P 500 for a number of periods this year.

And it's no coincidence. In fact, performance is based directly on the index's construction, its sector composition, and what types of stocks the market currently favors in an environment of higher rates, pressure on investment returns, and heightened uncertainty.

The most important thing to understand is that the Dow does not represent the entire U.S. market. It is a collection of 30 large blue-chip companies, and it is price-weighted. That means that stocks with higher absolute prices have a higher weighting in it, not companies with higher market capitalizations. In practice, this means that the movement of a few more expensive titles can pull up (or sink) the index significantly more than their size in the economy would account for. This is a fundamental difference from the S&P 500, which is market cap-weighted and therefore often dominated by the largest megacaps. They currently hold over 33% of the value in it.

This is one of the reasons for the surprising strength of the Dow Jones this year. In an environment where investors are more interested in cash flow, pricing power, stable margins and defensive profiles, sectors such as industrials, health care, consumer staples and some financials - areas that typically play a bigger role in this index than, say, the tech-oriented Nasdaq - are starting to perform better. In addition, Reuters noted in January that market leadership is starting to expand beyond pure technology names and that some portfolio managers are rebalancing growth to the value component, which is where the industrials and financials are heavily represented in the $^DJI index.

During sharp sell-offs in technology titles, the S&P 500 can suffer due to the weight of the megacaps, while the Dow has held relatively steady due to the composition and construction of the weight distribution among the titles. Particularly if it is propped up by defensive and industrial companies. This effect has been seen the most this year. It's even so strong that the Dow has risen faster than the S&P 500 in some periods, and the Nasdaq has beaten both indexes by a wide margin since the beginning of the year. Yesterday it even attacked new all-time highs.

Why the Dow Jones is now on top and beating the S&P 500

The Dow Jones is an index of just 30 blue-chip companies, and most importantly it is price-weighted. That means the stocks with the highest absolute prices have the biggest impact on the index, not the companies with the largest market capitalizations. The performance of the index is calculated as the sum of the prices of the 30 stocks divided by the so-called Dow Divisor, which is continually adjusted for splits and other corporate actions.

The practical impact: when one expensive stock moves, it can move the index significantly, even if it is a smaller company than some of the giant companies in the S&P 500.
You can see this in practice: according to the analysis of our team that tracks index performance, it often turns out that two particular titles can make tens or hundreds of points of index movement in a single day, because with the Dow, the movement is recalculated through the share price.

The S&P 500, on the other hand, is a float-adjusted, market capitalization-weighted index. Here, size dominates. The largest companies have the most influence, and so at certain times the performance of the S&P 500 is largely determined by a narrow group of the largest companies. The calculation methodology is based on a freely tradable flow of stocks and a committee that decides the composition of the index. This results in the S&P 500 currently being much more heavily influenced by giant technology stocks.

The Nasdaq Composite then naturally tends to be even more technologically exposed. When investors are worried about reducing multiples on expensive stocks, or dealing with the return on giant AI investments, the technology portion of the market is more sensitive than the industrials, defensives or value segments. Analyst commentaries describe this shift into defensive stocks as a typical rotation in an environment of uncertainty around rates and AI.

Why is the Dow Jones stronger now?

Its composition is more tilted towards companies that benefit from pricing power, stable demand and robust margins in an environment of higher rates and volatile sentiment (industrials, some healthcare, consumer defensives, financials titles). And because it's price-weighted, a few specific names that have a high share price and are currently driving can help it significantly in the short term.

Continuing Tuesday's theme of capital rotation, the Dow is now a practical example of how the market is gradually shifting from a narrow growth part of the market to a broader, more balanced range of sectors. The key is its sector composition.

The Dow Jones Industrial Average has a higher relative representation compared to the S&P 500:

• Industry

• healthcare

• consumer defensives

• Selected financial titles

Conversely, it is less concentrated in pure technology megacaps (in relative terms).

What sectors are contributing to current growth:

Industrials have benefited from a combination of factors in recent quarters:

• Stabilization of supply chains

• higher price premiums (pricing power)

• investment in infrastructure and energy

• structural demand for production modernisation

According to Bloomberg Intelligence analysis from the turn of the year, the industrial sector has begun trading at a higher premium precisely because of order visibility and a better ability to pass through higher costs into prices. Investors are seeing backlog (the value of orders already contracted but not yet delivered or invoiced by the company), margins and contracts.

When macro uncertainty increases (rate discussions, geopolitics, pressure on growth valuations), capital tends to migrate in part to segments that:

• have stable demand regardless of the cycle

• generate strong cash flow

• pay dividends

Healthcare is a classic example. The consumer defensive is similarly a case in point. These are not sectors that explode 40% in a bull market in a year, but they can keep the index "afloat" when tech stocks are selling off. In fact, they have significantly lower volatility and thus higher stability.

Select financials are benefiting from the higher interest rate environment. Higher net interest margins combined with a stable credit environment mean that banks and insurance companies are generating solid profits.

The year 2026 is characterised by a gradual rotation of capital from technology to more stable parts of the market. This means:

• less euphoria around net growth

• more emphasis on profitability

• greater sensitivity to return on capital

• a preference for stable cash flow

This corresponds exactly to the construction of the Dow Jones Industrial Average.

All companies in the Dow Jones Index - an overview

An overview of the companies included in the index can be found in the portfolio, which was created by our research team as a sample. You will find all mentions of these companies along with their performance, dividend payout dates and much more.

Simply put - the S&P 500 is more dependent on the megacaps being able to deliver high growth with huge investments in AI. The Dow benefits more from companies generating cash today.

If we look at this year's developments, it's clear that the Dow is not built on tech optimism. On the contrary. A portion of tech names, including Microsoft $MSFT, are undergoing a significant correction due to a reassessment of AI investment returns and pressure on valuations. This only confirms that the Dow's strength this year is not coming from AI euphoria, but from a very different type of leadership.

By the way, Microsoft has already lost over 27% of its value since the peak and its market cap has fallen below $3 trillion.

What's driving the Dow Jones Industrial Average

The drivers of the $^DJI s rise are primarily industrial and defensive titles. Companies like Caterpillar $CAT, Honeywell $HON and other industrial conglomerates are benefiting from a visible order backlog, stabilizing supply chains and continued investment in infrastructure and energy. Investors see a combination of pricing power, operational discipline and solid cash flow. This is what the market is valuing most this year.

Another mainstay is healthcare companies, which traditionally act as a stabilizing anchor for the index. Stable demand, relatively predictable margins and robust cash flow are exactly what the market values in a period of heightened uncertainty. While the growth segments are sensitive to changes in sentiment, the healthcare and consumer staples portion of the index keeps the index afloat even as the technology sector fluctuates.

The construction of the Dow itself also plays a significant role. Because it is price-weighted, a move in a few higher-priced titles can have a more pronounced point impact than a broader but less pronounced rise in the rest of the market.

Interestingly, this structure creates something of a contrast: while the S&P 500 is heavily influenced by the performance of a few megacap technology companies, the Dow today is more reflective of the performance of the real economy - that is, companies connected to industry, infrastructure, healthcare and traditional consumer goods. This is one of the main reasons why the two indices have diverged in performance this year. But it tells us that the economy as a whole is still on the rise.

Conclusion

While previous years have been dominated by growth technology and valuation expansion, this year's trend shows a shift towards more traditional companies. Industry, healthcare and parts of the defensive sector now benefit from a combination of operational discipline, pricing power and relatively predictable demand.

Thus, the Dow acts as an indicator of capital rotation. Investors are more wary of extremely capital-intensive AI stories and more appreciative of companies where ROI is more visible in the numbers. This is not a rejection of technology growth per se, but a reassessment of risk and timing of returns.

From a macroeconomic perspective, the current divergence between indices is typical of later in the cycle, when capital is shifting away from pure growth to value and quality. Should the economic slowdown be confirmed or pressure on AI investment returns further intensify, this trend could continue in the months ahead. Conversely, a return of strong growth sentiment could again move the market in a different direction.

The rise of the Dow Jones index today does not say that technology is ending. It says the market is more selective. And it is selectivity that will be a key factor in the performance of individual sectors and entire indices in the coming quarters.

I've been investing for just under a year and my portfolio is mostly made up of Google, Amazon, Novo Nordisk, and SoFi. I recently bought more Grab. In recent weeks some stocks have been falling, so I decided to add to my positions—mainly Amazon and SoFi.

I want to further diversify and "secure" my portfolio, so I'd like to buy something. I thought of $WMT, $KO, $PEP, $CAT. But I think these mentioned stocks are already pricier and it might be better to wait for a dip. I also thought of $MC.PA or the Vanguard FTSE All-World High Dividend fund, into which I would regularly invest a set amount each month. I’d appreciate if you could share your opinion or suggest other stocks. Thanks 🫡

The key takeaway is operational resilience. Global comparable sales increased 5.7%, with US comps up 6.8%, supported not only by higher ticket sizes but also by positive guest traffic. In the quick-service restaurant segment, traffic growth carries particular weight. It signals that value positioning, marketing execution and menu innovation remain effective even as consumers scrutinize spending more closely. With plans to open 2,600 new restaurants in 2026, the focus now shifts to how expansion and same-store momentum translate into sustained earnings growth.

How was the last quarter?

Q4 was a mix of strong demand and very good execution for McDonald's $MCD. Global comparable sales were up 5.7% and US comparable sales were up 6.8%, with management explicitly talking about positive traffic trends. This is important because in recent years many chains have been growing mainly through price and mix, but losing customers at the same time. McDonald's, on the other hand, says it narrowed its "gap" with competitors on visitation levels in the quarter to its best level in a long time.

The bottom line numbers were also solid. Revenue of $7.01 billion was above market expectations and adjusted EPS of $3.12 as well. When translated into investment parlance, this means the company can still monetize the strength of its brand, price and franchise model without having to dramatically "buy" growth through margin-busting discounts.

The fast-food giant reported fourth-quarter net income of $2.16 billion, or $3.03 per share, up from $2.02 billion, or $2.80 per share, a year earlier.

Running in the background is another important thing: the pace of expansion. For all of 2025, the company opened 2,275 restaurants and is targeting an acceleration to about 2,600 gross openings for 2026. That's a key structural driver of system sales growth alongside comparable sales. This keeps McDonald's on a trajectory toward its goal of 50,000 restaurants by the end of 2027.

• Results Conference Call.

Management commentary

CEO Chris Kempczinski frames the strategy with the repeated mantra of "three out of three": strong pricing, breakthrough marketing and menu innovation. It's not just a pretty slogan. In the US, management describes that Extra Value Meals packages and other pricing programs were supposed to be successful by two metrics: gaining share of traffic from low-income customers and improving perceptions of affordability. On both counts, they say they got where they wanted to be in Q4, and even gained share with the low-income group in December.

It's also interesting to see management talking openly about franchisee cash flow. Kempczinski says that despite a more aggressive value proposition, U.S. franchisee cash flow improved year-over-year, suggesting that the value proposition was not "underpriced" but well balanced - it pulled in volumes while not destroying restaurant economics.

CFO Ian Borden then highlights digital and loyalty as the most important metric. In the U.S., the company reports roughly 46 million active users in the last 90 days. He described two big campaigns in Q4 specifically: Monopoly, which drove massive digital acquisition, and "Grinch Meal," which he said set records, including the highest sales day ever. These are exactly the moments when McDonald's shows its global marketing "machine" - it can take a brand, pop culture and merchandising and translate that into footfall.

Outlook

The outlook is quite specific in the data even without the classic financial guidance type EPS band. McDonald's is counting on system sales growth to be driven in part by expansion. The company is talking about a contribution of around 2.5% from new restaurant openings alone, with a target of 2,600 new locations for 2026.

On the profitability front, the firm expects operating margins to be in the mid to upper 40% range (within the adjusted metrics McDonald's often uses for its model), and estimates 2026 capital expenditures at roughly $3.7 billion to $3.9 billion. At the same time, management acknowledges that comparable sales growth in Q1 2026 is expected to slow from Q4. That's exactly the type of signal that explains why the stock fell after the results - the market immediately switches from "beat" to "what will the pace look like in future quarters".

Long-term results

Looking at the last four years, McDonald's is an example of a company that can hold very steady profitability while gradually optimizing its cost structure, even as consumer demand fluctuates.

Revenues in 2021 were roughly $23.22 billion. In 2022, they were virtually flat at 23.18 billion, reflecting a more complex macro environment and a phase where consumers have begun to skew more heavily between "I want a brand" and "I want to save". But there was a visible shift in 2023: sales rose to $25.50 billion, up nearly 10% year-on-year, and continued to $25.92 billion in 2024, with a more modest 1.7% growth. In practice, this means that after a post-pandemic jump, the top-line has stabilised and McDonald's has had to work harder with mix, price and footfall.

Gross profit grew consistently: from $12.58 billion in 2021 to $13.21 billion in 2022, $14.56 billion in 2023 and $14.71 billion in 2024. This is important because even with relatively stable sales, the company was able to maintain and increase gross profitability, which in a franchise model is often related to a better mix of fees and higher monetization of digital channels.

The level of operating profit shows how strong operating leverage is in good years. Operating profit was around $10.36 billion in 2021, dropped to $9.37 billion in 2022, but jumped to $11.65 billion in 2023 and held steady at $11.71 billion in 2024. Translated: after a weaker year in 2022, McDonald's returned to a higher profitable level and held it.

Net income and EPS show a very similar story. Net profit was $7.55 billion in 2021, $6.18 billion in 2022, $8.47 billion in 2023, and $8.22 billion in 2024. EPS in 2024 was $11.45 (diluted $11.39). That's important context for today's investor sentiment: McDonald's is not a "turnaround" but a stable cash generator where the market is arguing mainly about what growth rate is realistic in the years ahead.

Another structural layer is working with the share count. The average number of shares has been declining: roughly 746 million in 2021 to 736.5 million in 2022, 727.9 million in 2023 and 718.3 million in 2024. This is typical of a company that returns capital to shareholders over the long term and supports EPS growth even in years when revenue growth is not dramatic.

EBITDA was in the range of approximately $12.18 billion (2021), $10.90 billion (2022), $13.86 billion (2023) and $13.95 billion (2024). Here we can see that 2022 was a weaker year, but since then performance has stabilized at a higher level.

News

There are several recurring themes in the quarter and within management commentary. The first is pricing strategy and perceptions of affordability. McDonald's doesn't want to give way to competitors on who offers the "best value". The second is marketing as a global machine, where big campaigns work across markets and can transfer creative concepts between countries. The third is menu innovation to be more anchored in taste, quality and "McDonald's identity" so that it's not just short promo items with no long-term impact. And the fourth is digital and loyalty, where the company openly says loyalty is a key digital metric and will continue to push for active user growth and engagement.

Shareholder structure

McDonald's is a heavily institutional stock. The institution holds approximately 75.5% of the stock and a similar proportion of the free float. The largest holders include Vanguard (roughly 10.16%), JPMorgan (9.61%), BlackRock (7.31%) and State Street (4.92%). Insider share is low (0.22%), which is typical for a large established corporation.

Analysts' expectations

In this type of quarter, analysts typically address less "did it turn out well" because the numbers were above expectations, and more "what's next." The main lines of debate revolve around three things.

The first is the sustainability of comparable sales growth when management itself admits to a slowdown in Q1 2026. The market will want to see if the value proposition continues to drive traffic or if the effect wears off and it becomes all about pricing.

The second thing is the economics of franchisees. If a company is pushing value and also wants to open new restaurants quickly, the returns must still be attractive to franchisees. Management says franchisee cash flow has been growing even with a stronger value mix, which is a positive sign, but analysts will want confirmation in the quarters ahead.

The third is expansion. 2,600 openings in 2026 is not just a number for a presentation. It's a commitment to capital, capacity, and site selection where returns must still be "McDonald's standard." If expansion succeeds, it will add structural growth to system sales even in an environment of weaker demand. If not, the market will begin to address whether the company is approaching saturation in key regions.

Fair Price

What matters more than the headline growth is the consistency beneath it. Shopify has now delivered double-digit free cash flow margins for ten consecutive quarters, a notable achievement for a company still expanding at this pace. The newly announced $2 billion share repurchase program reinforces management’s confidence that the current growth trajectory is durable and not dependent on temporary tailwinds.

How was the last quarter?

The fourth quarter of 2025 was very strong in terms of numbers. Gross merchandise volume (GMV) sold through the platform reached $123.8 billion, up from $94.5 billion a year ago, representing approximately 31% year-over-year growth. This growth is important because GMV is the basis for revenue from payments, financing and other services.

Revenue for the quarter was $3.672 billion, compared to $2.812 billion in the same period in 2024. Gross profit rose to $1.693 billion from $1.352 billion. Operating profit was $631 million, up from $465 million a year earlier. This further improves operating margins and confirms Shopify's scaling model is working.

Free cash flow for the quarter was $715 million, a 19% margin. This continues the company's streak of ten consecutive quarters with double-digit free cash flow margins. This is a major change from a few years ago when the business was heavily investable and volatile.

In terms of revenue structure, Subscription Services and Merchant Solutions reached $777 million and $2.895 billion, respectively. Merchant solutions, i.e. fees from payments, financing and other services, remain the main driver of growth. Costs grew slower than revenue, which translated into better operating leverage.

Net income for the quarter was $743 million. Adjusted for the impact of equity revaluation, adjusted net profit was $594 million, better reflecting the actual performance of the core business.

For the full year 2025, Shopify then earned $11.556 billion compared to $8.880 billion in 2024. Operating profit rose to $1.468 billion from $1.075 billion. Free cash flow for the year reached $2.007 billion at a margin of 17%.

• Full presentation with results.

Management Commentary

President Harley Finkelstein called 2025 a "full-throttle" year, with Shopify $SHOP not only accelerating growth but also building the infrastructure for the AI-powered commerce era. He stressed that 2026 is set to be "the year of the makers" and Shopify wants to be at the heart of their business from first order to global expansion.

CFO Jeff Hoffmeister praised the combination of 30% revenue growth for the full year and a 17% free cash flow margin. He said the company was able to invest in key projects - the product catalog, Sidekick assistant, a new universal commerce protocol and other tools - and still maintain strong profitability. He also highlighted strength across regions, merchant size and sales channels.

Outlook for 2026

For the first quarter of 2026, the company expects to:

• Revenue growth in the low 30 percent year-over-year, similar to the fourth quarter of 2025

• gross profit growth in the upper 20 percent

• operating costs at 37-38% of sales

• free cash flow margin in the low to mid-teens percentages, slightly below Q1 2025 levels

An important step is the announced share buyback program of up to $2 billion. The company doesn't have a fixed pace of buybacks, but the authorization itself signals that it is generating enough cash while seeing long-term value in its own stock.

Long-term results

In 2021, sales were $4.6 billion, operating profit was $269 million and net income exceeded $2.9 billion, thanks in part to one-time effects. The year 2022 was dramatic: while sales rose to $5.6 billion, the company posted an operating loss of $822 million and a net loss of $3.46 billion. It was a period of high investment and a slump in technology valuations.

The year 2023 marked a stabilization. Revenues were $7.06 billion, but operating profit was still negative (-1.418). Net profit was only $132 million, significantly affected by the revaluation of investments.

The turning point came in 2024. Revenues rose to $8.88 billion, operating profit reached $1.075 billion and net profit was $2.019 billion. The company significantly reduced operating costs and restored discipline.

Year 2025 accelerated this trend: $11.556 billion in revenue, $1.468 billion in operating profit, and over $2 billion in free cash flow. EBITDA rose to $1.338 billion. This transformed Shopify from a growth but loss-making company into a scalable and highly cash generative business.

GMV growth from $292 billion in 2024 to $378 billion in 2025 confirms that the platform is gaining market share. The company now holds more than 14% of the US ecommerce market.

News and strategic moves

In addition to strong financial results, Shopify continues to expand its role in the commerce ecosystem. Key drivers include:

• 36% growth in international sales.

• 27% growth in offline sales

• 62% growth in Shop Pay volume

• B2B business volume growth of 96%

The company is investing heavily in AI-based tools to simplify store creation, marketing and catalogue management. This helps it build an edge over smaller competitors and traditional platforms.

Shareholding structure

The institution holds approximately 75.5% of the shares. The largest institutional investors are:

• JPMorgan Chase with a 5.5% stake,

• Capital World Investors with approximately 4.4%,

• Vanguard Group with more than 4%,

• FMR (Fidelity) with almost 3.8%.

The low share of insiders (0.19%) means that the ownership structure is highly institutional and the stock is sensitive to movements of large funds.

Analysts' expectations

Analysts view Shopify as one of the top growth companies in the digital commerce infrastructure space. The consensus focus is on maintaining revenue growth above 25% annually and gradually expanding operating margins by scaling payment and financial services.

The combination of high growth, robust cash flow and share buybacks is viewed positively. High valuations and sensitivity to a macroeconomic slowdown that could impact merchant volumes remain a risk.

