CrowdStrike announced a global partnership with Nebius aimed at integrating the Falcon platform directly into the Nebius AI Cloud and bringing unified enterprise cybersecurity to new, high-performance AI environments. The joint solution offers unified visibility and AI-powered detection and response across infrastructure and runtime environments, enabling companies to scale AI without disrupting existing security architecture.

The integration is intended to allow customers to extend existing security policies and response procedures to AI workloads running in Nebius. For investors, this means strengthening CrowdStrike’s position in the rapidly growing AI infrastructure security segment, with the potential for access to new customers and greater adoption of the Falcon platform.

The S&P 500 index, which reached its all-time high of 7,014 points on 28 January 2026, has been losing ground since then. As of 17 March, it is trading around 6 700 points, a decline of approximately 4.7% from its peak. On the face of it, this is a standard correction that normally takes place in the markets. However, a closer look at both technical and fundamental indicators shows that the current situation may herald a much deeper decline than most investors currently expect.

In fact, several warning signs that have repeatedly appeared in history before significant declines are meeting in the market at the same time. From extremely stretched valuation indicators to technical patterns on the charts to the geopolitical shock of the Iranian conflict that has driven oil prices above $100 per barrel. It is this combination that is creating an environment in which a 30% decline scenario, while still a less likely option, is certainly not unrealistic.

The upper trend line of the S&P 500: a technical signal that cannot be ignored

One of the most obvious warning signals is the behaviour of the S&P 500 index against the long-term upper trend line of the rising channel that has been forming since 2018. The index touched resistance in the region of around 7,000 points in January 2026, which corresponds to the upper limit of this channel. Historically, the market has repeatedly bounced down from this line and significant corrections have followed.

Chart of the S&P 500 index - weekly

Source.

What the historical bounces from the upper trend line say

Technical analysis shows that the S&P 500 has been respecting a rising channel pattern since 2018. Each time the index has approached the upper trend line of this channel, a decline has followed. In January 2022, contact with the upper boundary preceded a bear market in which the index wrote off over 25%. A similar scenario has played out in previous cycles. Currently, the index is in a zone where selling pressure has historically outweighed buying interest.

Moreover, the index has fallen below the lower boundary of the medium-term uptrend channel, which technical analyses interpret as a signal of slowing growth momentum. Key support lies around the 6,130-point level, while resistance is located at 7,000 points. At the same time, the RSI (Relative Strength Index or RSI) indicator shows a downtrend, which tends to be an early precursor of a price decline.

Buffett indicator: record 230%

One of the most followed valuation indicators, the so-called Buffett Indicator, is currently at 230%. This indicator measures the total market capitalisation of US stocks relative to US gross domestic product. The long-term average is around 80% to 100%, with values above 115% traditionally indicating an overvaluation of the market. Warren Buffett himself has stated in the past that this is probably the best single metric for assessing market valuations.

The current level of 230% is a record high in the history of this metric and far exceeds the values achieved before the bursting of the tech bubble in 2000 or the bear market in 2022. The key point is that in all three previous instances where the Buffett Indicator was within two standard deviations of its historical trend, the S&P 500 Index followed a decline of at least 25%. The 1968 decline was over 30%, the 2000 tech bubble was followed by stocks losing over 50%, and the 2022 bear market followed in 2021.

Source: Current Market Valuation

Shiller CAPE ratio: second highest in history

Another warning sign is the Shiller CAPE ratio, invented by Nobel Prize winner Robert Shiller. This ratio measures the current price of the S&P 500 index relative to average inflation-adjusted earnings over the past 10 years. Currently, the CAPE ratio is around 37 to 40, while the long-term average is about 17. The only time in history that this ratio has been at a comparable or higher level was during the technology bubble at the turn of the millennium.

Historical data show that after reaching a CAPE above 39, the S&P 500 index declined by an average of 20% in the following two years and 30% in the following three years. Moreover, the index has never generated a positive three-year return in such a situation. This does not mean that the downturn has to come immediately, but the probability of below-average returns over several years is very high from a historical perspective.

Source: Multpl

A critical look at valuation indicators

It should be added, however, that valuation indicators have their limits. Some analysts point out that structural changes in the economy, such as the expansion of high-margin technology companies, share buybacks or the globalization of corporate earnings, may justify consistently higher valuations than in the past. According to these arguments, indicators such as the CAPE ratio or the Buffett indicator systematically overshoot in a pessimistic direction because they do not take into account changes in the profitability of U.S. firms over the past 30 years. Even so, current valuations are at extreme levels even after accounting for these structural shifts.

Midterm election year: historically the weakest phase of the presidential cycle

The year 2026 is a midterm (midterm) election year for the US Congress, and historical data shows that these are among the most volatile years from a stock market perspective. There have been 17 midterm cycles since the inception of the S&P 500 index in 1957. In 12 of them, approximately 70% of the time, the index has fallen into correction territory, i.e. down 10% or more. The average maximum intra-year decline was approximately 18%.

Midterm elections create uncertainty because the party in power almost always loses seats in Congress. Investors do not know whether current policies on taxes, regulation or trade will continue. Financial markets react negatively to uncertainty. In 2026, this effect is amplified by President Trump's tariff measures and geopolitical tensions in the Middle East, which add additional layers of risk to the standard cyclical pattern.

On the other hand, historical data also show that the six months following the midterm elections, from November to April, are among the strongest periods of the entire four-year presidential cycle. The S&P 500 Index added an average of 14% during that period. But the key is to weather the volatility until then, and that is where the main risk for investors lies.

Geopolitical shock: war with Iran and oil shock

Adding to the fundamental and technical warning signs since the end of February 2026 has been the acute geopolitical factor. US and Israeli military operations against Iran have led to the closure of the Strait of Hormuz, through which around 20% of the world's oil supply passes under normal conditions. Brent oil prices have exceeded USD 100 per barrel for the first time since 2022.

The oil shock fundamentally complicates the Federal Reserve's position. Higher energy prices increase inflationary pressures while slowing economic growth, a combination known as stagflation. Stagflation was a major factor behind the dramatic stock market declines of the 1970s, when the S&P 500 index lost over 40% during the OPEC oil crisis of 1973. The Fed thus finds itself in a situation where it cannot simply cut rates to support the economy, because to do so would risk further unleashing inflation.

We will learn more at tomorrow's Fed meeting and in the commentary that follows.

Why the market hasn't reacted more strongly so far

Despite the closure of the Strait of Hormuz (which is now only open to select countries) and the sharp rise in oil prices, the S&P 500 has only fallen about 4.7% so far since its January high. Investors seem relatively calm and are betting that the conflict will be short-lived.

Moreover, the US is one of the world's largest oil producers, which reduces its direct dependence on imports. However, it is important to remember that oil prices are global and any increase in them will be reflected in the costs to companies and consumers, regardless of the level of domestic production. If the conflict persists longer than the market expects, the current relative calm could quickly turn into panic.

Market concentration and extreme sentiment

Another factor that increases the risk of a significant downturn is the extreme concentration of the U.S. stock market. Just five companies, Nvidia $NVDA, Microsoft $MSFT, Apple $AAPL, Google $GOOG and Amazon $AMZN, account for almost 30% of the entire S&P 500 index. This level of concentration is reminiscent of the situation before the tech bubble burst, when a narrow group of stocks pulled the entire index up while the rest of the market lagged.

Moreover, investor sentiment is extremely bullish. The NAAIM survey shows that institutions are allocated to stocks at levels corresponding to the 78th to 96th percentile of all historical values. Retail investors hold minimal cash and are heavily invested, according to the AAII survey.

It is this combination of high allocation and low cash that historically has repeatedly occurred prior to major market peaks. A Natixis survey of 515 institutional investors managing nearly $30 trillion in assets showed that 79% expect a market correction in 2026, with 49% predicting a 10% to 20% decline and 20% anticipating an even deeper decline.

Forecast comparison: from a slight correction to a 40% decline

Analyst houses differ significantly in their estimates of the potential downturn. On one side of the spectrum stands Goldman Sachs $GS, which estimates a 25% probability of a recession with a potential 15% drop in the index. On the other side, BCA Research considers a 60% probability of a recession and projects a drop in the S&P 500 to the 4,200 to 4,500 point range, which would represent a drop of around 35% to 40% from current levels.

The options market data adds further perspective. S&P 500 put option prices as of the end of 2025 imply an 8% probability that the index will fall 30% or more during 2026. This may seem low, but for context it should be added that this is well above average and includes a risk premium to reflect market uncertainty.

Overview of warning signs

Strategy

The current market situation resembles a classic scenario in which multiple risk factors meet at the same moment. Extreme valuations, geopolitical shock, the cyclical pattern of the mid-year and high investor sentiment create an environment in which the scope for further upside is limited and the risk of a significant downside is above average.

For investors, several practical conclusions follow. Building a cash position in a portfolio can provide room to buy in the event of a sell-off. Holding only high-quality stocks with strong fundamentals reduces the risk of permanent capital loss. Diversifying outside of U.S. stocks into areas that are not as extremely valued can help mitigate the impact of a potential correction.

At the same time, it is important to remember that the mere existence of warning signs does not mean that a 30% decline is inevitable. Valuation indicators have a limited ability to predict the exact timing of corrections and markets may remain overvalued for longer than most analysts would expect. Should the Iranian conflict be resolved quickly and oil prices fall back, one of the main catalysts for risk could weaken significantly. Similarly, if US corporate profitability remains strong, high valuations could remain justified at current levels.

What to watch next

• Developments in the conflict with Iran and oil prices: if Brent exceeds $120 per barrel and stays above that level, the likelihood of a stagflation scenario increases significantly

• Fed interest rate decision: the market currently expects the first rate cut in September 2026 at the earliest, but the oil shock could push this date even further out

• Earnings season for Q1 2026: if companies start lowering their outlook due to higher energy costs, it could trigger a revaluation

• Market breadth: if the downturn starts to spread from tech giants to the broader market, this is a strong signal of a deeper correction

• VIX index: current readings around 25 to 30 do not yet indicate panic, but a rapid rise above 35 would signal a significant increase in market stress

• Midterm elections in November 2026: historically, markets stabilize after political clarity, and the six months following the midterm elections are among the strongest of the cycle

Possible future developments

The scenario of a 30% decline in the S&P 500 index is not the baseline scenario of most analysts, but it cannot be described as unrealistic. The combination of historically extreme valuations, a technical rebound from the upper trend line, geopolitical shock in the form of the Iranian conflict, a cyclical pattern of mid-years, and extremely bullish sentiment creates an environment that has repeatedly preceded significant corrections throughout history.

The key for investors is to remain rational and not succumb to either over-optimism or panic. Markets have always recovered from downturns and investors who have maintained a long-term perspective and had sufficient liquidity to buy during sell-offs have typically emerged from crises stronger. However, the current environment clearly requires greater caution and a more thoughtful approach to portfolio management than the last three years of unprecedented growth.

On the commercial side, Nvidia is deepening ties with hyperscale buyers. AI cloud provider Nebius signed a five year deal with Meta worth up to 27 billion dollars, built around one of the first large scale deployments of the Vera Rubin platform, with 12 billion dollars of dedicated capacity and up to 15 billion in additional compute Meta can claim if Nebius does not sell it to other customers. At the same time, reports suggest Meta is weighing layoffs of around 20 percent of its workforce to help fund an AI infrastructure budget that could reach 600 billion dollars by 2028, underlining the double edged nature of this boom: huge orders for Nvidia and its partners, but intense efficiency pressure on the buyers footing the bill.

Groq 3 and five new racks: how Nvidia is putting together an AI datacentre

A key product innovation is Groq 3, a dedicated chip for inference, i.e. running AI models in production. Nvidia's $NVDA follows it up with an acqui-hire: it struck a licensing deal with Groq and poached founder Jonathan Ross, president Sunny Madra and other key people in a roughly $20 billion package. Groq 3 complements Nvidia's classic GPUs so that the company has a dedicated inference chip for a time when the market's center of gravity is shifting from training to deployment models.

In parallel, Nvidia unveiled five new server racks based on the Rubin platform. The latter combines six key chips - Vera CPU, Rubin GPU, NVLink 6, ConnectX, BlueField and Spectrum 6 - to reduce training and inference costs by up to a tenth compared to the previous Blackwell generation, thanks to greater efficiency and fewer GPUs per system. From an investor's perspective, this means Nvidia wants to be not just a supplier of individual chips, but the architect of an entire AI datacenter, which strengthens its negotiating position with both clouds and hyperscalers.

Space as the next frontier: the Vera Rubin Space Module

GTC also brought a symbolic innovation: Vera Rubin Space Module, a modular platform for on-orbit datacenters, geospatial intelligence and autonomous operations in space. Nvidia is building on the success of startup Starcloud, which brought the H100 GPU into orbit in 2025 and launched Google Gemini and NanoGPT-based models on it.

According to Nvidia, the Ruby GPU is expected to offer up to 25 times more AI performance for "space-based inference" compared to the H100, paving the way for real-world processing of large volumes of data directly on satellites. The Vera Rubin Space Module platform will also be complemented by IGX Thor and Jetson Orin systems for other types of orbital tasks. From a business perspective, this is not a high-volume segment like traditional datacenters in the short term, but a high-margin, technologically prestigious showcase that reinforces Nvidia's brand in the space and geointelligence industry.

AI agents, NemoClaw and the fight for "desktop"

At the software level, Nvidia announced NemoClaw, a security and control layer for the OpenClaw platform that enables AI agents to operate on users' desktops. Originally listed as Clawd, then renamed Moltbot and finally OpenClaw, OpenClaw allows agents to operate over various AI models and act on behalf of the user in WhatsApp, Discord, Slack and other applications.

The problem with OpenClaw is privacy and security concerns, as the agent can control the computer and access personal data. NemoClaw aims to address these concerns by adding a set of tools for rights management, auditing and security sandboxes. Nvidia is also positioning its GeForce RTX, RTX Pro Station, DGX Station and DGX Spark platforms as the preferred hardware to run these agents, bridging the consumer and professional segments.

Uber, Lyft and others: AI chips as the brains of robotaxi networks

There was also news from the autonomous mobility sector at GTC. Nvidia announced that Uber will begin deploying a fleet ofLevel 4 autonomy vehicles based on its Drive Hyperion platform in Los Angeles and San Francisco in 2027. This is a follow-up to a previous agreement to acquire up to 100,000 vehicles on the platform, this time with specific timelines and locations.

In addition to Uber, Lyft, Bolt and Grab are also using Nvidia's systems for their self-driving projects. From Nvidia's perspective, it's further confirmation that its chips and software are making inroads into autonomous transportation, diversifying revenue beyond traditional datacenters while creating a long-term chip business directly in the automotive sector.

Nebius - Meta: 27 billion contract as an advertisement for Vera Rubin

The biggest financial number around GTC came not directly from Nvidia, but from its ecosystem. Cloud partner Nebius announced a five-year deal with Meta Platforms for up to $27 billion to deliver AI infrastructure based on Vera Rubin. The structure of the contract is two-tiered:

• $12 billion of firmly contracted dedicated capacity across multiple sites.

• Up to $15 billion of optional capacity, which Nebius initially offers to other customers and Meta will buy if it remains unused.

Nvidia has announced a $2 billion investment in Nebius, underscoring its interest in developing the partner and using it as a showcase for Ruby. At the same time, Meta's AI strategies talk about possible AI CAPEX of up to $135 billion in 2026, so the Nebius deal is just part of a broader move to an "asset-light" model of buying capacity. What's important to Nvidia investors is that Rubin is getting into large production deployments in the first wave, and that Nvidia is participating in this both through chip supply and through an equity stake in Nebius.

How big can Nvidia's contribution to growth be

Huang's new outlook of $1 trillion in AI chip demand by 2027 builds on last year's figure of $500 billion for the period through 2026. The company also revealed in its Q4 results for fiscal year 2026 that data center revenue reached $62.3 billion in the quarter and accounted for over 90% of total revenue. GTC 2026 is meant to signal to investors that growth is not just about one generation of GPUs, but the entire product and software layer from data center to automotive to edge and orbit.

The contribution of each news item can be summarized as follows:

• Groq 3 and Ruby ensure that Nvidia has the hardware for the next phase of AI (agent systems, massive inference) and can continue to push the price per token down.

• NemoClaw and OpenClaw open up a new area of software revenue and strengthen the link to end users and businesses.

• Uber and other transportation partners are expanding Nvidia's presence in the auto sector.

• Vera Rubin Space Module shows new segments with potentially high added value.

• Nebius - Meta contract demonstrates that big players are willing to tie tens of billions of dollars to infrastructure based on Nvidia's new platform.

For investors, Terafab marks a sharp turn from a fabless model into deeper vertical integration, closer to an integrated device manufacturer in a field dominated by specialists like TSMC. Bringing part of AI5 production under Tesla’s roof could reduce supplier risk and give more control over a core technology, but it also adds a new layer of capital intensity and execution risk, with estimates of tens of billions of dollars required to build a 2 nanometer capable facility and the challenge of ramping a world class fab on top of an already ambitious EV and robotics roadmap.

What we know about Terafab and AI5 today

The official information so far suggests a few certain things. Terafab is supposed to be a project aimed at making AI chips for Tesla $TSLA, Musk describes it as a "gigafactory, only much bigger", and the project's launch is expected to come within a week of the announcement. Tesla hasn't commented on the details - where the fab will stand, what process it will use, the specific investment volume and timeline.

The fifth-generation AI5 chip, according to earlier reports, is designed to be a significant leap over current HW4 hardware, with an emphasis not only on raw computing power, but also on memory and efficiency for the functionality of modern AI models. Musk has previously confirmed that AI5 will be produced simultaneously by both TSMC and Samsung to reduce Tesla's reliance on a single foundry and ensure a "surplus of AI5 chips" for both cars and data centers. This makes it all the more clear that Terafab will not be the sole source of chips from the start, but rather a complement to external capacity.

Musk has also mentioned the possibility of working with Intel $INTC in the past and has talked about the value of having serious discussions with Intel. However, there is no confirmed contract yet and everything remains at the level of speculation.

Why Tesla is pushing for its own chipset

From Musk's perspective, the key driver is a lack of capacity at suppliers. He said last year that even if he takes the best-case scenario of supply from TSMC $TSM and Samsung $SSNLF, "it's still not enough" given the projected volumes for cars, robotaxi fleets and Optimus robots.

The main reasons why Terafab makes sense from Tesla's perspective:

• Control over a key input - AI chips are as strategic to Tesla today as batteries.

• Long-term demand - if Tesla is to really roll out robotaxis and physical AI in a big way, it will need millions of chips a year, not just for cars, but for data centers.

• geopolitics and supply risk - diversifying beyond a pure Asian foundry model may be a hedge against tensions around Taiwan or other supply shocks.

On the other hand, building your own chip fab means entering an industry where barriers to entry are extremely high: technically, financially and organisationally. Even established players like Intel have struggled to catch up with TSMC, despite decades of know-how.

The impact on Tesla's business model

If Terafab succeeds, Tesla would move from the role of a buyer to an integrated player in the AI chip chain. This would have several implications:

• Some of Foundry's margin would remain within Tesla.

• The company would gain more flexibility in how quickly it scales Robotaxi, FSD and Optimus.

• it could eventually offer its own chips or manufacturing capacity to third parties (this is purely hypothetical for now, but model-possible).

But in the short term, it will mainly be a source of cost and CAPEX. Tesla is already planning to significantly increase capex due to the transition from a pure EV story to "physical AI". The addition of a giant chip plant will further inflate this bill and may deepen the period of negative free cash flow that some analysts are already talking about for 2026.

Crucially for investors, this increases the sensitivity of Tesla's story to execution. It's not enough to just deliver cars and software, it adds another critical layer - high-end chip manufacturing - in which there is world-class competition and where mistakes are very expensive.

The risks

Short-term risks:

• Project ambiguity - Tesla doesn't comment on details, so panels on how much Terafab will cost, where it will be, and what process it will use are still guesses. The vagueness may increase nervousness in the market.

• Investment overlap - simultaneously running investments in robotaxi, Optimus, capacity expansion at existing plants and now Terafab. This may exacerbate the perception of cash flow risk.

Medium-term risks:

• Technology slippage - approaching the technology level of TSMC and Samsung is extremely challenging. If Terafab falls one or two process generations behind, it may limit its usefulness for the most advanced AI chips.

• Cost - in-house fabs can have higher unit costs than outsourcing to high-end foundries, especially in the early years.

Long-term risk:

• Either Terafab will become a functional part of Tesla's vertically integrated AI platform and support its lead in autonomy.

• or it turns into a capital-intensive experiment that can't keep up with the foundry market leaders and remains permanently dependent on TSMC and Samsung while investors bear the cost of building it.

What to watch next

From an investor perspective, the following triggers will be key:

• First specific information about Terafab' s location, technology and budget - whether it is a full-fledged leading-edge project or more of a complementary capacity.

• How Tesla will align the timing of Terafab with the start of AI5 mass production at TSMC and Samsung - whether the fab will be a follow-on or just complementary to the supply already running.

• How the new CAPEX will play out in free cash flow projections and whether Tesla will communicate a clear ROI framework.

• what role Terafab will get in the Tesla AI Day / Investor Day communications - as a side project or as one of the pillars of the physical AI strategy.

One of the sector’s leaders now finds itself exactly between these forces. It combines solid revenue growth, a double digit operating margin and roughly a one fifth share of the global immunoglobulin market with higher debt and lingering reputation damage after a short seller attack questioned its numbers. The stock trades for less than one times annual sales and at a single digit multiple of operating profit, which makes it look like a value story inside healthcare, but it is not a simple safe haven for anyone who is not willing to monitor leverage, cash generation and governance very closely.

Top points of the analysis

• The firm's revenues have grown from roughly €4.9bn to €7.2bn over four years, which equates to average growth of around 6% a year with a few stronger years.

• Operating margin is around 18%, gross margin around 39%, but net margin is only around 5%, reflecting high interest costs and tax burden.

• The company is one of the top 3 global producers of plasma drugs and holds a market share of around 20% of the global market in immunoglobulins.

• For valuation, we are looking at a combined P/E of around 12-13, EV/EBITDA of around 9-10 and P/S of around 0.8, which is significantly lower than major competitors like CSL or Takeda.

• The plasma market as a whole is growing at a rate of around 7% per annum due to the growing demand for treatment of immunodeficiencies and other complex diseases, with Grifols controlling the entire chain from plasma procurement to final drugs through vertical integration.

• The investment thesis is that new management can tame debt, stabilize margins and restore confidence after the brief Gotham City assault, while the market still values the company at a significant discount to its market position.

Company performance

Grifols $GRFS is a Spanish healthcare company based in Barcelona that specializes in plasma therapeutics and related diagnostics. At its core is the so-called vertically integrated plasma chain: the company operates its own networks of collection centres, processes plasma in large fractionation plants and produces protein products such as immunoglobulins and albumin from it for the treatment of rare and chronic diseases.

According to the available materials, Grifols operates in four main segments: Biopharma (plasma drugs), Diagnostics (diagnostic tests and devices for transfusion stations and hospitals), Bio Supplies (biological materials and services for the pharmaceutical and biotechnology industries) and Healthcare Solutions (solutions for hospitals and clinics). However, the vast majority of sales and profits come from plasma pharmaceuticals, where the company is one of the leaders.

Geographically, Grifols is a global player, but the key market remains the United States, where it operates an extensive network of plasma centers and where the plasma drug market is the largest and most profitable. Europe, Latin America and Asia are then served by a combination of its own facilities and distribution partnerships. Thus, despite its European origins, the company's economics are heavily "dollarized" and dependent on the U.S. healthcare system.

Business and products

The core of Grifols' business is the collection of plasma from donors and its conversion into life-saving products. Key products include:

• Immunoglobulins (powder or liquid form for intravenous or subcutaneous administration) for the treatment of primary and secondary immunodeficiencies and certain autoimmune diseases.

• Albumin used in the treatment of shock, burns, cirrhosis and other conditions where there is a need to replenish volume and protein in the bloodstream.

• Specialized hyperimmunoglobulins for specific indications such as Rh incompatibility, cytomegalovirus or tetanus.

Through vertical integration, Grifols controls the entire process from donor to final product: it operates the collection centers, logistics, laboratory testing, fractionation (separation of individual proteins from plasma) and final packaging and distribution. This model increases the gross margin (around 39%) while helping to ensure a stable supply in an industry where quality and safety are essential.

The other leg is diagnostics, where Grifols supplies instruments and reagents to blood banks and hospitals: systems for donor testing, blood grouping, virological screening and other tests. This segment has a lower share of revenues than Biopharma, but it brings in steady recurring revenues and strengthens the company's position with blood centres, which feeds back into the plasma business.

Market and addressable potential

The market for plasma drugs is large globally and is growing at a rate above that of conventional pharmaceuticals. According to available studies, the plasma therapeutics market is worth tens of billions of dollars and is expected to grow at a rate of around 7% per year through 2030, driven by increased diagnosis of primary immunodeficiencies, an aging population, and expanding indications. In addition, the albumin segment has a growth projection of around 7.7% per year, driven by higher incidence of major diseases and new, more practical product forms.

Grifols is estimated to be among the top three global manufacturers of plasma drugs alongside CSL and Takeda, and is estimated to have around 19% share of the plasma raw material market and around 20% share of the immunoglobulin market, the most lucrative segment, in 2024. This means that the company is not a "small player" but a structural part of the market that cannot do without its capacity.

