Oracle’s second fiscal quarter marks a clear inflection point. What once looked like a steady enterprise software business is increasingly defined by infrastructure scale, contracted revenue, and long-duration demand tied to AI workloads. The numbers signal more than momentum—they show compounding effects from years of capital deployment into data centers and cloud architecture.

What differentiates Oracle now is positioning. Instead of chasing hyperscalers head-on, it has carved out a hybrid lane that blends databases, applications, and infrastructure with a pragmatic multicloud strategy. This quarter highlights a business expanding its addressable market while locking in visibility through backlog growth rather than relying on short-term consumption spikes.

What was the last quarter like?

Oracle's $ORCL totaled $16.1 billion in revenue in the second fiscal quarter of 2026, representing year-over-year growth of 14% in dollar terms and 13% in constant currencies. The cloud remains a key driver, with revenue up 34% to $8.0 billion. Virtually half of total revenue is now derived from cloud activities, fundamentally changing the structure of the business.

The fastest-growing component is cloud infrastructure (IaaS), where Oracle reported revenues of USD 4.1 billion, equivalent to 68% year-on-year growth. This figure is extremely important as it confirms that Oracle is not just a secondary player in cloud infrastructure, but can win large and long-term contracts, often associated with AI workloads. Cloud applications (SaaS) grew at a slower but still solid rate of 11%, with Fusion Cloud ERP increasing revenue by 18% and NetSuite Cloud ERP by 13%.

Conversely, traditional software licensing and support saw a year-over-year decline, but this is not a negative signal. This is an expected consequence of customers moving to a cloud model, which reduces short-term license revenue but significantly increases long-term revenue visibility.

Profitability was significantly impacted by a one-time factor in the quarter. GAAP operating profit was $4.7 billion and non-GAAP operating profit was $6.7 billion. GAAP net income was $6.1 billion and non-GAAP net income was $6.6 billion. GAAP earnings per share increased 91% year over year to $2.10 and non-GAAP EPS increased 54% to $2.26. The $2.7 billion pre-tax gain on the sale of the stake in Ampere played a significant role here, which needs to be clearly separated from operating performance when interpreting the results.

Remaining Performance Bonds are an extremely strong signal of future growth. These were up 438% year-on-year to $523 billion, with $68 billion growth in the quarter alone. These are commitments from long-term contracts that will translate into revenue in future years and dramatically increase visibility of future cash flow.

• Full presentation with results.

Management Commentary

CFO Doug Kehring identified RPO growth as a key highlight of the quarter and explicitly mentioned new commitments from companies such as Meta and NVIDIA. In his view, it is the long-term cloud and AI contracts that are fundamentally changing Oracle's economics and proving that the company can compete in even the most challenging infrastructure projects.

Larry Ellison (ex-CEO and current Chairman of the Board) explained the strategic decision to sell its stake in Ampere as part of a broader change in approach. According to him, Oracle does not want to be tied to its own chip architecture, but is pursuing a policy of chip neutrality. The goal is to be able to deploy whatever CPU or GPU customers choose and remain as flexible as possible in an environment of rapidly changing AI technologies. This approach directly supports the growth of the cloud and reduces the technological limitations of datacenters.

CEO Clay Magouyrk emphasized the operational side of the business and Oracle's ability to build and operate highly automated datacenters. Oracle currently has over 211 live or planned regions worldwide and is more than halfway through building 72 multicloud datacenters integrated into Amazon, Google and Microsoft environments. It is the multicloud business that Oracle has identified as the fastest growing part of the business, growing 817% year-on-year.

Outlook

Although Oracle did not provide a detailed quantitative outlook for the entire fiscal in this announcement, the dynamics of RPO alone fundamentally change the company's forward-looking profile. Contract commitments of $523 billion suggest that cloud revenues will continue to grow at double-digit rates in the coming years, even with a potential macroeconomic slowdown.

The ability to translate RPOs into actual realized revenue while maintaining margins will be a key factor. In particular, investors will be watching to see whether the high growth rate of IaaS will put pressure on operating margins or whether automation and scaling will confirm the long-term attractive economics of this segment.

Long-term results

Oracle's long-term performance shows a company that has undergone a significant transformation without losing financial stability. Revenue grew from approximately $42.4 billion in fiscal 2022 to $57.4 billion in 2025, with growth rates stabilizing in the mid-single to low double-digit range after a strong 2023. This reflects a gradual shift from a licensing model to the cloud, which dampens growth in the short term but enhances quality.

Gross profit has seen significant improvement, particularly in the last year when cost of sales has fallen sharply. This led to an increase in gross profit to over $55 billion and a significant improvement in the margin profile. Operating costs have skyrocketed in the last year, driven by datacenter expansion, AI infrastructure investments and global cloud expansion. Despite this pressure, operating profit rose to $17.7 billion, confirming that cost growth is still fully under control.

Net profit nearly doubled in four years to $12.4 billion. Earnings per share grew consistently at a rate of 17-27% per year, despite a modest increase in the number of shares outstanding. EBITDA grew from USD 13.5 billion to nearly USD 24 billion, clearly illustrating the significant strengthening of the ability to generate cash. It is this cash strength that provides the basis for financing further expansion without materially impairing the balance sheet.

News

The most significant strategic news of the quarter is the definitive confirmation of the cloud and chip neutrality policy. Oracle openly defines itself against closed ecosystems and builds its growth on the ability to run databases and applications in any cloud. The extremely rapid growth of multi-cloud databases suggests that this approach is finding resonance with customers and could become one of the main growth drivers in the coming years.

Shareholding structure

Oracle's shareholding structure is characterised by a high proportion of insiders holding over 40% of the shares, reflecting the strong influence of the founders and long-term management. Institutional investors hold approximately 45% of the shares, with the largest shareholders being Vanguard Group, BlackRock, JPMorgan Chase and State Street. This combination provides both strategic management stability and the presence of large institutional capital.