Fair Price

The report underscores how McDonald’s remains one of the most cash-generative consumer companies on the market, supported by its franchise model, pricing power, and broad international footprint spanning more than 40,000 locations worldwide. Even modest percentage growth at this scale translates into billions in additional sales, a dynamic that continues to attract long-term institutional investors.

Comparable Sales and Regional Performance Drive the Narrative

A key highlight of the release was global comparable sales growth of roughly 4 percent, with the United States segment advancing near 3 percent, while international operated markets delivered closer to 5 percent growth. These figures demonstrate that even in an environment of cautious consumer spending, McDonald’s continues to capture traffic and maintain brand loyalty across demographics.

Operating income expanded to over 2.7 billion dollars, supported by improving restaurant level margins and disciplined cost control. The company’s operating margin hovered around 43 percent, a figure that stands out even among top tier consumer brands and illustrates the efficiency of its franchised structure. Analysts frequently point to this margin strength as a primary reason McDonald’s maintains premium valuation multiples relative to peers.

Pricing Power, Digital Growth and Loyalty Programs

Another central theme in the earnings release was McDonald’s ability to balance pricing actions with volume retention. Average menu price increases in key markets ranged between 2 and 4 percent, yet digital ordering and loyalty programs continued to expand engagement. The McDonald’s mobile app now supports tens of millions of active users, with digital sales representing over 35 percent of systemwide revenue in certain regions.

Delivery partnerships and self service kiosks also contributed to higher average ticket sizes, while loyalty membership surpassed 150 million active users globally, creating recurring customer touchpoints that competitors struggle to replicate. These digital channels are increasingly seen as long-term profit levers rather than experimental features.

Cash Flow, Dividends and Shareholder Returns

From an investor perspective, McDonald’s remains a powerhouse of capital returns. Quarterly free cash flow exceeded 2 billion dollars, enabling the company to maintain its reputation as a dividend aristocrat with more than 45 consecutive years of dividend increases. The annual dividend yield continues to hover near 2.2 to 2.5 percent, a level that appeals to both growth and income oriented portfolios.

In addition to dividends, share repurchase activity remains substantial, with billions allocated annually to buybacks that gradually reduce share count and enhance earnings per share growth over time. This dual return strategy often positions McDonald’s as a defensive anchor within broader equity portfolios.

Forward Outlook and Analyst Expectations

Looking ahead, management signaled expectations for low to mid-single digit comparable sales growth and continued margin stability despite inflationary pressures and wage adjustments. Analysts currently project full year revenue approaching 28 to 29 billion dollars and annual earnings per share moving toward the 13 to 14 dollar range, figures that suggest steady rather than explosive expansion but with exceptional consistency.

Price targets across major investment banks frequently land in the 320 to 350 dollar range, implying moderate upside while emphasizing the company’s defensive characteristics in uncertain macroeconomic cycles. McDonald’s ability to perform during both economic expansions and slowdowns remains one of its strongest investment narratives.

What Investors Are Watching Next

Investors following the stock are paying close attention to several evolving indicators:

Traffic versus pricing balance as menu adjustments continue across regions.
Digital and delivery penetration and its influence on margins.
Commodity and labor cost trends that may affect profitability.
International expansion pace particularly in emerging markets.

McDonald’s financial release ultimately reinforces a familiar theme in global equities: a mega-cap consumer brand that combines scale, predictability, and disciplined capital allocation. While growth percentages may appear modest compared with technology disruptors, the sheer magnitude of its revenue base and dependable cash generation continue to make McDonald’s one of the most closely watched and widely held stocks on the market.

In my opinion these companies will be much more important in the coming years than they are today, because with the rise of AI the number of cyberattacks will also grow and companies will want to keep their data as well protected as possible. I'm betting on $CRWD, but I also find $PANW , $FTNT or $S interesting.

Even more compelling than the dividend is the margin profile and operating leverage. While investors often debate the cyclical nature of market activity, a substantial portion of revenue is recurring and tied directly to capital markets infrastructure. The combination of steady revenue growth, a high share of subscription-like income and strong cash conversion explains why the stock can remain attractive despite a relatively low headline yield.

Top points of analysis

• Dividend was increased by 8.3% to $0.52 per quarter, raising the annualized payout to $2.08

• Operating margin of around 38% and net margin of around 25% indicate an exceptionally profitable "infrastructure" model

• Revenues jumped 18.8% year-over-year to $11.76 billion in 2024, while operating profit grew 16.7%

• Free cash flow in 2024 is about US$4.20 billion, giving the dividend a high safety cushion

• The core investment story is based on recurring data, clearing and technology infrastructure, not one-off market euphoria

An introduction to the company and why it's an "infrastructure", not an ordinary financial stock

Intercontinental Exchange $ICE is, at its core, a financial infrastructure operator. It does not sell a product like a traditional bank, nor does it rely on a pure transaction model with no barriers to entry. It operates exchanges, markets and clearing, manages trading and data infrastructure, and in some parts of the value chain acts as a backbone that the modern capital market cannot do without.

This is a fundamental difference from "conventional" financial firms. If a bank misprices risk, the problem will manifest itself in credit losses. If exchanges and clearing work well, their value grows with market volume, regulatory complexity, the need for data, and as investors and institutions move more and more activities into the electronic environment.

This is why this type of business often behaves differently from cyclical financial titles. Yes, some of the revenue is related to trading activity and volatility, but much of it is structural: infrastructure fees, data, indexes, listing, clearing and services tied to long-term contracts. This is why the firm can hold exceptionally high margins even in weaker macro phases.

The products and services that really make up the margins

The first pillar consists of exchange and derivatives markets, including clearing. This is where the highest operating leverage is usually generated, as the technology platform and regulated processes have high fixed costs, but other transactions already carry a very high contribution to profits. The important thing about infrastructure is that it is a network effect: liquidity attracts liquidity and market participants want to be where the deepest market is.

The second pillar is data and information services. This is key from an investment perspective, as it is revenue that is subscription-like in nature: institutions pay for feeds, reference data, analytics packages, index licensing and other layers of information. In an environment of increasing regulatory complexity, automation and the need for fast data flows, data is becoming a "necessary expense" for customers, not an optional luxury.

The third pillar is technology platforms tied to financing and data processing in the real economy. This is where the biggest structural growth story typically takes place, as the digitization of financial processes is not complete and each additional integration increases the customer's transition costs. And transition costs are one of the most valuable assets in this business.

Customers and competitive advantages that are hard to replicate

The customer base is typically institutional: banks, brokers, asset managers, insurance companies, market makers, issuers, clearing members and large firms that need to hedge risk. These are the clients who are not just concerned with price, but more importantly with stability, regulation, market availability and minimising operational risk. In practice, it is "cheaper" for them to stay on a robust platform than to migrate critical infrastructure elsewhere.

Competition exists, but barriers to entry are extremely high. It is not just about technology. It is about licensing, regulation, clearing frameworks, cybersecurity, historical market confidence and liquidity that cannot be bought overnight. This is also why the biggest players tend to strengthen their position through acquisitions and ecosystem expansion, rather than fighting a pure price war.

Diversification across products and economies is also important. A company is not built on a single commodity or asset class. Part of the revenue benefits from higher volatility and volumes, while another part is "all weather" due to data and infrastructure. This reduces the risk of one weak segment breaking the entire cash flow.

Management

The company is led by Jeffrey C. Sprecher, a longtime leader who is closely associated with the firm's story and is typically viewed by the market as the architect of expansion into key infrastructure assets. In this type of business, continuity of leadership is important because the regulated environment penalizes chaos and rewards discipline in managing risk, investments and integrations.

Capital allocation in infrastructure companies must balance three objectives: invest in the technology platform, maintain balance sheet credit quality, and return capital to shareholders. Recent numbers show that the return of capital is more conservative than typical "cash cow" titles, but more importantly, the stability of the payout and the gradual growth of the dividend.

The dividend increase in February 2026 fits squarely into this framework. This is not an aggressive "yield play", but a signal of confidence in its long-term ability to generate cash. For an investor, this is typically better news than a one-off high payout, which would limit investment in the platform and weaken competitive advantage in the long run.

Financial performance and what recent years say about the quality of the business

Revenues between 2021 and 2024 grew from roughly US$9.17bn to US$11.76bn, equivalent to a roughly 8-9% average annual rate. The breakout year is 2024, when revenues jumped 18.8%, showing that the company can grow at a larger scale when a combination of organics and product base expansion come together.

Operating profit is even more important than sales because with infrastructure, quality is seen in margins. Operating income reached $4.31 billion in 2024, growing 16.7% year-over-year. This means that growth was not "bought out" by a deterioration in efficiency; instead, operating leverage continued to work.

Net income and EPS are more "scattered" in historical series, which is typical for large financial groups due to one-off items, acquisitions, revaluations and tax effects. The data shows an extremely strong 2021 and a much weaker 2022, but from 2023 to 2024, EPS moved from $4.20 to $4.80 and profitability stabilized. It is therefore rational for an investor to rely more on operating profit, EBITDA and cash flow than isolated year-over-year jumps in net income.

Cash flow as the most compelling argument for a dividend

Free cash flow in 2024 was approximately USD 4.20 billion, up 37.7% year-on-year. This is key to the dividend story because FCF is the "fuel" that pays the dividend, buybacks and debt. If a company can grow FCF faster than the dividend, the safety cushion and room for further payout growth grows.

At the same time, we need to understand the specifics of cash flow at exchange and clearing houses. There are huge cash movements in the financial statements that are related to collateral, margin and client funds. These items can inflate "cash position" numbers by tens of billions of dollars and, without context, give a confusing impression. Investors should therefore be looking primarily at sustainable operating cash flow, FCF and ability to cover liabilities, not the absolute amount of cash in any one year.

It is also important that the company can turn earnings into cash over the long term. In 2024, operating cash flow is USD 4.61bn and FCF is USD 4.20bn, implying a very strong conversion. This is exactly the type of profile that dividend investors like: cash flow is not a "promise" but a visible reality.

The dividend, its growth and sustainability in numbers

The increase in the quarterly dividend from $0.48 to $0.52 implies an annualized dividend of $2.08 per share. From a dividend investor's perspective, it is important that growth is regular and rather conservative, which makes sense for an infrastructure model. The company is not trying to compete with a high yield, but with stability and gradual increases.

Sustainability is key. If we take the 2024 EPS of $4.80, the payout ratio comes out to about 43%. That's a level that feels reasonable: high enough to make the dividend relevant, but low enough that the company has room to invest, make acquisitions, reduce debt, or strengthen the technology platform.

Even more compelling is the view through cash. At roughly 576 million shares, the annual dividend corresponds to about $1.2 billion. Against that, FCF stands at around US$4.2 billion, or about 3.5 times the dividend cover in free cash. That's a very comfortable position to say that the dividend is not paid "in blood" but out of surplus. In a dividend stress test, this is a major advantage.

Balance sheet, debt and financial stability

Debt to equity of around 0.68 and interest coverage of around 6 show that the company is servicing debt without dramatic pressure and interest is not a dominant cash flow sucking item. This is important for dividend stability because in a higher rate environment, it is usually the interest bill that destroys earning power.

At the same time, it is fair to say that some universal indicators of stability in financial and infrastructure companies are losing their telling value. For example, the Altman Z-Score is often low for similar structures and can unnecessarily scare investors without a deeper understanding of accounting relationships. Realistically, liquidity, a regulated framework and the quality of cash generation are more important in this type of business than the school "bankruptcy model".

The practical question for the investor is whether the company can sustain investment momentum and dividend growth at the same time. The numbers suggest that it can. FCF covers the dividend by a large margin while leaving room for investment. This is where the decision often comes down to whether the title will be "boringly" stable over the long term or whether it can surprise with faster dividend growth.

Valuation and what it really tells you about market expectations

At first glance, valuation does not look like "deep value". A P/E around 29 and a P/S over 7 imply that the market is willing to pay a premium for stability, margins and recurring revenue. In other words, the investor is not paying for a cyclical broker business, but for infrastructure that has the hallmarks of a quality compounder.

A P/B of around 3.2 is less important in such a model than for banks, as book value can be distorted by acquisitions, goodwill and capital structure. For an investor, what matters more is whether the high multiples are consistent with the actual ability to grow earnings and cash, and whether the firm can maintain margins in the face of weaker market activity.

From a dividend investor's perspective, the fundamental question is whether the current price has already "eaten" future dividend growth. The dividend yield is low, so the return is mainly based on EPS growth, dividend growth, and potential multiple expansion. That said, this is more of a title for an investor who wants quality infrastructure with a growing payout, not a pure income stock for immediate income.

Where the company can grow and why it's not just a bet on higher trading volumes

The first growth layer is monetizing data and indices. Institutions can't do without good data and their willingness to pay for stable feeds is growing as trading speeds up, automation increases and regulation tightens. In such an environment, data revenues often behave more stably than the transactional side and have a better margin profile.

The second layer is the expansion of the ecosystem around clearing and risk management. Clearing is typically a segment with very strong barriers, as the transition involves interference with the client's critical infrastructure. Any additional product that adds value in margin, collateral and risk management increases transition costs and enhances long-term return on capital.

The third layer is a technology platform tied to the real economy and financial processes. As the market enters a phase of lower rates and higher activity in lending, refinancing and real estate, demand for digital workflow and data typically increases. For the investor, this creates an asymmetry: even if stock trading volumes slow down, other parts of the ecosystem may accelerate.

What to watch next so that investors don't have to "hunt" for signals on a report-by-report basis

Start with simple logic: what needs to happen for dividends to grow faster than today. The most important metric is the growth rate of free cash flow and its stability across the cycle. If FCF maintains the trend of recent years while payout remains conservative, there is a high probability that the dividend will continue to grow.

The second set of signals relates to the quality of earnings. Investors should monitor how the recurring data component is growing and what the trend of operating margins is. If margins remain in the high 30 percent range and the company continues to grow, this is evidence that competitive advantage is not being eroded by pricing pressure.

The third set of signals relates to capital allocation. For firms like this, it is critical whether acquisitions actually increase long-term returns on capital and whether integration is destroying margins. Watch where the capital budget is going, how debt is trending, and whether the firm can both invest and increase the dividend. This is where you decide whether you will have "just" a stable payout in five years or a stable payout with a significantly higher growth rate.

Risks that make sense to take seriously in this type of business

The first risk is regulatory and systemic. The exchange infrastructure only exists because of trust and the regulatory framework. Any significant change in rules, increase in capital requirements or pricing pressure can change the economics of certain products. This is not a risk of "tomorrow's crash" but a risk of long-term erosion of returns in specific segments.

The second risk relates to technology and security. For a platform that the market uses as critical infrastructure, cybersecurity and service availability is an investment necessity, not a choice. High margins are great, but part of that must permanently fund defenses against technology and operational risks. Failure in this area has an asymmetrically negative impact on reputation.

The third risk is valuation. When you buy stable infrastructure at a premium multiple, you give the market a lot of room to punish you if growth slows or if there is a one-off deterioration. The dividend yield is low, so the "cushion" against a price decline is not as strong as it is for high-yield titles. Therefore, an investor must be confident that the company will increase cash flow and dividend over the long term, otherwise returns can deteriorate even when business is good.

Investment scenarios and how the dividend and share price could evolve

Optimistic scenario

In the optimistic scenario, the company maintains a double-digit revenue growth rate for several more years through a combination of expanding recurring data revenue and strengthening technology platforms. Operating margins will remain around current levels, possibly improving slightly due to operating leverage, so EPS will grow faster than revenue. The dividend can then continue to grow at mid-single digits, and due to the low payout, the payout growth rate can comfortably outpace revenue growth.

Priced in, this would typically mean that the market will sustain a premium multiple. For example, if EPS grows at a rate of around 10% per year over a two to three year horizon and the multiple remains similar, the share price could grow at a roughly single-digit to low double-digit rate per year. In such a scenario, investing is less about dividend yield and more about the long-term compounding effect.

A realistic scenario

The base case scenario assumes that revenue growth normalizes to mid single-digit to low double-digit rates after the 2024 jump. Margins remain high, but without significant further improvement. EPS will grow more conservatively and the dividend will increase at a similar pace to now, in the mid-single digit growth range.

The share price would likely replicate earnings growth in such a case, as the current valuation already includes a premium for quality. Investors would thus get a combination of a moderately rising dividend and a stable return on capital, but without the "wow" moment. This is exactly the profile of a title that lends itself as a quality core portfolio, not as a speculation for a quick re-rating.

Negative scenario

The negative scenario is not about the business collapsing. Rather, it's about growth cooling, the revenue mix deteriorating, regulatory pressure emerging, or technology and security costs increasing. In such a situation, margins may fall slightly and EPS growth may slow. The dividend would likely remain sustainable as cash cover is strong, but the pace of payout growth could slow to low single digits.

Price compression is the biggest threat to multiples. For a stock with a low dividend yield, a market in negative sentiment could drive down valuations faster than the business deteriorates. An investor could then see a period of poor performance even if the company remains quality. In such a scenario, it makes the most sense to think about the entry price and whether you are buying quality at a premium or quality at a reasonable margin.

What to take away from the article

• The dividend is growing, but the core investment story is based on stable infrastructure and recurring revenue

• High margins and strong earnings-to-cash conversion make the dividend a very well-covered payout

• Yield is low, so returns are mainly based on EPS growth, dividend growth and maintaining a premium valuation

• The biggest value add for the investor is in data, clearing and technology platforms with high barriers to entry

• The key is to track free cash flow, margins and quality of growth, not just short-term trading volumes

The software sector has entered a phase in recent weeks that resembles a much deeper market reset than just short-term waves of volatility. After decades of tech titles dragging the markets higher, being priced as growth stocks and their PE multiples skyrocketing, the situation has turned sharply. In both January and February 2026, stock prices of software companies plunged so sharply that some analysts are talking about a software massacre that wiped out hundreds of billions of dollars of market value in a matter of weeks and hit the entire segment across the board. A detailed discussion of the reasons behind this, including our team's analysis, can be found in yesterday's article that directly addresses this topic.

What the market is punishing most today is not necessarily a fundamental collapse in revenue growth or a sudden failure of business models. Many companies are reporting strong results, but the fear that artificial intelligence will radically transform or replace traditional software models,and is stronger. These fears are weighing on valuations so intensely that an index of software stocks, as measured by the iShares Expanded Tech-Software Sector ETF $IGV, for example, has fallen significantly not only relative to the broader market but also to historical averages, even as fundamentals remain relatively stable.

Such a sharp change in market sentiment is often referred to as an overreaction to investor sentiment. It arises when the market not only overestimates the risks associated with AI, but also takes into account the future of the sector in its pessimism, regardless of the differing qualities of individual companies. According to our team's analysis, the current sentiment towards software is extreme and parallels with the post-internet bubble or financial crisis period are emerging, with many software titles down more than 40% from their peaks, while some are still posting double-digit revenue growth.

On the one hand, investors are increasingly sending capital towards segments that are growing organically thanks to AI, such as chipsets, data centre infrastructure and cloud platform solutions. On the other hand, the fear is that AI will make it easier for competitors to create and develop and lower the barriers to entry. This is pushing valuations high.

This creates an environment in which sentiment not only disadvantages weak players, but also those companies that have long considered themselves resilient or with a clear vision of the future monetisation of the technology.

In the context of this biggest software correction in recent years, it is therefore worth shifting the focus from overall sentiment to specific companies that:

• have fallen more than 40% from their peaks,

• continue to generate revenue growth and solid cash flow,

• are trading below their historical average valuations,

• and yet they are under panic pressure.

It is these companies that present investment opportunities today. Our team has selected those that are worth noting in the context of the current situation and are currently being punished a lot by the market.

Adobe $ADBE

Adobe shares are down more than 40% since their peak .

Adobe has long been considered one of the best software businesses on the market. It combines high margins, an extremely strong brand, global product adoption, and most importantly, very high customer retention. Creative Cloud has become the de facto standard for professional work with graphics, video and digital content. Document Cloud has a dominant position in PDF workflow and digital documentation. Experience Cloud targets enterprise marketing tools and personalization.

This is important because the market today values Adobe as if its model is easily replaceable.

But in terms of numbers, there has been no fundamental collapse. In fiscal 2025, the company reported revenue growth of around 15-17% year-on-year. That's still a very solid pace for a company with over $20 billion in annual sales. Operating margins remain high and free cash flow is in the billions of dollars per year. The subscription model means high revenue predictability and stable cash conversion. All these numbers and more can be found in the share details.

This is a fundamental difference from cyclical software companies. So the problem lies not in the actual numbers, but in the expectations.

The market has begun to massively price in the scenario that generative AI will dramatically simplify content creation and thus dilute the value of professional tools. If a user can create a graphic or video through a simple prompt, why would they pay a full subscription to complex tools?