The addressable market for Grifols is thus not a question of "if it exists", but rather how much share it can maintain and expand, what the pricing discipline in the sector will look like, and how much of the growth will translate into margins. In a realistic scenario, Grifols can benefit from market growth in the 5-7% per annum range and a slight shift towards higher value-added (specialised immunoglobulins, new indications) if it maintains its position in the top 3.

Competition and market position

The global plasma market is dominated by three major players: Grifols, CSL (CSL Limited) and Takeda $TAK, all of which operate extensive networks of collection centres and large fractionation plants, competing for donors, distribution channels and reimbursement contracts.

• CSL tends to be seen as a quality and efficiency assured company, with very high margins and a more conservative balance sheet.

• Takeda combines its plasma portfolio with its broader pharmaceutical business, giving it diversification but also a different capital profile.

• Grifols has a strong position in immunoglobulins and high chain integration, but also higher leverage and historically more aggressive M&A, which has weighed on the balance sheet.

The difference is not whether they can make the products, but how efficiently they do it. Grifols has the advantage of a large plasma base and global access, but pays a higher price in debt and lower ROIC (ROIC around 4.8%). CSL-type competitors generally have higher margins and better debt-to-earnings ratios, which is reflected in higher valuation multiples.

Grifols wins where its vertical integration, ability to secure supply and offer a broad portfolio of plasma drugs come into play. It may lose out in an environment where the market focuses more on balance sheet quality and return on capital than just sales size and market share.

Management and CEO

As of 2024, the company is headed by José Ignacio (Nacho) Abia Buenache, who came from Olympus (medical devices), where he led the US division as President and CEO for more than a decade, while also holding operational and strategic director positions in the global group. That said, the new CEO brings experience of running a large medtech firm, an emphasis on operational efficiency and capital discipline.

His joining Grifols in 2024 is a clear signal that the firm is looking to strengthen management after a period dominated by family influence and a more aggressive expansion strategy. The new management's priority, according to investor communications, is a combination:

• Deleveraging (selling assets such as the stake in Shanghai RAAS).

• Improving accounting and reporting transparency after the short-seller attack.

• And an emphasis on more profitable growth, not just volume expansion.

Ownership structure remains partly family, but a significant stake is held by institutional investors, who are overseeing the company after several tense episodes (Gotham City, debt refinancing). For investors, it is significant that a manager accustomed to "public company" discipline is at the helm and that the pressure to improve the balance sheet is explicit.

Financial performance

Grifols' revenues have grown from roughly €4.93bn to €7.21bn over the past four years, a solid increase of over €2.2bn, with the strongest year immediately following the covenant. Gross profit rose from around EUR 2.0bn to EUR 2.8bn, with gross margin holding around 39-40%.

Operating profit increased from around EUR 595 million to EUR 1.19 billion, almost doubling, and the operating margin is around 18%. This reflects both the scaling of the plasma business and better control of operating costs, although 2023 was a transitional year with a slight stagnation in operating profit.

Net profit is significantly more volatile. In recent years it has ranged between around €40m and €190m, with 2024 bringing a significant jump back to a higher level of profitability after a weak 2023. Part of the volatility is due to finance costs and taxes, part to one-off effects (share sales, revaluations, restructuring costs). This is reflected in EPS, which has higher volatility than revenue itself.

Cash flow and capital discipline

From an investor perspective, cash flow from operations and free cash flow are key. Grifols generates decent operating cash flow, which is consistent with it being a capital intensive but profitable business. However, after accounting for investments in capacity, plant upgrades and research, there is relatively limited free cash flow, which is reflected in the debt statistics.

The company pays a modest dividend of around $0.14 per share per year, a conservative amount given its debt. The main channel for capital allocation is investment and debt reduction, not high payouts to shareholders. This is logical in the current situation: as long as net debt is around 5.9 times EBITDA, it makes more sense to strengthen the balance sheet than to aggressively raise the dividend or buybacks.

Capital discipline has also been in the spotlight in recent years due to criticism of the accounting and debt structure from short-sellers, particularly Gotham City, who have pointed to the complexity of the structure, interconnected transactions and the risk of undervaluing debt. The company's response has been to take several steps to divest assets (such as a significant stake in Shanghai RAAS), prepare for refinancing and seek to improve communication with investors.

Balance sheet and debt

The balance sheet is Grifols' main red flag. The debt-to-asset ratio is around 0.49, and the debt-to-equity ratio is around 1.87, which means that the company is highly leveraged. The net debt to EBITDA of around 5.88 is well above the level that a healthcare investor would ideally like to see, and is more reminiscent of the profile of a "leveraged" business (financed by debt) than a conservative pharmaceutical player.

Interest coverage of around 2.6 times shows that operating earnings cover interest, but not with much cushion. This is acceptable in an environment of stable rates and rising sales, but increases sensitivity to any margin pressure or increase in financing costs. An Altman Z-score of around 1.1 already signals elevated credit risk: the company is not in an acute crisis, but it is certainly not in a safe zone where debt is a marginal issue.

Adding to this is the reputational dimension: an attack by Gotham City short-sellers in early 2024, who questioned the reporting of certain debts and transactions, caused the stock to plummet and brought questions over accounting transparency to the surface. Grifols responded by selling its stake in Shanghai RAAS for about $1.8 billion and preparing its first major bond financing since then to refinance maturing debt and confirm access to the capital market.

Valuation and valuation interpretation

At today's levels, Grifols is trading at around 12-13 times earnings, EV/EBITDA of around 9.7 and P/S of around 0.8, with a price-to-book value ratio of around 1.1. This means the market is valuing the company at a significant discount to its size and position in the plasma sector, especially compared to CSL or Takeda, which typically trade at double-digit EBITDA multiples and higher P/B.

Grifols' valuation thus looks attractive to an investor willing to accept credit risk and more complex accounting. On pure multiples, the company is cheap given that it has double-digit operating margins, a global footprint and is part of the growing plasma market.

For a "cheap" valuation to turn into an "expensive" one, there would have to be a significant deterioration: a decline in sales, margin compression, and refinancing pressure that would fool investors into believing the firm could handle the debt load. Conversely, for the discount to the sector to narrow, Grifols must show a combination in the coming years:

• Steady revenue growth in the range of at least 5-7%.

• A gradual deleveraging (net debt/EBITDA towards 3-4 times).

• maintaining or slightly improving the EBITDA margin

• and transparent accounting without new controversies.

Growth catalysts and outlook

Positive catalysts include:

• Continued growth in the plasma drugs market, particularly immunoglobulins and albumin, at a rate of around 7% per annum.

• Better utilization of the extensive network of plasma centers.

• and potential price improvements in an environment of higher demand and limited capacity.

On the structural side, there is also the possibility of the company monetizing other non-core assets and using the funds to reduce debt, thereby improving debt ratios and reducing credit risk. Another catalyst may be stabilization after a short-term attack if rating agencies and debt markets confirm confidence in refinancing obligations after 2025.

The industry outlook is relatively clear: demand for plasma drugs will grow, barriers to entry (center network, licensing, regulation) are high, and technologies in plasma processing and logistics are delivering incremental efficiency improvements. The question is not whether the market will grow, but in what proportion and quality Grifols will participate in this growth.

Risks

• Debt and refinancing: high net debt and low Z-scores mean that any deterioration in debt market conditions or weaker years in terms of margins could put the company under pressure. Signals: deterioration in interest coverage, difficulty in placing new bonds, worse credit conditions.

• Accounting and reputational risk: the criticism of Gotham City and subsequent stock swings have shown that the market is sensitive to any doubts about transparency. Further questionable transactions or differences in debt interpretation could further damage reputation.

• Competition: both CSL and Takeda have better balance sheets and often higher margins, giving them greater flexibility to invest in capacity and research. If there were more aggressive pricing pressure, Grifols could have less room to manoeuvre due to debt.

Investment scenarios

Optimistic scenario

Revenues grow 6-8% per year, EBITDA margin stabilizes and improves slightly, net debt/EBITDA declines gradually to 3-4 times due to a combination of growth and debt repayment. EPS grows at a double-digit rate due to operating leverage and lower interest costs. In this scenario, EV/EBITDA could move into the 11-12 range, P/E into the 15-18 area, which at current levels would imply solid price upside in addition to the potential for a modestly rising dividend.

A realistic scenario

Revenues grow 4-6% annually, margins remain stable, debt declines more slowly but remains in a manageable range. EV/EBITDA stays around 9-10, P/E in the 10-14 range depending on the year. The stock in this scenario works more like a gradual "re-rating" bet - the investor gets a return through a combination of gradually rising EPS and a slight narrowing of the discount to the sector.

Negative scenario

Revenues slow below 4% per annum, margins are under pressure (competition, pricing, cost centres) and debt refinancing takes place on worse terms. Net debt/EBITDA does not fall, or even rises, and rating agencies worsen the outlook. In such a scenario, the market could drive EV/EBITDA down to 7-8, P/E loses its telling power due to low or volatile earnings. The stock would become more of a "credit" story than a classic value bet.

What to watch next

• Net debt/EBITDA and refinancing calendar (especially maturities around 2025-2026).

• EBITDA margin and the evolution of operating margin over time.

• Revenues and volumes in key plasma products (immunoglobulins, albumin).

• Steps taken by new CEO Nacho Abii in restructuring, asset sales and increasing transparency.

• Further market and regulatory reaction to Gotham City's accounting wrangles and potential new debt news.

What to take away from the article

• Grifols is a structurally strong player in the plasma drug market with a larger share and double-digit operating margins, trading at a significant discount to major competitors.

• The main cost of this discount is high debt, a low Z-score and reputational scars from the short-seller attack, making Grifols a "value" story with a credit tail, not a pure defensive play.

• A new CEO with a medtech background gives a chance for better capital discipline and a gradually improving balance sheet, but the proof will have to come in numbers, not just presentations.

• For an investor who understands the plasma markets and is willing to monitor debt and refinancing as closely as earnings, Grifols could be an interesting medium-term re-rating bet.

Software sector under fire: what's behind the sell-off of 2026

The year 2026 has brought a very pessimistic AI-related mood to the software sector. Investors who just a year ago were paying premium multiples for companies with fast-growing revenues and predictable subscription revenues are now reassessing those same companies with an unprecedentedly skeptical eye. This turnaround is not primarily driven by poor financial results. Behind it is the fundamental question that AI has posed to the entire sector: will traditional software business models survive the rise of AI agents that can automate the very processes that thousands of businesses have been paying annual subscription fees for?

This existential query hit the sector at a time when it was already carrying macroeconomic burdens. Enterprises are tightening IT spending and lengthening purchasing cycles. And investors, after years of tolerating low profits with high growth, now demand proof of real profitability. The result is an almost toxic combination of valuation overvaluation, cyclical slowdown and structural uncertainty that is dragging the entire sector down.

A telling barometer of this movement is the iShares Expanded Tech-Software Sector ETF$IGV), which has depreciated more than 23 percent since the beginning of 2026. It's already down 28 percent since its peak last fall. That he in direct contrast to the relatively steady performance of the broader S&P 500 index. And it is in this context that the moves of the following five specific companies, whose stocks have been among the biggest disappointments of the entire index this year, must be understood.

Gartner $IT

The advisory model in the AI era: existential question or overhyped panic?

The firm that has dominated the technology research and consulting market for businesses for decades has seen its market value collapse dramatically in 2026. The stock has plunged more than 66% since its 52-week high, and the decline since the start of 2026 is one of the largest in the entire S&P 500. Yet as recently as February 2026, the company reported results that beat analyst consensus in both earnings and revenue.

The immediate trigger for the selloff was the earnings release on February 3, 2026. Gartner reported quarterly revenue of $1.75 billion, up 2.2 percent year-over-year, and adjusted EPS of $3.94, which beat the consensus of $3.51. Still, the stock fell more than 20 percent in a single day.

The reason was the outlook. Management projected full-year 2026 revenue in the range of $6.455 billion to $6.5 billion, while the market was expecting $6.7 billion. The signal was clear. Gartner itself does not believe the outlook of its traditional consulting model is certain in an AI environment.

The structural challenge: when will it stop making sense to pay for analytics reports?

Gartner operates three segments:

• Insights (research and advisory on a subscription basis),

• Conferences

• Consulting.

It is the Insights segment that faces a direct question about its future place in the corporate economy. Companies that used to pay tens of thousands of dollars a year for access to analytics databases and expert recommendations are now testing whether AI tools can provide comparable insights cheaper and faster.

A recent earnings report

Quarterly results confirm this push in the numbers. The Consulting segment reported a 12.8 percent decline in revenue. Global Contract Value, a key leading indicator of future revenue, grew only 0.8 percent year-over-year to $5.2 billion. Outside of the U.S. federal government segment, which is itself experiencing cutbacks, growth was much healthier, at 4 percent, but even that wasn't enough to convince investors that Gartner has the situation under control.

The firm is responding by deploying AskGartner, an AI system that allows customers to more easily search its analytics database. Management reports that users of the tool are reporting significantly higher contract renewal rates. If this trend is confirmed in the coming quarters, AskGartner could be proof that Gartner can integrate AI in a way that enhances, not undermines, the value of its platform. But for now, the market is waiting for more concrete evidence.

The analyst consensus based on the Fair Price Index at Bulios is around a target price of $245, or about 47% upside from current levels, with the valuation pushing the P/E to about 13.8 times earnings, a historically very low level for the company.

AppLovin $APP

From absolute star of 2025 to biggest loser

The company entered the new year as one of the most admired stories in the entire market. In December 2025, the stock hit an all-time high of over $733, adjusted EBITDA margins were at an extraordinary 84 percent, and quarterly revenue grew at a 66 percent year-over-year rate. Since that peak, the stock has depreciated more than 38 percent through mid-March 2026, with a single-day drop of more than 20 percent in February after releasing results that beat analysts' estimates.

Two waves of negative sentiment are primarily behind the sell-off. In January 2026 , the CapitalWatch fund published a report accusing AppLovin' s major shareholder of ties to money laundering operations. The company immediately dismissed the accusations as false and misleading. In February, CapitalWatch retracted the key allegations, issued a formal apology, and the stock briefly rebounded. Still, the incident left a visible mark on institutional investor confidence.

AI as both a threat and an opportunity

A deeper cause of the pressure on AppLovin's valuation is concerns about AI competition. At the heart of the company's business is the AXON advertising platform, which optimizes ad serving in the mobile gaming ecosystem through machine learning. Investors are questioning whether $META Platforms and its increasingly sophisticated AI ad tools could gradually erode the advantage on which AppLovin has built its extraordinary growth. If ad systems with a larger data base can outperform AXON in ad allocation efficiency, the firm's margins could converge toward the sector average under pressure.

The paradox of the situation is that the firm's fundamentals remain exceptional. The fourth quarter of 2025 delivered record revenues, with free cash flow for the full year exceeding $3.95 billion. The company is expanding from mobile gaming into the e-commerce advertising and web space, where management identifies another big opportunity.

Analyst firms like UBS and Jefferies have maintained price targets in the $668 to $860 range despite the sell-off, and the consensus remains at Strong Buy. According to the Fair Price Index, however, the stock is still significantly overvalued despite this year's price declines.

Intuit $INTU

Intuit is one of the companies whose decline in 2026 is most surprising because it stems not from poor results, but from an overvaluation of the market premium. Intuit is a dominant player in tax returns through its TurboTax product and QuickBooks branded small business software. Both platforms have held monopolistic or oligopolistic positions in their verticals for decades, and it is this strength that has historically justified premium valuation multiples.

Shares have depreciated more than 33 percent since the beginning of 2026. In February 2026, they hit a low of around $349, erasing the gains of the previous few years and getting to the same levels they were at in 2022. Yet the company reported second fiscal quarter revenue of $4.65 billion, up 17 percent year-over-year, solidly above consensus, and operating profit up 44 percent year-over-year. Management also reaffirmed full-year guidance for fiscal 2026.

Valuation compression without fundamental failure

The real trigger for the downturn came not from results, but from fear of the future. The market in 2026 is intensely debating whether AI agents capable of processing tax returns or categorizing corporate transactions will threaten the very essence of business. CEO Sasan Goodarzi directly confronts this question, arguing that AI is a catalyst for business, not a threat. As evidence, he cites over 2.8 million customers using AI agents and over 237 million transactions categorized automatically in January 2026 alone.

Wells Fargo downgraded its outlook on Intuit stock to Equal Weight. Goldman Sachs $GS initiated coverage with a Neutral rating and a target price of $519. The valuation compression pushed the forward P/E below 30 times, pushing the stock to its lowest relative valuation in several years. Intuit continues to face competition from H&R Block, which has posted better-than-expected results following rapid expansion of its assisted tax segment and is an increasingly aggressive player in the estimated $37 billion assisted tax preparation market.

Thanks to a drop of as much as 56% from ATH, $INTU stock has come very close to its fair price as indicated by the Fair Price Index on Bulios, which calculates it from DCF and relative valuation. According to this calculation, Intuit stock is slightly undervalued at the moment.

CoStar Group $CSGP

Real estate database champion in uncertainty over return on investment

CoStar Group is a company that has no comparable competition in its primary market segment. CoStar operates the most extensive commercial real estate databases in the world and dominates the online real estate information ecosystem through its portfolio of digital marketplaces such as Apartments.com, Homes.com and LoopNet. Yet the stock has lost more than 33 percent in 2026 and is down more than 53 percent from its yearly high.

A combination of structural and sentiment factors are behind this development. On a structural level, the company has long shown strong revenue growth with very low profitability. Annual sales for 2025 were $3.25 billion, up 19 percent year-over-year, but net income was just $7 million.

The company has been investing massively in building the Homes.com platform as a competitor to Zillow $Z in the residential market, dooming it to minimal accounting profits for years. Investors who were still paying a premium for this strategy in 2025 are now rejecting it in an environment where capital is expensive and patience is significantly lower.

Activist pressure and a key strategic bet

CoStar Group's situation has been further complicated by activist investor Daniel Loeb of the Third Point fund, who has publicly expressed disappointment with the stock's long-term underperformance and capital allocation. Third Point criticized the massive advertising and marketing spend for Homes.com, the return on which remains questionable while shareholders bear the costs. This public confrontation increased pressure on the company's management at a time when the stock was already experiencing a sell-off.

The company reported fourth-quarter 2025 revenue of $900 million, up 27 percent year-over-year. For 2026, management reaffirmed revenue guidance of $3.78 billion to $3.82 billion and adjusted EBITDA in the range of $740 million to $800 million. It also completed a $500 million share buyback and approved a new $700 million repurchase authorization.

The consensus of 19 analysts covering the stock remains at Moderate Buy with an average target price of around $65. However, this goes against the FPI, which shows that $CSGP stock is still overvalued.

GoDaddy $GDDY

The pioneer site for small business owners battling AI

For years, GoDaddy has dominated the market for small business owners looking for domain names or web hosting. In 2024, GoDaddy stock was still experiencing a strong rally driven by optimism about customers switching to higher-margin app and e-commerce products. This made the entry into 2026 all the more painful. The stock has lost about 34 percent this year and is down more than 62 percent from its 2025 peak.

The immediate trigger for this year's decline was the earnings release on February 25, 2026, after which the stock plunged 14 percent in a single trading session, taking the title of the biggest one-day drop in the entire S&P 500 index that day.

Meanwhile, fourth-quarter results themselves beat estimates: EPS came in at $1.80 versus consensus of $1.58. The problem was the outlook. The company was projecting 2026 revenue in the range of $5.195 billion to $5.275 billion, an increase of about 6 percent, while consensus was projecting $5.28 billion. At the same time, bookings in the Applications & Commerce segment slowed from 14 percent to 11 percent growth due to a new go-to-market strategy with promotional pricing on one-year contracts.

AI as a double-edged weapon for web hosting platform

GoDaddy faces a specific form of AI pressure in 2026. While Intuit $INTU or Gartner $IT worry that AI will replace their products, GoDaddy faces the threat that AI will dramatically lower the barriers to entry for competitors. Wix, Squarespace and new AI-native web builders can now generate a professional website for any entrepreneur in minutes, while AI assistants also reduce the need to pay for the consulting and premium tools that have historically been GoDaddy's strength.

The company itself is actively integrating AI into its products, primarily as a tool for customers to create web content and online stores. But analysts question whether this approach is enough to retain customers in an environment where competitors are offering increasingly advanced AI features as a default part of the core product. Barclays, Morgan Stanley $MS, RBC and JPMorgan $JPM all cut their target prices significantly after the results, with RBC slashing it from $200 to $100 and JPMorgan from $200 to $167.

The analyst consensus still maintained a Buy rating with an average target price of around $137. The firm's strong free cash flow of $1.54 billion over the past twelve months remains one of the few unchallenged positive metrics.

However, the Fair Price Index at Bulios is pricing in an even bigger drop to bring the company to its intrinsic value.

Comparison to the market

The five titles described above share several key characteristics. First, they all operate in verticals where AI poses a legitimate and well-grasped business model disruption risk. Gartner sells knowledge that AI can replicate more cheaply. Intuit sells software for processes that AI can automate. CoStar sells database access that AI can make cheaper. GoDaddy sells web tools that AI can significantly democratize. AppLovin is building on advertising AI that customers can replace with a competitor with a larger data base.

Second, all companies entered 2026 with valuations that do not tolerate any slowdown or negative outlook. In an environment where the market has paid premium multiples for software firms, even a slight disappointment in guidance can trigger a revaluation in the tens of percent range.

Third, and perhaps most importantly, all businesses are reporting solid cash flow and revenues continue to grow. None of the companies is in an existential crisis. The stock price collapse is primarily a story of re-rating valuation multiples, not a story of business collapse.

A strategic view

The positive scenario for these companies rests on the argument that AI will be an asset rather than a destroyer for existing software leaders. Historically, platforms that have been able to integrate disruptive technology earlier than competitors emerge stronger from structural change.

The negative scenario, on the other hand, warns that the fundamental redistribution of value in the software stack is just beginning. New AI platforms may replace entire categories of vertical software in ways that are difficult to predict today. In such a scenario, today's valuations are still too high even after significant corrections. The most dangerous traps hide companies whose premium valuations still implicitly assume the continued dominance of a business model that AI can dismantle slowly but systematically.

What to watch next

What to watch next

At Gartner ($IT):

• Global Contract Value Trends in Q1 2026, especially the pace of contract renewals at AskGartner customers

• Ability to stem the decline in the Consulting segment and stabilize the outlook for the second half of the year

• Management's outlook for Analyst Day, if the firm holds one in the first half of the year

At AppLovin ($APP):

• Pace of expansion into the e-commerce advertising segment and specific financial metrics for this division

• Developing relationships with regulators and results of ongoing investigations

• Ability to maintain EBITDA margins above 80 percent even as we diversify into new verticals

For Intuit ($INTU):

• 2026 tax season results and TurboTax market share in the assisted tax segment

• Adoption of AI agents by QuickBooks customers and impact on customer retention metrics

• Potential revisions to management's outlook for the second half of fiscal year 2026

At CoStar Group ($CSGP):

• Monetization of the Homes.com platform in the form of specific revenue and customer adoption metrics

• Developing dialogue with activist investor Third Point and potential changes in capital allocation

• Pace of margin improvement as revenue grows

At GoDaddy ($GDDY):

• Results of new go-to-market strategy with promotional pricing on one-year contracts in Q1 2026

• Applications & Commerce segment growth rate and bookings recovery

• Ability to retain customer base in an environment of increasing AI-native competition

2026 has not started positively for software

The software sector in 2026 is going through one of the most painful valuation corrections of the last decade. The five companies described in this review illustrate the different faces of this phenomenon.

The one thing all companies have in common is not business weakness, but sentiment weakness combined with high entry valuations. Now more than ever, investors need to watch each of these companies to see whether AI will actually erode their competitive advantage or whether today's sell-offs create an opportunity to buy quality platforms at a discount.

Do you think laying off 20% of employees is a good move? Do you own $META shares?

At the same time JD is building an offline presence in Europe – the acquisition of Ceconomy (MediaMarkt, Saturn) for €2.2 billion opens up more than 1,000 brick-and-mortar stores across several European countries, which it can logistically connect with Joybuy and use as warehouses, pickup points and service centers. The whole move thus fits into a long-term strategy: China is saturated, e‑commerce competition is fierce, so JD is seeking further growth in Europe, where it wants to combine local warehouses and physical retail chains to offer the speed and service customers are used to from JD’s home market.

Disney says early tests of Verts on Disney+ and ESPN in August led to measurable increases in user engagement, which it attributes largely to a new recommendation algorithm that personalizes the clips each viewer sees. For now the feed focuses on promotional snippets from existing content, but the plan is to add creator-driven videos, new formats and more personalized experiences, which could turn Verts into a meaningful way to monetize time in the app through ads, partnerships and future bundled offers rather than just another discovery gimmick.

What Verts can bring to Disney+ in numbers

How Verts works: instead of static previews, it launches a stream of short clips straight away. This has several direct effects.

• Increases time spent in the app (more swiping, more clips before leaving).

• improves the conversion from "browse" to "watch" by instantly going from clip to full playback.

• Increases depth of catalog usage by pulling out older and less visible titles.