Analysts' expectations

Analysts view Oracle less and less as a traditional enterprise software firm and more and more as an infrastructure and AI title. A key theme going into the next few quarters is the ability to monetize the massive RPO backlog and confirm that cloud infrastructure growth is sustainable over the long term even with high competition from hyperscalers. If this trajectory is confirmed, Oracle has the potential to reassess its investment thesis towards higher valuations.

Fair Price

Humanoid robots are one of the most discussed technology topics of recent months, and investor interest will likely not fade even in 2026. The excitement is understandable—the pairing of AI with the physical world sounds like the next big chapter in technological development. The problem is that reality so far significantly lags behind what we see on stages and in promo videos. Demonstrations of robots walking, dancing, or carrying objects often do not mean they are truly autonomous and ready for everyday deployment.

The key question for the coming years is not whether robots will look impressive, but whether they can work reliably and for extended periods without human supervision. Autonomy remains the weakest link in the whole story. Most demonstrations today still rely heavily on remote control or human assistance, which is useful for training systems, but from an investment perspective it means mass adoption is further away than it appears.

2026 is therefore unlikely to be the watershed moment when humanoids flood factories and homes. It will more likely be a period of sobering reality, separating serious players from dozens of smaller projects without clear use cases. That can put pressure on valuations, but also create opportunities for patient investors who can distinguish between flashy visions and genuine technological progress.

Do you see humanoid robotics as a long-term structural trend where it pays to be involved already today, or do you think it’s better to wait until it becomes clear who can actually deliver a functional and scalable product?

Mega sporting events rarely translate into clear investment theses, but the upcoming World Cup breaks that pattern. Travel demand surges within a tightly defined window, while hotel supply in host regions remains structurally constrained. That imbalance tends to lift pricing power far more than volume alone, creating a short but powerful earnings tailwind for operators with the right geographic footprint.

This is the logic behind Bank of America’s current positioning. Rather than spreading exposure across the entire lodging sector, the bank highlights a specific hotel group with concentrated exposure to host cities, strong brand recognition, and a cost structure that allows incremental revenue to fall disproportionately to the bottom line. In this case, the World Cup is not a vague macro boost but a defined earnings catalyst.

Top points of the analysis

• FIFA World Cup works as A limited time but very strong demand shock for the hotel sector.
• Bank of America sees a concrete winner in InterContinental Hotels Group.
• The key mechanism is not hotel growth, but an increase in RevPAR.
• The impact of the tournament may be felt throughout the yearnot just in the weeks of the event itself.
• The investment story is more about Margins and cash flow than it is about sales volume.
• The risk is not demand, but it's temporary and the valuation in the share price.

InterContinental Hotels Group: company profile and market position

InterContinental Hotels Group $IHG is one of the largest global hotel groups, with a portfolio of brands covering a wide range of price and customer segments - from luxury hotels to business travel to mass mid-market. A key characteristic of IHG is its asset-light model, where the company does not own most of its hotels but operates them through franchises and management contracts.

This model has a major advantage from an investor perspective: it allows the company to benefit from revenue and price growth without the need for massive capital investment. Therefore, during periods of increased demand, improvements in occupancy and pricing translate very quickly into operating profit and free cash flow. It is this operating leverage that makes hotel chains vulnerable to short-term demand impulses such as global sporting events.

Another important aspect is geographical diversification. IHG has a strong exposure to key tourist and business destinations, which will make World Cup benefit indirectly - not only in the host cities, but also in transfer hubs, regional centres and downstream tourist routes. This increases the likelihood that the impact of the tournament will not be isolated but spread over time and space.

Why the World Cup: the mechanism of transfer to financial results

From an investment point of view, it is not the tournament itself that matters, but the mechanism by which it translates into numbers. The FIFA World Cup generates a massive increase in international travel, often with long advance bookings and low price sensitivity of visitors. Fans, teams, sponsors and media generate demand that exceeds normal seasonality.

This pressure is not primarily reflected in the number of rooms sold, but in prices. Hotels are unable to quickly increase capacity, which means that demand spills over into higher rates. This is where the RevPAR metric, which combines occupancy and price, comes into play. Bank of America estimates that the World Cup can increase RevPAR by 50 to 200 basis pointswhich is a very significant shift in the context of the hotel business.

The timing of the effect is also important. Bookings often start months before the event itself, and the increased demand can persist after the event, when some visitors combine a sporting experience with a longer holiday. This means that the impact of the World Cup can spread over several quarters, not just one short period.

RevPAR as a key investment variable

For an equity investor, RevPAR is one of the most important metrics in the hotel sector because it directly reflects a company's ability to monetize existing capacity. Unlike net sales or occupancy, it provides a comprehensive view of the quality of returns.

An increase in RevPAR of tens of basis points can have a disproportionately large impact on profitability, especially in IHG's asset-light model. Fixed costs remain relatively stable, while additional revenue has a high marginal benefit. This means that even a relatively modest increase in RevPAR can lead to a significant improvement in operating margin.

Moreover, from a long-term perspective, it is important that the World Cup can serve as a price level "reset". If the market becomes accustomed to higher rates and strong demand, some of this improvement may be sustained after the event itself fades. It is this secondary effect that is key and often underestimated by investors.

Impact on shares and valuations: why Bank of America is raising its target price

Bank of America $BAC reiterated a "buy" recommendation and raised its target price on IHG stock from roughly $137 to $156, implying an expected upside of around 11%. The move should not be seen as a short-term trade on a sporting event, but rather as a repricing of the medium-term outlook.

From an investment point of view, it is key that the bank is not just arguing for a one-off increase in revenues, but an improvement in the quality of earnings and cash flow. Higher RevPAR, better margins and stronger free cash flow support the firm's ability to return capital to shareholders while reducing risk in a period of weaker demand.