But the company has integrated Firefly's own generative model directly into Creative Cloud. AI features aren't a separate product - they're part of the workflow. So the user isn't getting a replacement for Adobe, but a more efficient Adobe.

While part of the market is worried about software disruption, Adobe is using AI to increase productivity for its existing customers. If AI speeds up a designer's work by 30-50%, it can increase the value of a subscription, not destroy it. Additionally, Adobe operates in the professional segment, where output quality, workflow integration and compatibility play a significantly larger role than AI image generation alone.

Valuation-wise, Adobe today trades at multiples well below its historical average. Forward P/E is lower than during most of the past decade, although revenue growth has not fallen to stagnant levels. Thus, the compression in multiples is not a reaction to a drop in profitability, but to a change in sentiment.

Even according to the Fair Price Index on Bulios, $ADBE stock is currently being punished too much. Indeed, they got below their fair value some time ago and are currently trading 10.5% below it.

This is exactly what we discussed in yesterday's article on the software sector. The market today is pricing in a worst-case scenario as a base case in many cases. The question is whether such a scenario is realistic for a company with such a strong ecosystem.

Of course there are risks. If generative AI tools outside of the Adobe ecosystem become both high enough quality and significantly cheaper, the push for pricing power would be real. The enterprise side of the business may also be more sensitive to slowing investment in marketing technology. And it can't be ignored that growth rates may gradually head lower.

On the other hand, Adobe generates strong free cash flow, has a healthy balance sheet and the ability to fund innovation without dramatically increasing debt. This is very important in an environment where investors are addressing the return on giant AI investments at hyperscalers. Because growth is not impossible.

Nemetschek $NEM.DE

If Adobe is an example of a global creative giant, then Nemetschek represents a very different type of software business. The German group, which focuses on software for architecture, engineering, construction and facilities management, is typical of a vertical, highly specialized solution that is deeply rooted in a specific industry workflow.

Nemetschek's stock is down more than 40% since the peak, despite the company's long track record of steady growth and very solid margins (over 17%). The selloff is thus very much part of a broader software reset. The market today doesn't make much of a distinction between horizontal SaaS solutions and specialized industrial software.

From a fundamentals perspective, however, the situation is less dramatic than the share price performance would suggest.

Nemetschek has been growing at around 10-15% per year for a long time, with a high proportion of revenues coming from recurring licenses and subscriptions. Margins have historically been in a very solid range and the company generates stable cash flow. While the move to a subscription model reduces reported growth in the short term (due to the spread of revenues over time), it increases the predictability of future revenues.

The problem is that Nemetschek operates in a sector that is cyclical, namely construction. The slowdown in the real estate market in Europe and higher interest rates in recent years have created pressure to invest in new projects. The market thus combines two negative scenarios:

• cyclical cooling of the construction sector

• potential disruption of software solutions by AI.

The BIM (Building Information Modeling) software that Nemetschek provides is not easily replaced by a generative AI tool. It is a comprehensive solution linking design, calculations, technical standards, collaboration between teams and regulations. These are deeply integrated systems where switching costs are not just about the price of a license, but about changing the entire work process.

AI is unlikely to replace the product here. Rather, it will complement it - for example, through design optimization, cost prediction, energy efficiency or risk simulation. This means that in the long term, AI can add value to the product instead of depriving it of customers.

Valuation-wise, Nemetschek is trading at lower multiples today than in the zero-rate era, when software growth was priced regardless of the macroeconomic cycle. Both P/E and EV/EBITDA have compressed along with the sector. The question is whether this compression is adequate to the company's long-term potential or whether it is overdone due to an across-the-board sell-off. According to the Fair Price Index (FPI), the current sell-off is already overdone because it has gotten the stock below its intrinsic fair value. According to the DCF and relative value calculation that the FPI combines, $NEM.DE stock is simultaneously undervalued by nearly 7%.

There are risks, of course. If construction in Europe remains subdued for an extended period, growth could slow more than the market expects today. Also, the transition to a subscription model must be executed without losing customers. And competition in digital tools for the construction industry is gradually increasing.

On the other hand, Nemetschek is not a generic SaaS tool that can easily be replaced by a cheaper solution. It is a deeply specialized software with regulatory ties and strong integration into work processes. This is exactly the type of business that can benefit from AI without being a victim of it.

SAP $SAP

SAP, one of the largest software players in the world and the overwhelming leader in enterprise ERP systems. If Adobe represents creative software and Nemetschek represents a specialized vertical, SAP is the backbone of the digital infrastructure of thousands of global corporations.

Shares of $SAP have also come under significant pressure in recent years, falling more than 40% from previous peaks. They are currently down 37% from their peak last year. For such a large and established company, this seems dramatic at first glance. However, as with the previous two cases, it is important to distinguish between price developments and fundamental reality.

SAP is in a transformational phase. The company has been transitioning from traditional license sales to cloud subscriptions for several years, which puts short-term pressure on reported margins and profit growth. However, this transition improves long-term revenue predictability and cash flow stability. SAP's cloud revenue is growing at a double-digit rate and the share of recurring revenue in total revenue is gradually increasing. So, from a fundamental perspective, this is not a business decline, but a transition between models.

However, the market is combining several concerns at once. The first is the classic software AI concern. The second is the fear that enterprise customers may slow down investment in new IT projects. The third is related to competitive pressure from hyperscalers and cloud solutions.

But this is where SAP has one of the strongest competitive advantages in the entire software world.

ERP (Enterprise Resource Planning) is not a tool that can simply be replaced by an alternative in a matter of months. SAP implementation is often a multi-year project, deeply connected to accounting, logistics, manufacturing, HR and other key business processes. Moreover, the cost of any change to an established solution is enormous, not only financially but also organizationally.

Moreover, as with previous companies, AI here acts as a potential growth accelerator rather than a threat. Integrating AI into ERP can mean better demand forecasting, optimizing inventory, automating accounting processes or streamlining production management. In the enterprise segment, it is not about replacing software, but about increasing its value.

According to valuations, SAP is trading at much lower multiples today than a year ago. However, the growth in previous years has been so significant that even before the more than 37% current drop, the stock is still above its fair value by almost 20%!

It is also necessary to mention the risks that come to the fore at the current valuation of the stock more than those of the now undervalued companies. However, it should also be added that previous companies have had even bigger price declines than SAP in particular.

The transformation to the cloud needs to be executed. Margins may be temporarily under pressure due to restructuring costs. And if the global economy slows significantly, corporate budgets may be more cautious.

On the other hand, SAP generates strong operating cash flow, has a robust customer base and operates in a segment where digital transformation is still a long-term structural trend.

Bonus: Microsoft $MSFT

Although Microsoft is not one of the companies that have been in a long-term structural decline, even its stock has managed to get more than 30% lower since the peaks as part of a broader technology correction. And it's with Microsoft that the biggest paradox of the entire software story is today.

Microsoft is simultaneously:

• One of the largest investors in AI infrastructure,

• and potentially the most threatened software platform by its own revolution.

Microsoft stands on three pillars:

• Cloud (Azure),

• productivity (Office 365, Teams), and

• enterprise software (Dynamics, LinkedIn, security).

Azure has been growing at double-digit rates for a long time and has become one of the main drivers of the entire group. The integration of OpenAI into products, especially Copilot, was presented as the beginning of a new era of monetization.

Microsoft is among the companies planning to invest in datacenter and AI infrastructure in historically record volumes this year. CapEx is growing significantly and the pressure on free cash flow is higher than in previous years. This in itself is not a problem if the investments quickly translate into higher revenues and margins. But if it doesn't, investors may, as many are now doing, translate that into stock sales.

While in 2023 and 2024 investors valued every AI integration announcement as a signal of future dominance, today they are more concerned with return on capital. Copilot is undoubtedly a technological advance, but the monetization of these features will be gradual, and not as rapid as the market expected. If AI becomes a standard part of productivity, it can add value to the ecosystem. But if it becomes a commodity, the pressure on margins will be higher.

Fundamentally, though, Microsoft is still an extremely strong company. Revenues are growing, the cloud is expanding, operating margins are among the highest in the sector and free cash flow is massive. The company has a healthy balance sheet and a top-notch investment-grade rating. This makes it a different case than a smaller growth software company.

But at the same time, Microsoft is emblematic of the entire AI era. And if the return on its giant infrastructure investment turns out to be slower, it is where the market reaction may be most sensitive.

There is another less discussed aspect. AI can boost the productivity of Microsoft users in the long run. This is by automating document writing, data analysis or programming. It can increase the value of Office 365 subscriptions and Azure services. But it can also reduce the need for some traditional software solutions. So Microsoft faces a dilemma: accelerate disruptive change and risk partial cannibalization, or proceed more cautiously.

Valuation-wise, Microsoft is trading lower today than during the height of the AI euphoria, but still at a premium to most of the sector. This reflects the fact that investors see it as a quality leader, not a threatened business. Yet here too there has been a compression in multiples, confirming a broader reset in software valuations. But according to the fair value calculation, Microsoft is still significantly overvalued. According to FPI, its shares now trade 24% above intrinsic value.

Compared to Adobe, Nemetschek or SAP, Microsoft is the least threatened existentially, but the most exposed to inflated expectations.

While for smaller software firms the market is discounting the risk of the demise of part of the business, for Microsoft it is discounting the risk that investments in AI will not deliver as rapid monetization as originally expected.

In the broader context of the entire software correction, Microsoft thus represents a benchmark. If sentiment stabilizes and AI monetization begins to be confirmed in the numbers, it could be the leader of the next growth phase. But if doubts about returns deepen, the pressure on the entire sector may continue.

Conclusion

The software sector today is undergoing one of the most fundamental changes in a decade. After years of almost constantly increasing valuations for growth, scalability and high margins, the market has reached a stage where it is systematically overestimating risk and underestimating adaptability. AI is a structural change that is rewriting expectations about competition, barriers to entry and return on capital. The result is a compression of valuations across the segment and historically strong relative underperformance relative to the broader market.

From a macroeconomic perspective, however, the digital transformation is not over. Process automation, the move to the cloud, cybersecurity, data analytics and AI integration itself remain long-term trends. So the question is not whether software as a whole will disappear, but how quickly the sector adapts and who can monetise new technologies more effectively than competitors. Historically, periods of across-the-board capitulation often create room for the next growth phase. Not because the risks disappear, but because the market stops pricing the worst-case scenario as the only possible one.

The reason was not concerns about safety or efficacy, but according to the agency an inadequately set comparator in the study—specifically the choice of comparator, which it said did not reflect the “best available standard of care.”

For the company this is an unwelcome complication because expanding the portfolio beyond COVID vaccines is supposed to be a key pillar of future growth. mRNA-1010 met primary endpoints in two late-stage trials and Moderna previously said it showed 26.6% higher efficacy than the approved GSK vaccine. Now it will have to clarify the next steps with the regulator, which could mean delays to entering the U.S. market and additional costs.

On the positive side, the vaccine remains under review in the EU, Canada and Australia, where decisions are expected around late 2026 and early 2027. For investors this is therefore not just a one-off regulatory report but a broader question: how quickly can Moderna turn its mRNA platform into new commercial products and reduce dependence on COVID-related revenues. The pace of that diversification will be key for valuation.

At a time when many tech names struggle with slowing demand, Spotify’s results represent a notable performance beat, highlighting both the strength of its core subscription business and the growing appeal of its diversified content strategy across music, podcasts, audiobooks, and expanding services.

Stellar Top-Line Performance and User Metrics

Spotify reported total revenue of approximately €4.5 billion in Q4 2025, representing roughly 13 percent year-over-year growth and slightly ahead of consensus forecasts, even as macro and currency challenges persist.

The company’s monthly active users (MAUs) climbed to 751 million, up 11 percent year-over-year, while premium subscriber counts reached 290 million, 10 percent above the prior year both figures reinforcing Spotify’s leadership in global audio engagement.

Additional highlights from the quarter include:

• Operating income of around €701 million, showing robust profitability in a business often criticized for cost pressures.

• Gross margin improvement to 33.1 percent, up more than 80 basis points year-over-year, signaling better monetization and efficiency.

• Highest MAU net additions in company history for a quarter, demonstrating sustained global demand.

These numbers follow a multi-quarter trend of accelerating engagement and monetization. Earlier in 2025, Spotify’s third-quarter results already showed MAUs above 700 million and meaningful revenue growth, indicating consistent top-line strength.

Price Increases and Revenue Strategy

Part of Spotify’s success in driving profitability and revenue has come from strategic pricing actions. The company increased its U.S. Premium subscription price to $12.99 per month a move that helps support higher average revenue per user (ARPU) while maintaining subscriber growth in key markets.

These price rises, combined with cost management and enhanced product offerings such as AI-driven features, podcasts, video, and audiobook expansions, have positioned Spotify to capture a larger share of audio consumption globally. A recent expansion into physical book sales through a partnership with Bookshop.org is another example of how Spotify is broadening its content and monetization pathways beyond traditional music streaming.

Outlook for 2026 and Forward Guidance

Looking ahead, Spotify projected continued growth into the first quarter of 2026, with guidance indicating:

• Monthly active users projected near 759 million

• Premium subscribers expected around 293 million

• Revenue forecast of roughly €4.5 billion

• Gross margin projected to remain near 32.8 percent

These forward targets were largely in line with or slightly ahead of analyst expectations — a reassuring signal to the Street that the company can sustain growth momentum as it scales deeper into emerging markets and invests in diversified content offerings.

Spotify’s forecast also includes an operating income outlook of approximately €660 million for Q1 2026, marginally surpassing some Wall Street estimates, underscoring confidence in profitability trends despite competitive pressures in streaming.

Strategic Expansion Beyond Music

In addition to its financial performance, Spotify is making notable moves to expand its platform beyond music. The company recently announced a partnership with Bookshop.org to sell physical books through its app a bold play into adjacent content categories that could deepen user engagement and create new revenue streams. This initiative builds on Spotify’s already substantial audiobook audience and the rapid growth of listening hours in that segment.

Investors are also paying attention to Spotify’s increasing emphasis on AI-powered features and monetization levers, such as improved advertising tools and personalization technologies, which aim to capture more value from both ad-supported users and premium subscribers.

What Investors Should Watch Next

As the market digests these strong quarterly results, there are several key areas that will shape Spotify’s narrative in 2026:

Subscriber growth trends: Continued expansion of both MAUs and premium subscribers particularly in emerging markets will be critical to long-term revenue scaling.

Profit and margin evolution: Sustained improvements in gross margin and operating income will signal that Spotify is translating top-line growth into durable profitability.

New content monetization: Success in areas like audiobooks, podcasts, video, and physical books will help diversify Spotify’s revenue base and reduce reliance on music streaming alone.

Competition and pricing strategy: Maintaining subscriber growth while implementing price increases without adverse churn effects will remain a focus as competitors like Apple, Amazon, and YouTube vie for consumer attention.

Overall, Spotify’s latest financial release paints a picture of a company that is scaling effectively, innovating across audio formats, and improving profitability while expanding its global footprint. With nearly three-quarters of a billion users and ambitions to reach the elusive 1 billion user milestone, the company’s trajectory is shaping up as one of the most compelling stories in media and technology today.

In that context, 2025 was clearly transitional. Revenue growth held up across segments, adjusted operating performance improved and operating cash flow remained strong. At the same time, one-off impairments, legal costs and changes related to Medicare Part D distorted reported operating income and net profit. Understanding the gap between underlying business momentum and accounting results is central to the current investment case.

How was the last quarter?

In the fourth quarter of 2025, CVS Health $CVS achieved total revenues of $105.7 billion, up 8.2% year-over-year. Growth was driven by all major segments - health insurance, health services and retail pharmacy. In terms of business volume, it was a strong quarter, confirming that demand for health services and pharmaceuticals remains robust even in an environment of higher costs and regulatory changes.

Operating profit on a reported basis, however, declined from $2.37 billion to $2.11 billion, down approximately 11% year-over-year. Adjusted operating profit was $2.60 billion, also down slightly from last year. The key negative factor was Aetna's health insurance segment, where the seasonality shift in the Medicare Part D program due to the reform measures resulting from the Inflation Reduction Act had a significant impact in the quarter. These changes led to higher year-end costs and impaired the segment's near-term profitability.

Earnings per share show the typical "double track" of CVS results. GAAP EPS increased to $2.30 from $1.30, driven by tax effects and one-time items, while adjusted EPS declined to $1.09 from $1.19. It is the adjusted numbers that better reflect the true operating trend and explain why the market is reacting more cautiously to the results than revenue growth alone would suggest.

• Full presentation with results.

Management commentary

CEO David Joyner's comments clearly set the results within a broader strategic framework. He emphasized that CVS is progressively fulfilling its ambition to become the "gateway" to U.S. healthcare - from pharmaceuticals to insurance to primary and preventive care. By 2025, he said, the company has taken tangible steps to simplify healthcare, reduce drug prices and improve patient navigation of the system.

From management's perspective, the key takeaway is that the business transformation is proceeding as planned, even if it is putting pressure on results in the short term. Joyner freely admits that regulatory changes and seasonal shifts in Medicare Part D complicate year-over-year comparisons, but emphasizes that the company's structural performance is improving. Thus, management clearly communicates that 2025 is an investment and transition year, while 2026 is intended to be a year of stabilization and a return to more predictable results.

Outlook for 2026

CVS confirmed full-year guidance for 2026, giving investors a clear point of reference. The company expects GAAP EPS in the range of $5.94-6.14 and adjusted EPS between $7.00-7.20. It also lowered operating cash flow expectations to at least $9 billion, reflecting a more cautious view of working capital and timing of payments in the insurance business.

The outlook implicitly assumes that the negative impacts of Medicare Part D reform will become more manageable and that improvements in operational discipline and cost control will help stabilize margins. Importantly for investors, CVS continues to generate strong cash to reduce debt and maintain its dividend policy.

Long-term results

Looking at the last four years, it is clear that CVS Health has gone through an extremely volatile period. Revenues have grown from $292 billion in 2021 to $373 billion in 2024, confirming a long-term growth trend driven by acquisitions, expansion of health services and growth in the insurance tribe. However, this growth has not been accompanied by stable profitability.

Operating profit has varied significantly from year to year, from $13.3 billion in 2021, to a dip in 2022, a strong recovery in 2023, and a significant decline in 2024, when goodwill amortization and restructuring charges impacted results. Net income followed this trend, with EPS ranging between extremes of around US$3.3 and nearly US$6.5.

The long-term picture thus shows a company with growing sales and a strong market position, but also a business vulnerable to regulatory intervention, accounting revaluations and structural changes in the US healthcare industry. It is the ability to stabilize operating margins that will be a key test of the next phase of the CVS story.

Shareholder structure

CVS has a very strong institutional base. Approximately 90% of the shares are held by institutional investors, which increases the emphasis on long-term return on capital and cash flow stability. The largest shareholders are Vanguard, BlackRock, Dodge & Cox, and JPMorgan, who view the firm as a strategic bet on US healthcare with a defensive nature but transformative potential.

Analyst expectations

Analysts are divided on CVS, but a cautious constructive view still prevails. For example, analysts at JPMorgan have long emphasized that near-term profitability pressure is the price of structural change and that a key catalyst will be the stabilization of the health insurance segment in 2026. The price target is in a range that implies moderate upside potential if the company confirms its ability to generate adjusted EPS above $7 and maintain strong cash flow.

Fair Price

That dynamic defined 2025. Organic revenue growth remained solid and earnings per share moved higher, but currency headwinds, higher marketing spending and one-off charges weighed on reported margins. The results therefore require a nuanced reading. The key is separating structural trends from temporary accounting noise when assessing the durability of profitability.

What was the last quarter like?

In the fourth quarter of 2025, Coca-Cola $KO achieved net sales of $11.8 billion, up 2% year-on-year. At first glance, this is a low number, but looking at the structure, it's clear that the core business grew faster. Organic sales, adjusted for currency effects and portfolio changes, grew 5%. This difference is key, as the strong dollar remains one of the main factors holding back Coca-Cola's reported numbers over the long term.

Revenue growth was driven primarily by price and product mix. Price/mix added roughly 1% in the quarter, while concentrate sales rose 4%. Units sold increased by only 1%, confirming that beverage consumption is growing very slowly globally and even stagnating in some regions. Thus, Coca-Cola continues to rely on its ability to increase the value of the portfolio sold, rather than on volume expansion.

Profitability has attracted the most attention. Operating profit fell 32% year-on-year and operating margin slumped to 15.6% from 23.5% last year. However, this decline does not reflect a deterioration in operating performance. The non-cash write-down of the BODYARMOR trademark of USD 960 million and negative currency effects played a key role. Adjusted for these items, comparable operating profit grew 13% in constant currencies, clearly demonstrating that the underlying economics of the business remain sound.

Reported earnings per share rose 4% to $0.53, while adjusted EPS was $0.58, up 6% year-on-year. Here too, the strong dollar had a negative impact, cutting around five percentage points from growth.