Disney has already reported from internal tests that Verts leads to additional engagement(user engagement rate) on both Disney+ and ESPN, suggesting a higher number of running titles or longer watches per user. In an environment where the streaming business is fighting for every minute of attention, and where ARPU is stagnant, such an increase in in-app time is essential for any additional monetization.

Monetization: from retention to advertising to licensing

In the short term, the most important thing is that Verts can boost subscriber retention. A user who opens the app for just a few minutes a day and "proscrolls" a few clips is more likely to remain a subscriber than one who only turns on the service occasionally for a single series. Higher retention directly reduces churn and increases customer value without having to increase the price.

The second level is advertising monetization. Disney+ already has an advertising tariff in the US and short vertical videos are an ideal format for:

• Short, unskippable spots between clips.

• Sponsored vertical "moments" (linking brands to specific IP, e.g. Marvel, Star Wars).

• Dynamic product placement and interactive elements in the future.

Once Verts collects enough data on clip viewing, Disney $DIS can add targeting by fandom: a different mix of content and ads for the Marvel fan, another for families, another for the sports audience via a link to ESPN. This brings Disney closer to the social networking model, where the feed is the primary ad inventory.

The third level is licensing and cross-promo. Verts can serve as a storefront not only for titles on Disney+, but potentially for:

• cinema releases (trailers, "first look" clips).

• Parks and experience products (short spots from Disneyland and Disney World).

• merchandising (viral moments promoting sales of toys and other products).

This allows Disney to shift some of the marketing budget to its own ecosystem, rather than paying external platforms like TikTok or Instagram to distribute clips.

Vertical video as a ticket to a younger audience

Disney+ isn't the only streamer testing a vertical feed, Netflix $NFLX is following a similar approach , but Verts is significantly more inspired by the TikTok model. The goal is clear: to reach younger users who typically spend time in the short clip feed and have a higher barrier to entry for classic long formats.

Disney has a major advantage in the strength of its brands. A short vertical clip with brand certainty (Star Wars, Marvel, Pixar, Disney Animation) has a much higher chance of grabbing attention than anonymous content. If Verts can:

• Turn a short clip into a follow-up to an entire movie or series.

• While keeping the experience safe and predictable for families.

It can become an addictive "elevator" to the catalog of movies and series for a generation that otherwise lives in foreign apps. This is an indirect but very important way to increase lifetime value among younger generations who may become long-term subscribers.

How big a contribution can Disney make to growth

There is no direct number yet on how much Verts will add to Disney's revenue. But the logic of the effect looks like this:

• Higher engagement per user increases the likelihood of long-term subscriptions.

• Higher retention reduces marketing costs to acquire new customers.

• more in-app time increases advertising inventory on Disney+ with ad rates.

In an ideal scenario, Verts can add a few percentage points to the average time spent on Disney+, which in turn translates into higher ARPU per user with an ad tariff and lower churn across the base. For a company the size of Disney, this is not a revolution in one quarter, but a structural shift that will manifest itself over a period of years in the form of a more stable and better monetized streaming business.

In addition, Verts is creating the technology and data foundation for other forms of monetization:

• Personalized fan experiences.

• Connections to ESPN sports content and future packages.

• testing short original formats that can live only in the feed without the high cost of full-length series.

Risks and limits

The main risk is user fatigue with vertical feeds. Unless Verts is significantly different from TikTok or Reels, users may prefer to open "original" and Disney+ will remain primarily a long-form content app. In that case, the benefit to growth will be limited.

Another risk is the balance between short and long content. If a feed of short clips starts to "cannibalize" the time users spend watching full movies and series, this could negatively impact the perceived value of subscriptions. Thus, Disney needs to carefully manage the algorithm so that Verts acts as a ramp-up, not a substitute for long-form content.

From a monetization perspective, how quickly and how aggressively Disney integrates advertising into the feed will be key. Too early or intrusive formats can harm the user experience, while an overly cautious approach will reduce the financial benefit.

What to watch next

The following signals are important to investors:

• Whether Disney starts sharing specific engagement metrics (time in feed, transitions to full titles) with Verts.

• How quickly and in what form Verts will expand outside the U.S. and to other devices.

• when and how ad formats and possibly sponsored content will appear in the feed.

• what place Verts will have in Disney's communication to the market (whether it will remain a "feature" or become one of the main pillars of the streaming strategy).

The most important variable is whether Verts will become a true attention hub within Disney+, picking up time and recommending content in a structured way, or just another add-on in the already crowded world of vertical videos. If the former scenario succeeds, it could contribute to more stable ARPU growth and reduced churn over the next few years, which is key to valuing the streaming part of Disney today.

After decades of stagnation, the Japanese stock market is returning to the spotlight for investors. The Nikkei 225 index has strengthened significantly in recent years, and more global funds are beginning to increase their exposure to Japan.

The reason is not just cyclical economic growth. Behind it lies a combination of structural changes, the return of inflation, and also a new political dynamic following the rise of Prime Minister Sanae Takaichi.

Political catalyst: the Takaichi government

The election of Takaichi means relative continuity in economic reforms for the markets, but also a greater emphasis on industrial and technology policy.

Her economic agenda rests on several key points:

•support for the domestic capital market

•investment in technologies and semiconductors

•strengthening the defense sector

•pressure for more efficient operation of Japanese companies

It is important for investors that the government continues corporate governance reforms that force companies to work better with capital and to think more about shareholders.

Why Japanese stocks are interesting again

Several factors are creating a relatively strong environment for the Japanese market.

1. Return of inflation After long years of deflation, inflation in Japan has stabilized around a few percent. This supports wage growth, consumption, and corporate revenues.

2. Improvement in corporate governance The Tokyo Stock Exchange is pushing companies to increase return on capital. The result is more dividends and buybacks.

3. Weak yen A weaker currency significantly helps exporters. Companies like Toyota thus generate strong foreign revenues.

4. Inflow of foreign capital Large global investors have begun to view Japan again as an alternative to the U.S. market, which is significantly more expensive today.

Key sectors of the Japanese market

Technology and semiconductors

Japan plays an important role in the global supply chain of the chip industry. Companies produce machines, materials, and testing technologies for semiconductor manufacturing. The growth of AI and data centers is creating strong demand for these products. ($TOELY, $ADTTF)

Automotive industry

Automakers remain one of the pillars of the Japanese economy. Hybrid technology and global exports still give Japanese companies a competitive advantage, although pressure from Chinese electric vehicle manufacturers is gradually rising. ($TM, $HMC)

Defense sector

Rising geopolitical tensions in Asia are leading Japan to increase military spending. This can support domestic industrial giants and defense technology manufacturers in the long term. ($MHVYF, $KWHIY)

Risks to the investment thesis

The Japanese story of course also has weaker aspects. The biggest include:

•energy dependence – the country imports most raw materials

•aging population

•sensitivity to the global trade cycle. The export-driven economy is strongly dependent on worldwide demand.

Investment conclusion

•Japan today offers a fairly unique combination of factors:

•political stability

•structural corporate reforms

•rising corporate profits

•relatively lower valuations than in the USA

Do you still think the Japanese market is undervalued, or has the Nikkei already priced in most of the positive scenario?

The company $BRK-B still holds a record amount of cash. By the end of 2025 it was roughly $373 billion. The money is mostly held in U.S. Treasury bills, but personally I think the company could already start to reduce some of that cash.

Some stocks are at attractive prices, and in my view Berkshire could start buying now.

We’ll see whether the strategy will at least slightly change now that the company has new leadership and Warren Buffett has left.

For investors, Adobe still looks like a growth stock with high profitability, not a mature software name living off its legacy base. The key question over the next few years is whether the company can keep AI related revenue growing at a double digit pace while it integrates the planned Semrush acquisition, a roughly 1.9 billion dollar cash deal aimed at strengthening its marketing and data capabilities, without putting sustained pressure on margins.

How was Q1 2026?

The quarter brought in record revenues of $6.40 billion, up approximately twelve percent year-over-year. Of that, subscriptions accounted for $6.20 billion and grew roughly thirteen percent, while traditional license and service sales remain a small and stagnant part of the business. The company explicitly states that subscription revenues associated with AI-first ARR ("AI-first ARR") features more than tripled year-over-year, showing that customers are actually adopting the news and it is not just a marketing sticker.

Total annual recurring revenue (ARR) reached $26.06 billion at the end of the quarter, a year-over-year growth of approximately 11 percent. In terms of segments, both creative and marketing professionals (around $4.39 billion in subscriptions, up about twelve percent) and "regular" individual and small business users (around $1.78 billion, up about sixteen percent) are doing well. This confirms that Adobe can grow across the customer spectrum - from large marketing teams to freelance content creators.

Gross profit in the quarter was about $5.73 billion on cost of sales of about $664 million, which implies very high gross margins typical of software. GAAP operating profit was about $2.42 billion, adjusted operating profit was $3.04 billion, which equates to an adjusted operating margin of about 47 percent. GAAP net income was about $1.89 billion, adjusted net income was $2.49 billion; GAAP earnings per share were about $4.60, adjusted about $6.06.

The highlight is the record operating cash flow of $2.96 billion in the first quarter. This shows that accounting profits are not "paper" - customers are actually paying and subscriptions are generating steady cash. The backlog of future contracts (remaining performance obligations, RPOs) was about $22.22 billion, about two-thirds of which is for the next twelve months. Adobe thus has high visibility of future earnings, which is important for long-term investors in assessing risk.

The balance sheet remains robust: cash and short-term investments exceed $6.8 billion, with total debt obligations of around $6.2 billion. The company repurchased roughly 8.1 million of its own shares during the quarter, which at an average diluted share count of around 411 million represents a noticeable boost to earnings per share and a signal of management's confidence in its own valuation.

• Full presentation with results.

Management commentary

Commenting on the results, the company's chief executive Shantanu Narayen highlighted that Adobe had a record quarter and that ARR from "AI-first" products more than tripled year-on-year. He links this to the company's mission to "empower everyone to create" - in an era of artificial intelligence where content is behind much of the digital experience, Adobe sees an even bigger addressable market than before. The tone is clearly confident: executives are keen to show that they have a head start in generative AI and creative tools, and that AI is not a threat, but the next wave of growth.

CFO Dan Durn highlighted thirteen percent subscription growth and record cash flow, and stressed that the acceleration of AI features across creative, productivity and customer products is set to support "continued profitable growth". Between the lines, he tells investors that Adobe doesn't want to sacrifice margins in the name of growth - AI is meant to enhance the value of products and enable higher prices or broader usage, rather than just drive up costs.

Outlook

For the second quarter of fiscal year 2026, Adobe is targeting revenue of around $6.43-6.48 billion, again double-digit year-over-year growth. Subscriptions for the general user and smaller business segment are expected to be around $1.80-1.82 billion, and for creative and marketing professionals around $4.41-4.44 billion. Management expects an adjusted operating margin of about 44.5 percent, a GAAP tax rate of about 22.5 percent and an adjusted tax rate of about 18 percent, with a diluted share count of about 402 million.

GAAP earnings per share are expected to be around $4.35-4.40, with adjusted earnings per share expected to be around $5.80-5.85. These targets do not take into account the impact of the planned acquisition of Semrush, which is still in the approval process - meaning that any synergies will be reflected later. Overall, the outlook looks rather optimistic, but not overly aggressive: Adobe is on pace for double-digit revenue growth while planning to maintain very high margins.

Long-term results

Over the past four full fiscal years, Adobe's $ADBE revenue has grown from roughly $17.6 billion to $23.8 billion, always at a rate of around ten to eleven percent per year. Gross profit has increased from about $15.4 billion to $21.1 billion, while cost of sales has grown more slowly than revenue - a testament to the high scalability of the software model.

Operating costs (R&D, sales and marketing, administration) have been around $9-12.5 billion per year in recent years. In 2025, they remained almost unchanged at around $12.4 billion, while revenue and gross profit continued to grow, leading to a significant boost in operating profit to almost $8.7 billion - up roughly thirty percent year-on-year.

Net income increased from about $4.8 billion a few years ago to about $7.1 billion in the most recent fiscal year, while earnings per share rose from about $10.1 to $16.7. Part of that growth came from share repurchases: the average diluted number of shares fell from roughly 471 million to about 427 million. The combination of profitability growth and gradual share count reduction is very favorable for the long-term investor.

At the EBITDA level, results have moved from around $7.1 billion to $9.7 billion, while margins remain very high. Thus, Adobe has long shown steady double-digit revenue growth, even faster earnings growth and strong cash flow, a pattern typical of dominant software platforms with a high proportion of recurring revenue.

Shareholding structure

Insiders hold only a very small share of the stock (on the order of a few tenths of a percent), while institutions own approximately 85-88 percent of the shares, with retail investors accounting for the remainder. The largest institutional shareholders are the Vanguard Group with a stake of just over 10 percent, BlackRock with around 9-10 percent, State Street with around five percent, and Geode Capital with around three percent; the remainder is made up of a wide range of funds and pension investors.

This structure means that Adobe stock is firmly embedded in index and broad technology funds, and its movement is strongly linked to overall sentiment in the US technology scene. A small insider stake may raise questions about "skin in the game", but on the other hand, a high institutional stake promotes liquidity and stability, as large funds typically react to results and the outlook with gradual rather than panic selling.

Fair Price

One of the largest outpatient imaging chains in the US has leaned into this shift with a roll up strategy and an AI shopping spree, building a network of several hundred sites and acquiring multiple software and workflow vendors to embed AI into everyday operations. The share price, however, has corrected by roughly 50 percent from last year’s high, as higher leverage and deal spending collided with investor worries about reimbursement and execution risk. The investment question now is whether scale plus AI driven efficiency can eventually turn steady market growth into meaningfully better margins and cash flow, or whether today’s valuation still reflects an expensive bet with only a thin margin of safety if the hoped for productivity gains arrive later than advertised.

Top points of analysis

• Revenues have been growing steadily at around 7% to 13% per year, increasing from roughly $1.3 billion to $1.83 billion over four years.

• Operating margin is around 3%, net margin near zero and free cash flow margin below 1%, but the company has held four consecutive profitable years.

• The firm is one of the largest players in outpatient imaging in the U.S. and has a share in the units of percent in the overall diagnostic imaging market, even higher in the pure outpatient segment.

• In diagnostic imaging, it is betting on AI across its portfolio: its own DeepHealth platform for mammography (AI support for breast image reading), acquisitions of iCAD and See-Mode for other modalities, and a deal with Gleamer for lung and bone imaging.

• The investment thesis is that outpatient imaging growth, network scale and AI tools will lift margins and return on capital enough to make current multiples make sense despite high debt.

Company introduction

RadNet $RDNT operates one of the largest networks of outpatient diagnostic centers in the U.S. focused on imaging for patients outside of hospitals. These include X-ray, computed tomography (CT), magnetic resonance imaging (MRI), mammography and other specialized imaging modalities. These centers operate primarily in urban and suburban areas and provide both preventive testing and diagnostic imaging for patients referred by general practitioners and specialists.

The business model is based on reimbursement by health insurance companies and patients for individual examinations. The advantage of the network size is that the company can negotiate framework agreements with insurance companies, standardize processes and better fill the capacity of expensive equipment. The main source of revenue is the procedures themselves, but ancillary services such as image archiving, data management and tele-radiology (remote reading of images by radiologists not physically at the centre) are playing an increasing role.

The sustainability of the business lies in the fact that relationships with doctors, hospitals and insurance companies are long-term. Once it's set where doctors send patients for testing, it usually doesn't change as long as the service works, the appointments are available, and the insurance companies keep that provider in network. By adding its own layer of AI and information systems, the company is looking to strengthen those ties even further: to offer faster results, consistent quality, and tools that make doctors' jobs easier and reduce the risk of errors.

Business and products

The core of the revenue is based on classic imaging tests in outpatient centers: magnetic resonance imaging, CT, X-ray, mammography and other types of imaging. Each modality has different economics. MRI and CT, for example, need expensive equipment, special facilities and staff, but have a decent contribution to margins when utilization is high. Conversely, cheaper modalities have lower acquisition costs but earn less per exam. The company therefore works with a mix of examinations to keep the machines as busy as possible and downtime to a minimum.

But in recent years, the combination of physical infrastructure and AI software has become an increasingly important "product". The DeepHealth platform focuses primarily on mammography and uses AI to analyze breast images. The goal is to increase both sensitivity (fewer missed tumors) and specificity (fewer unnecessary alarms and repeats). Acquisitions of iCAD and See-Mode extend the use of AI into other areas such as ultrasound and vascular imaging, and a new collaboration with Gleamer adds tools to automatically support the reading of skeletal and lung images.

These tools are still a smaller part of overall revenue, as most of the revenue still comes from traditional exam reimbursements. However, they have the potential to improve radiologists' productivity, reduce waiting times and improve quality of care. In practice, this can mean more examinations for the same instrument capacity, a lower proportion of repeat examinations, and greater confidence of insurers and physicians in the network as a whole. In terms of valuation, it is the AI layer that makes the company more of a technology-enhanced healthcare provider, even if the numbers are still dominated by traditional business.

Market and addressable potential

The U.S. diagnostic imaging market is worth tens of billions of dollars annually and is projected to continue to grow, primarily due to an aging population, increased availability of prevention programs, and expanding indications for advanced imaging. Most forecasts expect the outpatient imaging market to grow at a rate in the lower to mid single-digit percentages annually over the next decade, with some of the growth coming from a shift of testing from hospitals to the outpatient sector, which is typically less expensive and more efficient.

Based on the company's revenues of about $1.8 billion, its share of the overall U.S. diagnostic imaging market can be estimated to be in the single digits of one percent. In the purely outpatient segment, it is one of the largest players and in some regions and modalities its share can reach tens of percent. This means that further growth can no longer just be based on entering new regions, but also on increasing share in existing regions, optimizing the mix of exams and increasing the number of exams per unit of capacity.

Realistically, the outpatient imaging market itself can be expected to grow at a more single-digit rate, and most of the company's above-average growth must come from either acquisitions or better monetization of its existing network and AI tools. The key for an investor is not to expect steady double-digit organic growth without acquisitions. It is more reasonable to expect a combination of slightly above average revenue growth and incremental margin improvement through technology and improved efficiency.

Competition and market position

In the outpatient imaging market, the company competes with several large networks and a number of regional providers. Major competitors include Akumin, RAYUS Radiology and SimonMed Imaging, while in the broader diagnostic services space, players such as Alliance HealthCare Services and some hospital chains with their own outpatient facilities are also emerging.

Product-wise, most of these providers offer a similar list of tests. The difference lies in how they deliver the service: wait times, quality of images and descriptions, patient experience, availability of branches and technology level of systems. The company has an advantage in its dense network of centers in key regions, long-term relationships with physicians and a growing emphasis on AI, while some of its competitors are more fragmented or technologically behind.

On the other hand, competitors' margins are not significantly worse; the entire ambulatory imaging sector operates with relatively thin operating margins, reflecting payer pressure on pricing and high fixed costs for devices and staff. The company wins where it can keep facilities better utilized through scale and technology, reduce the failure or repeat rate, and offer a combination of quality and price that smaller local facilities cannot. It can lose in an environment where regulation, reimbursement or competition would start to push prices even lower and some patients would move elsewhere.

Management and CEO

The company is led by Howard G. Berger, a radiologist and founder of the company. His background as a physician gives him a good understanding of the clinical side of imaging, while his decades in corporate leadership have given him experience managing a large healthcare network. Under his leadership, the company has moved from a smaller provider to one of the largest outpatient imaging center networks in the US.

Growth has been through a combination of organic expansion and acquisitions of smaller regional networks and individual sites. In doing so, the company built a critical mass of centers in key regions and gained a better negotiating position with insurance companies and device suppliers. In addition, it has made a strong shift towards technology in recent years: the acquisitions of DeepHealth, iCAD, See-Mode and the collaboration with Gleamer show a drive to build a technology-enhanced platform, not just a traditional network of centres.

The ownership structure is mixed. Insiders, including management, hold a small but significant stake, while the majority of shares are in the hands of institutional investors who view the company as a combination healthcare growth and AI story. In terms of capital discipline, management is more ambitious than conservative: it is willing to work with higher leverage and invest in technology even in a thin-margin environment, in the expectation that these investments will appreciate in value over the long term.

Financial performance

Over the past four years, revenues have grown from roughly USD 1.3 billion to USD 1.83 billion, which corresponds to an average growth rate of around 7% to 13% per year. Growth has not been explosive, but has been steady and has been underpinned by higher examination numbers, network expansion and gradual adjustments to pricing and service mix.

At the level of profitability, the picture is much worse. Gross margin is around 11-12%, operating margin around 3% and net margin close to zero. In practice, this means that after paying costs, depreciation, interest and taxes, only a very thin layer of profit remains. Net profit has fluctuated in the single-digit to lower tens of millions of dollars in recent years, a very modest number in the context of billions of dollars in sales.

Operating earnings before interest and taxes (EBIT) are around $100 to $125 million. This shows that the main pressure on the income statement is the interest costs on high debt and the depreciation of capital-intensive infrastructure. The result is a situation where the company has solid operating performance, but net profitability is so thin that it is not enough on its own to comfortably finance larger investments without incurring additional debt.

Cash flow and capital discipline

Cash flow shows how tight the space is in this business. Operating cash flow is positive, but after accounting for investments in equipment, centers and technology, there is very little free cash flow left, which is reflected in the price to free cash flow ratio of over 260. Simply put, the market is paying a high price today for a company that, while investing in growth and AI, is not yet producing a significant cash surplus.

The difference between accounting profit and cash flow is partly due to capital intensity - devices and centres require regular investments, rentals and leases, which are reflected differently in cash flow than in net profit. In addition, some of the cash flow is directed to acquisitions of AI firms and development of the technology layer, which reduces free cash flow in the short term but should improve future margins and efficiency.

The company does not currently pay a dividend and capital is mainly directed to network and technology development, funded by a combination of its own cash flow and debt. This is logical if investments in AI and network scaling actually translate into significantly higher productivity and margins. Should this not happen, investors will be left with relatively little free cash flow per share given today's price.

Balance sheet and debt

The balance sheet is one of the most sensitive points in the story. Total debt is around $1.7 billion, equivalent to roughly half of assets, and a debt-to-equity ratio of around 1.75 indicates high leverage. Liquidity looks decent at first glance: current ratio is about 1.9, quick ratio about 1.8 and cash ratio over 1, but much of the assets are tied up in fixed assets that cannot be monetized quickly.

An interest coverage ratio of around 1.3 means that operating profit covers interest with only a small margin. In a normal environment, this may not be an acute problem, but if margins deteriorate, rates rise or a portion of revenue falls through, it can quickly reach a level where investors start to worry about their ability to service debt comfortably. Altman's score of roughly 2.1 indicates that the company is not in immediate danger, but neither is it in a comfort zone.

In a stress scenario combining lower reimbursements, rising personnel costs and slowing revenue growth, the firm would likely be forced to cut back on investment, slow expansion or refinance on less favorable terms. The biggest weakness on the balance sheet is the high reliance on debt and the relatively thin cushion of profitability and cash flow, which reduces flexibility when conditions deteriorate.

Valuation and valuation interpretation

A firm's valuation is based largely on expectations of future improvement. The price to earnings ratio is about 2.6, the price to book value ratio is about 4.9, and the price to free cash flow ratio is over 260. The normal price-to-earnings ratio is not very useful because the net margin is very low and in some years negative.

Compared to other healthcare providers, this is a combination of "growth pricing" and "thin profitability". The market is willing to pay higher multiples for a company that is growing faster than the healthcare sector average and has a strong AI story, but at the same time tolerates that today's margins are low and debt is high. Compared to software or pure technology firms, this valuation is less comfortable because the imaging business is capital intensive and carries the operational risks of the healthcare industry.

In order to talk about a "cheaper" valuation, several things would have to improve over a few years: revenue growth would have to maintain at least a mid-single-digit pace, operating margins would have to move higher due to higher productivity and AI utilization, and free cash flow would have to visibly increase to bring the price-to-free cash flow ratio to significantly lower levels. Conversely, if margins remain low and debt high, current multiples could prove overly optimistic, especially given the stock's recent history of strong growth.

Growth catalysts and outlook

Positive catalysts include:

• Further growth in outpatient imaging

• Strengthening the network in regions where the company is already strong

• successful integration of AI into day-to-day operations

In practice, this means real reductions in image reading time, improved throughput in centres and higher quality diagnoses. Concrete steps such as expanding DeepHealth to other modalities, integrating iCAD, See-Mode and Gleamer products, and bringing new AI tools into the field can deliver better value for money.

Key metrics to watch include:

• Revenue growth in the mid single-digit to low double-digit percentages

• Operating margin development (target would be a steady move above 3%)

• growth in the number of examinations and better use of equipment

• Measurable impacts of AI (lower re-testing rates, shorter reading times, new types of reimbursement for "AI-enabled" exams)

The company's outlook and management comments suggest that AI and digital tools are not just a side project, but a key part of the strategy. The success or failure of this bet will have a direct impact on profitability and the ability to reduce relative debt over time.

Risks

The main risk is the combination of high debt and low margins in an environment where reimbursement and regulation can further squeeze margins. If revenue growth slows or costs (particularly personnel and energy) rise faster, interest cover may reach levels that are already uncomfortable for investors. The signal is a decline in operating profit, deterioration in interest coverage and the need to refinance debt on worse terms.