Valuation is more about a shift in risk perception than a dramatic growth story. IHG stock is not a cheap speculation, but Bank of America views it as a quality title that can outperform the sector in the coming cycle through a combination of global exposure and operating leverage.

Investment Scenarios: How the World Cup could change the stock's investment story

Investment scenarios, in this case, need to be understood as working with time, the sustainability of the effect and market reactionnot just the one-off impact of a sporting event. While the FIFA World Cup is a clearly defined catalyst, the real investment question is: Can this momentum change the cash flow trajectory and risk perception of the company over the longer term?

Optimistic scenario: the World Cup as a turning point in the price discipline

In the optimistic scenario, the demand shock associated with the World Cup will manifest itself not only in a short-term increase in occupancy, but more importantly a more permanent shift in the price level in key markets. Hotels are able to take advantage of high demand to push for higher rates and retain some of this pricing power after the tournament. RevPAR will approach the high end of estimates in this scenario and the improvement in margins will translate into visible growth in operating profit.

From an investment perspective, this would mean that the market would begin to view the company less as a cyclical macro dependent title and more as a a quality cash-flow generator with better pricing discipline. This could lead to a gradual widening of valuation multiples, not because of explosive growth, but because of a reduction in the risk premium.

Operational impact (estimate):

• RevPAR: +150 to +200 bps (upper bound of Bank of America's estimate)
• Annual revenue growth: +3-5% plus compared to the base case
• Operating margin: Visible improvement thanks to the asset-light model
• Free cash flow: Significant growth, room for higher return of capital to shareholders

Impact per share:

• Change in narrative: from cyclical title → quality cash-flow story
• Valuation multiples: modest expansion (lower risk premium)
• Likely share price range: +15 to +25% over a 12-18 month horizon

Realistic scenario: Strong but temporary momentum spread over time

The most likely scenario assumes that the World Cup will bring a measurable but limited increase in RevPARspread over several quarters. Higher demand will be seen before, during and to some extent after the tournament, but the price level will then gradually normalise. Operating margins will improve, but without a dramatic structural break.

For shareholders in this scenario a stabilisation story. The stock benefits from improved earnings visibility and lower volatility, but there is no sharp revaluation. This development is particularly attractive to long-term investors who are looking for relatively predictable returns in a cyclical sector and are willing to accept that share price growth will be gradual rather than rapid.

Operational impact (estimate):

• RevPAR: +75 to +125 bps
• Annual revenue growth: +1,5-3 % Above normal trend
• Operating Margin: Slight improvement, no structural change
• Free cash flow: stable growth, no jump, but more certainty

Impact per share:

• Narrative: Stabilization and lower volatility in results.
• Valuation multiples: no change or slight improvement
• Likely share price range: +5 to +12% over a 12-month horizon

Pessimistic scenario: effect factored into market expectations

In the pessimistic scenario, the positive impact of the World Cup turns out to be largely factored into expectations in advance. RevPAR will increase in the short term, but the effect will quickly fade and the market will return to normal seasonality. Higher prices will not be sustained and investors will begin to see the whole story as a one-off.

From an investment perspective, however, even this scenario does not represent a fundamental distortion of the thesis. With an asset-light model and a strong global brand, there would be no sharp deterioration in cash flow or pressure on the balance sheet. Rather, the stock would stagnate in this case and serve as a more defensive exposure to tourism, rather than a source of excess return.

Operational impact (estimate):

• RevPAR: +0 to +50 bps
• Revenue: virtually no significant deviation from the baseline scenario
• Margins: unchanged
• Cash flow: stable, no negative shock

Impact per share:

• Narrative: disappointing "unfulfilled catalyst"
• Valuation multiples: moderate pressure, but no collapse
• Likely share price range: -5 to +3% (stagnation rather than decline)

Risks: what could disrupt expectations

The main risk to the investment story is The temporary nature of the catalyst. The World Cup has a clearly defined beginning and end, and there is no guarantee that increased demand will lead to a more permanent price shift. If the market quickly returns to its original momentum after the tournament, investors who were expecting a more structural change may be disappointed.

Another significant risk is the macroeconomic environment. The hotel sector is sensitive to developments in consumer spending, inflation and willingness to travel. If there is a significant slowdown in the global economy, even a strong sports catalyst could perform more weakly than currently expected. This would reduce the ability of hotels to translate demand into higher prices.

Nor can we overlook valuation risk. If a positive scenario is already largely priced into the share price, the scope for further upside narrows and the title becomes more sensitive to any negative surprises. In such a case, even solid fundamental results might not be enough for the stock to outperform the market over the long term.

From an investment perspective, it is important that none of these risks are existential. They are factors that can affect the pace and magnitude of returnsnot the viability of the investment thesis itself.

What to take away from the article

• The World Cup presents A real, predictable demand catalystnot media hype.
• The investment story is not sectoral, but selective - only companies with the right structure and global exposure benefit.
• The key metric is not sales volume, but RevPAR and margin effectthat results from it.
• The biggest benefit to shareholders lies in reducing the volatility of resultsnot one-time growth.
• The upside is more medium-term and gradualnot speculative.
• The risk is not the demand during the tournament but the , is what happens after the tournament is over..
• For the long-term investor, it is a title that can stabilise a portfolio in a cyclical sectornot a short-term trade.

Global stock markets defied conventional expectations in 2025, balancing robust gains with unprecedented volatility amid trade policy shifts, evolving monetary cycles, and the ascendancy of AI-driven growth. With broad indices nearing all-time highs and investor focus pivoting from macro headlines toward quality earnings and sustainable fundamentals, the market narrative has fundamentally shifted. This article explores the forces that redefined valuation benchmarks last year and outlines the key themes that will shape equity performance in 2026.