• Full presentation with results.

CEO commentary

James Quincey's assessment highlighted in particular the ability of the entire Coca-Cola system to perform consistently across regions even in an environment of heightened uncertainty. He said 2025 confirmed that the combination of strong global brands, locally relevant marketing and disciplined cost management creates a sustainable model for the long term.

Quincey also hinted that the next phase of the company's evolution will be less about portfolio expansion and more about execution quality. The focus is to be on digital transformation, deeper work with data, better marketing targeting and more effective collaboration with fulfillment partners. The goal is not to maximize short-term volume, but to increase value per consumer over the long term.

Outlook for 2026

Management has provided an outlook that can be described as conservative but realistic. Coca-Cola expects organic revenue growth in the range of 2% to 4%, which is consistent with the company's long-term trend. Adjusted earnings per share in constant currencies should grow by 4% to 6%, with currency rates likely to be slightly positive this time around.

Cash handling is an important point. The company plans to keep capital expenditure below 5% of sales and free cash flow conversion above 80%. This creates a comfortable space for further dividend increases and maintaining an attractive payout profile, which is one of the main reasons for investors to hold Coca-Cola.

Long-term results and structural development

A look at the last four years clearly shows how Coca-Cola has moved into a phase of highly stable but low-dynamic growth. Revenues have grown from approximately $38.7 billion in 2021 to more than $47 billion in 2024. The growth rate has gradually slowed, but has remained consistent even during periods of elevated inflation and currency fluctuations.

Gross profit grew faster than sales, confirming the strength of brands and their ability to pass through higher costs to end prices. At the level of operating profit, the trend has been more volatile. The year 2024 brought a decline in operating profit of around 12%, mainly due to higher marketing investments and restructuring costs. However, EBITDA remains stable in the range of USD 14 billion to USD 16 billion over the long term, confirming the high quality of cash flow.

Net profit has been around USD 9 billion to USD 10 billion per year in recent years and earnings per share have been growing only moderately. This is a direct result of market maturity, not brand weakness. Today, Coca-Cola is maximizing return on capital, not volume growth, which is exactly what a conservative investor expects.

News and strategic moves

The year 2025 was marked by a strengthening of local brand relevance. The company invested heavily in marketing platforms targeting younger consumers, sporting events and local consumption opportunities. At the same time, organisational changes were made, including the creation of the Chief Digital Officer role to align data, digital and operational efficiencies across regions.

These moves do not have an immediate financial impact, but are designed to improve the long-term competitiveness of the system and reduce the risk of Coca-Cola losing touch with a new generation of consumers.

Shareholding structure

The shareholding structure remains extremely stable. Berkshire Hathaway holds a significant stake, as do Vanguard and BlackRock. The high proportion of institutional investors supports the company's long-term management horizon and emphasis on dividends rather than short-term capital experimentation.

Analyst expectations

Analyst consensus views Coca-Cola as a defensive title with limited growth potential but a high degree of certainty. Expectations hover around low single-digit earnings growth rates, with currency movements, the ability to maintain pricing discipline and the level of marketing investment remaining key variables.

Some banks have warned that the stock may come under pressure in the short term due to stagnant volumes and fluctuating margins, but the long-term investment story remains unchanged: stable brands, strong cash flow and a reliable dividend.

Fair Price

The setup for 2026 is unusually concrete. Management is guiding toward continued strong member growth, further scaling of deposits and lending, a higher mix of fee-based revenue, and a step-change in profitability. The core question for equity investors is not whether SoFi can grow, but whether the pace and quality of that growth are strong enough to justify a valuation that remains demanding even after the sell-off.

Top points of the analysis

• SoFi showed its operating leverage for the first time in 2025: adjusted EBITDA reached about $1.05 billion and margins moved to 29%.

• Growth is no longer just "about loans": membership grew to 13.7 million and the number of products to 20.2 million, supporting cross-sell and recurring revenue.

• Deposits are a key weapon: member deposits reached $37.5 billion and grew significantly year-on-year, improving loan funding.

• The outlook for 2026 is aggressive: adjusted revenue of around $4.655 billion, adjusted EBITDA of $1.6 billion, adjusted earnings per share of $0.60 and member growth of at least 30%.

• The biggest "macro lever" is a drop in rates: the firm estimates the opportunity in student refinancing is around $400 billion and could be 25% higher if rates drop 0.5 percentage points.

• Valuations remain high vs. traditional financials, so there is less room for error and the market will be keeping a close eye on the quality of growth, credit and any further dilution of the stock.

Why the stock has weakened even as business accelerates

Three things often come together in SoFi $SOFI that can push the price down in the short term even when results are good. The first is purely sentimental: fintech and "higher beta" stocks are extremely sensitive to how the market reads the rate outlook. If expectations shift toward a longer period of higher rates, investors typically switch from growth stories to defensives, and SoFi tends to be among the first to sell in that pack.

The second factor is both technical and psychological: capital moves. SoFi has shown several times in recent years that it can be opportunistic and strengthen its balance sheet, but shareholders are occasionally reminded of an unpleasant fact - that fast-growing fintechs can also choose the dilution path. In earnings materials, the firm openly mentions a $1.5 billion capital raise in December, which may prove to be a "tax on certainty" in the share price in the short term.

The third factor is that SoFi is not a simple one-product story. It has loans, a technology platform, financial services, and now crypto activities. For part of the market this is an advantage, for part a "complexity" that is hard to price in a nervous environment. When investors are scared, complexity is often punished.

What's really happening in the numbers: growth, margins and quality of revenue

The basic point of recent quarters is that SoFi is no longer just "growth at a loss". In Q4 2025, the company reported adjusted revenue of over $1.0 billion and adjusted EBITDA of roughly $318 million, showing a return of operating leverage and the ability to scale costs.

Importantly for investors, growth is not isolated to one corner of the company. Membership has moved to 13.7 million and products to 20.2 million, exactly the type of "platform inertia" that reduces reliance on one-off cycles in lending. What this means in practice is that once a user has kept current finances, savings, investments and a loan on top of that with SoFi, they leave worse off and the long-term value of the client increases.

Deposit growth is a particularly strong signal. Deposits of $37.5 billion are not just a pretty number for a presentation. For a financial institution, it is the "fuel" that determines the cost of funding, the room for loan growth, and how resilient a firm is when the market deteriorates.

Where SoFi can grow next: three engines that support each other

1) The credit engine and refinancing: the biggest lever on rates

SoFi itself says it has a strong position in personal loans, citing a roughly 15% share of US prime volume. This is a double-edged sword for investors: on the one hand, it confirms that the company is no longer a crumb. On the other, it shows that growth going forward must be based on market expansion and on SoFi "pulling" clients out of more expensive revolving-type products.

And this is where the math gets interesting. The firm talks about the real addressable market being the nearly $1 trillion of prime revolving credit card debt that is "waiting to be refinanced at a lower rate." When you put that into the reality of the entire system, credit card debt in the US is at an all-time high and has been in the trillions of dollars in recent years. So SoFi is betting on a simple principle: people with good credit profiles will be more sensitive to interest savings when rates fall (or even stabilize) and will look for cheaper consolidation.

There is even more rate sensitivity with student refinancing. SoFi estimates the opportunity to be around $400 billion, and could be 25% higher if rates fall by 0.5 percentage points. If you want a conservative framework for the size of the "reservoir," student debt in the U.S. is in the trillions of dollars over the long term. Not every portion is refinanceable, and not every borrower is a "prime customer," but the bottom line for an investor is that a potential wave of refinancing can be a multi-year wind in the sails, not a one-time episode.

2) Deposit as a weapon: cheaper fuel, greater flexibility

Deposit growth is not just a "bank metric". It's a competitive advantage because it reduces reliance on more expensive wholesale funding and gives the firm room to do more lending without having to aggressively raise the cost of money. The $37.5 billion in deposits with a rapidly growing member base suggests that SoFi is attracting clients who are not just one-time "bonus hunters" but are gradually moving their day-to-day finances to the platform as well.

In practice, this is also important for risk. In times of stress, cheaper and more stable funding is one of the biggest differences between a company that has to stall and one that can continue to grow.

3) Fee-based and 'platform' revenues: the path to more resilient margins

The market often values SoFi mainly through credit, but in the long run, valuation will be based on how much revenue is recurring and less cyclical. The firm's materials emphasize the growth of financial services and the shift in mix towards fee-based revenue. This is significant because fee income typically carries a higher margin and less sensitivity to interest rate cycles than a pure interest rate spread.

The technology platform fits into this as well. It's not just a "pretty story" but a business that can add revenue without the company having to bear all the credit risk. If SoFi can continue to scale platform revenues, the quality of overall earnings will improve and a higher multiple will be easier to defend to investors.

Catalysts for 2026: what could change sentiment on the stock

A drop in rates or a clearer outlook for easing is the biggest macro catalyst as it increases refinancing activity and can lift volumes. SoFi itself quantifies that leverage in student refinancing.

Next is continued growth in members and products. The firm is targeting membership growth of at least 30% in 2026. This is important because the platform has a "network" effect within its own ecosystem: more members means more opportunities to cross-sell, and thus higher revenue per user.

The third catalyst is profitability. The outlook of 1.6 billion adjusted EBITDA on adjusted revenues of 4.655 billion implies an EBITDA margin of around 34%, a further shift from 2025.

And the fourth, which may move the price in the short term, is the index story. Inclusion in the S&P 500 has clear rules, including the requirement for profitability in the most recent quarter and in the sum of the last four quarters, size and liquidity. If SoFi continues on a profitable trajectory, the index catalyst can be a "bump" in momentum, even if it can't be timed to a specific month.

Growth projections: a simple framework that gives shape to the numbers

SoFi gives the market a fairly ambitious medium-term framework: adjusted revenue is set to grow at a compound annual rate of at least 30% and adjusted earnings per share 38-42% per year 2025-2028. Rewriting that into illustrative numbers and taking it as an anchor for the 2026 outlook, it comes out indicative:

• Adjusted earnings: 2026 $4.655 billion, 2027 roughly $6.05 billion, 2028 roughly $7.87 billion (at 30% run rate).

• Adjusted earnings per share: 2026 USD 0.60, 2027 roughly USD 0.83-0.85, 2028 roughly USD 1.14-1.21 (if 38-42% pace can be maintained).

This is not a "so it shall be" promise, but a practical framework that shows why investors are fighting over SoFi. When this trajectory comes to fruition, the valuation will begin to "cheapen" itself as sales and earnings catch up to multiples.

Valuation: expensive versus banks, cheaper when the plan comes to fruition

By the metrics, SoFi doesn't look like a bank title today. A P/E around 49.7 and P/S around 7.46 makes it clear that the market is paying for growth and for expected margin improvement. At this valuation, the key is to understand what is already "priced in" and what is still upside.

Two useful perspectives:

1) Compression of multiples when a company delivers a plan

If we take a market capitalization of about $33 billion and a 2026 revenue guidance of $4.655 billion, the "gross" forward P/S comes out to about 7 times. With revenue growth towards ~6bn in 2027 and ~7.9bn in 2028, the P/S can compress significantly without a price move. In other words, much of the investment thesis rests on time working for shareholders if the company is delivering growth.

2) EBITDA as a bridge to more mature valuations

The market often punishes growth companies until their profitability looks "stable." The $1.6 billion adjusted EBITDA outlook for 2026 is therefore critical as it brings SoFi into a mode where it can be more meaningfully compared via EV/EBITDA. The moment EBITDA grows faster than sales, the investment story begins to gradually shift from "faith" to execution.

Moreover, when compared to selected fintech peers, it is clear that the market can be extreme: some fast-growing firms have multiples that are many times higher, while more mature players like PayPal have multiples that are significantly lower. This just confirms that for SoFi, the biggest variable is confidence in the growth trajectory and profitability.

Risks: where the investment thesis can break down

The biggest risk is not that SoFi doesn't have growth opportunities. The risk is that the conditions in which it best monetizes those opportunities deteriorate.

• Rates and refinancing demand: if easing comes later, volumes may grow more slowly than the market expects and the stock will remain under pressure.

• Credit cycle: while SoFi emphasizes prime clientele and strong scores, a recession or rising unemployment may eat into loan losses.

• Competition: for personal loans and investment services, the environment is crowded. SoFi's advantage is the ecosystem; the disadvantage is that competitors can "undercut" price.

• Dilution and capital moves: the December capital raise shows that management wants leeway, but shareholders will be sensitive to any repeat episode.

• Regulation and reputation: fintech, bank and investment services mean higher regulatory demands and potentially higher "headline risk".

Investment scenarios: what 2026 may look like and what it will do to equities

Optimistic scenario: rates will help and the platform will start switching into higher gear

In the optimistic scenario, the outlook for rates improves as the year progresses and SoFi starts a "refi wave" in both student loans and personal loans. This will lift volumes, but more importantly improve acquisition efficiency as customers come in for the interest savings and SoFi can continue to monetize them through other products. The key is that margins will move faster than the market expects due to scaling and higher fee income.

In such a scenario, what the company is suggesting with its outlook will start to become real: adjusted revenue of around $4.655 billion and EBITDA of $1.6 billion are not a ceiling, but an intermediate step. The stock may then rise not "just" because of the results, but because sentiment will turn and higher multiples will become acceptable to the market again.

Realistic scenario: execution good, but market wants evidence every quarter

Realistically, SoFi can continue to grow members and products, meet revenue and EBITDA guidance, but the stock will continue to be volatile and macro sensitive. The interest rate environment can only improve gradually, so the biggest volume "boost" will come later while investors address whether growth is being bought out by higher risk or costs.

In this scenario, the return to shareholders will be less about one big jump and more about the company gradually "growing into" valuation. This is a scenario where SoFi operates like a growth bet, but with ongoing quality control: credit, costs, cross-sell pace, deposits.

The pessimistic scenario: rates stay high, credit deteriorates and the stock remains under pressure

The pessimistic scenario is not that SoFi stops growing. It is about growth slowing in the most sensitive segments and the market starting to question the quality of the trajectory. If rates stay higher for longer, refinancing doesn't come in at the expected strength, and credit conditions deteriorate at the same time, an old fear may come back into investors' heads: that with a financial firm, growth is always cyclical and will "pay for itself" later through losses.

In such a situation, valuation is the biggest risk. High multiples mean less margin for error. A company may be fundamentally sound, but the stock may still stay low for a long time because the market switches into "show me you can make it through a worse cycle" mode.

What to watch in 2026: a handy investor checklist

• Growth rate of members and number of products per member

• deposits and their dynamics as they decide the fuel for lending

• loan volumes and quality, especially for personal and student loans

• Meeting the outlook: revenue of $4.655 billion, EBITDA of $1.6 billion, earnings per share of $0.60

• what proportion of revenue is fee income and how the platform business is growing

• any indications of further dilution or major acquisitions

What to take away from the article

• SoFi is no longer just a "growth story" but a story of margins and operating leverage.

• The year 2026 has specific targets that can be checked quarter by quarter.

• The biggest lever is the rate drop because it can unlock refinancing and volumes.

• Deposits are a silent engine that increases resiliency and improves the economics of lending.

• Valuation is still challenging, so growth quality and credit discipline are key.

So what exactly were SPGI’s results and is the stock’s decline justified? We’re reaching unprecedented levels.

Thanks

At the beginning of 2026, the software sector is in a situation that looks paradoxical at first glance. A large number of companies have maintained solid revenue growth, but valuations and share prices have fallen to levels more typical of crisis periods. In many cases we are seeing declines of tens of percent from the peaks, and yet sentiment is so negative that the current capitulation of the software market is historically extreme. Banks are pointing out that roughly 73% of software names have hit record oversold levels and the ratio of the iShares software ETF $IGV to the S&P 500 is more oversold than at any time in history by their metrics.

What's behind this sell-off?

At its core, it's a clash of two big trends. The first is the structural growth of digitization, cloud and automation, things that software has been building on for years. The second is artificial intelligence, which has gone from a growth accelerator to a potential threat in the eyes of the market. Investors have started to see software more often as a segment that AI can partially replace. If the creation of competing solutions accelerates significantly and barriers to entry are lowered, this could push pricing and margins over time. At the same time, companies themselves are figuring out how to integrate AI into products so as not to cannibalize their own business.

Adding to this is another powerful factor, namely an unprecedented wave of investment in AI infrastructure. This year, the market is expecting hyperscale players like Amazon $AMZN, Alphabet $GOOG, Microsoft $MSFT and Meta $META to spend roughly $635-665 billion on CapEx (Capital Expenditures), i.e. datacenters, chips and infrastructure around AI, by 2026.

This has two important implications for software:

• Firstly, there are increasing concerns about whether the return on these investments is fast enough and clearly measurable,

• secondly, the allocation of capital and pressure on free cash flow is changing across the technology ecosystem, which the market typically translates into lower multiples. And software that has long traded at premium valuations takes the biggest hit.

Still, early signs are starting to emerge that the negative scenario may be partially overdone in pricing. Morningstar pointed out in its January analysis that it is software that may offer the greatest upside potential within technology, and in specific cases operates with a significant difference between market price and fair value. You can check this for yourself for any company in the Fair Price Index on Bulios.

What we're seeing in software stocks now is not just a normal correction. According to our team's analysis, sentiment has reached a stage that can be called a capitulation without exaggeration.

Why is this important? Because the historical oversoldness we are currently seeing in this sector is often a signal that the market has stopped discerning quality. At such a stage, the entire segment sells out, even companies that still have solid growth, high retention and healthy cash flow. This is exactly what is happening in the current wave of what Reuters has described as 'software-mageddon': the software and data services index of the S&P 500 has plunged to the point where the sector is set to write off around USD 1 trillion in market value in less than a week.

RSI (Relative Strength Index. It is one of the most widely used technical indicators that measures the pace and strength of price movement. It shows whether a stock or an entire sector is "overbought" or "oversold" in the short term)

Source: Bloomberg

The main trigger for this panic is AI. But not in the sense that it can help these companies, but rather in the sense that AI can break this market. Indeed, the market has begun to massively price in the scenario that generative AI will lower barriers to entry, accelerate the emergence of competition, and automate some functionality over time. Add to that a giant wave of investment by hyperscalers in AI infrastructure, which suddenly looks more like FOMO to investors than disciplined capital allocation. Today, it's common to operate with big players planning to spend around $650 billion on capex in 2026, which puts pressure on free cash flow and increases the market's sensitivity to any signs of weaker returns. And it also further increases pressure on traditional software firms as investors worry about their future struggles with AI.

Interestingly, though, the same AI that's causing fear now may also be the catalyst for a turnaround in sentiment. Many analysts warn that some software may be overly punished and see a significant gap between market price and estimated fair value for select names. Specifically, there have been media mentions of 50% upside for Microsoft $MSFT and 100% for ServiceNow $NOW within their fair value frameworks. However, the media often overshoots prices, so it's always a good idea to do your own analysis and look at other valuations.

But it's not just the companies themselves, it's entire ETFs

One of the purest ways to track sentiment towards the software sector is not to look at individual stocks, but at a whole basket of companies. And that's exactly what the iShares Expanded Tech-Software Sector ETF $IGV is.

Managed by BlackRock $BLK, this ETF tracks U.S. software companies across segments, from enterprise solutions to cloud, cybersecurity to specialized industrial software. It's not a narrow ETF, but a relatively broad exposure to the core of the U.S. software ecosystem.

Why is IGV so important right now?

According to Jefferies analysis, it is $IGV relative to the S&P 500 index that is at its largest relative oversold level in its nearly 25 years of existence. In other words, software as a whole has never been so weak relative to the broader market.

Historically, similar moments of relative capitulation have often preceded significant sector turnarounds - not necessarily immediately, but over the course of several quarters.

ETF Overview

Data as of 6.2.2026

Source: BlackRock

Change in investor position

One of the key reasons for the current sell-off is the change in narrative around artificial intelligence. As recently as last year, AI was clearly seen as the biggest structural opportunity for software in the last decade. Today, however, there is increasing talk that the billions of dollars invested in AI may end up as just money spent without a return of capital to the company.

On the one hand, AI can be a historic catalyst for growth. Companies that can integrate it into their products can dramatically increase customer productivity, improve retention, and open up new pricing models. But on the other hand, AI also lowers barriers to entry. Developing new software solutions is faster, cheaper and more accessible than ever before. This leads to the concern that some traditional software may become automated.

The market today is factoring in the scenario in many companies' valuations that:

• Competition intensifies significantly,

• pricing power weakens,

• margins become thinner,

• companies will be able to develop some functionality in-house with AI tools.

This is a dramatic change from the last decade, when software was able to grow at minimal cost and hold extremely high operating margins.

So the key question is not whether AI will destroy or save the sector. The question is which companies can monetise it faster before it starts cannibalising their existing business. And that will be the focus of tomorrow's company-specific analysis.