Another risk is the execution of the AI strategy. If AI company purchases and tool development do not result in improved operating economics, they will remain as a costly ticket to a buzzword without an adequate return. Warning signs would be the absence of tangible productivity improvements, poor adoption of AI products outside of their own network, or goodwill amortization from acquisitions.

The third risk is competition and pressure from insurers. If payers push for lower reimbursement and prefer lower-cost providers, even a large network may struggle to justify higher prices, especially in regions with excess capacity. Signals include stagnant or declining revenues in key regions, pressure on contract pricing, and a rising share of unreimbursed or under-reimbursed performance.

Investment scenarios

Optimistic scenario

In the optimistic scenario, the company manages to grow revenue by around 8 to 10% per annum, gradually improve operating margin through higher productivity and AI, and generate significantly higher free cash flow to enable relative debt reduction. Revenues could approach $2.3 billion to $2.5 billion in three to five years, operating margin would move into the 4 to 5 percent range, and net margin would stabilize in the positive single digits of percent.

In such a scenario, the market could accept a price to sales ratio of around 3 and a declining price to free cash flow ratio if free cash flow were to grow significantly. At today's price, this could mean a combination of decent growth in fundamentals and a modest revaluation, an attractive return for an investor who accepts sector and balance sheet risks.

A realistic scenario

In a realistic scenario, sales grow around 5 to 8% per annum, margins improve only slightly and debt remains high but manageable. AI will bring improvements in quality of care and productivity, but will not lead to a dramatic jump in profitability. Rather, it will help maintain margins in an environment of rising costs.

In this scenario, valuations could remain close to today's levels: price to earnings ratio of 2 to 3, price to free cash flow ratio high but gradually declining if free cash flow improves. Total return would then depend mainly on whether the company manages to refinance debt on reasonable terms and improve cash flow step by step, rather than on a large multiple expansion.

Negative scenario

In a negative scenario, sales slow below 5% per year, margins deteriorate due to higher costs or pressure from insurance companies, and AI investments prove less profitable than expected. Interest coverage would decrease, debt refinancing would become more expensive, and free cash flow would remain low or decline.

In such a case, the market could drive the multiples: the price to earnings ratio towards the lower end of the range or lower, and the price to free cash flow ratio would cease to be a meaningful indicator if free cash flow remained very low. This would mean that even if the company continued to operate and grow, entry at today's levels would prove too optimistic given the balance sheet risk and thin margins.

The share price performance and story of recent years

The stock has undergone a dramatic evolution over the past few years. From levels significantly lower than today, it has rallied to highs of around $90 to $93 and subsequently corrected by about 50% even as earnings continued to grow. In aggregate over the past five years, the share price has risen roughly 155%, so the long-term holder is still in solid plus territory.

This reflects a combination of growing enthusiasm for the ambulatory healthcare services and AI story, followed by a tighter interest rate environment, concerns about high debt and overvalued expectations. It's important for investors to see that a significant correction does not automatically make a stock cheap in and of itself. Multiples remain high given thin margins and debt, so part of the investment story is still in the future and will depend on whether the technology bet and the scale of the network translate into improved profitability and cash flow.

What to watch next

• Revenue growth rate, ideally in the mid single-digit to low double-digit range.

• Operating and free cash flow margins and their ability to grow over time.

• Debt development, interest coverage and refinancing terms.

• Specific productivity and quality impacts of AI (shorter image reading times, lower re-testing rates, new reimbursement schemes).

• Acquisitions and their integration, especially for AI companies, to make it clear that they bring not only goodwill but also visible improvements to the economy.

What to take away from the article

• Ambulatory imaging and AI combine structural demand growth with a technological shift, but it is not a risk-free bet due to low margins and high debt.

• The company is one of the major players in outpatient imaging in the U.S., growing and investing aggressively in AI, but so far is operating with very thin net margins and significant leverage.

• The current valuation reflects the expectation that AI and network scale will lift profitability and cash flow in the coming years. Without this shift, there is little room for error.

• A50% correction after a period of strong growth opens up an interesting story for investors who believe in the combination of healthcare and AI and are willing to accept balance sheet risk and volatility.

• More conservative investors should wait for clearer evidence that AI and operational optimization are actually lifting margins and improving debt-to-cash flow ratios before finding valuations attractive.

At first glance, an expense ratio of 0.03% per year vs. 0.20% per year may seem like a negligible difference. A closer look at the numbers, however, reveals just how significant an impact the level of fees can have on a portfolio's total return over a 20- or 30-year horizon. That's why low-cost index ETFs from giants like Vanguard, BlackRock $BLK and State Street $STT have been one of the fastest growing investment products in the world since the early 2000s.

The entire global ETF industry attracted a record $1.46 trillion in new investments in 2025, and the same trend continues in 2026, with over $250 billion flowing into the ETF segment in the first six weeks alone. A key driver of this boom is passive, low-cost funds tied to major U.S. indices. Which ones have the lowest fees?

SPDR Portfolio S&P 500 ETF $SPYM

About the Fund

The SPDR Portfolio S&P 500 ETF (formerly traded under the ticker SPLG, renamed in October 2025) is one of the most overlooked gems of low-cost investing. Although this fund tends to be overshadowed by its more famous sibling $SPY, it's literally another world when it comes to fees. The fund is managed by State Street Global Advisors, which is behind the entire SPDR ETF family. The fund tracks the famous S&P 500 index, an index of the 500 largest U.S. companies selected by the S&P Dow Jones Indices committee based on market capitalization, liquidity and profitability.

Key parameters of the fund

Why $SPYM is interesting

With an expense ratio of just 0.02% annualized, SPYM is one of the cheapest ETFs in the U.S. market ever. By comparison, its older relative SPY from the same manager charges 0.0945%, nearly five times more. Yet both funds track the exact same index and have very similar compositions. Despite its lower media profile, the fund has built an impressive asset base of over $104 billion under management, making it one of the largest ETFs in the world.

One of SPYM's less obvious advantages is the portfolio's low turnover rate of around 3% per year. This is well below the category average of around 55%. The low turnover reduces transaction costs within the fund and indirectly helps keep the tracking error of the underlying index to a minimum. In addition, the fund reinvests dividends and employs securities lending techniques as part of its operations, which help to partially offset even the minimal operating costs.

Sector composition

The largest sectors are technology (approximately 34%), financial services (approximately 12%) and communications services (approximately 11%). The Fund is a de facto bet on the U.S. economy and the structural dominance of the technology sector as mirrored by the S&P 500 Index.

A detailed overview of the fund can be found here.

Vanguard S&P 500 ETF $VOO

About the Fund

The Vanguard S&P 500 ETF$VOO) is currently the largest ETF in the world in terms of assets under management. The fund is managed by Vanguard, a management company renowned for its low-cost philosophy, founded by passive investing pioneer John Bogle. The VOO fund was launched in 2010 and has since become synonymous with passive investing in the US market.

Investor interest has been extraordinary. In 2025, the fund attracted a record $143 billion in net inflows, representing approximately 10 cents of every dollar newly invested in U.S. ETFs.

Key parameters of the fund

Why VOO is interesting

Vanguard has a completely unique ownership structure. Unlike publicly traded money managers like BlackRock $BLK or State Street $STT, Vanguard is owned directly by its mutual funds and therefore indirectly by their investors. This structure incentivizes it to minimize costs, not to generate profits for shareholders. As a result, VOO, with an expense ratio of 0.03%, is consistently one of the cheapest ETFs in the entire S&P 500.

VOO surpassed $SPY as the largest ETF in the world in 2025 and retains that title in 2026 with AUM exceeding $856 billion. The combination of Vanguard's reputation and its structurally low expenses makes VOO the first choice of institutional and retail investors focused on long-term passive investing. In addition, the fund has the advantage of a very active secondary market, which ensures a minimal bid-ask spread even with larger trading volumes.

Comparison with SPYM

VOO and SPYM track an identical S&P 500 index and have virtually identical portfolio composition. The key difference lies in the expense ratio: SPYM charges 0.02%, VOO 0.03%. In absolute terms, this is a negligible difference. However, VOO compensates for this small disadvantage with significantly higher liquidity and a stronger reputation in the institutional world. For the retail investor who simply wants to buy and hold for the long term, the two funds are virtually interchangeable.

All information about the fund can be found here.

Vanguard Total Stock Market ETF $VTI

About the Fund

Vanguard Total Stock Market ETF$VTI) is Vanguard's flagship fund for the entire U.S. market. While VOO is limited to the 500 largest companies, VTI goes further and seeks to capture virtually the entire investable U.S. stock market, from large corporations to mid-cap companies to small and micro-cap companies. The fund tracks the CRSP US Total Market Index and currently holds over 3,500 US stocks. It was launched in 2001, making it one of the longest-running ETFs ever.

Key Fund Parameters

Why VTI is interesting

VTI is for investors who believe in the principle of total diversification and don't want to bet only on the 500 largest giants. Historical data shows that small-cap and mid-cap stocks tend to outperform large-cap titles over the long term because they carry higher risk, for which the market rewards investors with higher average returns. This phenomenon is known in the academic literature as the so-called size premium.

The practical correlation between VOO and VTI is very high. Given that large companies account for approximately 82% of VTI 's weighting, the two funds move very similarly. The difference in performance is usually minimal in the short term, but over longer periods of time, when the small-cap cycle gains momentum, VTI can slightly outperform VOO. Thus, VTI has the advantage of a wider range without significantly higher costs.

Replication methodology

Unlike the VOO ETF, which holds all of the stocks in the S&P 500 (full replication), VTI uses a sampling method. The fund does not physically hold all 3,500 stocks, but a representative sample that faithfully reflects the characteristics of the entire index. This method is effective for funds with very broad coverage and allows for minimizing transaction costs while maintaining low tracking error.

Full details of the findo can be found here.

iShares Core S&P 500 ETF $IVV

About the Fund

The iShares Core S&P 500 ETF$IVV) is the flagship fund in the Core product line from BlackRock, the world's largest investment firm by assets under management. The fund was launched in 2000, one of the first S&P 500 ETFs ever, and in its quarter-century of existence has built its position as the second-largest ETF in the world with over $707 billion in AUM.

Like $VOO, for example, it tracks the S&P 500 index and offers an expense ratio of just 0.03%. Morningstar rated the fund a gold medal, its highest level of analyst conviction for product quality.

Key Fund Parameters

Why IVV is interesting

IVV is an alternative to VOO for investors who prefer the BlackRock ecosystem or the iShares platform. Although both funds track an identical index and have identical expense ratios of 0.03%, they have some structural differences.

IVV is an open-end mutual fund, like VOO, while the older SPY is a unit investment trust, which gives it specific regulatory restrictions. The open-end structure allows IVV to reinvest dividends and do securities lending more efficiently, which helps minimize tracking error.

IVV attracted over $78 billion in net inflows in 2025, ranking second in the entire ETF industry behind VOO. These numbers are a testament to the extreme confidence of institutional investors. Additionally, the fund is available within the iShares Core Portfolio, which BlackRock offers as a foundation for building a complete passive portfolio.

Comparison with VOO

IVV and VOO are now de facto identical products in terms of cost and underlying index. Subtle differences exist in terms of fund structure and how each manager does securities lending, but for the long-term retail investor these nuances are virtually meaningless.

Thus, in practice, the choice between IVV and VOO depends more on which brokerage platform the investor has an account with and whether that broker offers one of the funds without transaction fees.

An overview of the entire fund can be found here.

Comparison of funds and market competition

Overview of key parameters

Market competition

There are other funds on the market that are competing for the favour of low-cost investors. The best known is the first-ever S&P 500 ETF, the SPDR S&P 500 ETF Trust$SPY) from State Street, launched in 1993. While it dominates in terms of daily trading volume and liquidity, its expense ratio of 0.0945% is nearly five times what SPYM charges. SPY is therefore primarily a vehicle for short-term trading and institutional hedging, not long-term passive investing.

For advanced traders - there are option trades on this ETF.

Also worth noting is the Schwab U.S. Broad Market ETF$SCHB), which offers an expense ratio of 0.03% and tracks the entire U.S. market like VTI, but issignificantly smaller with roughly$30 billion in assets under management.

The Fidelity ZERO Total Market Index Fund$FZROX) offers Fidelity customers a literally zero expense ratio, but is only available through the Fidelity platform and cannot be purchased through another broker.

Summary

• SPYM is suitable for investors who want to minimize expenses as much as possible and don't mind a less media-visible fund with a strong manager.

• VOO is ideal for investors who build on the Vanguard philosophy and want the largest and most liquid S&P 500 ETF in the world.

• VTI will appeal to investors who believe in value-added diversification across the entire U.S. market, including the mid-cap and small-cap segments.

• IVV is a natural choice for investors working in the BlackRock or iShares ecosystem, or for those who prefer the oldest S&P 500 ETF with full physical replication.

What not to overlook when choosing similar funds

While passive ETFs don't require active monitoring like individual stocks, there are a few factors worth considering.

• Expense ratio: watch for managers changing fees in the future. Historically, the trend has clearly been downward, but exceptions can never be ruled out. Additionally, in the case of SPYM, watch for State Street to change the terms of the fund as part of the ongoing rebranding of the entire SPDR Portfolio product line.

• Tracking error: this is the difference between the performance of an ETF and its benchmark. It tends to be minimal for funds with physical replication, but can increase slightly in turbulent market conditions. Regular checking is offered, for example, by data on ETF.com or Morningstar.

• Development of securities lending: both VOO, IVV and VTI conduct securities lending in the portfolio and partially return the proceeds to the fund. Changes in the volume of securities lending may slightly affect the Fund's actual expense ratio relative to its stated expense ratio.

• Tax implications for Czech investors: dividends from US ETFs are subject to a 15% withholding tax under the Czech-US double tax treaty. When choosing between accumulation and distribution options, it is important to consider how dividend income enters the tax return. S&P 500 ETFs are primarily available in the U.S. as distribution funds, so dividends are paid and not automatically reinvested within the fund.

Conclusion

The four ETFs in today's review, SPYM, VOO, VTI and IVV, represent the best that the U.S. passive market has to offer today. Their expense ratios in the range of 0.02% to 0.03% per year are so low that fees have essentially ceased to be a significant differentiating factor for investors. Instead, the key criterion becomes the choice of benchmark: whether an investor wants net exposure to the 500 largest U.S. companies through the S&P 500 or wants to go after the entire market, including smaller companies through the CRSP U.S. Total Market Index.

Even though it looked like FICO was starting to recover after such a sharp drop—gaining over +20% in two weeks—it has since fallen again and is down more than 25% in the last week alone. Here are the main reasons↓

The start of the problem

October 1, 2025 FICO officially launched its Mortgage Direct License Program. With this move it offered banks the option to buy scores directly, aiming to cut out credit bureaus (Equifax, Experian, etc.) and deprive them of commissions.

Credit bureaus' counterattack

March 9 the credit bureaus announced a broad price cut for their joint VantageScore 4.0 model for mortgages. Experian and TransUnion dropped the price to $0.99 and Equifax to $1 (whereas FICO via the bureaus used to cost banks up to $10).

Debt announcement + price target cuts

March 11 FICO announced it is issuing new debt (Senior Notes) worth $1 billion. That’s common practice, but it certainly didn’t help sentiment. At the same time, reports came out that analysts (e.g., from UBS) were cutting price targets across the board for FICO shares (UBS lowered its target to $1,350 and downgraded to “Neutral”/“Hold”).

🔍My view

I recently opened a starter position in the company with the plan to add on further declines. So far I haven’t bought more because this no longer looks to me like just bad sentiment around SaaS companies, but a real threat to a monopoly. Previously it didn’t pay for banks to switch to the cheaper, lower-quality Vantage score because the price difference wasn’t that big (Vantage used to cost about $5). This price cut is pretty brutal in my view, and if FICO wants to compensate, it will have to lower its price, which will certainly show up in results—mainly in margins. I haven’t had time to study it in depth yet; these are just first impressions, but once I do, I’ll inform you of anything I find.

How do you see it? Do you think this won’t threaten FICO and are you using the dip?

PayPay has become the dominant QR-code wallet in Japan, with more than 72 million registered users and nine-month revenue of 278.5 billion yen and profit of 103.3 billion yen, over three times the profit of a year earlier. It sits at the center of a rapid transition in Japanese payments, where QR codes have grown from 0.2 percent of cashless transactions in 2018 to 9.6 percent in 2024, offering global fintech investors a relatively clean way to play the structural rise of non-cash payments in Japan and a future partner or rival for incumbents like PayPal in Asia.

How the IPO fits into SoftBank's strategy

PayPay's IPO comes at a time when SoftBank Group $SFTBY is heavily monetizing assets to free up capital for new bets in artificial intelligence and other technologies. In the June-December 2025 period alone, SoftBank sold a block of T-Mobile US $TMUS shares for nearly $13 billion, and in parallel was just preparing PayPay's Nasdaq listing.

After the IPO, SoftBank should continue to control roughly 92% of the voting rights in PayPay, so this is more of a partial monetization and creation of a market valuation than a full-fledged exit. There are several implications for SoftBank shareholders:

• they get a transparent market price for a key fintech asset

• at the same time, SoftBank shows that it is capable of turning late fintech investments into liquidity

• and reinforces its "AI and platform investor" narrative, funding riskier bets (such as around OpenAI) from sales of more stable assets such as PayPay

Why PayPay is also interesting in the context of PayPal $PYPL and global payments

PayPay was formed in 2018 as a joint venture with Paytm and has quickly outpaced competitors like Rakuten Pay thanks to aggressive marketing, massive subsidies and SoftBank support in merchant acquisition. Today, it dominates QR payments. According to data from the Japanese Ministry of Economic Affairs, QR codes will already account for nearly 10% of cashless transactions in 2024, while the share of card payments (credit and debit cards) at around 83% is slowly declining.

For global players like PayPal, PayPay is interesting on two levels:

• As a benchmark for monetizing digital wallets in a more conservative, historically "cash" market.

• as a potential partner for cross-border payments and acceptance networks in Asia

PayPay has already begun to expand its reach beyond Japan. It has made its service available in more than 2 million stores in South Korea for Japanese customers by 2025, and this February announced a partnership with $V targeting opportunities in the US. If this collaboration develops, PayPay could serve as a bridge between the Japanese QR ecosystem and the global card infrastructure, where PayPal has a strong presence.

PayPay's numbers: growth and monetization

PayPay's recent financial performance shows that it is not just a "subsidized" growth story. In the nine months to the end of December, the company achieved sales of 278.5 billion yen and profits of 103.3 billion yen, up from 220.4 billion yen in sales and 28.96 billion yen in profits a year earlier. That translates into roughly 26% growth in sales and a more than 250% increase in profitability year-on-year over the same period.

SoftBank had previously disclosed that GMV PayPay for the first quarter of fiscal 2025 reached 4.5 trillion yen, representing 24% growth. PayPay's EBITDA grew 87% to 21.9 billion yen in the same period. In a separate press release, PayPay said it expected approximately 12.5 trillion yen in GMV and 7.8 billion payments in 2024, with roughly two-thirds of the domestic QR payments market in Japan going through PayPay. This shows that the company is not just "one of many" wallets, but an infrastructure for everyday payments.

Risks and potential implications for investors

In the short term, the main risk is valuation and sentiment towards the IPO. The issue was at the lower end of the original price range and in an environment that is nervous due to the war in the Middle East and increased volatility. Should the first weeks of trading bring higher volatility or pressure on the price, this may hinder the market's willingness to "premium" for other fintech IPOs in the short term, and thus the comparison with established players such as PayPal.

In the medium term, the key risk is concentration on the domestic market. Despite the first moves abroad, the majority of PayPay's business is still in Japan. Changes in regulation, competitive pressure from banks and card associations, or a potential slowdown in the growth of cashless payments could slow revenue growth and margins. Another factor is SoftBank's control - with around 92% of the post-IPO vote, the parent group has a decisive influence on PayPay's strategy and capital policy, which from the perspective of minority shareholders carries both an advantage (support from a strong owner) and a risk (decisions driven by SoftBank's priorities, such as funding other AI projects).

In the long term, the key question will be whether PayPay can establish itself as a regional or global player in digital payments, or whether it will remain primarily a domestic infrastructure. If the collaboration with Visa and possible further partnerships expand into a globally usable wallet (for example, for Japanese travelers or e-commerce), PayPay could be put in a more direct comparison with companies like PayPal. But if expansion remains limited and growth in Japan begins to slow, valuations may be more dependent on the domestic cycle than the global fintech story.

What to watch next

Investors should watch:

• First weeks of Nasdaq ADR PAYP trading, volume developments and the market's willingness to hold valuations around $10-$11 billion

• Specific steps in the PayPay - Visa partnership, particularly what US or cross-border payments products will emerge from it

• the growth rate of GMV, number of users and EBITDA in quarterly figures to see if the high growth rate will be sustained after the IPO

• SoftBank' s strategy with its stake in PayPay - whether it will be more of a long-term holding and value growth or a gradual sale and further monetisation

Conclusion

The most important variable in the PayPay - SoftBank story is now the ability to translate a dominant domestic position and rapid profitability growth into an international fintech story that will be relevant alongside names like PayPal. If PayPay maintains GMV and profitability growth in Japan while visibly monetizing Visa-type partnerships abroad, the IPO can serve not only as a one-off monetization for SoftBank, but also as the start of a new publicly traded payments title with potential; the thesis would be broken the moment it becomes clear that growth in Japan is stalling and expansion beyond the borders remains limited, making PayPay more of a "premium priced domestic asset" than a global fintech platform.

Underneath the disappointment, the company is quietly tightening execution. Growth has stabilised, operating discipline has improved, non‑GAAP earnings and free cash flow are rising again and management has launched the first quarterly dividend in the firm’s history at 0.14 dollars per share, alongside ongoing buybacks funded by roughly 6–7 billion dollars of annual free cash flow. With product initiatives such as Fastlane, BNPL, Venmo monetisation and new merchant tools, the current valuation in the 60–70 dollar range assumes only modest mid‑single‑digit growth, which leaves room for upside if PayPal can lift margins and revenue even slightly above the market’s cautious forecasts.

Top points of analysis

• Low share price relative to a P/E of roughly 9.6, P/S of 1.4 and P/CF of 8.0.

• The company has stabilized the business after years of overshot ambitions: 2024 revenue of about $31.8 billion (+6.8%), net income of about $4.15 billion, and EPS of about $3.99.

• The initiation of a first dividend of $0.14 per share quarterly ($0.56 annually) implies a yield of roughly 0.8-1% and suggests a shift in capital policy towards regular cash returns.

• Profitability remains solid: operating margin around 18%, net margin around 15%, ROE over 24%, ROIC almost 14%, gross margin just under 47%.

• The balance sheet is relatively conservative: a debt-to-equity ratio of around 0.56, interest coverage of over 12 times earnings, and working capital of around $15 billion, so PayPal has room for share buybacks, dividends and investments.

• The growth catalysts are: fastlane (accelerated guest-checkout) is increasing cart conversion, BNPL is growing at a double-digit rate, and Venmo is holding over 20% revenue growth with partner programs tied in.

What's changed: from overblown growth to cheap "payment infrastructure"

PayPal was entering the pandemic as a growth star, with a high rate of user additions, rocketing TPV and a valuation that assumed double-digit revenue growth would last forever. Then came the sobering: competition in online payments, pressure on margins, weaker executions and scattered investment in side projects, such as overly broad ambitions around crypto services and various complementary fintech features. The result has been a more than 70% drop in the stock from all-time highs and a shift in sentiment from "must own" to "value trap" (the stock looks cheap but the growth is disappointing).

Numerically, however, the company never completely collapsed. Revenues grew from roughly $25.4 billion to $31.8 billion between 2021 and 2024 (average growth of around 7-8% per year), gross profit stayed in the $13.7-14.7 billion range, and operating profit oscillated between $3.8-5.3 billion with significant improvement in the last two years. Net income has been volatile (downturn in 2022, then recovery), but has already surpassed $4.1 billion again in 2024 and EPS has returned to around $4.

What changed the story is not one miracle quarter, but a shift in strategy. Management began to push profitability harder, reduced operating expense growth below revenue growth, and gradually cleaned up the product portfolio. Strategic priorities are focused on branded checkout (custom PayPal button in merchants' cart), Fastlane as a quick checkout through e-commerce, continued monetization of Venmo, and development of the BNPL model to better work with credit risk.

Another major change is the capital policy. In addition to large share buybacks (a new program of about $15 billion), PayPal is introducing a regular dividend of $0.14 per share for the first time ever, with a goal of aiming for a payout of about 10% of adjusted earnings. The mechanics for shareholders are simple: the business generates steady earnings and strong free cash flow (free cash after investments) on about $32 billion in sales, management returns some of the cash through the dividend and buybacks, while the market meanwhile values the stock as a risky "value trap" with single-digit multiples. If the catalysts of Fastlane, Venmo, BNPL and higher efficiency work, EPS and FCF will grow and the market has room to re-price the stock to higher multiples, i.e. to rerate (re-evaluate valuation).

What needs to work for this to work

• Revenues will sustain at least mid single digit to low double digit growth (approximately 7-10% per year).

• Operating margins will remain at least in the 18-20% range or improve slightly due to efficiencies.

• Fastlane, BNPL and Venmo will contribute above-average growth without significant deterioration in credit costs and losses.