The main theme this year was undoubtedly the dominance of the technology sector, or rather its core related to artificial intelligence. AI became the main narrative of the year. Compared to previous years, the market began to differentiate more between companies that can effectively monetise these technologies and those whose valuations were driven by sentiment rather than fundamentals. This was reflected in the fact that the stocks of the AI leaders remained strong and managed to continue to appreciate, while the part of the market whose valuations were mainly based on expectations saw larger corrections.

Global equity indices ended the year with strong gains. The S&P 500, Nasdaq and Dow Jones closed with gains exceeding historical averages, with the S&P 500 and Nasdaq both hitting record levels during December in response to speculation of interest rate cuts in 2026 and more accommodative monetary policy by central banks. They are now just a hair below the ATH.

Market resilience

One of the surprising features of the year was that markets showed considerable resilience despite high geopolitical tensions and ongoing trade conflicts. Strong tariff barriers and the highest level of tariffs in the United States since the 1930s had potentially destabilizing effects. Yet the market has proven able to absorb these effects (although the immediate reaction was in the form of a strong April sell-off) when coupled with stable corporate earnings prospects.

Regional differences

Regional differences continued to shape market performance. While the United States remained at the heart of technology growth, dynamics in Europe and Asia varied according to domestic macro conditions and political impulses. In Japan, for example, the Nikkei 225 index will close the year with record annual gains. Indeed, this year the index has gained 28.5%, significantly outperforming its US counterpart in the form of the $^GSPC, which rose 17.5%.

The stock's performance was also accompanied by relative strength in emerging markets. Investors in 2025 were reassessing their preferences towards regions with less reliance on existing technology monopolies and growing economic growth potential. For example, the Indian capital market faced record outflows of foreign capital, driven by a reassessment of risks and high valuation expectations. Nevertheless, domestic institutions kept the market afloat. The overall annual growth rate of the Nifty 50 index is 10.5%.

The result of these macro and micro factors is clear: 2025 can be summed up as a year when equity markets learned to live with high levels of uncertainty, but also managed to benefit from robust corporate fundamentals and a focus on technology that redefined productivity and growth expectations. And it is this combination that will set the the direction of the markets in the year ahead. 2026.

Key events that shaped the shape of equity markets this year

Customs (tariffs)

Trade policy has become one of the main sources of market uncertainty in 2025. After the new US administration took office, high tariffs were gradually imposed on imported goods from a number of countries including Canada, Mexico and China, pushing the average effective rate of US import tariffs to their highest level since before World War II.

Source.

For investors, this meant that classic global open trade scenarios had to be rethought. Markets reacted with sharp swings.

The effect of these tariffs was reflected not only in business cycle-sensitive stock price declines, but also in broader market uncertainty that pushed volatility higher. However, these events did not ultimately escalate into a long-term bear market.

The situation regarding tariffs appears to be stable at the moment, but it is important for investors to be prepared for the possibility that at any time there could be further news about new tariffs that could significantly lift volatility in currently stable markets.

Macroeconomic environment and interest rates

Another key macro factor was interest rates. The year 2025 began with relatively high central bank rates, a remnant of the previous period of inflation fighting. However, during the year, the market saw a gradual easing of monetary policy, with expectations of future rate cuts being one of the main drivers of equity market growth.

The Federal Reserve's (Fed's) position also rose significantly: weaker macroeconomic data and a slowdown in the labour market created room for gradual rate cuts, which supported risk assets (equities). These signals of potential rate cuts in 2026 have contributed significantly to the increase in equity valuations, especially for growth titles, which benefit from cheaper funding. While central banks have not made dramatic changes to their rates, the market has begun to price more equity valuations at a lower discount rate for future cash flows, supporting the general rise in equity prices.

The Federal Reserve in the United States has cut interest rates 3 times this year and anticipates at least one more cut next year.

US interest rates from 2019 (1M)

The dominance of artificial intelligence

The technology sector, especially the artificial intelligence domain, has become one of the main drivers of stock growth in 2025. According to Fidelity (aglobal asset manager) , AI has become the most common theme in approximately 2,300 earnings reports. As a result, the stocks of tech giants that either led the development of AI or possessed the ability to effectively monetize the technology appreciated.

However, the other side of this phenomenon has not remained hidden to investors. While some stocks benefited from the direct adoption of AI into their products and services, for other segments the market began to selectively differentiate between fundamentally-based growth and pure sentiment. For many companies, the initial AI hype has thus eased, leading to a relative weakening in the stocks of those companies that did not offer a clear model for monetizing these technologies. This shift from a global view of growth to a more differentiated view contributed to the overall quality of earnings in the market.

In the year ahead, it will be very important for investors to see real earnings and cash flow in AI stocks that now have valuations that are very high. Companies need to turn their investments in this technology into real customers and profits. If companies fail to do this, we could see sharp declines in their stocks.

Even the big banks are pointing out that the next year will be all about real numbers rather than just expectations. This is also linked to the outlook of many institutions on the performance of the major stock indices. Quite simply: growth is expected to slow down.

Outlook to 2026

The development of 2025 has created several assumptions for 2026. Stock markets are expected to:

• Reflect corporate earnings more than net expansion and outlook
• continue to benefit from technology investment, particularly in AI, but with tighter selection among firms actually creating economic value
• face ongoing regulatory and geopolitical challenges, including trade tensions and a potential modest acceleration in inflation associated with tariff policy.

This creates an environment where the market will have to seek a balance between growth and valuation, between innovation and macro stability. Although forecasts suggest that the market will continue to grow in 2026, despite a potential slowdown compared to 2025, it is the ability of companies to generate real profit growth and sustainable cash flow that will be key, not just the pace of technology investment or macro acceleration alone. JPMorgan $JPM continues to give the US recession a 35% chance of taking hold.