Another important perspective is macroeconomic and capital. In recent years, software has systematically outperformed the broader market. The reason has been simple: high growth, a low-cost model, strong cash conversion and high profit multiples.

But now we are seeing a significant shift in capital.

Investors are starting to focus more on companies with tangible assets - industry, energy, infrastructure, chipmakers or companies that benefit from AI through the physical layer such as datacenters, hardware, electricity.

Chart of Micron $MU - a manufacturer of memory for AI (hardware for AI)

The logic is simple: if AI leads to massive automation and productivity gains, the companies that own the infrastructure have the most to gain.

While software used to trade at premium multiples precisely because of its "elusiveness" and high margins, today the market is driving those multiples down. Morningstar points out that some large software firms are now trading at multiples that are well below the average of recent years. This in itself creates not room for a rally, but asymmetry. If sentiment stabilizes, a return to historical multiples could mean significant upside potential.

Historically, extreme oversold segments often precede strong pullbacks not because fundamentals improve overnight, but because the market stops pricing in the worst-case scenario as the only realistic one.

Today we are at the stage where:

• Investors are questioning the return on AI investments,

• they fear software automation,

• overestimate risk and underestimate the adaptability of strong players.

This does not mean that the entire sector is undervalued. But it does mean that it is starting to create some specific opportunities, and also risks for those who cannot distinguish between companies with a strong competitive advantage and those whose business model may actually be disrupted.

Conclusion

The software sector is undoubtedly in an exceptional phase today. Sentiment is at its most negative in many years according to a number of indicators, software-focused ETFs are experiencing historically record oversold levels, and investors are shedding the sector across the board, without much distinction in quality.

At the same time, there is concern that the huge investment in AI infrastructure may not return as quickly as investors would expect. The more capital that flows into data centres and chips, the less there is for buybacks or dividends, and this immediately translates into lower valuation multiples.

On the other hand, there is a second, equally strong argument. The digitalisation of the economy is not over. Process automation, the move to the cloud, cybersecurity, data analytics and AI itself are still long-term structural trends. If fears of a weakening of software prove exaggerated and strong players are able to incorporate AI into their products before it disrupts their business model, current pricing may retrospectively appear as a significant opportunity.

The CEO of Tesla and SpaceX stated on his X account on Sunday that the company has shifted its focus to building a self-sustaining city on the Moon, arguing that it would take more than 20 years on Mars.

SpaceX is still private today, but its valuation on secondary markets already exceeds hundreds of billions of dollars. Starlink alone, according to not only my analyses but others’ as well, could be worth tens to hundreds of billions of USD.

Would you buy SpaceX shares right at the IPO, even though it would likely be one of the largest public listings in history?

The CEO of Tesla and SpaceX said on his X account on Sunday that the company has shifted its focus to building a self-sustaining city on the Moon, arguing that it would take more than 20 years on Mars.

SpaceX is still private today, but its valuation on secondary markets already exceeds hundreds of billions of dollars. Starlink alone, according to not just my analyses but others’ as well, could be worth tens or even hundreds of billions of USD.

Would you buy SpaceX shares right at the IPO, even though it would likely be one of the largest listings in history?

What the results do not offer is a turning point. Revenue momentum remains limited, margin expansion is not the focus, and there is no new catalyst to reframe the investment narrative. For investors, AT&T continues to represent a cash-flow and dividend profile rather than a growth opportunity, with the key question centered on sustainability rather than acceleration.

How was the last quarter?

Q4 2025 confirmed the continued trend of low revenue growth but solid operational performance. Total revenues reached $32.3 billion, up 0.3% year-on-year. This is very limited momentum at the overall level, but a positive signal coming from the core business. Service revenue grew by 1.0% YoY, showing that core telecom services maintained a modest upward trajectory.

Operational performance was stronger than revenue growth. Adjusted EBITDA in Q4 was $10.9bn, up 4.1% YoY. EBITDA margin was 33.6%, slightly above Q4 2024 levels, although well below the seasonally strong Q3. This confirms that AT&T $T can maintain cost discipline, but without significant margin leverage.

At the earnings level, the company reported a net profit of $4.16 billion. Adjusted EPS came in at $0.52, a noticeable improvement from $0.43 in Q4 2024, but also a slight slowdown from Q3 2025. Thus, profitability remains stable, not accelerating.

From a cash perspective, the quarter was solid. Free cash flow was US$4.2bn, down from a strong Q3, but in the context of the full year confirms the company's ability to generate cash even with high investment.

• Full presentation with results.

Q4 2025 Highlights:

• Revenues $32.3 billion, +0.3% YoY

• Service revenue +1.0% YoY

• Adjusted EBITDA USD 10.9 billion, +4.1% YoY

• EBITDA margin 33.6% YoY

• Free cash flow USD 4.2 billion

• Adjusted EPS USD 0.52 (vs. USD 0.43 YoY)

Segment view: where AT&T is gaining and losing momentum

The mobile segment remains a mainstay of stability. Postpaid phone net adds were +421k, a solid result in a highly competitive environment. Postpaid ARPU rose to $56.72 (+0.9% YoY), indicating good customer retention. Service revenue in the mobile segment grew by 2.4% YoY and EBITDA by 3.1% YoY, confirming balanced, profitable growth.

Optical infrastructure continues to perform very strongly. AT&T Fiber added 283k customers in Q4, while Internet Air gained another 221k. Fiber revenue grew 13.6% YoY and Fiber ARPU reached $72.87, well above traditional broadband. Also crucial is the growth in convergence rate to 42%, meaning more customers are using multiple AT&T services simultaneously and increasing their long-term value.

Business Wireline, on the other hand, remains a weak link. EBITDA in this segment declined 6.7% YoY, reflecting the structural decline in traditional business connectivity. While growth in fiber and advanced connectivity cushioned some of the decline, the trend remains negative.

Management commentary

Management emphasizes balanced growth, stability and discipline in capital allocation. Mobile, fibre and customer convergence across the portfolio remain strategic priorities.

Communications indicate that AT&T is not targeting aggressive expansion. Instead, it is focusing on maximizing the value of existing infrastructure, maintaining a quality network and gradually improving financial flexibility. This conservative approach is a key reason why the title is viewed as a defensive investment rather than a growth story.

Outlook

The outlook for 2026 to 2028 confirms a steady but limited growth trajectory. Management expects service revenue growth in the low-single-digit range annually, i.e. without significant acceleration. Adjusted EBITDA is expected to grow 5%+ in 2026, with gradual improvement towards 5%+ by 2028.

Capital investment is expected to remain in the range of $23-24bn per year, implying continued investment in the network without dramatic increases. A key point in the outlook is free cash flow, which is expected to reach US$18+bn in 2026, US$19+bn in 2027 and US$21+bn in 2028. This is critical for both dividend sustainability and debt reduction.

On the earnings front, the firm expects adjusted EPS of US$2.25-2.35 in 2026 and double-digit three-year CAGR through 2028, suggesting gradual improvement rather than leapfrog growth.

Long-term results

The long-term view shows a company that has undergone a painful restructuring and is now in a normalization phase. Revenues in 2025 reach $125.6 billion, representing 2.7% year-over-year growth after a flat 2024. This confirms that AT&T is operating in an environment of very limited structural growth.

Stability is evident at the operating profit level. Operating income was USD 24.2 billion, virtually unchanged from the previous year. EBITDA rose to USD 53.2bn (+20.9% YoY), reflecting a combination of operational discipline and normalisation after previous exceptional items.

The most visible improvement came on the bottom line. Net income rose to US$21.9bn, almost double the 2024 figure, and EPS came in at US$3.04 (+104% YoY). However, this jump should be read as a return to normal after a weaker year, not a new growth trend.

The number of shares outstanding remains stable, which means that EPS changes do indeed reflect profitability trends. AT&T thus confirms the long-term profile of a company that maximizes value through cash flow, not through revenue growth.

News

During the year, AT&T continued to expand its fiber network, increase its convergence rate and gradually reduce debt. The company has avoided large acquisitions and remains conservative in its capital policy, which promotes stability but limits the potential for faster expansion.

Shareholding structure

The shareholder structure is strongly institutional. The institution holds roughly 67% of the shares, with Vanguard (9.3%), BlackRock (8.1%) and State Street (4.6%) being the largest shareholders. The low insider stake is consistent with the mature stage of the firm and the long-term nature of the investment base.

Analyst expectations

Analyst consensus remains cautious but stable. AT&T is viewed as a defensive title with an attractive dividend yield and predictable cash flow. Analysts appreciate the improvement in capital structure and stabilization of results, but also note limited growth potential and sensitivity to macroeconomic conditions. Thus, the market's post-earnings reaction is consistent with reality - AT&T is delivering what it promises, but does not warrant an upward repricing.

Fair Price

AI and Cloud Infrastructure Powering Growth

Oracle’s rebound is rooted in its strategic positioning in the AI cloud infrastructure market, where demand for GPU-heavy compute and high-performance database services continues to accelerate. Recent commentary notes that investors are increasingly confident in Oracle’s ability to capture a slice of rapidly expanding AI workloads, contributing to growth in its core Oracle Cloud Infrastructure (OCI) offerings. Analysts point to remaining performance obligations (RPO) figures in the hundreds of billions a key measure of future contracted revenue as evidence of strong booked demand that underpins revenue visibility for coming years.

$ORCL has also benefited from cloud infrastructure upgrades and rising enterprise software demand, with one report noting a 4.95 percent pre-market surge earlier this year tied to renewed confidence in its hybrid cloud and database modernization strategies across sectors such as healthcare and finance.

Strong Backlog and Ambitious Long-Term Outlook

Another driver cited by investors is Oracle’s extraordinary backlog of contracted revenue, which reflects multi-year commitments from enterprise customers that are integrating cloud and AI workloads into their infrastructure. Some industry analysis points to a backlog figure well north of expectations, indicating a strong pipeline of future revenue. Wall Street models have even suggested OCI could grow into a $144 billion annual revenue business within a few years, dwarfing legacy segments and underscoring Oracle’s strategic pivot toward high-growth areas.

Despite near-term challenges around funding and execution, analysts see potential for multi-year upside driven by Oracle’s expanding cloud footprint, diverse enterprise software base, and incremental AI services adoption.

Funding Initiatives and Strategic Investment

Oracle’s recent announcement of plans to raise capital including up to $50 billion in mixed debt and equity funding for cloud infrastructure expansion has been a focal point for investors evaluating its long-term growth trajectory. While the scale of this financing plan has raised debate about dilution and leverage, the broader market has largely interpreted it as evidence of Oracle’s commitment to meeting surging enterprise demand, with major clients such as Meta, NVIDIA, AMD, and AI firms like OpenAI reliant on high-performance cloud capacity.

Investor sentiment has occasionally been tempered by concerns about debt levels and infrastructure spending, but the recent bond offering success including strong institutional demand for a reported $25 billion in new bonds was seen as a positive sign that markets still support Oracle’s strategic direction.

What Investors Are Watching Next

As Oracle’s stock continues its rebound, several key metrics and catalysts will shape investor expectations and near-term performance:

Cloud Revenue Growth: Continued acceleration in OCI revenue, particularly with AI workloads and enterprise modernization projects, will be critical to validating long-term growth models.

Backlog and Contracted Revenue: RPO figures above $500 billion act as forward guidance on future revenue streams and give visibility into multi-year demand strength.

Capital Deployment and Funding Execution: How Oracle deploys the planned $45–50 billion in funding toward infrastructure, data centers and partnerships will influence both growth and investor confidence.

Earnings and Guidance: Upcoming earnings prints and management commentary on margins, subscription growth, and AI adoption will be key near-term catalysts.

Overall, Oracle’s stock rise today is part of a broader reassessment of its role in the cloud and AI landscape, with investors increasingly willing to look through cyclical volatility to its structural opportunity.

The market is treating 2026 as a transition year. Management talks about tighter discipline and a reset, but guidance suggests that a return to prior profitability levels will take time. UnitedHealth remains a high-quality franchise, but investors are grappling with a risk profile that looks less predictable than it did in recent years.

How was the last quarter?

The fourth quarter of 2025 was the weakest quarter for UnitedHealth Group $UNH in terms of profitability in several years, although revenues remained strong. Revenues in the quarter were approximately $113.2 billion, representing year-over-year growth of approximately 12%, driven primarily by continued growth in the number of insureds in the Medicare and Community & State segments and volume growth in Optum Rx. Thus, at the revenue level, the company is not facing a demand problem, but a cost structure problem.

Operating profit in the fourth quarter, however, fell to just $0.4 billion, down from $4.3 billion in the same period last year. The main reason was a one-time charge of $1.6 billion after tax, which included final costs related to the cyberattack, portfolio restructuring, exits from unprofitable businesses and revisions to loss-making insurance contracts. After including these items, reported earnings per share were only $0.01, an extreme drop from the company's historical norm.

On an adjusted basis, earnings per share came in at $2.11, which better reflects the normal performance of the business, but even that figure fell short of what investors have long been accustomed to at UnitedHealth. The key negative factor remains the medical care ratio, which rose to 88.9% on an adjusted basis, up from 85.5% a year earlier. This 340 basis point increase represents a significant deterioration in profitability leverage - for every dollar of premium, significantly more is now spent on health care itself.

The operating expense ratio was 12.9% on an adjusted basis and remained roughly stable year-over-year, suggesting that the problem lies not in administrative costs but in the cost of care provided. Cash flow from operations in the quarter remained solid, but its structure was impacted by the timing of payments that would normally fall in 2026.

• Full presentation with results.

Outlook for 2026

The outlook for 2026 is solid at first glance, but on closer reading rather defensive. The company expects revenue to exceed $439 billion, which would imply only low single-digit growth over 2025. Operating profit is expected to exceed $24 billion and adjusted earnings per share are expected to be above $17.75, with the low end of reported EPS at $17.10.

The key takeaway is that this outlook already fully reflects higher healthcare costs, the impact of the Inflation Reduction Act, lower Medicare funding from CMS, and continued margin pressure in the UnitedHealthcare segment. In other words, management openly admits that a return to the old 2021-2023 margins is not realistic.

The efforts to price discipline and reprice insurance products are positive signs, but these steps will be delayed. Thus, 2026 will be a year of stabilisation rather than growth acceleration.

Management comment

CEO Stephen Hemsley described 2025 as a watershed year in that the company "faced the challenges head on" and took painful but necessary steps. In particular, he highlighted Optum's reorganisation, management turnover and return to integrated value care. According to management, it is the second half of 2025 that lays the foundation for more sustainable growth in the years ahead.

At the same time, however, management does not appear overly optimistic. The language of communication is cautious, with an emphasis on discipline, transparency and cost management rather than expansion or aggressive growth. This in itself explains why the market reacted restrainedly after the results.

Long-term results

Looking at UnitedHealth Group's long-term development, it is evident that the company has dramatically increased its scale over the past four years, but 2024 marked a turning point in the quality of that growth. Revenues grew from $287.6 billion in 2021 to $324.2 billion in 2022, then to $371.6 billion in 2023, and reached $400.3 billion in 2024, a cumulative growth of more than 39% in three years. This growth has been driven by a combination of acquisitions, demographic trends and the expansion of public health programs.

However, the cost side grew even faster. Cost of revenues increased from $217.9 billion in 2021 to $244.5 billion in 2022, $280.7 billion in 2023, and up to $310.9 billion in 2024. As a result, costs grew nearly 11% year-over-year in 2024, while revenues grew only 7.7%. This led to gross profit falling to US$89.4 billion, a 1.7% year-on-year decline, the first real drop in gross profitability after years of expansion.

Operating profit was flat in 2024 at US$32.3 billion, virtually unchanged from 2023, despite strong revenue growth. This clearly shows a loss of operating leverage. An even more pronounced deterioration can be seen at the level of net profit, which fell to US$14.4 billion in 2024 from US$22.4 billion in 2023, a drop of more than 35%. Earnings per share fell from US$24.12 to US$15.64, a fundamental change in the profitability profile of the entire group.

EBITDA declined to US$28.1 billion in 2024, down nearly 23% year-on-year, while growing at a double-digit rate between 2021 and 2023. This development confirms that UnitedHealth has entered a phase where volume growth no longer automatically means profit growth, and the ability to control healthcare costs and adapt pricing to the regulatory environment is becoming a key issue.

Shareholder structure

UnitedHealth has a stable institutional base. The institution holds roughly 84% of the stock, with the largest shareholders being Vanguard (10.0%), BlackRock (8.2%) and State Street (4.9%). Insider ownership remains low, which is standard for a company this large.

Fair Price

Investors are not buying a pristine income statement, but a transition. Capacity growth is approaching the point where it can translate into mobility revenues, while balance-sheet pressure continues to ease. Management points to positive free cash flow in fiscal 2026 and 2027, a record backlog near $4 billion, and a leverage target below 3×. The investment case has become binary: execution will determine whether the risk premium compresses meaningfully.

Top points of the analysis

• Record backlog of around $4 billion, up roughly $430 million year-over-year

• Strong cash flow: cash flow from operations USD 727 million for the quarter, free cash flow USD 444 million (significantly lower after adjusting for one-off payment, but still improving trend)

• Key milestone: commercial launch of new satellite capacity services expected around May, further capacity expansion by end of summer

• Leverage declining: net debt to adjusted EBITDA at roughly 3.25x and target to get below 3x

• Outlook for fiscal year 2026: revenue slightly up, EBITDA roughly stable, CapEx reduced to USD 1.0-1.1 billion and ambition of positive free cash flow

Introduction of the company and what it sells

Viasat $VSAT is a satellite communications and broadband company that makes its living by delivering connectivity where terrestrial infrastructure doesn't make sense or isn't available. In practice, it's a mix of products and services for aviation, maritime, government and defense customers, and select enterprise and fixed broadband offerings. From an investment perspective, the key is that it is not just "hardware in space" but a combination of capacity, ground infrastructure, terminals and long-term contracts.

The business typically relies on multi-year contracts and high switching costs. For aviation and maritime, terminal installation, integration into operations and certification is a process that in itself creates a barrier to exit. For government SATCOM, on the other hand, security certification, compatibility, relationships and the ability to deliver services in modes where commercial players often face constraints are key.

The biggest investor "aha moment" is that the company is not in "small growth disruptor" mode, but in infrastructure mode with a huge front-loaded CapEx. In good years this looks boring, in tough years it looks dangerous. Only one thing makes the difference between the two worlds: available capacity and the ability to turn it into cash without inflating debt further.

What's changing the investment thesis right now

Not long ago, the dominant concern was simple: the company is investing billions, satellites are delayed, fixed broadband in the U.S. is weakening, and debt leverage combined with higher rates is creating pressure. But in the current set-up, for the first time the focus of the story is visibly shifting towards cash flow and the execution of specific milestones. CEO Mark Dankberg explicitly says that cash generation is better than planned and that targeted transactions and savings in capex and operations go hand in hand with investment in future growth.

The second major change is the timing of ViaSat-3. Flight 2 is "within sight" of reaching operational status, commercial launch services are expected around May, and Flight 3 is to follow up after Flight 2 deployments are completed with a faster "orbit raise". These are not cosmetic details: with this type of company, the difference between "launched on time" and "delayed by a quarter or two" is the difference between de-risking and another wave of skepticism.

The third change is strategic optionality. Management has a strategic review underway, including consideration of separating the government and commercial parts. Management ties this directly to successful deployments, macro trends and achieving deleveraging and FCF targets. This is important because it adds "optionality" to the stock: if the operating story is confirmed, it can open the way for a restructuring, which the market often values at a higher multiple than a conglomerate with a mixed risk profile.

Segments and what the latest numbers say about the quality of growth

At the segment level, aviation is the most obvious positive. Aviation revenue grew 15% and the number of commercial aircraft in service grew 9%. This is the type of growth that has investment weight because it is a mix of higher installed base and monetization, not one-off sales. Moreover, this is an area where new ViaSat-3 capacity can unlock further scaling without the company having to dramatically increase the fixed cost of servicing each unit.

Government SATCOM grew by 4%, which may seem like a "boring number", but in defence and government contracts, the stability and quality of the backlog is often more valuable than the short-term growth rate. A backlog of around $4 billion at record levels is a key anchor in this context. In such a contract-driven business, backlog improves visibility and reduces the likelihood of a company falling into a cash-flow pit at the most sensitive stage of deploying new capacity.

Conversely, fixed broadband and 'fixed services and other' remains a weak spot, with revenues down 20% and a continued decline in US subscribers. This is exactly the kind of segment that can spoil the impression for investors if it continues to deteriorate faster than the mobility use-cases take off. At the same time, this is a segment where management openly reckons that improvement will only come with new services once satellites go live.

Management

Mark Dankberg has been running the company for a long time and is betting on two things at the current stage: de-risking through execution and through improving capital efficiency. The three growth pillars - ViaSat-3, multi-orbit broadband and "new frontier defence technology" - are recurring themes in the communication, but more importantly, how he plans to fund these pillars. The emphasis on cash conversion and on deleveraging is not cosmetic, but a direct response to what the market has been chastising this stock for the past few years.