• Dividend will remain conservative (payout around 10%) and will not threaten investments or balance sheet.

• Competition(Apple Pay, Stripe, Block, big banks) will not begin to significantly bite into key market share in branded checkout.

How it becomes money: the drivers of growth

1) Fastlane and branded checkout - higher conversion, better monetization

Fastlane is a simplified checkout that leverages data from a broad base of over 430 million PayPal and Venmo accounts and promises to improve cart conversion by up to tens of percent for participating merchants. In practice, it's all about accelerated purchase completion in one or two clicks, with no lengthy form-filling. If Fastlane scales well in the US and Europe (in collaboration with partners like J.P. Morgan and Verifone), PayPal will gain a stronger position in the "last click" part of the checkout, where most of the value is concentrated. In numbers, this means higher TPV through self-checkout, a better revenue mix and the potential to hold or slightly increase margin on transactions.

2) BNPL ("Pay Later") - volume and margin growth

The BNPL (buy now, pay later)segment is growing at a double-digit rate, with PayPal seeing volume growth of over 20% YoY and expanding its offering to other countries. With sensible credit risk management and leveraging data from across the platform, BNPL can add revenue faster than the rest of the business, albeit at some credit cost. As such, it can become an important driver of revenue and gross margin growth over a 12-24 month horizon, barring a sharp deterioration in credit quality.

3) Venmo - younger audience and partnerships

Venmo is a consumer payment app that is growing sales at a rate of over 20% per year and is becoming an important channel to younger and more digital users. Partnerships like Bilt (rent and mortgage payments through Venmo) and the "Venmo Everything" strategy are moving Venmo from pure peer-to-peer payments to a broader payments and shopping ecosystem. This gives PayPal room to increase ARPU (revenue per user) and link Venmo with other products such as cards, rewards and BNPL, which can translate into higher revenue growth over 24-36 months without dramatic increases in fixed costs.

4) Cash flow and capital allocation

PayPal generates robust free cash flow. It added over $5 billion of free cash in 2024 (including a strong fourth quarter with approximately FCF 2.2 billion) while announcing a new $15 billion share repurchase program along with the introduction of a dividend. If EPS grows towards $5 over the next few years, and some of that growth is driven primarily by buybacks (lower number of shares outstanding), investors will get a combination of a modest dividend, growing earnings per share, and rerating potential if the market stops perceiving PayPal as a "broken fintech."

The numbers that support the thesis

Key numbers 2021-2024

• Revenue: $25.4 → 27.5 → 29.8 → 31.8 billion, average growth of around 7-8% per year.

• Gross profit: 14.0 → 13.8 → 13.7 → 14.7 billion USD, gross margin around 44-46%.

• Operating profit: 4.26 → 3.84 → 5.03 → 5.33 billion USD, operating margin roughly 18-19%.

• Net profit: 4.17 → 2.42 → 4.25 → 4. 15 billion USD, volatile but stable level.

• EPS (diluted): $3.52 → 2.09 → $3.84 → $3.99.

• TPV 2024: $1.68 trillion (+10%), TPV in 4Q 2024 around $438 billion (+7%).

• ROE around 24%, ROA around 6%, ROIC around 14%.

• P/E around 9.6, P/S 1.4, P/CF 8.0 with a market capitalization of around USD 45 billion.

Revenue and earnings trends point to rather "boring" but steady growth with no signs of structural decay. The key problem was more about market expectations and valuation than about the business not working. One-off factors such as tax items, depreciation, amortisation or restructuring costs explain some of the volatility in net profit, but operating profit and cash flow are relatively stable and provide the basis for dividends and buybacks.

Dividend and sustainability

PayPal announced a first quarterly dividend of $0.14 per share in 2025, or $0.56 per year, which at a price of around $70 implies a dividend yield of roughly 0.8-1%. At the same time, management said the target payout is around 10% of adjusted earnings, so the dividend is set as a conservative base, not an aggressive payout.

With EPS around $4 and free cash flow of over $5 billion per year, the annual dividend of around $0.56 per share represents a payout of about 12-15% of GAAP EPS and even less of adjusted EPS, so the FCF dividend cover is a rough estimate of 6-8x. In other words, PayPal has the vast majority of cash left over after the dividend for investments, acquisitions, or repurchases of its own shares, and the dividend itself doesn't threaten the balance sheet in any way.

Dividend stress test (indicative)

• Basis: FCF 5.0bn → dividend 0.56bn → cover of about 9x, about 4.4bn (88%) remains.

• -10% FCF (4.5bn) → coverage of about 8×, about 3.9bn (87%) remaining after dividend.

• -20% FCF (4.0bn) → cover about 7×, about 3.4bn (85%) left after dividend.

• -30% FCF (3.5 billion) → cover of about 6×, about 2.9 billion (83%) remaining after dividend.

Even with a significant drop in cash, the dividend would remain covered by several times. The problem would not arise in the dividend itself, but in the fact that such a decline in FCF would signal a structural problem in the business.

Warning signs for dividend and capital policy

• Significant reduction in FCF margin, for example, repeatedly below 10-12% of sales.

• Rapid growth in debt, debt-to-equity above 1.0 and decline in interest coverage below 5 times.

• Reduction or suspension of buybacks with reference to balance sheet priority.

• Change in management communication on dividend, words like "flexibility" or "policy review".

• Sustained decline in margins and growth in key segments Fastlane, BNPL and Venmo, which would indicate worse monetization of the base.

Valuation - what's included and what's not

On today's numbers, PayPal looks cheap. A P/E of around 9-10, P/S of around 1.4 and P/CF of around 8 imply a valuation that is more typical of a company with no growth or fundamental structural issues. Yet revenue is growing at about 7-8% per year, profitability is decent and return on equity is high. Thus, the market is pricing in concerns about competitive pressure, potential margin pressure, and uncertainty about whether PayPal will ever find a compelling growth story again.

If PayPal can sustain revenue growth of around 7-10% per year over the next 3-5 years and EPS grows at a rate of 8-12% per year (a combination of margins and share buybacks), a valuation somewhere in the P/E range of 12-15 would make sense. That would mean rerating against today and the investor would benefit twice, from EPS growth and from multiple expansion. In a pessimistic scenario where growth breaks down into low units and margins deteriorate, even today's P/E of 9-10 may only be visually cheap if earnings go down. This is a classic value trap risk.

What the market values and what it fears

What the market values:

• A stable TPV base of over $1.6 trillion and over 430 million active accounts.

• Profitability, an operating margin of around 18% and ROE of around 24%, plus strong free cash flow.

• Conservative dividend and a large share buyback program to support EPS.

What the market fears:

• Competition in payments, i.e. Apple Pay, big banks, Stripe and other fintechs.

• The possible "disappearance" of PayPal from mobile checkout in favor of wallets from big platforms.

• BNPL risks, especially credit losses and regulation, and long-term margin pressure.

Risks

The first big risk is competition. The payments landscape is much more fragmented today than it was a decade ago. Apple Pay and Google Pay are the default choices in mobile, Stripe and Adyen handle some of the payment processing for merchants, and banks are also struggling to maintain control over payment relationships. In numbers, the problem would manifest itself as weaker TPV growth, worsening mix (more "cheap" payments, fewer high-margin ones) and margin pressure on transactions.

The second risk is BNPL. Although growing rapidly, it carries credit risk. If economic conditions or portfolio quality deteriorate, it could incur higher losses that would eat into margin. This would translate into lower net profits and possibly the need to build higher reserves, which would "eat up" some of the benefit of volume growth.

The third risk is the execution of strategies like Fastlane and Venmo. If they fail to significantly lift conversion, ARPU and retention in practice, they will remain marketing stories rather than real number drivers. In that case, the market could continue to punish PayPal because it would perceive that the company is just relabeling the old core with new names, but realistically failing to monetize the base better than before.

Risk Checklist

• Long-term slowdown in revenue growth below 5% per year.

• Decline in operating margin below 15% with no clear plan for recovery.

• Deterioration in quality of BNPL portfolio, growth in losses and reserves.

• Visible market losses in branded checkout to other buttons and wallets.

• Downward revision of dividend policy or suspension of buybacks due to pressure on balance sheet.

Investment scenarios

Optimistic scenario

In the optimistic scenario, PayPal manages to realize the major catalysts. Fastlane becomes widely adopted, Venmo and BNPL continue to grow at double-digit rates, and management maintains cost discipline. Revenues grow 8-10% annually, operating margins improve towards 20%, EPS grows at a rate of around 10-12% and free cash flow remains very strong.

• Revenues 2028: roughly $42-45 billion.

• Operating margin: around 20-21%, net margin 16-17%.

• EPS: approximately $5.5-6.0, FCF around $6-7 billion.

• Valuation: P/E 14-16, P/CF 10-12 (rerating vs. today).

• Dividend: gradual growth to about $0.70-0.80 per year (payout 12-15%), yield 1.2-1.5% plus growth.

In this scenario, the investor earns on EPS growth as well as modest multiple expansion; total annual return can be double digits.

Realistic scenario

In the realistic scenario, PayPal delivers "solid but not great" numbers. Revenues grow 6-8% annually, margins remain in the 17-19% range, and free cash flow is stable but not explosive. Fastlane, BNPL and Venmo are adding growth but not skyrocketing and the market is gradually accepting that PayPal is more of a "payments infrastructure with decent profitability".

• 2028 revenues: roughly $38-41 billion.

• Operating margin: about 17-19%, net margin 14-16%.

• EPS: about $4.8-5.3, FCF about $5-6 billion.

• Valuation: P/E 11-13, P/CF 9-11.

• Dividend: about USD 0.60-0.70 per year (payout 12-15%), stable or slightly increasing.

The return is a combination of 5-10% EPS growth, 1-1.5% dividend and modest multiple re-rating, overall moderately attractive for the patient investor.

Pessimistic scenario

In the pessimistic scenario, the major catalysts fail to materialize. Competition will steal share in the checkout, BNPL will bring problems and Venmo will fail to monetize users as planned. Revenues slow to 3-5% p.a., margins shrink under cost and competitive pressures, and EPS stagnates or declines.

• 2028 revenues: about $35-37 billion.

• Operating margins: roughly 13-15%, net margins 11-13%.

• EPS: approximately $3.5-4.0, FCF $3-4 billion.

• Valuation: P/E 8-10, P/CF 7-9 (no re-rating, possible further compression).

• Dividend: about USD 0.40-0.50 per year, possible stagnation or only token growth, in the worst case, suspension of payout growth.

In this scenario, today's "cheapness" is only optical. The stock may remain stuck in a range for a long time, or fall further if sentiment or fundamentals deteriorate.

What to watch next - KPIs and milestones

• Year-on-year revenue growth (hold at least 6-8%).

• Evolution of TPV and share of branded checkout relative to other processing.

• Operating margin and FCF margin, ideally sustainably above around 17% and 15-18% respectively.

• Venmo revenue and user metrics growth (double digit pace, partner projects).

• BNPL volume and profitability growth, loan portfolio quality.

• Fastlane deployment and results (conversions, number of merchants, regions).

• Evolution of debt and interest coverage (must not degrade significantly).

• Buyback and dividend policy - buyback volume, dividend growth rate.

• Management comments on competition with wallets of large platforms and banks.

What to take away from the article

• PayPal looks like a cheap stock today, single digit P/E and low P/S for a company with billions in profits and growing TPV.

• The business is stable, sales are growing 6-8% a year, margins are decent and free cash flow is strong.

• The first dividend of $0.14 per quarter is conservative, with FCF coverage of roughly 6-8x, and opens a new cash return channel.

• Fastlane, BNPL and Venmo catalysts can drive growth and monetization in the coming years if executed well.

• Valuation fundamentals assume a rather "boring" future, so a well-executed turnaround can deliver rerating multiples.

• Key risks: fierce competition for payments, BNPL's credit risk and the possibility that new initiatives don't deliver the promised numbers.

• For an investor looking for a combination of a reasonably valued large fintech firm, a token dividend and rerating potential, PayPal around $70 may be an interesting but not risk-free bet.

The high-quality businesses of both companies continue to face market pressure. The shares are trading more than 16% below their ATH.

Visa processes more than 200 billion transactions annually, and Mastercard is similar in every respect. A duopoly with huge competitive advantages, virtually no need for physical capital, and margins most industrial companies could only dream of.

And yet: $V trades today around $308, roughly where it was in April last year. From the all-time high of $375 in June 2025, that’s a decline of more than 16%.

$MA is in a similar position. From the August record of $602, the shares fell to roughly $504 today, a drop of 16.5%.

S&P 500 meanwhile has strengthened significantly over the past twelve months.

What’s going on?

We can break the situation into 3 main events

1.

The first came last June, when the Wall Street Journal published a report that Amazon $AMZN and Walmart $WMT were exploring the possibility of accepting payments via cryptocurrencies (stablecoins) and thus bypassing traditional payment networks. The market reaction was immediate. Visa lost more than 7% in a day, Mastercard over 6%, and more than $60 billion disappeared from the market capitalization of both companies during a single session. The revenue shortfall would be measured in billions.

2.

In September 2024 the DOJ sued Visa for anti-competitive behavior in the debit card market, alleging the company systematically pushed back alternative networks. Visa defended itself and the court dismissed the complaint, so the case continues. The expected trial date is estimated for 2027 or 2028, which means years of legal uncertainty for investors.

3.

Visa reported revenues exceeding $36 billion in the last fiscal year with a net margin around 54%. Mastercard reported Q4 2025 EPS of $4.76, beating analysts’ estimates by nearly 13%. Both companies are massively buying back their own shares.

Opportunity or trap?

Banks such as HSBC $HSBC and Bank of America $BAC at the end of 2025 raised the rating on both stocks precisely because they are trading at unusually low premium valuations compared to their historical norms.

The threat of payments via stablecoins may not be as existential as it looks at first glance. Visa itself launched USDC settlement on the Solana blockchain and is building infrastructure for payments via stablecoin wallets.

Still, a real risk exists. If large retail chains switch to their own payment infrastructure, the drop in volumes would be noticeable. And if the DOJ (Department of Justice) wins the lawsuit, pressure on fees could impact the business models of both companies.

Do you hold any of these stocks?

For investors, this situation is extremely important. February's CPI sets the baseline from which comparisons will be made with March data, which will be released in early April and will capture the full extent of the energy shock for the first time. At the same time, the reaction of the Fed, stock markets, bond yields and commodities to this report is not a reaction to the February numbers themselves as much as to what comes next.

February CPI data: what the numbers say and what they hide

The exact path and composition of the index

Headline inflation rose 0.3% month-on-month in February, following a 0.2% rise in January, and remained at 2.4% year-on-year, the same as the previous month. Core inflation, which excludes the volatile food and energy components, rose by 0.2% m/m and 2.5% y/y, exactly in line with consensus. Both numbers are still above the Federal Reserve's target of 2%, but show no significant acceleration.

Which segments of the economy grew

Housing was the biggest contributor to the index's monthly growth, with its component rising 0.2% and posting the slowest pace of rent growth since January 2021. This is a structurally positive signal.

Food rose 0.4% on the month and 3.1% on the year, while energy added modest growth, with fuel rising at a moderate pace even before the Iranian conflict fully hit global oil markets. In contrast, used cars, car insurance and a number of tariff-affected goods categories saw declines or moderation in growth.

As analysts report Carson Group, February's CPI was reassuring, but it is a calm before the storm that will manifest itself in March's numbers due to skyrocketing fuel prices.

The structural problem that precedes war

Although the February numbers did not surprise, analysts warn that inflation is uncomfortably persistent. Mark Zandi, chief economist at Moody's $MCO, noted that inflation shows no convincing slowdown and remains elevated in essential categories such as electricity, food, clothing, health care and housing. Tariffs also play a role, and while the Supreme Court has largely struck them down, their impact has not yet been fully reflected in the data or is being offset by other factors.

Data distortions

Another factor is a methodological problem arising from the 43-day government shutdown last autumn. The Bureau did not collect data for the October CPI report and had to use a carry-forward methodology, which likely causes a slight downward bias in the data through the spring of 2026. Real inflation in December 2025 to April 2026 could be estimated to be about 0.3 percentage point higher, closer to 2.7% than 2.4%.

The war with Iran and the oil shock

The Strait of Hormuz and historically unprecedented supply disruptions

On 28 February 2026, the United States and Israel launched military strikes on Iranian targets. The Iranian-controlled Strait of Hormuz, through which around a fifth of the world's oil production passes, was de facto closed to tankers. The price of Brent climbed above $119 a barrel on Monday 9 March from around $70 before the conflict, anincrease of more than 70% in less than two weeks. This is the biggest oil shock ever in terms of the speed of escalation since the 1973 oil embargo.

Price per barrel of WTI oil since 1 March (hourly)

The International Energy Agency responded by announcing an unprecedented release of 300 to 400 million barrels of strategic reserves, more than double the previous record set in 2022. Yet the price of oil remains around $90 per barrel as markets remain uncertain given the length of the conflict.

• US gasoline price: $3.58/gallon average as of 11 March 2026, an increase of around 20% in one month.

• Goldman Sachs $GS estimate: with oil prices persisting at around USD 100/bbl , inflation will rise to 3.5% by the end of 2026.

• Moody's Analytics $MCO estimate: if oil stays around $100, gasoline will approach $4/gallon and inflation will accelerate.

• Analysts estimate that airfares could rise as much as 20% year-over-year due to higher jet fuel prices.

Stagflation risk: The worst-case scenario for the Fed

The confluence of rising energy prices with a weakening labor market raises the specter of stagflation. February's employment report delivered an unpleasant surprise: unemployment rose to 4.4% and job gains were well below expectations. Household spending is starting to fall under the pressure of higher energy prices, with GDP growing at an annualised rate of just 1.4% in the final quarter of 2025, dramatically lower than the 4.4% in the previous quarter.

As the CNBC analysis mentions, the combination of higher inflation and a weaker labor market puts the Fed in a situation reminiscent of the 1970s, when the central bank faced mutually contradictory pressures on both sides of its dual mandate.

What the Fed can do

Confirm the pause

The Federal Reserve will meet on March 18 to decide on interest rates. Virtually no analysts expect a rate change at that meeting. February's CPI report confirms that inflation, while not falling to target, is not accelerating either, with the energy shock not yet captured in the data. A pause is the only realistically defensible option.

According to the CME FedWatch Tool, markets assign a 43% probability to the first rate cut in September 2026, with the probability of zero cuts in all of 2026 jumping from 7% in February to nearly 20% as of Wednesday, March 11. This is a very rapid shift in market expectations.

Chicago Fed chief Austan Goolsbee admitted: If the labor market is deteriorating at the same time as inflation is deteriorating, it's not obvious what the central bank's immediate response should be.

New Fed Chairman Kevin Warsh: A different philosophy

Trump nominated Kevin Warsh to succeed Jerome Powell, whose term expires in May. Warsh, as CNBC describes, holds a different theory when it comes to inflation: unlike Powell, who closely monitors the impact of oil shocks on inflation, Warsh does not consider energy impulses to be a key determinant of monetary policy. In his view, inflation is mainly caused by excessive government spending and money supply expansion.

This philosophical divergence has a practical implication: if Warsh is confirmed by the Senate and takes over the Fed, he is more likely to be inclined to cut rates despite the lingering oil shock. This would be in direct contrast to the approach of his predecessor, who would be willing to raise rates instead.

US interest rate developments since 2018

Impact on equity markets

S&P 500 under pressure, energy drags

US equity markets reacted ambivalently to the February CPI report and the geopolitical backdrop. The Dow Jones Industrial Average $^DJI fell 475 points to 47,230, the S&P 500 index lost 0.42% and the VIX volatility index climbed to 25.21. All three major indices are slightly in the red year-to-date.

The notable exception is the energy sector. Energy stocks (ETF $XLE) have been among the absolute leaders in March, and their performance contrasts with the pressure on cyclical sectors. Companies like Valero Energy $VLO, CF Industries $CF or oil producers are benefiting directly from the price shock.

Impact on individual sectors

• Energy$XLE): direct beneficiary of the price shock. Oil producers, refiners and midstream infrastructure benefit from record margins.

• Technology$XLK): relatively resilient due to continued investment in AI infrastructure. Oracle $ORCL reported results beating estimates by 10%, shares gained 13%. Nvidia $NVDA is holding around $185.

• Consumer goods and industrials: continues to be pressured by rising input costs.

• Small caps (Russell 2000 $IWM): posting the largest losses. Higher bond yields make financing more expensive and energy costs increase their operating expenses.

• Housing: 30-year mortgages are running at rates around 6.14%. Housing affordability continues to deteriorate.

Strategy

The February CPI inflation report is less important for its content and more important as a reference point from an investment perspective. The future will depend on three key variables:

• The length and intensity of the Iranian conflict,

• the speed with which the energy shock seeps into core inflation,

• new Fed leadership.

In the short term, one month out, energy companies, oil producers and gold are best positioned, in terms of equities. By contrast, consumer-oriented firms with high input costs, small firms dependent on cheap financing, and sectors sensitive to household consumption spending are at greatest risk.

As he notes UBS Global Wealth Management, the baseline scenario with an S&P 500 target of 7,700 points by the end of 2026 remains, but near-term risk is real.

What to watch next

• March CPI report (published early April 2026): will capture the full impact of the energy shock for the first time. Goldman Sachs analysts estimate that headline inflation could climb to 3.5% with oil prices persisting above $100. This figure will be key to the repricing of the overall market.

• March 18 Fed meeting: confirmation of a pause in rate cuts is virtually certain, the tone of the statement and forecast will be key. Any hint of a willingness to raise rates would cause significant volatility and probably a drop in equities.

Conclusion

The February inflation report was technically accurate but geopolitically outdated at the time it was released. Inflation of 2.4% y/y with no further acceleration would normally be neutral to rather mildly positive news for markets. But in the world after the US-Israeli attack on Iran and the closure of the Strait of Hormuz, that is a thing of the past.

The US economy is entering a period where it will face three simultaneous shocks:

• energy inflation caused by geopolitical conflict,

• persistent structural inflation in services and housing,

• a weakening labour market with the risk of a further slowdown.

The Fed will be paralyzed because a rate cut would boost the economy but risk a dramatic increase in inflation. Conversely, maintaining or raising rates would slow the economy even more.

The positive part of the story: deliveries are growing almost 47% year-over-year, the company speaks of a volume growth target of 40–50% in 2026, gross margin has risen to roughly 14%, net loss is down about a third year-on-year, and they have over $5 billion in cash on the balance sheet. They also say they aim to reach adjusted profitability around the end of 2025 (which was achieved in the last quarter) and to be profitable for the full year 2026, which at the current valuation is why part of the market is starting to view NIO again as a “turnaround” story, not just another loss-making Chinese EV startup.

On the other hand, it is still a company that is aggressively investing in the swap-station network and global expansion (targeting up to 40 markets) and is preparing several new models and brands, which raises execution risk and capital demands. Competition in China and Europe continues to push prices down, so even though NIO tells a nice brand story—lifestyle and smart technology—the reality is still a fight for every percentage point of margin, and the market only partially believes it. You can see this in the stock: it has a positive performance over the past year, but in recent weeks it has mostly been hovering around $5.

My view: those already in NIO have finally been receiving concrete data in recent months that support the “turnaround” thesis—volume growth, better margins, an approaching inflection point. Those thinking about entering should realize this remains a pure growth, cyclical and politically risky bet on a Chinese EV maker where many things “have to go right at once” (expansion, new models, profitability), so it makes sense to size positions smaller and be prepared for high volatility around results.

For shareholders, that creates an uncomfortable mix of shrinking car volumes and surging investment into projects that are still pre‑revenue or early stage, above all robotaxis and the humanoid robot Optimus. Tesla heads into this phase with a strong balance sheet - estimates put cash, equivalents and investments at around 44 billion dollars by the end of 2025 - but for the first time in years, the market is seriously debating a scenario of sizeable cash burn in 2026, with the street now expecting roughly 5.2 billion dollars of negative free cash flow and Morgan Stanley’s Adam Jonas warning that the hole could exceed 8 billion. With a market value still around 1.5 trillion dollars, the equity story is increasingly tied to faith in autonomous driving and robotics rather than to the traditional auto business, and that raises the stakes if the promised inflection in new technologies is delayed.

Third year of pressure on supply

Tesla's $TSLA deliveries took their first year-over-year drop in 2024, when high interest rates, an aging model lineup, and lukewarm adoption of the Cybertruck, which was supposed to be the new driver but has remained more of a fringe issue, combined. In 2025, the decline deepened, this time due to political effect - some customers in the US and Europe rejected the brand due to Elon Musk' s visible political shift towards President Donald Trump and support for the German AfD party, which damaged Tesla's image especially in Germany.

Tesla has tried to respond by launching cheaper, stripped-down versions of the Model 3 and Model Y, typically about $5,000 cheaper than the previous cheapest variants. These "light" versions were meant to attract price-sensitive customers and boost volumes, but analysts describe their momentum as weaker than expected - the discounts were not big enough to fully offset the loss of EV tax credits in the US and the ever-increasing competition in Europe. The result is a scenario in which Morningstar's Seth Goldstein estimates a roughly 5% drop in shipments already this year, and calculates a third consecutive global decline for 2026 when the US and Europe are combined.