Conclusion

2025 was a watershed year for equity markets in that it changed the very way investors assess risk and growth. The market has gradually shifted from extreme sensitivity to macroeconomic signals towards a more nuanced view of individual sectors and companies. Inflation, interest rates and geopolitics have remained important variables, but have ceased to be the sole determinants of stock performance. The ability of companies to generate profits, maintain margins and monetise their services and products has returned to the fore.

The fundamental change from previous years is that the market has stopped rewarding outlooks without fundamental underpinnings in 2025. Artificial intelligence has moved into the practical implementation phase, leading to a significant selection between the winners and the rest of the market. Companies able to truly integrate AI into their business have strengthened their position, while valuations for the rest have started to fall.

Thus, 2025 can be seen in retrospect as a period when the markets cleared, but also laid a firmer foundation for the next phase of growth. Real results will thus be the main focus of 2026.

For years, Meta poured capital into AI infrastructure with the promise that revenue would follow. This time, the company chose a different route. By acquiring Manus for roughly $2 billion, Meta is accelerating the path from capability to cash flow, opting for a product that already performs complex tasks across enterprise systems instead of another long-horizon experiment.

What makes the deal strategically different is immediacy. Manus is not a prototype; it operates autonomous AI agents with paying customers and material recurring revenue. Under Mark Zuckerberg’s direction, Meta is signaling that the next phase of AI competition is about operational leverage and distribution, not model benchmarks or research prestige.

What is Manus and how is it different from conventional AI

Manus is not a chatbot or another generic language model. It's an autonomous AI agent, a system that can independently plan, make decisions, and execute tasks across multiple applications. While most AI today answers queries, Manus actually "works".

A typical example is recruiting: Manus can review resumes, compare candidates, prepare shortlists, arrange interviews, and propose decisions. Similarly, it works in travel, operational analytics or corporate planning. This makes it a tool that replaces concrete human work - and that's why companies pay for it.

The key point is that Manus was not designed primarily as a technology demonstration, but as a product. It has a pricing model, customers, and clearly defined uses from the start, which sets it apart from most AI startups of recent years.

Why Meta is reaching for a ready-made solution instead of developing it in-house

$META has top-notch research teams, proprietary models and infrastructure. Yet it decided to buy an outside firm. This in itself says that the problem is no longer technology, but productization.

Building an autonomous AI agent is not just a question of the model, but also of workflow, integrations, security, error control, and accountability for output. These are areas where AI projects often stall. Manus has solved these hurdles and Meta gains several years of "overnight" development with this purchase.

It also avoids the risk of a similar product becoming standard in the hands of competitors - such as Microsoft, Salesforce or one of the hyperscalers.

Monetization: what Meta desperately needs

Manus' greatest value is not the AI itself, but its business model. The company generates over $100 million in annual recurring revenue and is growing without massive marketing spend. This is extremely rare in the AI sector.

Meta benefits from this:

• an instant AI product with paid users
• proven market willingness to pay for autonomous AI
• a template to monetize AI beyond advertising

In the longer term, the integration of agent logic into WhatsApp, Messenger or Meta's enterprise tools is on the table. AI could thus become a service, not just a feature, fundamentally changing the economics of the entire ecosystem.

The $2 billion price tag makes strategic sense

At first glance, the amount may seem high, but in the context of the market, it is rational. Manus was preparing for another investment round with a similar valuation and Meta made this move:

• prevented the entry of competitors.
• gained control of a key technology
• bought growth instead of the promise of growth

Compared to how much Meta is investing in infrastructure with no direct return, this is a relatively "cheap" way to show investors a tangible outcome of an AI strategy.

Regulatory and geopolitical risk

A weakness of the deal is Manus' origins and the founding team's ties to China. In an era of technological fragmentation, this increases the likelihood of regulatory oversight. Meta has already announced a complete separation of Chinese ties, but political sensitivities remain.

On the other hand, Meta is accustomed to the regulatory fight. The risk is there, but it is neither unexpected nor fatal. Rather, it is the price of entry into what is becoming a strategic area in terms of global competition in AI.

What this means for investors

This acquisition does not signal the end of massive investment in AI infrastructure, but the addition of a pragmatic layer to it. Meta makes that clear:

• it no longer wants just the "best model"
• is looking for products that make money
• and is willing to pay to reduce the time to monetization

For investors, it signals a shift from vision to execution. Manus alone won't save Meta, but it shows that management understands where AI has to start generating returns. And that's exactly what the market wants to hear at this stage of the cycle.

As much of the software sector oscillates between optimism and cost discipline, Adobe continues to operate from a position of structural advantage. The company is not chasing artificial intelligence as a standalone narrative, nor is it defending a legacy model under threat. Instead, Q4 2025 shows a business that is steadily integrating AI into products customers already depend on, reinforcing pricing power rather than undermining it.

What stands out is the breadth of Adobe’s relevance. Creative tools remain central, but enterprise workflows, document management, and productivity solutions now play an equally important role in long-term value creation. In an environment where many software firms struggle to prove durable monetization, Adobe demonstrates that AI can deepen customer lock-in instead of commoditizing the platform.

How was the last quarter?

The fourth fiscal quarter delivered another record performancefor $ADBE and confirmed the stability of Adobe's business model across segments. Revenues were $6.19 billion, up 10% year-over-year, with consistent growth both in absolute terms and when adjusted for currency effects. Crucially, growth was not driven by one-off factors but by the continued expansion of subscriber relationships across customer groups.

Operating profitability remained at a very high level. GAAP operating profit was $2.26 billion, while non-GAAP operating profit was $2.82 billion. Net income on a GAAP basis was $1.86 billion and non-GAAP was $2.29 billion. Diluted earnings per share were $4.45 (GAAP) and $5.50 (non-GAAP), confirming the company's ability to translate revenue growth into profitability growth even with continued investment in AI and new platform development.