CFO Garrett Chase frames it as a "mantra": build franchise and earnings power, generate and grow in free cash flow, and set a path to a long-term value-maximizing capital structure. For an investor, this means that the firm is trying to switch from "survive the investment cycle" mode to "reap" mode - and that it has already aligned both its CapEx outlook and its approach to Ligado-type deals with that.

It's also worth noting that management is openly talking about "capital-efficient innovation." An Equatys-type partnership with Space42 is intended to reduce the cost of capital and provide access to capacity at an attractive unit cost. This is exactly the type of design that can improve ROIC in the years ahead without having to repeat extremely capital-intensive phases again.

Long-term results

At the revenue level, we see a shift to higher scale. In the fiscal year ending March 31, 2025, revenues reached approximately $4.52 billion, a 5.5% year-over-year growth after a jump in fiscal 2024 to $4.28 billion. For context, fiscal 2023 was at $2.56 billion and 2022 at $2.42 billion. This shows that the company is in a very different league today in terms of size than it was a few years ago - and that investors need to read trends in the context of integration, acquisitions and portfolio transition.

Gross profit is growing more slowly than the market would like, but the trend is steady: $1.49 billion in fiscal 2025 to $1.38 billion in 2024. Importantly, the cost base is starting to behave in a more disciplined manner. Operating expenses in fiscal 2025 are down about 30% to $1.59 billion after an extreme year in 2024 ($2.27 billion). This is critical for investors, because controlling operating expenses is often the only quicker tool in the satellite business to stabilize the bottom line when you are still waiting for new capacity on the revenue side.

Accounting profitability remains weak, operating income is still negative (around -$97 million in fiscal 2025, with a much deeper decline in fiscal 2024). Yet EBITDA in fiscal 2025 jumped to about $1.24 billion from about $364 million in 2024. This discrepancy is typical for an investor: satellite infrastructure carries high depreciation, amortization, and often non-recurring accounting items. Therefore, it is more important to monitor EBITDA trends, cash conversion and whether the relationship between CapEx and cash generated is actually changing.

Cash flow and why it's the most important metric right now

In the last reported quarter, the company showed strong cash flow momentum: cash flow from operations of $727 million and free cash flow of $444 million on CapEx of $283 million. On first reading, this looks like a clear turnaround, only part of it is impacted by a one-time payment (Ligado). Adjusted for this component, cash flow from operations was $307 million and free cash flow was $24 million. That's a much more sobering picture, but still important: the company still came close to zero FCF in the quarter even after adjusting, which is exactly what the market wants to see as evidence of a turnaround.

Even more important than the number itself is the mechanism by which the company gets there. Management is talking about more efficient cash conversion, targeted transactions, cost savings, and also investing for the future. In practice, this means trying to reduce the "penalty" for capital intensity: less overinvestment, more partnerships, and tighter discipline on working capital.

Forward-looking, the firm confirms expectations of positive free cash flow in fiscal 2026, 2027 and beyond, reducing CapEx for fiscal 2026 by $100-200 million to $1.0-1.1 billion. Of this, roughly USD 350 million is attributable to the "Inmarsat silo" and just over USD 200 million to the completion of ViaSat-3. If these frameworks hold, the investor finally gets a modellable bridge between the "satellite build-out" and "cash-flow harvest" phases.

Balance sheet, debt and the path to leverage under 3x

The stock's biggest sensitivities are leverage and interest coverage. Metrically, this can be seen in net debt to EBITDA (around 4.7× in some reports) and weak interest coverage. But management also reports net debt to trailing 12-month adjusted EBITDA at 3.25×, a significant improvement from around 3.7× a year ago, while explicitly targeting below 3×. The difference between the "adjusted" and "non-adjusted" view is exactly what an investor needs to watch, as the market may prefer a more conservative interpretation in risk-on mode.

On the positive side, the company has a reasonable liquidity position in working capital and short-term ratios. A quick ratio of around 1.48 and a current ratio of around 2.08 reduce the risk of a short-term liquidity crunch. However, this does not address the long-term capital structure issue, as the key is how fast net debt declines relative to EBITDA, how the interest bill evolves, and whether CapEx stays within.

From a shareholder perspective, the most important thing is that deleveraging is no longer just a slogan. The company is tying it to specific sources: positive cash from operations, proceeds from Ligado-type transactions and smaller divestitures. If this mix holds up without the one-off components, the risk premium will gradually start to decrease.

Valuation and why the market is still holding the brake

Market valuations today don't look like typical tech euphoria. Market cap is around USD 5.1 billion and enterprise value around USD 11 billion. A P/S of around 1.11 is low on the face of it for a company operating in a critical connectivity infrastructure, but it also reflects a lack of confidence in accounting profitability and how stable FCF will be once one-off effects have worn off and the most expensive phases of the investment cycle are complete.

A P/CF of around 34.7 looks high, but this is precisely the result of the market not yet believing that cash flow will be sustainably high over the long term. Once FCF is proven to be structurally positive while leverage declines, the valuation framework may change from "will it survive?" to "how much of it will compound?". This is the point at which not only the multiples often change for similar companies, but also the type of investors holding the stock.

The optionality of the strategic review is also interesting. If a company were to decide to separate the government and commercial businesses, the market may price that at a higher sum of the parts than today's conglomerate discount. But this is only true if the satellite deployments turn out well and the cash-flow profile is stable. Otherwise, "optionality" becomes just another source of uncertainty.

Where can a company grow and what needs to sit for growth to materialize

The primary growth driver is mobility: aviation and maritime. There is already solid momentum in aviation and with new capacity a combination of higher quality service, higher airline penetration and better monetization per aircraft can be unlocked. If the new capacity performs as planned, the main question will not be "whether it grows" but "how quickly does growth translate into margins" as mobility products tend to have higher operating leverage.

The second driver is multi-orbit broadband, combining GEO capacity with LEO partnerships to give customers better latency, coverage and flexibility. Partnerships like Telesat Lightspeed for the aero segment point the direction: one antenna, multiple orbits, more competitive with pure LEO solutions. If this model catches on, the company can avoid having to capitalize LEO capacity with its own investments and instead monetize "system integration" and distribution power.

The third driver is defence and "new frontier defence technology". There, growth is often less linear, but rewards winners with long contracts, high switching costs, and a greater willingness to pay for security and availability. Record backlog is important in this segment not just for volume, but to signal that customers are planning capacity ahead. In addition, if the macro for defence budgets improves and delays caused by administrative factors subside, this may improve short-term order backlog.

Risks that can destroy the investment thesis

The biggest risk is execution and timing. The satellite business is ruthless: delays to Flight 2 and Flight 3 are immediately reflected in the revenue side while holding the cost base highly fixed. Should technical complications recur or service launches be delayed, the market may quickly reassess the likelihood of a scenario in which FCF improves more slowly and leverage remains higher than is comfortable.

The second major risk is competitive pressure, particularly in mobility. LEO players have set new standards in latency and capacity expectations, and customers will be comparing not only price, but also quality, coverage and ease of installation. Viasat may succeed with just a multi-orbit strategy and contract depth with customers, but if competitors offer better parameters at an aggressive price, it may push margins and slow the monetization of new capacity.

The third risk is financial. Negative interest coverage and relatively high net debt mean sensitivity to rates, refinancing and cash flow volatility. While short-term liquidity looks better, the long-term story is that positive FCF will not be a quarterly episode impacted by a one-off item. Once it becomes apparent that, absent extraordinary influences, the company is generating only weak FCF, the pressure on valuation and on strategic options will rise sharply.

Investment scenarios

Optimistic scenario

The optimistic scenario is based on Flight 2 entering service around May, Flight 3 by the end of summer, and that capacity will indeed unlock growth in the mobility segments without the need to dramatically increase opex. In that case, the company can move from "low single digit revenue growth" to a visibly better mix in 12-24 months, where aviation and government pull and fixed broadband ceases to be a drag. With continued deleveraging towards below 3x, the equity story would change to "deleveraging + growth", which historically raises the market's willingness to pay a higher EV/EBITDA multiple. The fair price in this scenario could lie significantly higher than today, as the combination of lower debt risk and higher cash flow visibility often adds tens of percent of value to a stock even without "miraculous" earnings growth.

A realistic scenario

The realistic scenario assumes that fiscal 2026 will indeed deliver only a low single-digit sales growth rate and roughly flat Adjusted EBITDA, but that a key point will hold true: FCF will be positive not just "on paper" but on a recurring basis. CapEx in the $1.0-1.1bn range will remain under control, backlog will hold visibility and leverage will continue to slowly decline. In this world, the stock may move more gradually - revaluation will be more about reducing the risk premium than the growth premium. For the investor, this is a "reward for patience" scenario where the main gain comes from the market stopping waiting for trouble.

The negative scenario

The negative scenario starts with capacity deployment milestones being pushed back again, fixed broadband continuing to fall faster than mobility takes off, and one-off cash injections not being enough to make a compelling deleveraging case. In this case, leverage may be held higher, the interest bill will remain painful and strategic review will be delayed. The market then typically addresses the worst question: whether further asset sales will be necessary, a significant reduction in investment, or whether the firm will enter a long "value trap" waiting mode. Fair valuations in the negative scenario tend to be significantly lower because equity is last in line in such a structure and most sensitive to changes in expectations.

What to watch next

Three timing milestones are most important: the actual launch of Flight 2 and Flight 3 services and how quickly aviation and maritime capacity utilization begins to pick up post-launch. Investors should want to see not only "it's up and running" but also the first signs of monetization: revenue growth in aviation, growth in the installed base, and steady churn with commercial customers.

The second set of metrics is purely financial: recurring free cash flow without one-off payments, CapEx trend vs guidance and net debt/adjusted EBITDA trend towards sub-3x target. If the company is able to keep FCF positive while leverage continues to decline, the probability of a valuation revaluation increases regardless of whether revenue grows 3% or 7%.

The third thing is segment quality: the fixed broadband subscriber base and rate of decline, the evolution of the government SATCOM backlog, and any news from the strategic review. Once the more concrete contours of a separation of a part of the business or a larger transaction emerge, the market would read this as a signal that the company is "post de-risking" and can maximize the value of the structure.

What to take away from the article

• The stock is a bet on the execution of satellite milestones and the transition to steadily positive free cash flow

• Record backlog and improved leverage move the story from "survival" to "de-risking"

• Greatest immediate strength is in the aviation segment, fixed broadband remains the biggest drag

• Valuations today contain a high risk premium that can change quickly based on FCF and leverage trajectory

• Key is to monitor FCF repeatability without one-off effects and the speed of monetization of new ViaSat-3 capacity

This week brings results from several key positions in my portfolio. Here is an overview with my take on each, supported by a rationale.

$KO : I expect a standard report with minimal surprises; in turbulent times this is a stock that holds its value and serves as a safer haven. Rationale: Consensus estimates Q4 2025 EPS $0.57 (+3.6% YoY) and revenues $12.05 billion (+4.4% YoY), reflecting resilient demand for staple products in volatile conditions with stable margins.

$BTI : Basically the same as $KO — an attractive dividend and a safe stock in turbulent times. Rationale: With estimated Q4 2025 EPS $2.51 and a reliable yield around 5%, BTI provides stability thanks to its defensive tobacco business and diversification into next-generation products, with expected 2% revenue growth despite market headwinds.

$COIN : I expect a big move either up (which would require stellar results and a reversal in market sentiment) or down (if results are neutral or poor and sentiment remains as it was last week). Rationale: Consensus for Q4 2025 EPS $1.03 (-66% YoY) and revenues $1.85 billion (-19% YoY) could trigger volatility given the crypto market’s sensitivity; only a strong beat could reverse sentiment.

$ADYEN.AS : Whatever the results, I expect this stock to remain relatively unchanged. Only a change in market sentiment would push it up (and I hope it would pull $PYPL from the same sector up with it); there’s not much left that can push it down. Rationale: significant revenue growth, sustained high profitability, and an attractive current valuation.

$0992.HK (Lenovo): I expect good results, but if the market doesn’t start liking tech and electronics manufacturers again, it will be difficult. However, the $9 level should hopefully hold. Rationale: Estimated Q4 2025 revenues $16.98 billion (+8% YoY) and EPS $0.05 (-64% YoY) reflect growth driven by AI. The issue remains market sentiment and possible problems related to trade wars.

- At least a small bit of joy in these times — $BTI pays a dividend today! BTI’s quarterly dividend of $0.75 is payable on February 9, 2026, offering a forward yield of 4.9%, which provides income stability in these volatile times.

Your thoughts on these reports, please! Which of these stocks are you watching? What are your expectations?

At first glance, 2026 looks stable for the German stock market. The DAX index is holding relatively high, gaining 1.43% since the beginning of the year. But a look at the index itself can be misleading.

The DAX is weighted by market capitalisation, which means that its development is heavily influenced by a few of the largest companies. If big titles are growing strongly, they can mask weakness in smaller or more sector-sensitive companies. And that is exactly what is happening this year.

While some of the index's "heavyweights" are holding up performance, a number of companies have lost quiet a dozen percent since the start of the year and are trading well below their 12-month and all-time highs.

But it's important to understand a fundamental point:
a share price decline alone does not make a stock cheap.

The price is just the result of current supply and demand. The real questions are:

• Have the company's fundamentals (earnings, cash flow, margins, debt) deteriorated?

• Or is the decline primarily the result of exaggerated expectations from the past and a change in sentiment?

Historically, the most hammered titles within indices are often among the strongest growth stocks in subsequent cycles. Not because the market is irrational, but because investors tend to overshoot on both optimism and pessimism.

On the other hand, there are also cases where a deep decline is not a temporary correction but a reflection of a structural problem, such as a loss of competitiveness, a change in the market, or persistent margin pressure.

In this article, therefore, we look at a few of the DAX index's most decimated titles in 2026. In analyzing them, our team asked two key questions:

• Is the decline a reflection of short-term panic or a realistic overestimation of growth expectations?

• Are these companies trading below their fair value, or is their current price still high relative to future earnings?

Zalando $ZAL.DE

Zalando' s shares are among the most decimated within the DAX index over the past period. According to market data, $ZAL's share price is 17 percent lower in 2026. The price is nearly 80 percent away from its absolute peak. However, this development does not reflect a simple fundamental collapse, but a combination of structural changes in the business together with an overestimation of market expectations.

Zalando is one of the largest online fashion retailers in Europe, with sales of over €11.5bn in the last 12 months and operations in more than 20 countries. Moreover, the company has managed to increase its net profit and EBITDA in 2024, illustrating that the company is not in a deep loss-making mode, but rather is transforming its business after a turbulent post-pandemic e-commerce period. However, its margins are still at low levels (around 2%) in recent years, despite their significant increase from 2022.

However, this growth has not been uniform and the market is logically punishing stocks that do not maintain the growth rates investors have become accustomed to in 2020-2021. Management's conservative outlook for 2026 expects revenue growth in the range of 4% to 9% and adjusted earnings before interest and tax between €530-590m, which despite the increase in earnings points to a slowdown in growth compared to the record rates of previous years.

It is key for investors to understand why the share price may reflect a different reality than the actual numbers in the financial statements. Valuation multiples such as P/E of around ~26 and P/BV of ~2-2.3, which are typical for Zalando today, are not extreme but require robust earnings growth going forward to be justified.

Technical factors add to this: investors often penalize retail titles more than other sectors because their margins tend to be lower and competition is intense. Zalando, for example, has only low operating margins, whereas the average for the ecommerce sector tends to be significantly higher.

Another factor that has affected sentiment on the stock in recent months has been the news of the closure of a distribution centre in Germany, for example. This shows how the market reacts sensitively to any changes in a company's operations, even if they relate to cost optimisation and efficiency improvements.

On the other hand, there are also positive impulses that can be considered pro-growth for the long term. Zalando continues to expand its offerings and service segments, is testing AI integration for marketing and customer personalisation, and is looking to gain more market share through the B2B segment, where its ZEOS logistics platform is showing growth.

Put simply, Zalando's share price decline reflects a change in growth expectations more than a fundamental failure of the business. The company is generating revenues in the tens of billions of euros, its profit and customer base are growing, and its cash flow continues to support investments without increasing debt.

The divergence between short-term sentiment and fundamentals can therefore be seen as a potential value opportunity, but each investor needs to do their own analysis. For example, we can start by looking at the Fair Price Index on Bulios, which offers a calculated fair value for this and many other companies based on DCF and relative valuation.

SAP $SAP

For SAP, this year's underperformance is a good example of how the valuation of a large technology company works when the market switches to a mode that growth must be exactly as expected. SAP is Germany's largest technology company and one of the largest in the DAX, so one would intuitively think that such a company would be more stable than an e-commerce or cyclical industry. But it is the market leaders that tend to have the highest expectations. And when there is the slightest sign of a slowdown, the reaction can be violent.

This was evident in the Q4 and full year 2025 results, where SAP reported a very strong headline around cloud and AI, but the market latched onto one particular metric: Current Cloud Backlog (the value ofcloud service contracts already signed but not yet fully booked to revenue). The firm reported that total cloud backlog grew 30% year-over-year to a record €77 billion and that AI was part of roughly two-thirds of cloud orders in Q4, which on paper sounds like exactly the type of catalyst to drive tech action. But the "current" backlog (i.e. orders that are expected to translate into revenue over a roughly 12-month horizon) grew just 16% in Q4 to EUR21.1bn, below a portion of market expectations. And that is what started the sell-off. Shares of $SAP weakened 16% in a single day after the results were announced.

This was despite the fact that the company also released an outlook that sees cloud revenue growth of 23-25% in 2026 and an operating profit of €11.9-12.3bn, plus a free cash flow outlook of around €10bn.

Why is the market punishing a company that is growing ~25% in the cloud and generating high cash flow? The answer is that for large companies, the market often does not value absolute quality, but deviation from expectations. If investors already have an ideal scenario built into the price, all it takes is a relatively small crack in one metric (like a slowing backlog) and the entire outlook changes immediately.

It's also important to understand that cloud backlog is seen as an indicator of future revenue and growth in SAP's case. When management and CFO talk about the slowdown being greater than expected, investors immediately recalculate valuation and discount future cash flow more conservatively.

However, it is fair to add that SAP is simultaneously sending signals that may be positive over the long term. The company is highlighting a high rate of AI adoption in orders, ongoing cloud transformation, while announcing a new share buyback program of up to €10 billion (starting in February 2026).

In the short term, however, the market at SAP is testing whether cloud growth can remain strong enough in an environment where companies are optimizing IT budgets while competitive pressures are rapidly changing due to AI tools, a theme that is now driving the entire European software segment.

Even after the post-earnings slump and the 2025 share price falling to current levels, with one share of the company trading as much as 38% below ATH, SAP is still above its fair value, according to the Fair Price Index on Bulios. Currently by 18.2%.

Scout24 $G24.DE

With Scout24, we see a typical example of a company that is not in crisis, but the market is punishing it anyway. This provider of online marketplaces for real estate and automobiles (e.g. ImmobilienScout24 and AutoScout24) generates stable cash flow and high margins, but its stock is among those that will significantly underperform the broader DAX in 2026.

Share performance vs. fundamentals

While the DAX index holds in positive territory, Scout24 shares are significantly lower on a percentage basis. They have already weakened by 12.5% this year.

This is a paradox given the company's long track record of underperformance:

• stable revenues of around €700-900m per year

• margins routinely over 27%,

• strong positive free cash flow, some of which is regularly returned to investors in the form of dividends.

In the long term, Scout24 has one of the most advantageous business models within the online segment: recurring revenues, low operating costs and limited capital investment needs. It is this type of model that is valued as a quality profit generator even in more challenging economic cycles.

So why are stocks falling?

The answer is a combination of sentiment towards the tech/online sectors and overvalued growth expectations from the market. During the Covid euphoria, investors were inflating valuations of all digital players, including Scout24. Once growth rates standardized, valuations narrowed faster than fundamentals alone would justify.

A major catalyst was the slowdown in the real estate market in Germany and Western Europe between 2024 and 2025. If fewer people are buying or selling properties, the volume of new listings declines, which translates into lower revenue growth for Scout24, which is dependent on market activity. Meanwhile, European real estate sentiment was at lower levels during this time due to higher interest rates and volatile housing demand.

In addition, the market is now comparing Scout24 to some fast-growing SaaS (Software as a Service) companies, which are reporting 20-30% growth per year. Scout24 has never had such a high rate and never will. This leads to the fact that investors who focus on growth metrics may find the stock almost boring and less attractive, which pushes the stock down even when the company is generating healthy results.

Valuation and dividends

A big advantage of Scout24 is its relatively consistent dividend policy, which the company has maintained despite weaker market sentiment. The dividend yield has been steadily above the market average (currently 1.78%), which is a positive for value-oriented investors. However, the market generally prefers higher growth titles at the moment, so stable but lower earnings growth is not sufficiently priced in given the current sentiment.