Regions: where Tesla is losing and where it is still keeping pace

In the US, a combination of the loss of some federal tax credits and market saturation in key segments where the Model 3 and Model Y dominated is taking the wind out of Tesla's sails. Higher rates have made financing more expensive, so even after rebates, many customers see EVs as a less affordable option. In Europe, fierce competition has added to the problem - newer models from European and Chinese brands have more attractive designs, fresh interiors and better equipment at a lower price point. In addition, Tesla still lacks regulatory approval for full self-driving features, reducing its product differentiation against competitors.

In China, the picture is more mixed. Sales of cars built at the Shanghai factory rose for a fourth straight month in February, but year-on-year comparative effects and seasonality play a big role here, not a net new demand boom. At the same time, China remains an extremely competitive market, where Tesla has already lost its position as the world's largest EV maker to BYD $BY6.F last year. European sales are showing early signs of stabilising, but analysts are calling it a "stop the fall" rather than the start of a sustainable recovery.

Auto business vs. robotaxis and robots

The key contradiction in Tesla's story today lies between the waning automotive core and its ambitious bet on software and autonomy. The majority of revenue still comes from car sales, yet the company's valuation is built primarily on expectations of success for self-driving software, robotaxi fleets and the humanoid robot Optimus. At the same time, analysts are gradually lowering the outlook for automotive segment revenue: the estimate for 2026 has dropped from roughly $138 billion to $72 billion, about one-third to one-half of original expectations.

Tesla itself chose a cautious vocabulary in its January presentation to shareholders: it emphasized "maximum capacity utilization" while noting that deliveries will depend on overall demand, supplier readiness and internal allocation decisions. In other words, the company is no longer sending a "growth at all costs" signal, but rather managing volumes within available capacity and demand - which, in a slowing market environment, opens up room for further weaker years in supply.

Capital expenditure and the threat of a cash burn

Tesla enters this environment with a plan to double capital spending above $20 billion. This includes investments in robotaxi infrastructure, autonomous function development, energy business expansion and robotics. According to CFO Vaibhav Taneja, Tesla plans to fund the investments from its own resources first and only then possibly use debt or other forms of financing.

But the market is reacting nervously to the combination of falling supply and rising CAPEX. The consensus has shifted from an expectation of +2.27 billion USD of free cash flow to an estimate of -5.19 billion USD in 2026, while Adam Jonas is talking as high as -8 billion USD. Given the $44bn cash burn, this is not an existential issue, but a fundamental regime change: after seven years of positive free cash flow, Tesla could return to a phase of intense cash burn, which typically brings higher stock sensitivity to milestone disappointments.

When and under what conditions might the trend break?

The key to a turnaround in deliveries is to halt or mitigate the decline in two of the three largest markets - the U.S. and Europe - highlighted today by Morningstar, for example. A couple of specific triggers that could signal a breakout.

• A visible recovery in demand for the Model 3 and Model Y: not just stabilization, but a clear return to volume growth with new variants, possibly with more significant facelifts or software upgrades, especially in Europe.

• Extending or renewing support for EVs in key regions (tax breaks, purchase incentives) to improve the economics of ownership for the end customer.

• A regulatory breakthrough on self-driving features in Europe or other major markets that would make Tesla a distinctly different product again (functional autonomous driving as a major argument for purchase).

• The introduction of a new mass targeted platform (a cheaper model below the current Model 3/Y) with a clear price advantage over the competition, not just limited "stripped down" variants of existing models.

In terms of timing, analysts suggest that 2026 could be either the third year - if the supply decline is confirmed - or the tipping point if Tesla manages to stabilize volumes and move to a "zero growth is a win" scenario, as described by investor Gene Munster. According to this framework.

• zero supplygrowth is a "win"

• less decline than last year "neutral"

• faster decline than the previous year "problem"

What to watch next

In particular, investors should watch the following in the coming quarters:

• Supply trends by region - whether there is a real recovery in the US and Europe or just short-term "fits", while China is holding the numbers mainly due to the comparative base.

• The success of the cheaper versions of the Model 3 and Y - whether they become a significant part of the mix or remain marginal and continue to push average margins.

• The pace of advances and orders for autonomous features and robotaxis - what proportion of customers actually pay for the full self-driving package.

• CAPEX vs. cash flow trends - whether Tesla can keep negative cash flow in a "controlled range" or start approaching pessimistic scenarios around -$8 billion.

Conclusion

Today, the most important variable for Tesla is the relationship between the decline in car deliveries and the investment rate in the autonomous world on which its valuation is based. If the company can at least stem the decline in deliveries during 2026 (a "zero growth" scenario) while making tangible progress in monetizing self-driving software and robotaxis, the current pressure on the stock may subside; the thesis would be fundamentally broken the moment there is a simultaneous acceleration in shipment declines and severely negative cash flow without clear autonomy milestones - at which point Tesla's story as a growth AI and robotaxi platform would have to be rewritten closer to a traditional cyclical automaker.

Under the surface, the balance sheet and cash generation look much healthier than the headline margin of 2.8% suggests: the Automotive Division generated around 6.4 billion euros of net cash flow and net liquidity rose to more than 34 billion euros, giving the group financial room to fund its transition. For equity investors, the medium‑term story now stojí hlavně na programech zvyšování efektivity, restrukturalizaci portfolia a úspěchu levnějších elektromobilů, přičemž vedení na rok 2026 počítá jen s mírným růstem tržeb 0–3% a provozní marží mezi 4,0% a 5,5%.

What was 2025 like?

The $VOW3.DE group achieved sales of €321.9 billion in 2025, virtually on par with 2024(€324.7 billion), and sold around 9.0 million vehicles. Regionally, Europe(+5%) and South America(+10%) grew, while North America(-12%) and China(-6%) declined due to challenging market conditions, tariffs and competition. Orders in Europe were up ~13%, with battery electric vehicles (BEVs) growing ~55% and accounting for ~22% of the order book.

Operating profit for the full year was €8.9bn, equivalent to a margin of 2.8%, versus €19.1bn and a margin of around 5.9% in 2024. Management said the decline was due to a combination of:

• US tariffs

• significant costs of changing Porsche's product strategy

• unfavourable exchange rate and price/mix effects

Ongoing cost-saving programmes were positive but failed to fully offset external pressures.

Adjusted operating profit (excluding restructuring and Porsche costs but including US tariffs) was €14.8 billion, a margin of 4.6%. Adjusting for the impact of US tariffs, this also yields an operating profit of €17.7bn and a margin of 5.5% - this shows that the 'underlying' performance is better than the GAAP net result suggests, but the company is very sensitive to political decisions and premium brands.

The automotive division generated €6.4bn of net cash flow, up 24% on 2024(€5.2bn), mainly due to a decline in working capital and tighter investment discipline. The Automotive Division's net liquidity remained very solid at the end of the year at €34.5 billion, giving Volkswagen room to finance its transformation (electromobility, software, batteries) while paying a dividend.

• Full presentation with results.

Management commentary

CEO Oliver Blume stressed that the Group "kept the course" in 2025 despite geopolitical tensions and growing headwinds, and recalled the launch of 30 new models and visible progress in restructuring. Management talks of entering the "next phase of transformation": adapting the business model to new conditions, expanding the regional footprint (especially China and the US), consistently reducing costs and delivering superior products.

Specifically, Blume mentions that in 2026, the Group wants to launch affordable electric mobility with premium technology, launch the largest product offensive in history in China, and achieve milestones in batteries, software and autonomous driving. The tone is realistically positive: it acknowledges that the environment is "fundamentally different", but also reassures investors that restructuring programmes are bearing fruit and that the group has "robust substance" - that is, a portfolio of brands and technologies to fall back on.

CFO and COO Arno Antlitz says bluntly that an adjusted operating margin of 4.6% is insufficient in the long term if Volkswagen is to remain competitive with internal combustion cars, invest in attractive electric vehicles and software, and expand its US presence. Thus, it clearly sets a priority: aggressively cutting costs, exploiting synergies and reducing complexity across the group to bring margins back to higher levels. The CFO's tone is thus distinctly disciplined, emphasizing profitability over growth at any cost.

Outlook 2026

For 2026, the Volkswagen Group expects revenue growth in the range of 0% to +3% compared to 2025, i.e. rather flat to moderate growth in an environment of high competition and geopolitical risks. The operating margin is expected to be between 4.0% and 5.5%, slightly above the 2025 level after adjustments, but still below a comfortable level for a capital-intensive automaker.

In the automotive division, the company is targeting an investment ratio (capex to sales) of 11-12%, a high but understandable level in the context of the shift to electric mobility, batteries and software. Net cash flow for 2026 is expected to be €3-6bn, potentially lower than 2025 due to, among other things, higher investments - but at the same time, management plans to keep the automotive division's net liquidity between €32-34bn, which would still provide a robust financial cushion.

Volkswagen notes that the main risks to the outlook stem from macro factors (weaker growth, inflation), possible new or changed tariffs and trade restrictions, geopolitical tensions, increasing competition (especially from Chinese brands and Tesla), volatility in raw material and energy prices, and tightening emissions regulations. The baseline scenario assumes that current tariffs on international trade remain unchanged - so any new barriers could easily worsen the outlook.

Long-term results

Over the period 2021-2024, Group revenues grow from €250.2 billion (2021) to €279.1 billion (2022), €322.3 billion (2023) and €324.7 billion (2024). This implies double-digit growth between 2021 and 2023 and a stabilisation in 2024 (+0.74%), when volume and price growth offset competitive and mix pressures. Gross margins increased from €47.1bn in 2021 to €52.6bn in 2022 and €62.0bn in 2023 before declining slightly to €61.0bn in 2024 - gross margins were therefore relatively stable, reflecting a balanced mix of mass and premium brands.

Operating costs rose from €28.9 billion in 2021 to €36.3 billion in 2022, before falling slightly to €34.7 billion in 2023 and rising again to €36.6 billion in 2024. Operating profit was €18.19bn in 2021, €16.24bn in 2022, €27.32bn in 2023 (a strong year thanks to pricing, mix and premium brands) and €24.39bn in 2024. This shows that Volkswagen is highly cyclical: it can generate significantly higher margins in good years but is very sensitive to price, volume and external shocks (tariffs, raw materials, exchange rate).

Net profit hovered around €15.4-16.5bn in 2021-2024 before falling to €11.35bn in 2024, a 31% drop from 2023. Earnings per share fell from €31.94 in 2023 to €21.39 in 2024, while the average number of shares remains virtually unchanged at ~501m, meaning that the drop in EPS is due to profit decline, not dilution.

EBIT was between €19.42bn (2021) and €23.08bn (2023), falling to €18.29bn in 2024; EBITDA was relatively stable around €46.7-50.0bn, with a slight decline from €49.84bn in 2023 to €48.22bn in 2024. This shows that at the EBITDA level the Group still has solid earnings power, but costs (depreciation, restructuring, development) and external shocks are "stealing" a large part of the profit at the lower levels of the income statement. In the long term, it is crucial that ongoing cost-saving programmes and a shift towards higher value-added (software, premium brands, services) translate stable EBITDA into higher net profit and return on capital.

Shareholding structure

As of December 31, 2025, Volkswagen had 295,089,818 ordinary shares and 206,205,445 preferred shares outstanding, for a total of approximately 501 million shares. The shareholder structure according to the proportion of the subscribed capital is as follows.

• Porsche Automobil Holding SE: 31.9%

• Foreign institutional investors: 18.3%

• Qatar Holding LLC: 10.4%

• Federal State of Lower Saxony: 11.8%

• Private shareholders / others: 25.7%

• German institutional investors: 1.9%.

This structure means that the Group is firmly controlled by the Porsche/Piëch family holding company and the Land of Lower Saxony, while foreign institutions play a significant but not dominant role. For the investor, this means high management stability and a long-term horizon, but also less flexibility in the event of radical strategic changes or pressure to maximise profits in the short term. The split between common and preferred shares also plays a role for voting rights and dividend flow.

Dividend

The Executive Board and the Supervisory Board plan to propose a dividend of €5.26 per preference share and €5.20 per ordinary share for 2025 at the AGM, down 17% on the previous year. The payout ratio remains in line with the policy of "at least 30%" of earnings; management also emphasizes that the non-cash goodwill impairment charge in the Porsche segment has not been included in the dividend calculation so that the one-off accounting item does not artificially depress the dividend. For investors, this means that Volkswagen maintains a solid dividend yield even in a worse year, but signals caution and the need for transformation capital.

Fair Price

What’s your opinion on $XYZ? Does it make sense to invest in a company like this, or would you prefer something more stable?

What complicates the decision today is not the quality of the company, but the price you are being asked to pay for that quality. With the share price up about 37% over the last five years, the key question is whether it can keep compounding revenue and margins fast enough for current valuation multiples to make sense, or whether too many good years are already priced in and future returns will be constrained even if the business continues to execute well.

Top points of the analysis

• The company's revenue has grown from roughly $360 million in the past four years to $4.5 million in the past three years. USD to USD 794 million. USD 794 million, an average growth rate of over 20% per year.

• Gross margins are around 63% and free cash flow is about $186 million in 2024. USD 186 million with a margin of over 23%.

• The company has a very strong balance sheet with minimal debt and net cash slightly above zero, with a debt to equity ratio of just around 0.08.

• Return on equity is over 40% and return on invested capital is over 30%, which is excellent for a software company.

• The investment thesis is that the company can sustain high sales and margin growth, develop its core product and ancillary services, while being disciplined with capital so that high multiples make sense five years from now.

Company introduction

AppFolio $APPF develops and operates cloud-based rental property management software that helps owners and managers of residential and commercial properties address tenant management, payments, maintenance, marketing and accounting in one system. The basic idea is simple: replace a fragmented combination of spreadsheets, emails and sub-applications with a single platform that runs the entire property portfolio operation.

The business model is based on recurring fees for the use of the software and additional services - such as payment processing, tenant screening, insurance, electronic signatures and other rental-related transactions. In practice, the company thus makes a profit both on the software "subscription" itself and on the volume of transactions that flow through its platform, similar to the combination of software and payment infrastructure.

Geographically, the firm's primary focus is the United States, where it primarily targets mid-sized and larger apartment portfolio managers. Customers are firms that manage thousands to tens of thousands of apartments, but the platform is scalable for smaller portfolios that grow over time. The sustainability of the business is high: once a manager has migrated the complete agenda to one platform, reverting to legacy systems or switching to a competitor is technically and organizationally challenging.

Business and products

The key product is a core property management platform that integrates unit registration, lease contract management, tenant communication, payment management, maintenance workflow and follow-up accounting. This product is the core of revenue - according to available data and management commentary, "core solutions" account for a significant portion of revenue, although the exact percentage is not always explicitly disclosed; conservatively, it can be assumed that core fees and ancillary services account for the majority of revenue, on top of which transactional services are packaged.

The second pillar is the ancillary services that are tied to transaction volume - for example, lease payment processing, pre-contract tenant screening, insurance, and other lease-related services. These services grow with the number of units managed on the platform and rental market activity, have a high gross margin and add to the overall value of each customer. The trend in recent years shows that the share of these "value-added services" in revenue is growing faster than the base fee portion alone.

Pricing power is based on a combination of several factors: the software addresses a critical agenda where the risk of failure or errors is high, integrates into the customer's internal processes, and contains data that the customer does not want to "break" by migrating. This allows the company to set prices to reflect the value to the customer - labor savings, lower error rates, better occupancy and rent collection - and continually increase them without massive customer churn.

Market and addressable potential

The market for property management software is large and still largely undigitised. In the United States alone, the market for professionally managed housing units numbers in the millions of units, and AppFolio serves only a portion of that market. Available estimates and growth rates suggest that the total addressable market may be several billion dollars in annual spending on software and related services, and digitization and consolidation of property management have the structural potential to increase this volume further.

AppFolio's revenues have grown at around 20-30% per annum in recent years and management anticipates double-digit growth going forward, although the pace may gradually decline as the base grows. The outlook for 2025 mentions revenues in the range of around 920-940 million. This is already a realistic level for a company that is moving from the "fast growth at any cost" phase to a combination of growth and profitability.

A realistic market share growth scenario involves deepening penetration in existing segments rather than aggressively entering entirely new markets. The company can in the coming years:

• Increase its share in medium-sized and larger apartment managers

• expand the range of additional services per unit

• potentially expand its geographic footprint outside the U.S.

If it can sustain double-digit revenue growth while gradually increasing margins, the current market capitalization may be defensible - but the room for further multiple revaluation is less than for very early-stage firms.

Competition and market position

AppFolio competes with a number of specialist property management platforms. Key competitors include Buildium (part of RealPage), Yardi Systems and Entrata, as well as other players such as ResMan and Propertyware. They all target a similar problem - digitising and streamlining rental property management - but differ in their focus on customer size, portfolio type and depth of functionality.

In the product area, AppFolio has a strong position thanks to its user-friendly interface, payment integration and a wide range of features for the day-to-day work of property managers. Compared to some legacy systems (such as some Yardi modules), it feels more modern and flexible, which helps in acquiring new customers and retaining existing ones. On the other hand, the big players like Yardi or RealPage have a wider range of products for different property types and often deeper integration with other enterprise systems, giving them an advantage with the largest portfolios.

In terms of margins and return on capital, AppFolio is one of the more attractive parts of the sector: its combination of high gross margins, rising operating margins and strong free cash flow puts it among the "higher quality" software players. The main competitive risk is that the market is not networked in a 'winner-take-all' sense - larger administrators often use multiple systems, and switching between platforms is challenging but not impossible if a competitor offers significantly better pricing or features.

Management and CEO

The company is led by Shane Trigg, who is CEO and President. He joined AppFolio in 2020 and moved up to CEO in 2023 after serving as president and being in charge of key business and product areas. Prior to that, he held roles at several software companies, including senior product management and sales positions at major enterprise software players.

His career path is typically "software" - a combination of experience building cloud products, managing product teams, and scaling a business in a subscription environment. This is an advantage for the current stage of AppFolio, as the company is no longer in early "start-up" mode, but is tackling scaling, profitability and growth efficiency. The results to date show a shift from a period where the company was primarily investing in growth at a loss to a period of combined growth and profitability.

The ownership structure is heavily institutional - institutions hold the majority of shares (estimated at over 60-70%), while insiders have a smaller but still significant stake in the lower units of percentages, which even at current market capitalization represents hundreds of millions of dollars. This suggests a reasonable alignment of management and shareholder interests, but it also means that the evolution of the stock will depend a lot on the mood of large funds and their willingness to hold the title even at higher multiples.

Financial performance

AppFolio's revenues have grown from roughly $360 million in the past four years to about $1.2 billion in the same period. USD 794 million. USD 794 million, or approximately 120% cumulative, which corresponds to double-digit annual growth. This growth has not been a one-off - the company has maintained a pace of around 20-30% per annum, although it is clear that it may slow slightly over time as the base grows.

In terms of profitability, the transition from 2022 to 2023 and 2024 has been particularly pivotal: after a period of losses in 2022, the firm returned to a modest profit in 2023, and by 2024, net profit had already exceeded $200m. In 2024, the net profit in 2024 was over USD 200 million, which means a net margin of over 20%. The operating margin has moved from negative values into the upper tens of millions of positive operating profit, and is around 15% of sales in 2024.

The operating leverage here is clear: fixed costs of developing and operating the platform are spread over an increasingly large base of revenue, while variable costs are growing more slowly. This is a typical pattern in subscription software - each additional unit of revenue has a high contribution to profits. The number of shares outstanding grows only modestly, so earnings per share growth is not significantly diluted by issuance; instead, the firm can afford larger buybacks in the future if it generates excess cash.

Cash flow and capital discipline

Cash flow is a strength of AppFolio. Operating cash flow in 2024 is about $188 million. USD 186 million and free cash flow after investments of around USD 186 million. USD 186 million, which, with revenues of USD 794 million, would be a significant increase of USD 186 million. This means a free margin of over 23%. That's a very respectable level for a growth software company, confirming that profit is not just "paper" but turning into cash.

The difference between book profit and free cash flow is not extreme - both metrics have been hovering around similar levels over the past year, suggesting that the company does not have hidden large investment requirements or impact items "eating away" at profits. Investments in intangibles and acquisitions are relatively limited compared to total sales and mainly fund product development and smaller targeted purchases.

The company does not yet pay a dividend and focuses on reinvestment and share buybacks. Buybacks have gradually increased in recent years - the company is returning some of its excess cash to shareholders, but not at the expense of growth. Capital discipline so far appears reasonable: no big bets on acquisitions that would break the balance sheet, and a reasonable pace of investment in product and sales.

Balance sheet and debt

AppFolio's balance sheet is very strong by the standards of a growth company. Total debt is relatively low, with a debt-to-asset ratio of about 0.06 and a debt-to-equity ratio of about 0.08. The company has net cash slightly above zero - net debt is negative, meaning cash and current assets exceed debt.

Liquidity is comfortable: normal liquidity over 3, quick liquidity over 2 mean that current liabilities are more than covered by liquid assets. Financial stability indicators such as the Altman score are very strong - the firm is deep in the "safe zone" from this perspective.

In a stress scenario where revenue growth slows significantly or margins temporarily decline, the balance sheet provides "breathing room" - the firm does not have a large long-term debt burden or aggressive maturities that would push it into a corner. The biggest weakness on the balance sheet here is not debt, but rather that much of the value of the firm is in intangible assets (software, brand, customer relationships) that are not easily monetized in the event of problems - but that is the norm for software firms.

Valuation

AppFolio is trading at high multiples. The revenue multiple is around 7-8, the free cash flow multiple is over 30, the price-to-earnings ratio is over 30, and the price-to-book value ratio is around 13-14. This means that the market trusts the company for long-term sales and earnings growth and is essentially "prepaying" it for several years of good results ahead.

Compared to other software firms with similar growth and profitability, the valuation is not completely out of line with reality, but it is certainly not cheap. The higher quality of the business (top product, high margins, strong balance sheet) justifies a higher multiple than the average firm in the sector, but the scope for multiple expansion from current levels is more limited.

For current valuations to prove "cheap", the firm would need to be around for a few more years:

• grow at a double-digit rate

• maintain or improve margins

• continue to generate high free cash flow and manage it wisely.

Conversely, if revenue growth fell well below double-digit rates, margins deteriorated, or there was a flawed acquisition, today's multiples could quickly appear overstretched and the market would push the revaluation downward, even if the business itself remained profitable.

Growth catalysts

The main catalysts include: the continued digitisation of property management, growth in the number of units managed on the platform, the expansion of additional services per customer and eventual geographic expansion. Added to this is the possibility that the company will continue to raise prices without significantly compromising customer retention if it continues to add new features.

Measurable metrics include:

• Revenue growth (currently around 20-30%, with a 15-20% outlook)

• number of units and customers managed

• share of revenues from ancillary services

• operating and free cash flow margins

Management's outlook for the coming year is for revenues of around EUR 920-940 million. The Group will expect to grow by around USD 920-940 million, i.e. by around 17%, and further gradual margin expansion. The risk is that once the market "switches" its perception of the company from a pure growth company to a "mature company", investors will start to look more at the absolute level of margins and free cash flow and less at overvaluing each percentage of growth.

Risks

The key risk is a slowdown in growth. If revenues were to fall to single-digit levels with growth of around 20-30% per year, current multiples would quickly become difficult to defend. Signal: several quarters in a row with growth below the lower end of guidance or weak management outlook.

Another risk is competition - stronger pressure on pricing or feature offerings from big players like Yardi or RealPage, or the emergence of new cloud solutions. The signal: slower new customer acquisition, higher churn from existing customers, or margin pressure from discounts and promotions.

The third risk is valuation itself: even a minor disappointment in the numbers can lead to a sharper correction in the share price as expectations are high. Signal: a situation where a company "meets" but does not "exceed" expectations, and the market reacts with a significant decline - typical for growth titles at the point when the story becomes less exceptional.

Investment scenarios

Optimistic scenario

In the optimistic scenario, the company maintains double-digit revenue growth (e.g., 20% per year), stabilizes or further improves operating and free cash flow margins, and continues to expand its platform and ancillary services. Revenues could approach a range of around $1.3-1.6 billion over three to five years, with net margin settling in the 20% range and free cash flow around a quarter of revenues.

In such a scenario, the market might be willing to pay similar or slightly lower multiples than today - for example, a sales multiple of around 6-7 and a free cash flow multiple in the 25-30 range. This could still represent solid share price upside potential if fundamentals rise, although not as dramatic as in the past.

A realistic scenario

In the realistic scenario, revenue growth rates gradually slow to upper single-digit to lower double-digit levels (e.g., 10-15%), margins remain healthy but do not expand significantly further, and the company becomes more like a mature, profitable software company. Revenues would continue to grow, free cash flow would be stable, and management would use share buybacks more alongside investments.

Multiples in such an environment could fall - for example, sales multiple to 4-6, free cash flow multiple to 18-25. This would mean that the overall return to the investor would be a combination of earnings growth and some compression of multiples, leading to solid but not exceptional appreciation.

Negative scenario

In a negative scenario, there will be a more pronounced slowdown in growth (for example, below 10%), margin pressures (for example, due to competition or higher costs), or capital misallocation. In this case, the market would reassess its view of the company from a "premium growth company" to a "mainstream software title" and multiples could move significantly lower.