Cash performance was also a very strong signal. Operating cash flow in the quarter reached a record $3.16 billion, again underscoring the quality of the subscriber model and the low capital intensity of the business. Importantly, in terms of future revenue visibility, remaining contractual obligations (RCOs) reached US$22.52 billion, with 65% attributable to short-term obligations, indicating strong short and medium-term demand.

In terms of segments, Digital Media remains the main driver, generating US$4.62 billion in revenue in the quarter, up 11% year-on-year. Digital Experience added US$1.52 billion, representing 9% growth, with subscriptions in this segment alone growing by as much as 11%. The growth structure thus confirms that Adobe is not dependent on a single product, but benefits from a whole platform of interconnected tools.

• Full presentation with results.

CEO comments

CEO Shantanu Narayen in his comments, highlighted that the record results for the full fiscal year and the strong fourth quarter reflect Adobe's growing importance in the global AI ecosystem. He said the company is benefiting from the rapid adoption of AI tools across creative professionals and enterprise customers, and is succeeding in integrating generative and agent-based AI directly into products that customers use every day. The key message here was not about experimentation, but about the practical monetization of AI features within existing platforms.

CFO Dan Durn followed up with an emphasis on quality growth and cost discipline. He highlighted the strong global demand for Adobe's AI solutions across customer groups and expressed a high level of confidence in the company's ability to continue to deliver double-digit ARR growth in 2026 while maintaining top-line profitability. It is clear from his comments that management views the current developments not as the top of a cycle, but as a transition to the next phase of growth.

Outlook

The outlook for fiscal 2026 looks confident and consistent with the company's current pace. Adobe expects total revenues in the range of $25.9 billion to $26.1 billion and year-over-year growth in total ARR of approximately 10.2%. Management is also targeting continued subscription growth in both major customer groups, with the Business Professionals & Consumers segment expected to grow the fastest.

Profitability should remain very strong, with non-GAAP operating margin expected to be around 45% and non-GAAP earnings per share in the range of $23.30 to $23.50. For the first quarter of fiscal 2026, the company expects revenue of $6.25 billion to $6.30 billion and continued earnings per share growth. Importantly, the outlook also does not include the potential benefit of the planned acquisition, suggesting a conservative approach to forecasts.

Long-term results

The long-term performance shows an extremely stable and high-quality growth profile, which is still the exception rather than the rule for a company of this size. Total revenues have increased from approximately $15.8 billion to $21.5 billion over the past four fiscal years, which corresponds to continuous year-on-year growth in the range of around 10-11%. This is not a cyclical fluctuation, but a systematic trend that is supported by the expansion of the subscriber model across all major product lines and geographies.

Even more important than revenue growth itself is the evolution of the cost structure and gross margins. Cost of sales is growing at a significantly slower rate than revenue, which translates into accelerated gross profit growth over the long term. It increased from around USD 13,9 billion to more than USD 19,1 billion over the period under review. Thus, gross margin has not only remained at a very high level but has even improved slightly over time, confirming strong pricing, low demand elasticity and the ability to translate higher product value into prices.

At the level of operating performance, the company's strategic shift over the last two years is evident. Operating expenses are growing faster than revenues, mainly due to massive investments in development, AI infrastructure, data capabilities and product platform expansion. This is reflected in a slowdown in the rate of growth of operating profit, which is increasing by rather low single-digit percentages. Importantly, however, this is not an erosion of margins caused by market pressures, but a conscious decision by management to sacrifice some of the short-term momentum in favour of a long-term competitive advantage.

Nevertheless, net profit and earnings per share continue to grow at a steady pace. Net income has moved from about $4.8 billion to $5.6 billion, with EPS growth accelerating even faster thanks to a systematic reduction in the number of shares outstanding. The average number of shares outstanding has declined by about 2-3% each year, amplifying the effect of profitability growth on shareholders over the long term and confirming a disciplined approach to capital allocation.

Cash generation remains a great strength. EBITDA has grown from around US$6.7 billion to almost US$8 billion over four years, with a consistent growth rate that follows the overall development of the business. This has allowed the company to simultaneously fund heavy investment in development, make large share buybacks and maintain a very robust balance sheet without the need for significant debt.

News

In addition to the results themselves, Adobe also announced changes to its reporting starting in fiscal 2026. The company will focus more on reporting growth in total ARR and subscriptions by customer group, reflecting a shift in strategy toward long-term customer relationships and better transparency on key metrics. At the same time, there has been a revaluation of end ARR due to currency exchange rates, which has increased the baseline ARR entering 2026.

Shareholding structure

Adobe's shareholder structure is typical of a high-quality technology company with a global reach. Institutional investors hold more than 86% of the shares, with Vanguard Group, BlackRock and State Street among the largest shareholders. The high proportion of institutional capital indicates the confidence of long-term investors in the business model, strategy and the company's ability to generate stable returns. The proportion of insiders is very low, which is common for a firm of this size.

Analysts' expectations

The consensus of analysts perceives Adobe as one of the highest quality software companies in the market. Expectations focus on the firm's ability to sustain double-digit ARR growth over the long term, monetize AI features without disrupting existing pricing models, and maintain above-normal margins. Adobe is often viewed as a defensive growth title that combines stability with long-term growth potential, which is reflected in the market's willingness to accept premium valuations.

Fair Price

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Most investors experience the semiconductor industry through the lens of headline names and flagship products. Yet the real value creation often happens far away from finished chips, in highly specialized process layers that become more critical with every technology node. Companies operating there rarely dominate headlines, but when they solve a bottleneck others cannot, they gain pricing power rather than publicity.

This is precisely the case with a company that has transformed itself over the last three years. Revenue has nearly tripled, profitability has scaled faster than sales, and margins have expanded instead of compressing. Importantly, this growth has not been fueled by leverage or speculative demand, but by structural adoption across advanced manufacturing — the kind of progress markets tend to recognize only after it is well established.