What to take away from this?

• A share drop does not necessarily mean a loss of fundamentals - in the case of Scout24, it is often a sentiment shift by investors away from value-stable businesses.

• Lower revenue growth doesn't mean a bad company - it means a company with a different type of value that may be of interest to more conservative investors rather than aggressive growth strategies.

• Dividend yield and cash flow are important signals - if a firm is profitable and generating stable cash, then a deeper price decline may represent an opportunity to accumulate with a view to returning to higher valuations in a cycle of riskier assets.

Moreover, based on their valuation in the Fair Price ndex, the stock is currently very close to its fair value.

Porsche $P911.DE

The Porsche story is the most cyclical of the four. Unlike Zalando or Scout24, Porsche is a classic industrial company heavily tied to the global economic cycle, consumer confidence and especially developments in China. And it is the combination of these factors that explains why the stock has significantly underperformed the DAX index recently.

After its IPO in 2022, Porsche was one of the most followed titles in Europe. Investors appreciated the strong brand, high margins and premium position in the luxury car segment. Operating margins have historically been above 15-18%, which is above the norm in the automotive sector. The company has long generated billions in operating cash flow and is one of the most profitable automakers in the world.

But 2025 and 2026 have brought a combination of factors that have weighed on the sector. First, demand for luxury cars in China, a key market for Porsche, has slowed. China has accounted for a significant portion of sales in recent years, and any weakening of the market there immediately impacts the outlook for sales and margins. Secondly, the pressure to transform towards electromobility continues. Investments in the development of electric models, batteries and software are capital intensive and are putting pressure on returns in the short term.

It is important for investors to understand the difference between a cyclical (transient) and a structural problem. A cyclical problem means that a company is healthy but is in a part of the economic cycle where demand is weaker. A structural problem means that the business model itself may be at risk.

For Porsche, the cyclical pressure is more prevalent so far. The premium brand has not disappeared, the customer base remains strong and margins are still above average compared to most traditional car companies.

On the other hand, valuations must also be taken into account. Porsche was not cheap after the IPO. Investors valued the company as a luxury, highly profitable company with long-term growth potential. But once growth rates slow and the outlook for margins becomes conservative, valuations must adjust. This is one of the main reasons for the gradual decline in the stock price.

From a debt perspective, the situation is relatively stable. Porsche has a strong balance sheet position and generates sufficient cash flow to finance investments and potential dividend payments. This is particularly important in an environment of higher interest rates, when weakly capitalised car companies are significantly more vulnerable. Moreover, Porsche benefits from synergies within the wider Volkswagen Group, which provides a certain stabilising anchor.

Historically, quality premium brands tend to survive cyclical downturns better than the mass segment. If the Chinese market stabilizes and the transition to electric mobility is not as costly as some in the market now fear, Porsche may be among the titles that rebound faster than the broader sector. However, if margins remain under pressure for longer and sales growth is weak, the stock could trade below historical multiples for longer.

At the moment, however, the stock is down significantly. This is confirmed by the Fair Price Index on Bulios, which, based on DCF and relative value calculations, gives companies room to grow by up to 42%.

Conclusion

The divergence between the performance of the index itself and that of individual stocks in 2026 is significant. The DAX as a whole may appear stable, but there is selection going on under the surface, with the market reassessing growth titles, margins and the resilience of individual business models to a slowing economy and higher interest rates. It's these environments that often create the most interesting situations, not because all the stocks that have fallen are cheap, but because the differences between real fundamental weakness and a mere correction of exaggerated expectations are beginning to emerge.

History shows that the most decimated titles within the major indices have the potential to outperform in subsequent cycles. But only if they maintain healthy cash flow, reasonable debt and competitiveness. The key, therefore, is not the amount of the decline itself, but the ability of the company to generate profits in a more challenging environment. Thus, 2026 may be the time when the future leaders of the next phase of the cycle begin to take shape under market pressure.

Markets remain cautious, however. A significant portion of the earnings recovery is tied to one-off items and accounting effects rather than a fully stabilized industrial core. As Boeing enters 2026, the focus shifts from whether the company has emerged from the trough to whether the improvement can be sustained without further setbacks.

How was the last quarter?

In Q4 2025, Boeing $BA reported revenue of $23.9 billion, up significantly year-over-year from $15.2 billion in Q4 2024. This growth was driven primarily by higher aircraft deliveries and strong performance from the services segment, particularly government contracts.

At the operating level, the company returned to profit. Operating profit reached USD 8.8 billion, while in the same period of the previous year Boeing posted an operating loss of USD 3.8 billion. However, the key factor was a one-off gain on the sale of Digital Aviation Solutions of USD 9.6 billion, without which the operating result would have looked much weaker.

Net income attributable to shareholders was $1.9 billion, compared to a loss of nearly $4 billion in Q4 2024. Earnings per share were $2.49, compared to $5.46 a year earlier. So the improvement is dramatic, but it should be read with an awareness of the strong impact of exceptional items.

In terms of cash flow, the situation remains mixed. While the company is generating positive operating cash flow, high inventories, production stabilization costs and service commitments continue to tie up the balance sheet and limit financial flexibility.

• Full presentation with results.

Global Services segment

The Global Services segment was clearly the strongest link of the quarter. Quarterly sales were $5.2 billion, a modest increase year over year, but the operating margin of over 200% is the main focus. However, this extreme figure does not reflect normal operating performance - it is almost entirely due to a one-off capital gain on the sale of Digital Aviation Solutions.

From a longer-term perspective, another figure is more important: Global Services won a record $28 billion in new orders in 2025 and ended the year with a record backlog of $30 billion. This confirms that service and government contracts remain a stable pillar of the business and a key source of future revenue, independent of the cyclical nature of commercial aviation production.

Management commentary

CEO Dave Calhoun commented on the 2025 results in a significantly more sober tone than would be consistent with Boeing's return to profit. In his assessment, he repeatedly emphasized that positive numbers are not an end in themselves, but the result of tough decisions, portfolio restructuring, and increased operational discipline. For Calhoun, 2025 was all about "resetting the company" and getting back to the basics: safety, quality production and stable cash flow.

The CEO freely admitted that much of the improvement in results was related to one-off items, particularly the sale of Digital Aviation Solutions, and warned against over-optimism. He stressed that the real measure of success would not be one-off profits, but the ability to maintain a positive operating result in future years without extraordinary effects. That's why he said the company had prioritised strengthening its balance sheet, reducing risks and simplifying its structure over aggressive growth in 2025.

Calhoun also highlighted the growing importance of the services and government contracts segment, which he described as a key stabilising element at a time when commercial aviation remains under regulatory and operational pressure. He said the record volume of orders in Global Services confirms that Boeing can generate value beyond the actual production of aircraft and that this segment will play a more important role in the group's overall profitability in the coming years.

Outlook

Boeing did not provide a detailed quantified outlook, which the market sees as a signal of caution. The company expects a gradual improvement in commercial aircraft deliveries and continued growth in services, particularly in the government and defence segments. At the same time, however, it openly admits that the production system remains fragile and that any further regulatory intervention or certification delays may slow down the planned turnaround.

For investors, this means that 2026 will primarily be a test of execution, not aggressive growth.

Long-term results: 2022-2025

A look at Boeing' s performance between 2022 and 2025 shows an extremely volatile trend that is unprecedented among large industrial concerns. The year 2022 was still marked by the reverberations of the pandemic and supply chain problems, with the company reporting revenues of USD 66.6 billion and remaining deep in the red. The operating loss exceeded $3.5 billion and the net loss was close to $5 billion, reflecting a combination of low aircraft deliveries, high fixed costs and extraordinary expenses related to production quality.

The year 2023 brought the first signs of a stabilisation in revenues, which rose to nearly US$77.8 billion, but profitability remained negative. While the operating loss narrowed, the company was still unable to generate a sustainable operating profit. This year can be described as more of a "stop the bleeding" phase than an actual turnaround. Margins remained under pressure and the return to normal production rates was slower than the market expected.

The turning point came in 2024, but in a negative direction. Revenues fell back to $66.5 billion and Boeing posted a massive operating loss of over $10.7 billion and a net loss of nearly $12 billion. This decline was the result of a combination of production issues, regulatory intervention, and cost increases associated with quality control, customer compensation, and delivery delays. It was 2024 that significantly damaged investor confidence and confirmed that the company's problems are not cyclical but structural.

The year 2025 then presents a stark contrast. Revenues jumped to USD 89.5 billion, up more than 34% year-on-year. Boeing returned to an operating profit of USD 4.3 billion and a net profit of USD 1.9 billion. However, this turnaround should be read with caution. The results were significantly boosted by a one-off capital gain on the sale of part of the business, while the operating margin itself remains low and sensitive to any fluctuations in production.

News

The most significant strategic event of 2025 was the sale of the Digital Aviation Solutions division, which generated a capital gain of approximately $9.6 billion for Boeing. The move was not just an accounting operation, but part of a broader effort to simplify the company's structure, focus on key areas and strengthen the balance sheet. It sent a clear signal to management that it was willing to sacrifice non-core activities in favour of stabilising the core business.

In addition, Boeing significantly strengthened its Global Services segment, which won a record $28 billion in new orders in 2025 and closed the year with a backlog of $30 billion, the highest in the segment's history. A key contract was an order from the U.S. Air Force to upgrade the cockpits of the C-17 aircraft, among others. It is services and government contracts that are increasingly being profiled as a stabilizing element, partially offsetting the volatility of commercial aircraft production.

Another important step is the pending acquisition of Spirit AeroSystems to gain greater control over key parts of the supply chain. This is Boeing's response to long-standing quality and production coordination issues. While this transaction may increase the costs and risks of integration in the short term, in the long term it has the potential to reduce operational uncertainty and improve quality management.

Shareholding structure

The shareholder base remains strongly institutional. The largest shareholders are Vanguard, BlackRock, Fidelity and State Street, suggesting that Boeing remains an important part of long-term portfolios, although the short-term investment thesis remains high-risk.

Analyst expectations

Analysts view the results as a step in the right direction, but the consensus remains cautious. Key questions for the coming quarters center on the sustainability of profitability without one-off effects, the stabilization of narrow-body aircraft production, and the ability to generate consistent free cash flow.

Boeing is therefore not a story of a quick turnaround, but of a long restructuring, where each positive quarter must be confirmed by the next. Meanwhile, the market is making it clear that it will take more than one good quarter to fully restore confidence.

Analysts Expect Mixed Results Following Recent Stock Volatility

Heading into the release, analysts are bracing for a potential decline in profitability for the quarter, with estimates pointing to a double-digit dip in adjusted earnings compared with the prior year. These tempered expectations reflect concerns over sluggish revenue growth in recent quarters and past guidance cuts from the company’s leadership.

Fiserv’s stock has been one of the worst performers in the S&P 500 over the last year, underscoring how steep investor reevaluations have been after a period of accelerated growth earlier in the decade. A combination of earnings disappointments, guidance cuts, leadership shake-ups and slowing organic growth has contributed to the downturn with shares at multiyear lows compared to their 2024 peaks.

Recent Performance and Share Price Context

Fiserv’s struggles across 2025 were highlighted in its third-quarter earnings, where revenue and adjusted earnings fell short of expectations in several segments, triggering a meaningful negative reaction from markets. That miss and subsequent guidance revision led to steep declines, including one of the worst single-day sell-offs in the company’s history. In response, Fiserv initiated leadership changes and a strategic reset to stabilize execution and rebuild confidence.

Despite this, Fiserv’s business still displays resilient fundamentals in some areas including its recurring revenue base and the strategic positioning of the Clover platform, which has shown growth in merchant services historically.

What Investors Will Be Watching in Tonight’s Report

When Fiserv reveals its quarterly results and commentary for Q4 2025, several key metrics and narrative points will shape investor reaction:

Revenue and profit trends: Analysts will be keen to see whether revenue growth remains modest or accelerates beyond forecasts, and whether adjusted earnings per share reflect resilience or further compression.

Guidance and outlook: With mixed sentiment and market positioning, investors will scrutinize how management frames 2026 guidance, especially around organic revenue growth and assumed margin performance, after previous resets for 2025 organic growth expectations.

Cash flow and margins: Free cash flow generation and operating margin direction will be key gauges of operational health and financial discipline as the business transitions.

Strategic priorities: Updates on the One Fiserv Action Plan, executions around the Clover ecosystem and momentum in small business payment solutions could influence long-term growth perceptions.

Wall Street’s Divergent Views Ahead of the Print

Wall Street remains mixed on FISV’s prospects. Some analysts believe there is continued upside over the longer term despite near-term headwinds, with average price targets implying meaningful potential from current levels and a broad range of outcomes from lows around $75 to highs above $250 based on varying expectations.

At the same time, fresh coverage from firms such as Cantor Fitzgerald has brought a Neutral rating with a more cautious price target near $70, highlighting the breadth of views and uncertainty surrounding near-term execution.

Market Sentiment and Historical Comparisons

Investor sentiment around Fiserv’s earnings is shaped by both recent volatility and a longer track record of solid growth. Over the past five years, the company has delivered double-digit average earnings growth, and profit margins have trended higher a narrative that contrasts sharply with recent earnings disappointments and the stock’s valuation reset.

The upcoming release will put this narrative to the test, as investors weigh legacy growth achievements against current execution hurdles and evolving competitive dynamics in the payments and financial technology landscape.

Does anyone have any idea why $HIMS shares have dropped so significantly? Do you see it more as an opportunity or as a trap?

This pricing pivot comes after years of inflation-driven increases that lifted PepsiCo’s revenue but contributed to pressure on unit volumes and consumer pushback. By early 2026, PepsiCo’s snack prices had risen significantly above pre-pandemic levels, but now the company is embracing affordability to better align with evolving spending patterns.

Financial Backdrop and Recent Performance

PepsiCo’s pricing adjustments coincide with a period of solid overall financial performance, even in the face of mixed demand signals. In the fourth quarter of 2025, the company reported revenues of approximately $29.34 billion, surpassing consensus expectations and demonstrating robust topline resilience across beverages and snacks . However, slower unit volume trends including a 1 percent decline in snack sales volumes and a 4 percent fall in North American beverage volumes highlight how price sensitivity has affected consumption patterns, especially among cost-conscious buyers.

Beyond price adjustments, PepsiCo has also boosted shareholder returns, increasing its quarterly dividend and maintaining a long track record of consecutive annual dividend increases a record that spans more than five decades while executing up to $10 billion in share repurchases through 2030 as part of its capital allocation strategy.

Strategic Repositioning and Consumer Response

PepsiCo’s current pricing actions are part of a broader commercial reset that includes initiatives to cut costs, streamline offerings and invest in products with broader appeal. The company plans to reduce nearly 20 percent of its product offerings in the U.S. by early 2026, lower operating costs and focus on innovation in areas such as protein-enhanced snacks and beverages with simpler, functional ingredients all designed to drive higher purchase frequency and improve price perception among consumers.

CEO Ramon Laguarta and other executives have framed these moves as listening to voice-of-customer feedback and adapting to shifting consumer priorities, particularly in an environment where discretionary spending is being squeezed by inflationary legacies and economic uncertainty.

Growth Outlook and Analyst Views

Looking ahead to fiscal 2026 and beyond, $PEP has provided a constructive growth outlook that balances price flexibility with disciplined financial planning. The company expects organic revenue growth in the range of 2 percent to 4 percent and net revenue expansion of 4 percent to 6 percent partly driven by currency effects and recent strategic initiatives. Core earnings per share are anticipated to rise approximately 5 percent to 7 percent, or potentially 7 percent to 9 percent excluding the effects of global minimum tax regulations, signaling modest but sustainable profitability growth.

Analysts have responded with mixed but overall supportive guidance. For example, UBS recently raised its price target on PepsiCo to $190, citing stable margins and solid positioning despite macro headwinds, even as some firms like Piper Sandler trimmed targets slightly due to headwinds from accelerating uptake of GLP-1 weight-loss meds that could affect snack demand.

What Investors Should Watch Next

Investors tracking PepsiCo’s trajectory should focus on several key metrics and catalysts:

Sales Volumes and Unit Trends: How effectively price reductions translate into higher unit volumes and market share rebounds.

Margin Stability: Whether the shift to lower pricing compresses margins or is offset by productivity gains and cost optimization.

Dividend and Buyback Activity: Continued increases in dividends and execution of repurchase programs that support shareholder returns.

Innovation and Portfolio Refresh: Success of new product lines like protein-fortified snacks and simplified ingredient beverages in attracting volume growth.

PepsiCo’s adaptive pricing strategy highlights both the challenges and opportunities facing large consumer goods producers in an environment of persistent cost pressures and evolving consumer preferences. While recent price cuts may weigh on near-term top-line pricing power, they are part of a broader plan to sustain demand, protect market share and drive long-term shareholder value

So many of you wrote under my posts about $MSTR asking why I don’t buy Bitcoin instead.

Let’s look at it in practice, using today as an example.

Bitcoin gained +11% today, which is respectable, while $MSTR managed +26% over the same period. Let’s see why.

Why $MSTR posts larger percentage moves than $BTCUSD:

Financial leverage: The company buys BTC with borrowed money (bonds). That means the stock reacts more aggressively to every Bitcoin move because it controls more assets than the company’s equity.

Market premium: Investors aren’t just buying BTC, they’re buying Michael Saylor’s strategy. They’re often willing to pay a price per share higher than the net asset value (NAV) of the held bitcoins.

In short, it’s a more volatile instrument that amplifies Bitcoin’s movement—both up and down.

From an investment perspective, the key is that this transition is taking place without losing financial discipline. The company is generating high operating profits, increasing earnings per share at a double-digit rate while maintaining one of the most attractive dividends among global consumer titles. Thus, 2025 is not just a good year in the cycle, but a confirmation of a structural change in the business model.

How was the last quarter?

The fourth quarter of 2025 delivered $PM solid, balanced growth across its core businesses. Total revenue reached $10.4 billion, up 6.8% year-over-year, or 3.7% when adjusted for currency effects. Growth was driven primarily by the smokeless portfolio, which continues to increase its share of both revenue and gross profit.

Gross profit in the quarter rose to $6.8 billion, up 8.3%, confirming that new products have a higher margin profile than traditional cigarettes. Operating profit was $3.4 billion and grew 4.5% on an organic basis, despite continued investment in smokeless category expansion and marketing of key brands.

Profitability was positively reflected in earnings per share. Reported diluted earnings per share were $1.37, while adjusted diluted EPS was $1.70, up nearly 10% year-over-year. Excluding currency effects, EPS growth was around 9%, a very strong result in a mature consumer market environment.

In terms of volumes, the trend is quite clear. Total shipments grew only marginally, by 0.1%, but smokeless products grew by 8.5%, while volumes of conventional cigarettes fell by 2.2%. Thus, even in quarterly terms, the PMI clearly demonstrates that volume growth is now exclusively the domain of smokeless categories.

• Full presentation with results.

CEO commentary

In his comments, CEO Jacek Olczak described 2025 as an exceptionally strong year, not only in terms of results, but above all in terms of the company's strategic shift. He highlighted that Philip Morris has achieved its three-year targets for growth in operating profit and earnings per share in just two years, which he said clearly confirms the soundness of the transformation towards smoke-free products.

Olczak also pointed out that the company is at a stage where the smoke-free portfolio is no longer an add-on, but a core pillar of the business. More than 40% of sales and nearly 43% of gross profit now come from smokeless products, with the share exceeding 50% in a number of key markets and even 75% in some. Management believes this fundamentally changes the company's risk profile and long-term growth potential.

At the same time, the CEO openly acknowledged that the regulatory environment and pricing pressures will be more challenging in the coming years, but he believes the company is able to meet these challenges without disrupting its dividend policy thanks to strong brands, geographic diversification and high margins.

Outlook

The outlook for 2026 confirms that PMI is entering its next phase of growth with very solid visibility. The company expects reported diluted earnings per share in the range of $7.87 to $8.02, with adjusted EPS of $8.38 to $8.53 after adjusting for one-time items. That translates into expected year-over-year growth of 11% to 13%, an exceptionally strong pace for a company of this size.

Excluding currency effects, PMI is targeting EPS growth of 7.5% to 9.5%, showing that even in a more conservative scenario, the company is still generating high single-digit growth. At the same time, management expects organic revenue growth in the range of 5% to 7% and operating profit growth of 7% to 9%.

Operationally, cigarette volumes are expected to continue to decline by approximately 3%, more than offset by high single-digit to low double-digit growth in smokeless products. Capital expenditures of $1.4 billion to $1.6 billion remain fully focused on supporting the smoke-free portfolio, not on sustaining a declining traditional business.