If the revenue multiple falls into the 3-4 range and the free cash flow multiple into the low double-digit range, this could mean a significant drop in the share price even if the company remains profitable and generates cash. In such a scenario, the investment would prove overly optimistic at the entry valuation, even if the business itself was not "broken."

The share price performance and story of recent years

Over the past few years, AppFolio stock has delivered very strong returns to investors. According to the available data, the price has risen by roughly more than 100% in three years and 37% in five years = overall it has outperformed many indices, albeit with significant fluctuations.

Behind this growth is not just market sentiment, but a real shift in the numbers - sales growth of around 20-30% per year, turning losses into profits, margin expansion and a sharp increase in free cash flow. But at some stage, overvaluation came into play - multiples rose as confidence in the business model and management's ability to deliver results grew.

It is important for today's investor to understand that much of the "lighter" phase of appreciation (when both numbers and multiples were rising simultaneously) has likely already taken place. Any further appreciation will depend much more heavily on continued growth in sales and earnings, while the scope for further multiple expansion is more limited and may instead be temporarily pulled back.

What to watch next

• Revenue growth on a quarterly and annual basis - ideally double-digit, in line with or above management's guidance.

• Growth in units under management and customers - whether growing at double-digit rates.

• Ancillary services revenue share and growth.

• Operating margin and free cash flow margin - sustainability over 20% for free cash flow.

• Capital allocation - level of investment, potential acquisitions, pace of share buybacks.

• The evolution of multiples (price to sales, price to free cash flow, price to earnings) in the context of growth.

What to take away from the article

• AppFolio is a quality growth property management software business with double-digit revenue growth, high margins and a strong balance sheet with no net debt.

• The company has successfully moved from the investment and loss phase to profitability and high free cash flow that can fund further growth and share buybacks over time.

• Valuations are significantly stretched - the market is already paying high multiples and expects continued growth and margins over the long term.

• The stock has had a very strong run, reducing the margin for error: even a minor slowdown in growth or weaker margins can lead to a sharper short-term correction.

• For an investor looking for a quality growth stock and willing to accept a higher valuation in exchange for a business with good parameters, this may be an interesting title - but it requires discipline in timing the entry and close monitoring of growth, margins and multiples over time

A look at the most indebted titles in the S&P 500 reveals an interesting paradox. All of the following companies are well-established corporations with decades of operating history, a strong customer base and relatively stable earnings. But at the same time, all three carry debt burdens that would immediately scare investors in any other sector. Verizon Communications $VZ, Ford Motor Company $F and AT&T $T are classic examples of how debt in capital-intensive industries becomes almost a structural necessity, not necessarily a symptom of mismanagement.

At the same time, context decides everything. The telecom giants are building hundreds of billions of dollars of infrastructure with a lifetime measured in decades. Automakers like Ford are undergoing arguably the biggest technological transformation in the industry's history.

Each of these companies has a different reason why its balance sheet is so heavily burdened, and each faces a different set of risks and opportunities.

Verizon Communications $VZ

The extent of the debt and its origins

Verizon is one of the absolute record holders of debt in the entire S&P 500. The company's total debt stands at approximately $170 billion, while net debt net of cash remains well above the $140 billion mark. While these numbers may sound alarming, it is necessary to place them in the context of the telecommunications industry, where the cost of capital to build and operate networks is structurally very high.

Much of Verizon's debt comes from the acquisition of spectrum licences for 5G networks in recent years. In the FCC auctions alone (the public auctions through which the US regulator allocates licences to use radio spectrum), the company has paid tens of billions of dollars for access to frequency bands without which building a next-generation backbone network would not be possible. Added to this is ongoing investment in physical infrastructure, fibre optic cables, base stations and data centres. Thus, Verizon has created debt not through indiscriminate acquisitions or poor capital management, but as a direct consequence of the regulatory structure of the industry in which it operates.

Ability to repay and cash flow profile

A key factor that distinguishes Verizon from truly troubled borrowers is its ability to generate stable operating cash flow. The company generates approximately $35 billion to $37 billion of operating cash flow annually, with free cash flow after CapEx investments of about $17 billion to $18 billion. This level is sufficient not only to cover debt payments, but also to sustain a dividend that is among the highest in the entire S&P 500. The dividend yield has traditionally been around 6% per year, making Verizon a popular title for income investors.

Verizon's net debt to EBITDA ratio has long been around 2.5 to 2.8, which, while higher than the average S&P 500 company, is a fairly standard level for the telecom sector. Agencies such as Moody's $MCO or S&P Global $SPGI rate Verizon in the investment grade category, namely Baa1 and BBB+ respectively, confirming that the debt burden is high but manageable. Read more about this rating here.

Fighting for customers in a saturated network

The biggest risk for Verizon is not the debt itself, but rather its ability to grow organically in an environment where the US mobile market has reached saturation. The company is competing with T-Mobile $TMUS and AT&T $T for every premium customer, with price wars in the wireless segment pushing ARPU (average revenue per user) down. Verizon is betting on premium network quality and loyalty programs, but T-Mobile has been aggressively gaining market share in recent years, putting Verizon under pressure.

In addition, in the context of higher interest rates, debt refinancing costs are higher than in previous years, slightly increasing the overall cost base. Still, management has repeatedly affirmed plans to gradually reduce net debt, primarily through free cash flow. As a result, investors view Verizon as a defensive dividend title rather than a growth opportunity, and this is what adds to its relative attractiveness in an environment of uncertainty.

Moreover, $VZ stock has been gaining strongly in recent weeks. They have already posted an appreciation of 25% this year. This is due to recent quarterly results, which have been very good for investors.

Ford Motor Company $F

Debt as a reflection of transformation

In the context of debt, Ford Motor Company is a special case that cannot be judged by the same yardsticks as an industrial firm or a technology company. Ford's total debt exceeds $100 billion, but a substantial portion of that comes from the company's financial arm, the Ford Credit segment. This operates as an internal bank that provides consumer and dealer credit, and its balance sheet is therefore inherently debt-intensive. If we focus only on the industrial segment, net debt declines and the picture of the company's financial situation changes.

Even so, Ford's industrial segment remains very capital intensive. The company is in the midst of one of the biggest technological transformations in the history of the automotive industry. The transition to electric mobility, building new production platforms and investing in software-defined vehicles require huge amounts of capital. Ford has invested tens of billions of dollars in the EV division, Ford Model e, in recent years, and the division is still generating operating losses.

Ford Pro as hidden value

One of the most often overlooked aspects of Ford's investment story is the Ford Pro segment, which includes commercial vehicles and service solutions for business customers. This division has long generated significantly higher margins than the consumer segment and has become a major source of operating profit for the entire group in recent quarters. Construction, logistics and public institutions remain loyal customers with low price sensitivity, allowing Ford to maintain strong cash flow even as the consumer passenger car market weakens.

Dividend distribution

The company pays a base dividend to shareholders, plus periodic performance-linked special dividends. This flexibility protects Ford in poorer cyclical phases, but also reduces the predictability of the total return. The total dividend yield has historically ranged between 4 and 6 percent (currently 4.9 percent), depending on the amount of extraordinary payouts.

Risks: cyclicality and EV division losses

The automotive industry is one of the most cyclical industries, and it is this, combined with high debt levels, that increases Ford's sensitivity to the business cycle. In the event of a recession or a significant slowdown in demand for new vehicles, Ford would have to service its debt from significantly lower operating cash flow. Yet historically, the company has shown that it can survive even very deep crises, for example, it was the only one of the US Big Three to overcome the 2008 financial crisis without government assistance.

Currently, the biggest source of concern is the EV division's operating losses, which have exceeded $5 billion annually in recent quarters. While Ford is slowing the pace of investment and reassessing plans for new EV models, pressure on margins in the electric segment remains. The key question remains whether the company can get the EV division into operating profit before losses start to threaten the group's overall financial profile.

AT&T $T

Debt history

AT&T is probably the most complex story of today's trio when it comes to the relationship between debt and the company's strategy. As recently as the turn of the decade, the company reported debt in excess of $180 billion, with much of that liability incurred as a result of its 2018 acquisition of media group Time Warner for approximately $85 billion. This strategic bet on the convergence of telecom and content ultimately proved to be a bad move. AT&T was forced to spin off its media assets into a separate entity, Warner Bros. after years of Discovery and refocus on its telecom foundation.

While the spin-off of the media business was somewhat of a relief from a balance sheet perspective, AT&T still took a very significant debt burden from this period. The company's net debt now stands at approximately $120 billion to $130 billion, with management declaring a gradual reduction as a priority. Details of AT&T's debt structure and refinancing plan are disclosed on an ongoing basis as part of the investor program.

5G optical networks as a rescue

After a strategic return to its core business, AT&T will focus on two key investment areas: building a next-generation optical network and expanding 5G network coverage. The company has been aggressively expanding in the fiber segment, repeatedly beating targets for new residential connections in recent quarters. It is this segment that is proving to be the main driver of organic growth, with higher margins.

In the current context, AT&T's telecom strategy thus resembles a convergence model where customers receive both data and cable services from a single provider. This approach increases customer sustainability and reduces the cost of acquiring new customers. Meanwhile, the average revenue per customer in the fibre broadband segment significantly exceeds that of traditional DSL or cable products, which is gradually translating into improved margins.

Dividend: the eternal question of sustainability

AT&T is synonymous with high dividends for many retail investors, and in the past it has been one of the most stable dividend aristocrats in the US market. Dividend cuts in 2022, following the spin-off of Warner Bros. Discovery, have left a distinct trail of distrust in the income investor community. The current dividend yield is around 4%, with the company declaring its intention to maintain that level while gradually releasing funds to pay down debt.

The key indicator for assessing the sustainability of the dividend is the dividend payout to free cash flow (dividend payout ratio to FCF). AT&T generates about $17 billion to $18 billion of free cash flow annually, with the dividend alone costing the company about $8 billion per year. This ratio suggests that the current level of payout is sustainable with stable cash flow, but in the event of an unexpected decline in earnings, the scope for potential cuts would be significantly more limited than for firms with lower debt burdens.

Comparison with the market and competitors

Looking at all three titles side by side, interesting structural differences emerge. Verizon $VZ and AT&T $T compete with each other in the U.S. wireless and wireline telecom markets, and both face the same strategic foe in T-Mobile, which has been aggressively gaining market share in recent years through lower prices and a massive marketing campaign. Ford, on the other hand, is competing with foreign manufacturers and technology newcomers in the automotive industry, where Tesla $TSLA still holds a dominant position in the premium EV segment.

Comparing net debt to EBITDA ratios, both Verizon and AT&T are in the 2.5 to 3.2 range, which is standard in the telecom sector. For Ford, the comparison is more difficult due to the consolidation of Ford Credit, but the industrial segment itself shows lower debt relative to operating profit. Thus, telecom companies have higher debt in absolute terms, but their business model is less cyclical and cash flow more stable, which makes the debt load more absorbable.

All three titles trade at significantly lower multiples than the S&P 500 average. Verizon's P/E ratio is around 12, AT&T's around 9 to 10, and Ford's below 10. This raises the question of whether the market is overvaluing these companies based on an exaggerated fear of their debt burden. Thus, the possibility of significant stock appreciation while gradually reducing debt and maintaining dividends remains a scenario that some investors are actively pursuing.

According to the Fair Price Index on Bulios, all 3 companies are currently trading below their intrinsic value.

Strategic view

The high debt of these three companies is not in itself a verdict of management incompetence.

The key is always to answer three questions:

• For what purpose was the debt incurred?

• Is there sufficient cash flow to service it?

• Is there a credible plan to reduce it?

For all three companies, there are answers.

Verizon is a classic case of a defensive dividend stock for conservative investors. Stable cash flow, a strong credit rating, gradual debt repayment and an attractive yield make up the basic investment story. The risk is in organic growth, not financial instability.

AT&T is going through a phase of rebuilding credibility after a failed media adventure. If management delivers on its promised fiber expansion and debt reduction goals, the stock could become attractive with a gradually growing fundamental story. The risk lies in the pace of execution and any new strategic detours.

Ford is the most speculative of today's trio, but also offers the potentially most significant re-rating if the EV division can achieve profitability. Debt in the industrial segment is a challenge, not a disaster.

What to watch next

Investors watching these titles should focus on a few key metrics in the coming quarters:

• The evolution of net debt in absolute terms - whether management is meeting its promised debt reduction targets, and at what pace.

• Interest costs after refinancing - in a stabilizing rate environment, investors are watching to see if the new bonds carry a significantly higher coupon than the ones they are replacing.

• Fiber subscriber growth at AT&T and Verizon - adding new customers is the most important indicator of organic growth in the fixed segment.

• EV division losses at Ford - the market will be watching to see if the company is approaching profitability or if losses are deepening.

• Ford Pro results - margins and commercial vehicle order growth will determine the overall operating profitability of the group.

• Rating movements from Moody's and S&P Global - a change in credit outlook to negative or positive is a signal to debt firms that quickly affects share and bond prices. Current credit ratings can be monitored at Moody's.

Conclusion

Verizon, Ford and AT&T are three very different companies that share one common characteristic: balance sheets burdened with hundreds of billions of dollars in debt. However, without context, the debt number alone means almost nothing. Telecom giants naturally accumulate debt through infrastructure investments whose payback is measured in decades. Ford carries debt as a concomitant of industrial transformation, and part of that obligation is inherently contingent on Ford Credit's financial business.

For investors, then, the ability to distinguish between debt as a strategic tool and debt as a symptom of unsound management is critical. For all three companies, there is a combination of both elements, but none of them is currently showing signs of imminent financial distress. Stable cash flow, and credible debt reduction plans provide investors with an opportunity for closer analysis.

At the same time, it cannot be ignored that the higher interest rate environment has driven up debt servicing costs for all three titles, weakening their investment stories relative to the zero interest rate era. This is precisely why these stocks are trading at significant discounts to the broader market. Whether this discount represents an opportunity or a legitimate risk discount premium depends on an investor's assessment of the likelihood of successfully reducing debt and sustaining dividends in the years ahead.

Even more interesting is the demand itself. The U.S. portion of the offering reportedly attracted orders of around $126 billion, which shows how much confidence the market still places in Amazon even in an environment of higher rates and market jitters. The company is also spreading maturities from 2 to 50 years, so it’s pacing its financing in a truly strategic, long-term way.

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For investors, this is the first time in more than 15 years that Oracle delivers organic total revenue and non‑GAAP EPS growth of 20% or more, just as it pours tens of billions annually into AI‑ready data centers and expands its cloud footprint. Oracle has flagged plans to raise 45 to 50 billion dollars in 2026 through a mix of debt and equity to fund this expansion, which raises the stakes on the AI cloud cycle. If demand for AI workloads stays strong for long enough, those heavy capex budgets and the higher leverage could translate into structurally higher profits rather than just a one‑off boom.

How was the last quarter?

Total Oracle $ORCL revenue in fiscal Q3 2026 was $17.2 billion, up 22% in dollars and 18% in constant currencies. Cloud revenue(IaaS + SaaS) grew 44% to $8.9 billion, while more traditional non-cloud software revenue grew just 3% to $6.1 billion. This confirms that Oracle is becoming primarily a cloud company - growth is being driven by new cloud services while the legacy licensing model stagnates.

Within the cloud, cloud infrastructure (IaaS) was the main driver with $4.9 billion in revenue and 84% year-over-year growth, while cloud applications (SaaS) grew 13% to $4.0 billion. Oracle Cloud Database (IaaS) revenue grew 35%, while multicloud database revenue jumped 531%, reflecting the success of strategies where Oracle databases also run on the infrastructure of other large providers. This lowers the barrier for clients who don't want to leave their existing cloud partners, while strengthening Oracle's role in the era of multicloud environments.

In the financials, this translated into GAAP operating profit of $5.5 billion and non-GAAP operating profit of $7.4 billion, up 19% in dollar terms. GAAP net income was $3.7 billion and adjusted net income was $5.2 billion, up 23% year-over-year. GAAP earnings per share rose to $1.27 (+24%), adjusted earnings per share to $1.79 (+21%), and the company points out that this is the first quarter in more than 15 years where organic revenue and adjusted EPS have both grown 20% or more - so it's not just an effect of acquisitions, but "organic" cloud growth.

Importantly, from a balance sheet perspective, short-term deferred revenue was $9.9 billion and operating cash flow for the last twelve months was $23.5 billion, up 13%. But the item that stands out the most is Remaining Performance Obligations (RPO) at $553 billion, up 325% from last year and up $29 billion from the prior quarter. The vast majority of this jump comes from large AI contracts: some clients pay Oracle up front so the company can buy graphics chips, others supply the hardware themselves - so Oracle is getting a huge future volume of work with relatively less equity, a very shareholder-friendly model.

• Full presentation with results.

Management commentary

Oracle management calls the results an "exceptional quarter" that exceeded expectations and confirmed the acceleration of cloud and profit growth. Commenting on Q3, it notes that this is the first quarter in more than 15 years that organic revenue and adjusted earnings per share grew 20 percent or more, and that cloud revenue, total revenue and adjusted EPS were at or above the high end of published guidance. The tone is clearly confident - Oracle is positioning itself as one of the key players in cloud for AI.

The company also describes that demand for cloud capacity to train and deploy AI models is growing faster than supply, and that some of its largest customers have significantly strengthened their financial positions, reducing credit risk and increasing the likelihood that long-term contracts will be fully utilized. An interesting detail is the restructuring of its own development teams: by generating code using AI, Oracle is regrouping product teams into smaller, more efficient units and claims to be able to "write more software with fewer people". This is a signal to investors that AI is not just a product towards clients, but also a tool to increase productivity and margins internally.

Outlook

For the fourth quarter of fiscal year 2026, Oracle expects total revenue growth of 18-20% in constant currencies and 19-21% in dollars. Cloud revenue is expected to grow even faster, by 44-48% in constant currencies and 46-50% in dollars, confirming that management anticipates a continued strong demand cycle in the cloud for AI. Adjusted earnings per share are expected to increase 15-17% to $1.92-1.96 in constant currencies and $1.96-2.00 in dollars.

At the full fiscal year 2026 level, Oracle affirms guidance of $67 billion in revenue and $50 billion in capital expenditures. For fiscal year 2027, the company is raising the outlook to $90 billion in revenue, with the company itself stating that demand for cloud capacity for AI will allow it to "comfortably" meet or exceed that growth. That outlook is ambitious - it implies double-digit revenue growth even after the big jump in 2026, and relies on AI mega-contracts to translate into actual capacity utilization and cash flow over the next few years.

The company also reiterates its funding plan: in February, it announced its intention to raise up to $50 billion in debt and equity, and has already raised $30 billion in a matter of days through investment-grade bonds and convertible preferred stock; it has not yet used some of the funding through a stock market sale. Oracle adds that it has no plans to issue additional debt outside of this program in 2026 - this suggests to investors that it has a clear framework in which to fund data center expansion while trying to keep debt under control.

Long-term results

For the year ending May 31, 2025, Oracle's revenue was $57.40 billion, up 8.4% from $52.96 billion in 2024 and $49.95 billion in 2023. In the previous years, the company grew 6.0% (2024) and 17.7% (2023) from the 2022 level of $42.44 billion, so from a four-year perspective, the revenue trend is steadily upward, although the rate of growth fluctuates based on the cloud investment cycle and currency movements. Thus, the high pace in fiscal 2026 (22% in Q3) marks a clear acceleration against the average of recent years.

Gross profit in 2025 was $55.09 billion, compared to $37.82 billion in 2024, $36.39 billion in 2023 and $33.56 billion in 2022. Notable is the dramatic reduction in the "cost of revenue" line item in 2025 to $2.31 billion from $15.14 billion in 2024 and $13.56 billion in 2023, which in the numbers looks like a massive improvement in gross margin. Part of this effect is related to accounting cost capture (reclassifying items to operating expenses) and service mix, so it's more of a trend to watch: Oracle has been moving the business into high-margin software and cloud for a long time, which improves gross margins structurally, not on a one-off basis.

Operating expenses rose to $37.41 billion in 2025 from $22.47 billion in 2024, while they hovered around $22-23 billion in 2022 and 2023. This jump reflects both higher investment in the development and sale of cloud services, costs related to infrastructure expansion, and likely some one-time items (e.g., acquisitions, restructuring). Still, operating profit rose to $17.68 billion (+15.1%), from $15.35 billion in 2024, $13.09 billion in 2023, and $10.93 billion in 2022; thus, operating leverage is working - revenue and gross profit are growing faster than operating expenses.

Pre-tax profit in 2025 was $14.16 billion, up from $11.74 billion in 2024 and $9.13 billion in 2023; net income rose to $12.44 billion, up 18.9% from $10.47 billion in 2024 and 46% from $8.50 billion in 2023. Earnings per share increased from $2.49 in 2022 to $3.15 in 2023, $3.81 in 2024 and $4.46 in 2025; diluted earnings per share grew similarly from $2.41 to $3.07, $3.71 and $4.34. The number of shares grew only very modestly (roughly 2.70-2.87 billion diluted shares), so EPS growth actually reflects profitability growth, not just financial engineering.

EBIT reached $17.74 billion and EBITDA reached $23.91 billion in 2025, with both metrics growing steadily from 2022 (EBIT 10.40 billion, EBITDA 13.53 billion) through 2023 (EBIT 12.63 billion, EBITDA 18.74 billion) and 2024 (EBIT 15.26 billion, EBITDA 21.39 billion). This shows that Oracle is gradually increasing its operating leverage: as the built infrastructure and software scales to higher volumes, margins increase and further revenue growth translates strongly into profitability. In the context of today's massive investment cycle in AI data centers, it is key that the company has several years of consistent EBIT and EBITDA growth - investors see that the ability to generate profits from new capacity has been proven in the past.

News

Strategically, Oracle is betting on a combination of cloud for AI and multicloud database services. The huge increase in RPO to $553 billion is the result of multi-year contracts with large customers that either pre-fund the hardware or supply it themselves - giving Oracle a long-term committed business without having to carry the full investment burden. The company is also massively ramping up capital spending to $50 billion in 2026, a leap from previous plans and reflecting the global expansion of data centers.

The financing method is also important: Oracle plans to raise up to $50 billion through a combination of debt, preferred stock and market sales, and has already secured $30 billion through bonds and mandatorily convertible preferred stock. This secures capital for expansion without dramatically impairing immediate liquidity, but it also raises debt and future dilution, the "price" for accelerating AI cloud market adoption.

Oracle is also emphasizing the use of AI code generation in its own development: it is regrouping teams, using AI for programming, and claims it can create new cloud applications for more industries faster at lower cost as a result. This is a strategic shift to be more competitive against Microsoft, Amazon and other players in the long term: not just providing infrastructure, but a richer layer of applications (ERP, industry modules, industry solutions) at higher margins.

Shareholding structure

Around 40-41% of Oracle's shares are held by insiders (including founders and management), around 44% by institutions and around 14% by retail and other investors. The largest institutional owners include Vanguard Group (about 6% of shares, about 175 million shares), BlackRock (about 5%, about 148 million shares), State Street (over 2.6%, about 76 million shares), and JPMorgan to the tune of about 1.4%. This structure implies a combination of a high insider share - which promotes stability and a long-term horizon - and a broad institutional base dominated by large index and passive funds, so that the stock is relatively well "anchored" but responsive to changes in the large-cap technology sector and indices.

Oracle also pays a stable dividend: the board has approved a quarterly dividend of $0.50 per share, payable on April 24, 2026 to investors enrolled on April 9, 2026. Combined with earnings growth and the use of debt instead of net dilution, this gives shareholders a mix of growth and yield profile - but investors should watch how the ratio of free cash flow to dividends and interest evolves as debt grows.

Analyst expectations

Based on available commentary and quick market reactions, Oracle beat consensus expectations in Q3 2026, delivering revenue of $17.2 billion versus approximately $16.9 billion, and adjusted EPS of $1.79, above the midpoint of estimates. Analysts generally emphasize two main theses: first, that Oracle's high RPO and fast-growing AI contracts make it one of the major "pure bets" on AI infrastructure; second, that the raised revenue outlook to $90 billion in fiscal 2027 is ambitious but realistic if the company can get its new data centers up and running on time.

Fair Price

For investors, the key takeaway is the combination of rapid expansion across the NIO, ONVO and FIREFLY brands and visible cost discipline, which together drove margins to their highest level in several years. Management’s guidance for the first quarter of 2026 points to another period of triple-digit revenue growth and nearly doubled deliveries, but the company still faces heavy capital needs, intense price competition from BYD, Tesla, Li Auto and XPeng, and ongoing sensitivity to China’s demand cycle and policy shifts.

How was the last quarter?

In Q4 2025, $NIO delivered 124,807 vehicles, a jump of 71.7% vs. Q4 2024 and 43.3% vs. Q3 2025. The growth was not a one-off, but spread across three brands: premium NIO(67,433 vehicles), family-oriented ONVO(38,290 vehicles) and smaller premium FIREFLY(19,084 vehicles), with all three hitting record levels. This shows that scaling the business is not dependent on one model, but on a portfolio across price segments.

Total sales reached 34.65 billion yuan, or roughly $4.96 billion, up +75.9% year-on-year and +59.0% quarter-on-quarter. Car sales alone were 31.61 billion yuan, approximately $4.52 billion, and grew even faster than total sales, reflecting both higher volume and higher average selling price due to a more favorable model mix. Other sales (e.g., services, parts, research services, used cars) totaled 3.04 billion yuan, or about $435 million, and grew at a slower but still double-digit rate.