Analysis highlights

• Revenues grew from $259.8 million in 2021 to $782.1 million in 2024, a CAGR of approximately 44% over three years.
• Gross margin has moved from approximately 44% in 2021 to approximately 50% in 2024 and operating margin is close to 19%.
• Operating profit in 2024 is $151.0 million and EBITDA is $180.4 million, so the business is not a "story" but a profitable business.
• China exposure is both a major growth driver and a key risk, with some materials stating that in 2024 the vast majority of revenue will come from mainland China.
• The product base is based on wafer cleaning, where the company is pushing for chemical efficiency.
• The market is valuing the firm more cautiously than parts of the sector, reflecting geopolitics and regulatory risk in the price, not weak financials.

Company profile

ACM Research $ACMR is a semiconductor fab equipment manufacturer, primarily focused on specialty processes and wafer cleaning. In semiconductor manufacturing, a simple logic applies: the more advanced the node, the higher the transistor density, and the more complex the layering, the greater the importance of cleanliness, uniformity, and defect minimization. Wafer cleaning is not a side step, but a fundamental condition for yield. If yield falls, it costs the factory orders of magnitude more money than the device itself.

This is the first reason why this segment is attractive in the long term. The second reason is market structure. A few giants dominate the most visible parts of chip-making equipment, but there is room in the so-called wet processes for specialist players who can win through a combination of technology, flexibility and total cost of ownership. ACM Research profiles itself in exactly this way, with its product innovations often based on chemistry efficiency, throughput and integration of steps that customers otherwise tackle separately.

The third reason is geopolitics and the investment cycle in Asia. The company has historically built a particularly strong position in mainland China, where it is investing massively in semiconductor self-sufficiency. This generates growth, but also creates the risk that part of the firm's future will depend on export restrictions, licensing and regulatory changes. This combination of "rapid growth + geopolitical uncertainty" is why the market often values it more conservatively than would be consistent with financial performance alone.

Products and technology: What the company actually sells and where it has an advantage

At the core of the portfolio are solutions for wafer cleaning and related wet processes. The most well-known products include the platform Ultra C Tahoewhich combines batch and single-wafer architecture in one system and is described as a path to high performance with lower chemical consumption. In practice, this has two investment-grade implications: the customer not only addresses cleaning quality, but also optimizes operating costs, environmental limits and chemical logistics, factors that are increasingly being addressed in new plants.

The company has long built a story on being able to achieve high cleaning quality for advanced nodes while pushing for consumption efficiency. For Tahoe, claims of significant reductions in chemical consumption while maintaining performance have appeared in various materials, which fits with the trend of plants looking for savings not only in CAPEX, but also in OPEX and environmental profile. In semiconductor equipment, it's not cosmetics. If a supplier can reduce chemistry consumption, simplify process steps or increase throughput, it can improve the economics of the entire line for the customer.

The portfolio shift is also important. The materials state that wafer cleaning accounted for a significant portion of sales, but the company is simultaneously expanding its product base into other areas related to wafer fabrication, which is exactly the type of diversification that reduces the risk that a single product or a single sub-segment will slow down over time. At the same time, while the company is expanding, its biggest competitive advantage so far remains in wet processes. Investors should take this as a fact and monitor whether new product lines are contributing margin or just volume.

Where the company operates, who buys the "product" itself

Most of the business has historically been associated with mainland China. One of the more detailed descriptions states that in 2024, the vast majority of sales came from there. This is extremely important because it explains two things at the same time. First, why the company was able to grow at a rate of tens of percent a year even in an environment where parts of the Western semiconductor cycle were slowing down. Second, why the risk of export restrictions, licensing and geopolitical escalation constantly hovered over the company.

Chinese exposure is not inherently bad if a company can translate it into know-how, installed base and follow-on service over the long term. The risk arises when the rules of the game change: restrictions on access to certain components, interference in supply chains or pressure for local substitution. The company itself has talked in public statements about expanding its geographic footprint beyond mainland China, which is key to the investment story as it can gradually reduce the risk premium in valuation.

Another element is important for investors to understand: for companies with a significant Chinese footprint, there are often technical and accounting nuances in corporate structure and cash transfers. For example, the documents describe rules around reserves in Chinese entities and limits on transfers of a portion of profits towards the parent company. This is not necessarily a "red flag", but it is a reality that investors need to monitor as it affects capital flexibility in extreme scenarios.

The market, competition and why this company is not just a "small player next to the giants"

ACM Research profiles itself as a specialist with a broad product base within the cleaning industry, where it seeks to compete not only on performance but also on chemical efficiency and overall productivity. This makes sense, because in practice customers make decisions based on a combination of yield, throughput, downtime, chemical consumption and service support.

Competitive advantage for such a company does not arise by "outcompeting" a giant in every category. It arises by having a better price-performance ratio in certain processes or with certain customers, iterating faster, and being able to deliver, service and modify solutions in shorter cycles due to its local presence. If this model is successful, it leads to two things: a growing installed base and growing customer confidence that the vendor can handle the next generation of processes.

Competition:

Applied Materials $AMAT

The largest and most influential player in semiconductor equipment. Has an extremely strong position across the entire manufacturing chain and also offers solutions for wet processes and wafer cleaning.

Applied Materials is a widely diversified conglomerate. For specific cleaning processes, it does not often optimize "customized" solutions, but offers robust, versatile systems. This opens up space for specialized players that can deliver better chemistry-throughput-consumption ratios for specific process steps.

Lam Research $LRCX

Lam Research is a very strong player technologically, particularly in etch and deposition, but also has a presence in wet processes.

Lam's primary focus is on the most advanced nodes at top-tier customers. In many cases, its solutions are technologically cutting-edge, but also more costly and less flexible. This creates room for an alternative supplier where the customer is looking for lower total cost of ownershiprather than the absolute technological extreme.