Long-term results

A look at Philip Morris International's long-term trajectory from 2021 to 2024 shows a company that has gone through a challenging business model transformation, with short-term swings in profitability, while gradually laying the groundwork for a qualitatively different growth profile. In 2021, revenues were roughly $31.4 billion, and the revenue structure at the time was still heavily dependent on conventional cigarettes. Gross profit was around $21.4 billion, operating profit just under $13 billion and margins were stable, but already facing long-term volume pressure in the traditional tobacco segment.

2022 represented a watershed but difficult period. While sales rose slightly to $31.8 billion, gross profit fell year-on-year and operating profit declined by more than 5%. This development was not a sign of weaker business, but the result of a deliberate management decision to accelerate investment in smokeless products, technology development, manufacturing and marketing. At the same time, results were negatively impacted by currency effects, tax items and one-off restructuring costs. Earnings per share stagnated in the year, which raised questions at the time about the short-term profitability of the entire transformation.

The year 2023 can be described as a transition phase between the investment cycle and the return of operating leverage. Revenues have already grown significantly, by more than 10% to $35.2 billion, mainly due to the rapidly growing share of smokeless products. Gross profit was up nearly 9.5%, the first clear sign that the new product mix is starting to improve the company's margin profile. Still, operating profit fell nearly 6% year-on-year as PMI continued to absorb the high costs associated with the expansion of IQOS, ZYN and other smokeless brands into new markets. The year was an uncomfortable one in terms of results, but a strategically crucial one - the company sacrificed some short-term profitability in favor of future dominance in high-growth categories.

The turning point came in 2024. Revenues reached nearly $37.9 billion, a 7.7% year-over-year growth rate, but this time the growth was no longer bought down by margin pressure. Gross profit rose more than 10% to $24.5 billion, while operating expenses grew at a significantly slower rate than sales. This led to an increase in operating profit of almost 16% to $13.4 billion and a clear return of operating leverage. EBITDA even grew by almost 18%, confirming that the investment phase of the transformation was largely complete.

From an earnings per share perspective, the long-term picture is more complex. Between 2021 and 2024, EPS fluctuated due to tax changes, one-off costs and currency effects, but adjusted performance gradually accelerated. Crucially, the quality of profits has improved significantly, with an increasing proportion of profits coming from smokeless products with higher margins, lower long-term capital intensity and greater price flexibility than conventional cigarettes.

News

2025 was an exceptionally strong year in terms of product portfolio. PMI's smokeless products are now available in 106 countries and have over 43 million users. The IQOS brand maintains its dominant position in the heated tobacco category and continues to increase share in key European and Asian markets.

ZYN nicotine sachets have become one of the fastest growing nicotine products in the US and beyond, gradually building a global brand with high price discipline. E-vapor products under the VEEV brand are approaching operational profitability and expanding their presence into new markets without the company resigning to strict regulation and control of the target audience.

Shareholding structure

The ownership structure remains highly stable. Over 82% of the shares are held by institutional investors led by Vanguard, Capital World Investors and BlackRock. This creates long-term pressure to maintain strong cash flow, earnings per share growth and a consistent dividend policy, which is fully in line with PMI's current strategy.

Analyst expectations

Analyst consensus views Philip Morris International's results as mostly positive. In particular, experts praise the company's ability to translate the structural downturn in the cigarette market into long-term sustainable growth through smokeless products. The outlook for double-digit growth in adjusted EPS and the confirmation of long-term targets for the 2026-2028 period are also viewed positively.

On the other hand, analysts warn of regulatory risks, particularly in terms of taxes and marketing restrictions, and a possible slowdown in consumer demand in some emerging regions. Nevertheless, Philip Morris is often cited as the best-positioned player in the sector, able to combine growth, high profitability and an above-average dividend.

Fair Price

Investors were blindsided by the sheer size of the charge, which far exceeded analyst expectations. The announcement also included word that Stellantis will not pay a dividend in 2026, a move that shocked income-focused shareholders and eliminated what had been a reliable source of yield for many long term holders.

Financial Hit and Strategic Reset Details

The €22 billion charge reflects a broad reassessment of Stellantis’s EV program, with management now led by CEO Antonio Filosa conceding that the company overestimated the pace at which consumers would adopt electric vehicles and that prior investments did not align with market realities.

Key components of the write-down include:

• €14.7 billion tied to adjustments of product plans and compliance with new emissions rules

• €2.1 billion for resizing the EV supply chain

• €5.4 billion in other operational restructuring charges

Stellantis also revealed that it expects a preliminary net loss of between €19 billion and €21 billion for the second half of 2025, a dramatic turnaround from profitability just a year earlier and a key reason the dividend has been suspended.

Market Reaction and Technical Fallout

The market’s response was swift and severe. Milan trading was briefly halted after a near 14.4 percent drop at the opening bell, and Paris-listed shares were down nearly 24 percent as the sell-off extended across Europe. In U.S. markets, the stock similarly plunged, erasing much of the gains made over the past year.

This sell-off places Stellantis near multi-year lows, with shares falling sharply from levels approaching $30 in early 2024 to trading near single-digit figures post-write-down, highlighting how investor confidence has deteriorated amid strategic missteps and shifting industry dynamics.

Broader Industry and Competitive Pressures

Stellantis’s troubles echo a broader trend in the auto sector where several major vehicle makers, including Ford and General Motors, have also reported significant EV-related charges as demand has softened and incentives have shifted. Analysts note that Stellantis’s write-down is among the largest in the industry’s recent history and underscores the challenge carmakers face in balancing internal combustion engine (ICE) platforms, hybrids, and full EV lines amid uneven consumer uptake.

Part of the backdrop also involves weakening global sales and slower shipments, with revenues and operating income having been dragged lower in previous earnings periods. For example, full year 2024 net revenue fell sharply and adjusted operating income contracted significantly as the company worked through inventory reductions and product transitions.

Dividend Cut and Liquidity Moves

In addition to suspending the 2026 dividend entirely, $STLA has authorized the issuance of up to €5 billion in bonds to strengthen its balance sheet and ensure liquidity moving forward. While this move may buy time for strategic realignment, it has also been interpreted by markets as a signal of near-term financial strain, particularly given the scale of recent charges.

The dividend elimination removed a ~€0.77 per share payout that many income investors had come to rely on, further diminishing the stock’s appeal for yield-oriented portfolios.

What Investors Should Watch Next

With the immediate shock now reflected in Stellantis’s valuation, market participants will focus on several key catalysts:

Upcoming Full-Year Results (Feb 26, 2026): Investors will analyze how the write-down and broader performance translate into official full year figures, including earnings and cash flow trajectory.

2026 Guidance and Profitability Outlook: Stellantis has signaled intentions to return to positive industrial free cash flow by 2027, but clarity on margins and revenue growth in 2026 will be crucial.

EV Strategy and Product Plans: How Stellantis balances ICE, hybrid, and EV products and whether new models can drive demand will determine its competitive footing going forward.

Tariffs and Global Sales Trends: Trade policy impacts, particularly tariffs in North America and EU markets, will continue to influence cost structures and pricing power.

The current sell-off underscores a stark recalibration of investor expectations for Stellantis, where strategic missteps in electrification and disappointing near-term financials have reshaped the narrative around one of the world’s largest automakers.

The past two years represent one of the toughest backdrops a global chemical group can face. Soft demand for durables, elevated European energy costs, new capacity coming online in Asia, and compressed margins across petrochemical chains have all weighed on performance. Yet the balance sheet has held up, and structural actions taken during the downturn are intended to reshape the earnings profile once conditions normalize.

Top points of the analysis

• The firm is targeting $1.5bn of recurring EBITDA per year by 2028, largely from internal measures.

• The chemical cycle is near the bottom while the balance sheet remains investment grade.

• Aggressive cash discipline: $800m. USD 800 cash savings in 2025.

• Divestment of European assets changes the company's risk profile.

• Most investment value lies in the asymmetry between today's results and normalized earnings.

Company profile: a global chemical colossus with extreme cyclicality

LyondellBasell $LYB is one of the world's largest producers of chemicals and plastics, with a portfolio spread across the entire petrochemical chain. Its assets include olefins, polyolefins, intermediates, derivatives and more specialized polymer solutions. Unlike pure specialty players, the company stands between commodity and partially differentiated chemistry, giving it scale but exposing it to full cycle volatility.

Geographically, the key division is between North America, Europe and Asia. While US assets benefit from relatively cheap feedstock and a better cost position, the European part of the portfolio has long struggled with high energy prices, regulation and structurally weaker competitiveness. This difference is behind the current strategy of active divestments in Europe.

The company's business is not built on volume growth at any cost. It is about portfolio optimisation, cost management and disciplined capital allocation in an industry where poor investment decisions can destroy value for decades.

Segments and their economics: where value is created and lost

The Olefins & Polyolefins Americ as segment represents the relatively most stable part of the business due to its better cost structure and proximity to end markets. Here too, margins are cyclical, but returns on capital are higher than in Europe over the long term. This segment is a key candidate for EBITDA improvement in any recovery in demand.

Conversely, O&P Europe, Asia & International is now the biggest challenge for the entire group. Loss-making EBITDA, high fixed costs and structural disadvantages led management to decide to sell some of the European assets. These divestments are not cosmetic - they change the company's risk profile and reduce exposure to a region with a long-standing weak chemical economy.

The Intermediates & Derivatives and Advanced Polymer Solutions segment is the most interesting from an investment perspective. Although smaller in volume, it shows higher margin stability and better potential for structural profitability improvement. It is here that the first results of operational optimisation and targeted reduction of capital-intensive projects are showing.

Management

CEO Peter Z. Vanacker heads LyondellBasell as CEO and is one of the prominent figures in the global chemicals industry. Under his leadership, the company is moving toward solutions that combine industrial performance with an emphasis on sustainability and everyday product usability. Vanacker is seen as a manager who can combine technological innovation with long-term strategy and strong capital discipline.

He comes to LyondellBasell with extensive international experience. Previously, he served as President and CEO of Neste Corporation, a renewable products company, and also led the CABB Group GmbH chemical group and Treofan Group, a producer of polypropylene films. He spent a significant part of his career at Bayer AG, where he was, among other things, executive vice president and head of the global polyurethanes business and a member of the board of Bayer MaterialScience, today's Covestro. During his career, he has worked in Europe, America and Asia, giving him a broad perspective on the management of global industrial groups.

Financial performance

At first glance, the company's financial development may appear worrying. Revenues between 2021 and 2024 have fallen from around US$46 billion to around US$40 billion, and operating profit has fallen even more sharply. EBITDA has fallen steadily from a record USD 8.7 billion in 2021 to around USD 3.6 billion in 2024. However, this development is not the result of a deterioration in the company's competitiveness, but a typical manifestation of the chemical supercycle, which has turned sharply after the exceptionally strong years 2021-2022.

The key is to understand that petrochemical margins are extremely volatile. In 2021, the company benefited from a combination of strong global demand, limited capacity and relatively low costs. But as new capacity opened, demand for durables cooled and European energy costs shot up, margins collapsed across the sector. This has had a particular impact on gross profit, which has fallen from nearly $9 billion in 2021 to around $4.6 billion in 2024.

Importantly in the long term, however, business volumes have remained relatively stable. Revenues have not fallen by tens of percent, and the company has not lost key customers or market share. The problem was not the ability to sell, but the price at which it was possible to sell at a profit. This is a fundamental difference from a structurally damaged business.

Operating cash flow remains relatively robust even in the weakest phase of the cycle. In 2025, the company generated approximately $2.3 billion from operations and maintained a very high cash conversion ratio of around 95%. This means that the accounting earnings decline has not been accompanied by a cash flow collapse, significantly reducing the risk of forced debt or disruptive capital allocation moves.

Over the long term, the company's performance can be seen as oscillating around normalised EBITDA in a range of around US$6-7bn, with up swings in strong years and deep downs in periods of capacity overhang. The current numbers are well below this midpoint, which is a key starting point for valuation and scenarios.

Cash flow, balance sheet and dividend reality

The balance sheet remains investment grade, with liquidity of over US$8bn and cash of around US$3.4bn. Net debt to EBITDA is high today, but in the context of the cycle, more of an optical than a structural issue. Once EBITDA starts to normalize, this ratio will improve quickly.

Dividend policy is the focus of analyst attention. The high dividend yield today does not reflect earnings strength, but a share price decline. Management openly admits that dividend policy is under review, and protecting the balance sheet remains a priority. For the investor, this means that the dividend is not risk-free, but neither is it immediately at risk.

Valuation: why today's valuation is dangerously misleading - and attractive

At first glance, LyondellBasell's valuation today looks appealingly neither cheap nor expensive. The P/E is virtually unusable due to low earnings, EV/EBITDA comes in extremely high, and ROE is temporarily negative. For an investor who only looks at trailing multiples, the title may look like a classic "value trap".

However, this view is methodologically flawed. For highly cyclical companies, one must work with normalized earnings, not the current point in the cycle. If we take a conservative estimate of normalized EBITDA of around $6 billion - a level the company has repeatedly achieved in past cycles without extreme conditions - we get a very different picture.

At an enterprise value of around USD 26bn, the company would trade at around 4-4.5 times EV/EBITDA at this level of EBITDA. Meanwhile, historically, quality chemical companies with investment grade balance sheets tend to be in the 6-8× EV/EBITDA range in normal conditions. Thus, the market today is implicitly pricing in a scenario in which margins never fully revert to historical averages.

Interestingly, this low implied valuation exists despite significant internal improvements that management has already implemented or has very specifically worked out. The target of $1.5 billion of recurring EBITDA by 2028 is not built on market growth, but on structural changes: divesting inefficient assets, reducing fixed costs, optimizing working capital, and redirecting capital only to immediately profitable projects.

Thus, the valuation asymmetry arises not from optimism but from the difference between what the market discounts today and what a company can realistically earn in a normalised environment. This is exactly the type of situation where above-average returns are born over the long term - at the cost of high volatility and the need for patience.

Strategy 2026-2028: where the $1.5 billion of recurring EBITDA is to come from

LyondellBasell Industries ' goal of achieving $1.5 billion in recurring annual EBITDA by 2028 is not built on macroeconomic optimism or aggressive capacity expansion. It is the result of a long-term value enhancement program designed to structurally reposition the company to a higher and more stable level of profitability regardless of the phase of the cycle.

Crucially, the company is no longer at the beginning of this journey. In 2025, management has confirmed that the program is already generating $1.1 billion of recurring EBITDA, roughly three-quarters of the 2028 target. In other words, the remaining ~$400 million of recurring EBITDA will be generated in 2025. USD 400400 is not a theoretical promise, but an incremental step building on the results already achieved. This fact significantly increases the credibility of the entire strategy.

Mechanically, the strategy is divided into three pillars. The first is to simplify and slim down the portfolio, in particular through the planned divestment of four European assets by Q2 2026. Europe has long been structurally disadvantaged by high energy costs and regulation, which is clearly reflected in the fact that the O&P EAI segment generated a loss in 4Q. Exiting these assets is not a retreat, but a release of capital from low margin areas.

The second pillar is the strengthening cost advantage in the US and Middle East, where the company has access to cheaper inputs and greater operational flexibility. The third pillar is the continuation of a value enhancement program focused on immediately profitable projects rather than long-term, capital-intensive bets with uncertain returns. It is this shift in investment philosophy that is the key difference from previous cycles.

Segments and sources of EBITDA growth: who is driving the bottom line and who is holding back returns

The breakdown of EBITDA by segment clearly shows that the potential to achieve the USD 1.5 billion target lies not in an across-the-board market recovery, but in the uneven performance of the different parts of the portfolio. This is crucial for investors as it allows them to separate structural growth from cyclical noise.

The Intermediates & Derivatives segment generated 4Q EBITDA of EUR 205 million. It has been acting as a cash flow stabilizer over the long term. Despite maintenance outages and seasonal fluctuations, this segment has demonstrated its ability to generate positive EBITDA even in a challenging environment. It is this stability that is key to financing the entire transformation.

Even more interesting is the development in Advanced Polymer Solutions (APS), where EBITDA reached EUR 38 million. Despite lower volumes, APS generated USD 38 million and grew by 55% year-on-year. This signals a clear shift towards higher value-added products with better pricing power. APS is a typical example of a segment where even a relatively small absolute contribution can have a disproportionately large impact on the margin structure of the entire company.

At the other end of the spectrum is the European O&P EAI segment with a loss of €61 million. USD 61. It is this contrast that explains the logic of the ongoing divestments. It is not a matter of waiting for a cyclical turnaround, but of consciously redirecting capital from destructive areas to segments with positive structural dynamics. From this perspective, the USD 1.5 billion EBITDA target is the result of portfolio rationalisation, not expansion.

Cash flow, CapEx and capital discipline as the basis for the entire investment thesis

Any long-term strategic ambition in the chemicals industry is just a theory without strong cash flow. In this regard, LyondellBasell has one of the strongest positions in its sector. In 2025, the company generated $2.3 billion of operating cash flow and achieved a 95% cash conversion ratio, confirming the high quality of earnings even in an adverse cyclical environment.

Working with capital expenditure is also key. CapEx for 2026 is projected at USD 1.2 billion, of which only USD 400 million is planned for 2026. USD 400 million will go to growth projects and USD 800 million to other projects. USD 800 to maintenance. Management explicitly emphasizes that this mix is not a long-term cap, but a temporary adjustment to a weak market. Thanks to the large investments between 2024 and 2025, the company can defer some maintenance without negatively impacting safety or operations.

Another important signal of financial discipline is the fact that the company has exceeded its own cash saving target - instead of the planned €600 million, the company has exceeded its own cash saving target. The company managed to conserve USD 800 million in 2025. USD 800 million and expects a further USD 500 million in 2026. USD improvement in cash flow for 2026. This creates ample room to maintain its investment grade rating, fund key projects and return capital to shareholders at the same time.

It is this combination - a realistic CapEx policy, high EBITDA-to-cash conversion and a clear priority on financial flexibility - that makes the target of USD 1.5bn of recurring EBITDA by 2028 investment relevant. It is not about growth "at any cost", but a systematic optimization that has the potential to improve earnings quality even in an environment of long-term weaker margins.

Investment scenarios

Optimistic scenario

In the optimistic scenario, the global chemical cycle starts to pick up gradually between 2026 and 2027. This is not a return to the extremes of 2021, but a return to "normal": more stable plastics demand, improved margins in olefins and partial capacity rationalisation in Europe. This will be fully reflected in a value enhancement program that will add up to $1.5 billion of recurring EBITDA.

In this scenario, EBITDA could be in the range of USD 6.5-7 billion. If the market starts to value the company at least at 6× EV/EBITDA, enterprise value would be above USD 40 billion. Net of debt, this would imply a significantly higher market capitalization than today, and therefore a strong dividend yield. This scenario is a bet on the cycle, but with significant operating leverage in favour of the investor.

A realistic scenario

The base case scenario assumes that the cycle remains subdued for longer, but the company still improves its performance over time. EBITDA stabilizes around USD 5-5.5bn, mainly due to internal measures rather than strong demand growth. Divestment of European assets will reduce volatility and riskiness, but will also limit the potential for rapid growth.

The stock does not deliver explosive appreciation in this scenario, but a solid total return consisting of a dividend and a modest valuation revaluation. This is an investment suitable for investors who want to cash flow and wait for a better phase of the cycle without the need for precise timing.

Negative scenario

The negative scenario assumes that the global chemical industry remains in a capacity glut longer than currently expected. Europe will remain structurally uncompetitive, China will export excess capacity and margins will remain squeezed. EBITDA will be around USD 4 billion or lower.

In this case, the stock may become a classic "yield trap" - high dividend but low capital appreciation. The company will survive without existential problems due to strong cash flow, but investment attractiveness will be limited. The risk here is not bankruptcy but lost time.

What to take away from the article

• LyondellBasell is a highly cyclical firm near the bottom of the cycle

• Today's weak numbers do not reflect long-term earnings potential

• Management is focused on cash

• Investment is a bet on cycle normalization, not structural growth

Based on an analysis of my portfolio and the current market situation, I have three scenarios outlined for the short/medium-term outlook. I note that these scenarios are developed for my portfolio, which does not have a high correlation with the S&P 500.

Optimistic scenario: We can expect another decline of 3–5%, then a short period of stagnation and a recovery to pre-drop levels.

Realistic scenario: We’ll drop another 10%, followed by a longer stagnation and a slow return upward.

Catastrophic scenario: The decline will be greater than 20%, and only then will we see how things develop further (especially for tech stocks).

In all three scenarios I will wait to make further stock purchases until the decline ends and the trend is confirmed either sideways or upward. Besides that, I plan to hold a stable part of my portfolio, which for me consists of the stocks $KO, $BTI, $MO, $BRK.B, $T, $CVX.

This fits into my overall conservative, long-term approach based on patience and discipline.

Do you have your own scenarios for what comes next? Optimistic, realistic, or are you preparing for the worst? Share them in the comments.