Gross profit in the quarter was 6.07 billion yuan, about $0.87 billion, up 163.1% year-on-year and doubling quarter-on-quarter. Gross margin jumped to 17.5% from 11.7% a year ago and 13.9% in Q3. The key driver is vehicle margin, which improved to 18.1% from 13.1% in Q4 2024 and 14.7% in Q3 2025, thanks to more premium models (e.g. All-New ES8, ONVO L90) and material cost reduction effects. This shift is structural: it comes from a combination of production scaling, internal technology development and supply chain optimization.

Operating costs (R&D, sales, marketing and administration) were under strong control in Q4 2025. R&D expenses fell to 2.03 billion yuan, about $290 million, down 44.3% year-on-year and 15.3% quarter-on-quarter, mainly due to "organizational optimization" and lower development costs in later-stage projects. Adjusted R&D expenses (excluding stock-based compensation and one-time restructuring costs) were 1.74 billion yuan, about $250 million.

Selling, general and administrative expenses were 3.54 billion yuan, about $506 million, down 27.5% year-over-year and 15.5% quarter-over-quarter. Adjusted SG&A expenses were 3.39 billion yuan, approximately $485 million. The decline is again driven by a reduction in support staff and lower marketing spend - this is a structural change in the cost base, although some of the savings may be cyclical (less aggressive campaigns).

The result is an operating profit of 807.3 million yuan, about $115 million, versus a loss of 6.03 billion yuan a year ago and 3.52 billion yuan in Q3. Adjusted operating profit excluding stock awards was 1.25 billion yuan, about $179 million, the first positive quarter in NIO's history and an important milestone on the road to sustainable profitability.

Net profit for Q4 2025 was 282.7 million yuan, approximately $40 million, compared to a net loss of 7.11 billion yuan in Q4 2024 and 3.48 billion yuan in Q3 2025. Adjusted net profit excluding stock awards and one-time expenses was 726.8 million yuan, approximately $104 million. Earnings per share (basic and diluted) for the quarter were 0.05 yuan, or about $0.01, while adjusted earnings per share were 0.29 yuan, about $0.04.

From a cash flow and balance sheet perspective, the company had 45.9 billion yuan in cash, restricted cash, short-term investments and time deposits, or about $6.6 billion, as of December 31, 2025. While NIO achieved positive operating cash flow in both the third and fourth quarters of 2025, it remained in the red for the full year, and self-reported current liabilities exceed current assets - meaning its liquidity position is ample but tight and dependent on continued revenue growth and the availability of credit lines.

• Full presentation with results.

Management commentary

CEO William Bin Li highlighted that deliveries were up 71.7% in Q4 2025 and that all three brands achieved record numbers, with full year deliveries of 326,028 vehicles representing growth of 46.9%. Between the lines, this tells investors that the multi-brand strategy is working and that the company can build relevant share in each segment (premium SUV, family SUV, small city car) despite strong competition.

The CEO also announces continued mass deployment of proprietary smart car technologies, investment in battery swapping and charging, and expansion of the sales and service network. The tone is confident, focused on growth and technological superiority, although the company is aware of the need for better profitability - the mention of targeting "twelve key technologies" suggests that NIO does not want to significantly reduce R&D, but rather do it more efficiently.

CFO Stanley Yu Qu highlighted the improvement in margins - 18 .1% margin on vehicles and 11.9% margin on other sales - and the first positive adjusted operating profit of 1.25 billion yuan. The CFO's tone is more disciplined - promising further efficiency gains and cost optimization in 2026 to be the main driver of sustainable profits.

Outlook

For the first quarter of 2026, NIO expects deliveries of 80,000-83,000 vehicles, equivalent to a year-on-year growth of roughly 90.1-97.2%. Total sales are expected to reach 24.48-25.18 billion yuan, or approximately $3.50-3.60 billion, representing a year-on-year growth of 103.4-109.2%. Thus, the outlook is for continued very rapid growth in volume and sales, although the absolute level is seasonally lower than the Q4 peak - which is normal for an automaker.

The company does not explicitly disclose margin targets or profit expectations in this outlook, but given the gross and vehicle margins achieved in Q4, we can expect management to target at least maintaining double-digit margins and further improving operating profitability. The outlook looks rather optimistic to aggressive, as it assumes more than double the sales growth from a weaker Q1 2025; this growth is based on the continued success of new models and that the Chinese EV market will remain strong despite the price war and possible change in subsidies.

The firm also cautions that the outlook reflects its current view of the business environment and that it is subject to change - i.e. it does not include shock scenarios (such as a sharp market slowdown, new export tariffs or major regulation) that could negatively impact results.

Long-term results

For the full year 2025, NIO achieved sales of 87.49 billion yuan, or ~$12.51 billion, an increase of 33.1% from 2024, when sales were 65.73 billion yuan (~$9.15 billion at a similar exchange rate). This builds on previous years, when sales grew by roughly 12.9% in 2023 and 36.3% in 2022, from 36.14 billion yuan in 2021. NIO has thus systematically scaled its volume over the past four years, although the growth rate fluctuates according to the phase of the model cycle and the situation in the Chinese EV market.

However, the cost base has long grown faster than sales. The cost of goods sold rose from 29.31 billion yuan in 2021 to 44.12 billion yuan in 2022, 52.57 billion yuan in 2023 and 59.24 billion yuan in 2024 before reaching 75.57 billion yuan (about $10.81 billion) in 2025. Still, gross profit improved: from 6.49 billion yuan in 2024 (~$0.94 billion) to 11.92 billion yuan in 2025 (~$1.70 billion), a growth of 83.5% and a gross margin shift from 9.9% to 13.6%. This is a structural change - NIO was able to lift margins despite price competition, indicating a combination of premium positioning on select models and improved efficiency.

Operating costs (R&D, sales, marketing and administration) have been the main reason for massive losses in recent years. It was 28.37 billion yuan in 2024, 25.71 billion yuan in 2023 and 20.78 billion yuan in 2022, while it was 11.32 billion yuan in 2021. In 2025, R&D expenses decreased to 10.61 billion yuan (~$1.52 billion) by roughly 18.7%, while adjusted (excluding stock awards and one-time items) they decreased to 9.09 billion yuan (~$1.30 billion). Selling and administrative expenses rose only slightly to 16.09 billion yuan (~$2.30 billion) and adjusted were 15.22 billion yuan (~$2.18 billion), almost unchanged from 2024.

Despite these savings, the operating result for 2025 was still a loss: -14.04 billion yuan, or ~$2.01 billion, although this was a 35.8% improvement over 2024 (when the loss was -21.87 billion yuan). Adjusted operating loss decreased to -11.51 billion yuan, about $1.65 billion, from -19.95 billion yuan in the previous year. At the net income level, the firm reported a loss of -14.94 billion yuan (~-$2.14 billion) in 2025, versus -22.66 billion yuan in 2024, an adjusted -12.41 billion yuan (~-$1.78 billion).

Earnings per share (EPS) were significantly negative from 2021-2024: -6.72, -8.89, -12.44, and -11.03 yuan per share, respectively; full-year EPS improved to -6.85 yuan, or ~$0.98, in 2025, adjusted -5.47 yuan (~$0.78). Meanwhile, the number of shares increased significantly from 1.57 billion in 2021 to 1.64 billion in 2022, 1.70 billion in 2023 and 2.06 billion in 2024, so investors faced significant dilution. This is a consequence of the capital-intensive model, with NIO repeatedly issuing new shares to fund expansion - structurally, the higher share count means that even as profitability improves, it will take longer to get EPS well above zero.

Operating leverage only starts to kick in in 2025. In previous years, operating costs often grew faster than sales, mainly due to development and marketing expansion, leading to deepening losses (operating loss of -4.50 billion yuan in 2021, -15.64 billion in 2022, -22.66 billion in 2023, -21.87 billion in 2024). But in 2025, NIO combines double-digit sales growth with a decline in research costs and stabilization of sales costs, leading to a clear improvement in loss and the first profitable quarter. This is a structural shift - the company is moving from a "growth regardless of profit" phase to one where growth is accompanied by efficiency pressures.

EBIT and EBITDA show a similar trend. EBIT for 2024 was -21.63 billion yuan, while EBITDA was -13.93 billion yuan; in previous years, EBITDA fell from -985 million yuan in 2021 to -10.05 billion yuan in 2022 and -15.15 billion yuan in 2023. Although the detailed 2025 EBIT/EBITDA figures are not fully broken down in the report, the combination of improved gross margins, reduced operating expenses and a positive Q4 makes it clear that EBITDA is well on its way to breakeven - a key milestone for a capital-intensive carmaker on its way to sustainable financing without further dilution.

News

NIO is strengthening its technology and capital base in 2025 and early 2026. In February 2026, its smart driving chip subsidiary Shenji received a 2.257 billion yuan cash deposit from investors in China in exchange for newly issued shares, with NIO retaining a 62.7% stake after the transaction. In doing so, the company is both monetizing part of its technology platform and reducing the capital burden of chip development, while retaining control of a key technology that could be the differentiator against competitors.

In addition, in December 2025 and January 2026, NIO bought about 1.08% stake in NIO China from some investors for a maximum of 1.002 billion yuan to increase its controlling stake to an expected 92.9%. This increases the influence of the parent company on the most important operation and simplifies the structure of the group, which is important for any further financing or partnership.

Also crucial is the approval of performance share awards for CEO William Bin Li: under the 2026 plan, he has been granted 248.45 million restricted stock units, divided into ten tranches, the vesting of which is linked to market capitalisation and net profit targets. This increases the alignment of management's interests with shareholders, but also represents future dilution; investors should monitor how quickly these targets are achieved and how the number of shares outstanding evolves.

Shareholding structure

Insiders hold approximately 2.11% of the shares, institutions hold approximately 14.78% of the total, and institutional investors hold approximately 15.09% of the free float, with 555 institutions holding shares. The largest institutional holders at the end of 2025 include D. E. Shaw & Co. with 48.17 million shares (~2.47%), UBS Group with 24.55 million shares (~1.26%), BNP Paribas Financial Markets with 21.62 million shares (~1.11%), and Jane Street Group with 19.53 million shares (~1.00%). Thus, the structure is a combination of smaller insider holdings, significant but not dominant institutional holdings, and large retail and "other" holdings, which means the stock is sensitive to changes in market sentiment and capital flow from index and theme funds.

The planned sale does not automatically mean Palantir’s growth story is over, especially as the company is still reporting strong revenue expansion, improving profitability and growing demand for its AI platforms from both governments and commercial clients. Instead of focusing only on how many shares Thiel wants to sell, it is more useful to look at how Palantir actually makes its money, how sustainable its margins and growth are, what today’s valuation implies for future performance, and where the line lies between a genuine long-term opportunity and overinflated expectations for a regular shareholder.

Top points of analysis

• Peter Thiel sells about 2 million shares of Palantir for ~$280-290 million as part of a pre-planned 10b5-1 plan, but remains a key shareholder due to the higher voting shares.

• Palantir is on track for $4.48 billion in 2025 revenue (+56% YoY) and $1.63 billion in net income (36% net margin), marking a sharp transition into an era of massive profitability.

• Operating margins of 32% and gross margins of over 82% show that the AI platform and software scaling have translated into very strong unit economics, as evidenced by ROE of 26% and ROIC of 18%.

• The company generates strong cash: operating cash flow of around $2.13 billion (48% margin) and adjusted free cash flow of $2.27 billion (51% margin) in 2025, with net debt/EBITDA of -0.79 and a strong balance sheet reducing balance sheet risk.

• The key question is not one of insider selling, but whether Palantir can sustain a combination of high growth (30-40%+) and high margins (30-40%) over 2-3 years, which would eventually be able to "grow" to current valuation without the need for a brutal correction.

What has changed: insider selling vs. the new Palantir

For years, Palantir $PLTR has been seen as a "political" software house for governments, benefiting from exclusive contracts but not showing consistent profits. The turnaround has come in the last two years: the company has gone from $1.91 billion in 2022 revenue to $4.48 billion in 2025, while net income has turned from -374 million to +1.63 million and operating margins have jumped from negative to 32%. This change is not a one-time quarter, but a structural transition to profitable growth that catapulted the stock by more than 100% in 2025.

It is into this situation that Thiel's sale of about 2 million shares through the entity STS Holdings II LLC, in a volume estimated at $280-290 million, enters as part of a pre-approved 10b5-1 plan. Mechanically, this means that another supply of shares is coming into the market, but relative to a market capitalization of about $350 billion, the volume is negligible; more important is the psychological signal to retail. Thiel logically "unlocks" some of the gains after the massive appreciation, but remains a significant shareholder with enhanced voting rights through a special class of shares, so it is not an exit, but partial diversification.

It is key for shareholders to understand that Palantir's value today is mainly created through AIP's AI platform and expanding commercial business, not through the perception of a single founder. In the U.S., commercial revenue grew at a 137% year-over-year rate in Q4 2025, while the U.S. government segment grew 66%, showing that Palantir has finally "broken through" to the corporate market and is not just relying on the public sector. This mix - AI for the military, governments and big business - is exactly what the market is willing to pay extreme multiples for.

If Palantir meets 7.2 billion revenue expectations and maintains high margins and cash flow, the current valuation can be "topped out" over time; but if growth slows or AI expectations burst, high multiples will compress quickly and insider selling will serve as a psychological catalyst for a correction.

What needs to happen for stocks to keep rising

• Revenue growth of 30-40% per year while maintaining or slightly improving 30%+ operating margins.

• Confirmation that AIP is a key platform for both government and commercial clients, with a growing number of production deployments and large contracts.

• Stable or declining cost to revenue ratio to grow cash flow at least as fast as revenue.

• No major regulatory intervention or loss of key government contracts.

• Discipline in issuing new stock (limiting dilution) and working conservatively with large cash balances.

Growth drivers

The first driver is the commercial segment, particularly in the US, where Palantir reports triple-digit growth - the US commercial business grew 137% y/y in Q4 2025 and the firm expects growth of over 115% for 2026. In practice, this means that the firm is selling AIP as a more standardised platform, not just as expensive bespoke projects, which increases scalability and improves cost-to-revenue; in numbers, we see this in operating profit growth from $120m in 2023 to $1.41bn in 2025. In 12-24 months' time, the commercial segment could become a major source of revenue and cash flow growth, while government clients will be more of a 'stabilisation' pillar.

The second driver is the AIP AI platform itself, which enables Palantir to sell not just software but a de facto operating system for data and decision-making, including military and industrial applications. This translates into extremely high gross margins of around 82%, as the additional cost per additional customer is relatively low compared to traditional project-based services. Combined with discipline in operating costs (opex grew only 14% in 2025, while revenue grew 56%), this led to exponential growth in free cash flow, which reached $2.27 billion.

The third driver is debt-free leverage: Palantir has minimal debt (debt-to-equity ~0.03, net debt/EBITDA -0.79), high working capital of around $7.2 billion, and very strong liquidity ratios (current ratio 7.11, quick ratio 6.11), allowing it to fund growth almost entirely from its own resources. This reduces interest cost risk in a higher rate environment while increasing flexibility for potential acquisitions or buybacks that could "shore up" EPS in the event of a future slowdown in revenue growth. However, these effects will only become fully apparent over a 24-36 month horizon, when it remains to be seen whether Palantir will use the cash more to grow the platform or to increase returns to shareholders.

The numbers that support the continued growth thesis

• Revenue 2022-2025: 1.91 → 2.23 → 2.87 → $4.48 billion (+16.8%, +28.8%, +56.2%).

• Gross profit 2022-2025: 1.50 → 1.79 → 2.30 → 3.69 billion USD; gross margin ~82%.

• Operating profit: -161 million (2022) → 120 million → 310 million → $1.41 billion (32% margin).

• Net profit: -374 million (2022) → 210 million → 462 million → USD 1.63 billion (36% margin).

• EPS (diluted): -0.18 (2022) → 0.09 → 0.19 → $0.63; 2025 EPS growth +232% y/y.

• Operating cash flow 2025: $2.13 billion (48% margin); adjusted FCF: $2.27 billion (51% margin).

• ROE: 25.7%, ROIC: 18.0%, Altman Z-score 150.6 (extremely low bankruptcy risk).

• Beta: 1.74 (high volatility), profitability: 2 consecutive years in the black.

The trend is clearly structural: revenue growth accelerated significantly in 2025, while operating cost growth remained under control, leading to margin and cash flow expansion. One-off factors (e.g., changes in stock compensation) can affect the difference between GAAP and adjusted numbers, but the underlying picture - strong sales, high margins, low debt - is consistent.

Valuation: what's in and what's out

Palantir is trading at very high multiples after the AI rally: a P/E of around 237, a P/S of around 78 and a P/CF of almost 195, with a market capitalization of around $350 billion. These multiples would be extreme even for a young, fast-growing SaaS company; for a 20-year-old company with two years of profitability, they mean the market expects long-term revenue growth of tens of percent per year and stable high margins. The use of a "defensive AI story" (military and government contracts) also adds an element of "premium" valuation, as some investors view Palantir as a mix of a technology and defense firm.

If Palantir meets expectations for $7.2 billion in revenue in 2026 and maintains a 30-35% operating margin, it will earn billions more in earnings and cash flow over the next two years; even with incremental multiple compression, this could boost EPS enough that today's price is not extremely inflated. Conversely, any slowdown in growth below about 25-30% per year or deterioration in margins would mean that multiples would have to be brought in line with more "normal" SaaS valuations (e.g. P/S 15-25), which would put a lot of pressure on the share price.

What the market values / fears

• What the market values:

  • Explosive growth of the AIP AI platform and commercial business in the US.

  • High margins (32% operating, 36% net) and exceptionally strong cash flow.

  • Near-zero debt, robust balance sheet and high ROE/ROIC.

• What the market fears:

  • Overly high valuations that don't forgive execution errors.

  • Slowing AI demand growth or shifting budgets to competitors.

  • Political and regulatory risks associated with the use of AI in defense and government.

Macro and market

Palantir sits at the intersection of two structurally growing markets: military and security spending and enterprise investment in AI. Geopolitical tensions and conflicts have led to growth in defense budgets in a number of countries in recent years, with the US and allies emphasizing "software defined warfare," where Palantir is among the leaders.

At the same time, corporate investment in AI platforms that integrate data across the organisation is growing - various estimates suggest that the enterprise AI services market is set to see significant double-digit growth, which is an opportunity. Palantir is thus competing not only with traditional defense companies (Lockheed Martin $LMT, Raytheon $RTX ) in the military software space, but especially with large cloud players and AI platforms such as Microsoft (Azure AI), Amazon (AWS) and Google Cloud, which are also integrating AI into enterprise solutions.

Risks

The main risk is valuation; a P/E of around 237 and P/S of ~78 mean that any execution error (slowing growth, weaker outlook, loss of a large contract) can lead to a sharp compression of multiples regardless of the company remaining profitable. In numbers terms, this would mean a rapid decline in sales below expectations or a reduction in margins, leading to a decline in earnings and a deterioration in price-to-earnings and price-to-sales ratios; even a return of P/E to "lower" levels would be a major correction in the stock, all things being equal.

The second risk is political and regulatory factors: Palantir is closely intertwined with governments and defence structures, and any changes to AI regulation, data protection or export restrictions could block or delay some projects. This would show up in the numbers as lower growth in the government/defense segment, or one-off impacts if some contracts are scaled back or cancelled.

A third risk is competition in AI - large cloud providers and other AI platforms may offer alternatives with better integration into existing systems and lower cost. For Palantir, this would put pressure on pricing and margins or necessitate higher sales and marketing costs, which would reduce operating margins and exacerbate Rule of 40.

Risk Checklist

• Slowdown in revenue growth below 25% y/y for several quarters in a row.

• Decline in operating margin below 25% on rising sales.

• Loss or shrinkage of a key government contract (US or large ally).

• Strong growth in stock compensation and dilution that begins to "eat" EPS growth.

• Deterioration in the geopolitical situation that would lead to regulatory and policy intervention in AI in defense.

Peter Thiel's insider selling: what exactly is going on

According to Form 144, Peter Thiel, co-founder and chairman of Palantir, has filed a planned sale of about 2 million shares at around $280-290 million through an entity called STS Holdings II LLC. The sale is taking place under a pre-set Rule 10b5-1 plan, which means the timing of the sale was approved before the company released its latest strong numbers and guidance for 2026.

In relative terms, this is a small portion of Thiel's overall exposure - even after these transactions, it retains a significant voting stake due to the higher-weighted shares, so it's not a complete "exit" but rather a partial realization of gains after a period when the stock was up significantly. For the ordinary shareholder, therefore, the fact that Thiel's sale does not change the composition of the board or control of the company in any way is more important than the $280 million figure itself.

In the short term, such news can increase volatility: the media and parts of the retail industry often read insider selling as a signal of "the insider knows something we don't." But for Palantir, the sale comes at a time when the company is reporting 70% revenue growth, 137% growth in its U.S. commercial segment, a 32% operating margin, and a Rule of 40 score of 127 - a period when fundamentals look very strong. This lends itself to the interpretation that the main motive is to secure some of the profits after a big rally, not panic flight from a weakening business.

In other words, insider selling alone adds to the noise in short-term trading, but if shareholders are to be driven by the numbers, it makes more sense to track the trajectory of sales, margins and cash flow than a single planned sale within a 10b5-1 plan.

Investment scenarios

Optimistic scenario

In the optimistic scenario, Palantir delivers or surpasses $7.2 billion in revenue in 2026, U.S. commercial clients grow at a rate of over 100% annually, and AIP becomes the de facto standard in the "critical AI infrastructure" segment for governments and large enterprises. Operating margins hover around 35-40%, net margins around 30-35%, cash flow grows at a similar rate to revenue, and the company remains free of significant debt. Valuation multiples may compress over time, but EPS and FCF growth will "top" the current price, so total shareholder return remains high.

• 2028 revenue: $11-13 billion (CAGR ~30-35%).

• Operating margin: 35-40%, FCF margin: 45-50%.

• EPS: 2-3 times 2025 levels.

• Valuation: P/E 60-80, P/S 25-35 (higher absolute earnings and revenue, lower multiples).

• Overall: high share price growth, no dividend, possible acceleration of buybacks.

Realistic scenario

In a realistic scenario, Palantir meets most of its outlook, but growth gradually slows from 60% towards 25-30% p.a., while margins stabilize in the 28-35% range. The market gradually switches from "euphoric AI growth" to valuing Palantir as a high-quality but more "normal" SaaS/AI player, leading to more significant multiple compression, but some of the impact will be covered by EPS growth.

• 2028 revenue: $9-11 billion (CAGR ~25-30%).

• Operating margin: 28-35%, FCF margin: 40-45%.

• EPS: 1.5-2 times 2025.

• Valuation: P/E 40-60, P/S 15-25.

• Overall: moderate return, higher volatility, no dividend, main driver is earnings growth and balance sheet quality improvement.

Pessimistic scenario

In the pessimistic scenario, AI demand growth and defense budgets prove less explosive than expected, or part of the market is captured by competitors; revenue growth falls below 20% per year and margins are squeezed by higher costs and pricing. The market revalues Palantir from a "premium AI leader" to a "good but not exceptional" software company, and multiples return to levels common for quality SaaS. Insider selling may become the "narrative" that accelerates the decline in this scenario, but the cause is fundamental.

• 2028 revenue: $7-8 billion (CAGR ~15-20%).

• Operating margin: 20-25%, FCF margin: 30-35%.

• EPS: flat or only modest growth vs. 2025.

• Valuation: P/E 20-30, P/S 7-12.

• Overall: significant price correction, long period of valuation "cushioning", company remains profitable but shareholder returns are weak; dividend may not emerge until longer term in such an environment.

What to watch next

• Evolution of overall revenue growth quarter by quarter (hold 30-40% y/y vs. slowdown below 25%).

• US commercial revenue growth (target >100% y/y in the coming years).

• Operating margin and FCF margin (maintain or improve vs. cost pressure).

• Evolution of stock compensation and dilution (growth rate in share count).

• Revenue structure: share of commercial vs. government segment and internationalization.

• New large contracts and TCV (Total Contract Value) in AI segments.

• Any changes to AI and defense technology regulation in key regions.

• Management comments on cash usage (R&D vs. M&A vs. buybacks).

• Competitor signals (Microsoft, Amazon, Google products and contracts in similar areas).

• Other insider transactions - whether Thiel and management continue to just "fox" positions or massively reduce exposure.

What to take away from the article

• Thiel's sale of around 2 million shares is large in absolute amount, but small relative to the size of Palantir; more important than the sale itself is that Thiel remains a large shareholder.

• Palantir has undergone a significant transformation in 2-3 years: from a company with negative earnings to a company with 36% net margin and 51% FCF margin.

• Growth has been driven primarily by AIP's AI platform and the explosive growth of the commercial segment in the US, while government contracts remain a strong pillar.

• Valuation is extreme and assumes long-term revenue growth of tens of percent; a slowdown could see sharp compression in multiples.

• Palantir has a very strong balance sheet and high profitability but no dividend - the return to the investor is based on growth in the value of the company.

• Key metrics to track are revenue growth, margins, FCF and revenue mix between commercial and government segments.

• Macro and geopolitics play a big role for Palantir - rising defense budgets can help, but AI regulation and political risks can hinder growth.