CEO and management

For smaller and mid-sized technology firms, the quality of the CEO is often the biggest difference between a long-term winner and a firm that shoots up once and then stagnates. ACM Research is led by its founder Dr. David H. Wangwho has long been listed as Chairman, President and CEO. From an investor's perspective, it is important that he is not a "manager hired for growth" but a technology-oriented founder with a deep professional background.

His education and technical background, including his studies at Tsinghua University and post-graduate education at Osaka University, are listed in public profiles. This in itself is no guarantee of success, but in semiconductor equipment it often correlates with a CEO's understanding of product details, development cycles, and what customers really need. Combined with the fact that the company was able to scale revenue from ~$260 million to ~$782 million in three years, it's a profile that deserves respect.

Even more important is the capital discipline and ability to scale without breaking margins. The numbers show that while the company has been aggressively increasing operating expenses (OPEX), it has also been growing revenue faster and, more importantly, improving operating profit. Operating profit grew from $38.7 million in 2021 to $151.0 million in 2024. This is exactly the type of evidence that management can manage growth and that it is not a "whatever it takes" expansion.

Financial performance

Revenues grew for four consecutive years: $259.8 million (2021), $388.8 million (2022), $557.7 million (2023) and $782.1 million (2024). This corresponds to a compound growth rate of approximately 44% over the period 2021-2024. More importantly, growth has not come at the expense of profitability.

Gross profit increased from USD 114.9 million (2021) to USD 391.6 million (2024). Thus, gross margin has moved from about 44% in 2021 to about 50% in 2024. This trend is very valuable in semiconductor equipment because it shows that the company is not only selling more, but selling more profitably, improving mix, pricing or manufacturing efficiency.

Operating profit increased from $38.7 million in 2021 to $151.0 million in 2024, nearly quadrupling. The operating margin was around 19% in 2024, while EBITDA reached $180.4 million, corresponding to an EBITDA margin of approximately 23%. These are no longer "startup numbers" but the profile of a company that has entered a more mature profitability phase.

Net income in 2024 was $103.6 million and EPS was $1.67, while in 2021 net income was $37.8 million and EPS was $0.65. Profitability is therefore growing, although it is worth noting that net margins can fluctuate in the short term due to taxes, exchange rates and the profit structure in different jurisdictions.

Valuation: growth priced soberly, not aggressively

In terms of absolute multiples, the ACM Research does not trade as a cheap stock in the traditional sense, but neither does it trade as an overbought growth title. A price-to-earnings ratio of around 23 times is consistent with a company that has already entered a phase of steady profitability, while maintaining an above-average growth rate. This in itself would not be exceptional in the semiconductor sector unless growth is well above the sector average.

The key argument in favour of the current valuation is the combination of P/E and PEG. A PEG of around 0.8-0.9 suggests that the earnings growth rate is not fully reflected in the share price. With year-over-year earnings growth of over 50% and EPS growth of over 20%, a P/E of around 23 times looks more like a conservative valuation for a growth companyrather than an aggressive bet on the future. In other words, an investor today is not paying an "AI premium" but is primarily valuing growth already realized.

From an earnings perspective, the stock is trading at roughly 2.9 times annual saleswhich is relatively moderate for a semiconductor equipment manufacturer with double-digit operating margins. Comparable companies in the WFE segment often see multiples above 4 times sales at similar growth rates. The discount here is not based on poorer business economics, but on external factors, primarily geopolitical exposure and regional concentration.

Another perspective offers enterprise valuewhich is around USD 1.8 billion with a market capitalisation of around USD 2.6 billion. The difference is due to a strong cash position and low debt. The company has a low debt-to-equity ratio of around 0.2 and a high interest coverage ratio of over 27 times, meaning the valuation is not "inflated" by financial leverage. Instead, some of the value remains anchored in cash and working capital, which exceeds $1.7 billion.

In terms of return on capital, the numbers are not dazzling at first glance. ROA of around 4% and ROIC of around 5% are rather average. But they need to be read in the context of a company that is still investing massively in growth and carrying a high capital base. If the rate of revenue growth stabilizes in the coming years and investment starts to become more prorated into earnings, there is room for a gradual improvement in returnswhich would be a further impetus for a revaluation.

Balance sheet and financial stability

The balance sheet is often underestimated in the semiconductor equipment industry, but in a cyclical industry it is crucial to survive the weaker phase without shareholder dilution. Here the picture is relatively strong. Total assets grew to $1.86 billion in 2024, while equity exceeded $1.09 billion.

Working capital is also positive, reaching US$842.1 million in 2024. This is particularly important for companies that are growing rapidly and need to finance inventories and receivables. In practice, this reduces the risk of a firm "hitting" the cash ceiling as it grows.

At the same time, it is fair to say that for firms with a significant Chinese entity, cash conversion and dividend policy may be affected by local regulation and reserve funds, as described in public documents. For an investor, this means keeping an eye on the cash structure and its availability for the parent company.

Why the company can continue to grow

The growth story is built on several layers that reinforce each other. The first layer is a structural trend: more complex chips mean more process steps, and therefore more cleaning and more defect control. The second layer is the geographic investment wave in Asia, which is still building capacity massively. The third layer is the company's execution itself, which has managed to lift revenues by more than $500 million in three years while increasing margins.

The specific catalyst is the continued expansion of the product base and scaling of the Tahoe platform, where the company is pushing for a combination of performance and chemical efficiency. If this type of innovation leads to a lower cost of ownership for the customer, it increases the chance that the company will not just grow in one cycle, but will win repeat orders and expand the installed base.

Another catalyst is gradual diversification outside China. Even if the firm maintains a strong position in China, the very fact that the market perceives concentration as a risk means that any tangible progress in the US, Europe or with other Asian customers may reduce the valuation discount. In this regard, the public references to strengthening its presence in the US and seeking to become a more relevant supplier outside its core historical territory are interesting.

In terms of the numbers framework, the 2025 revenue outlook in the materials appears in the US$850-950 million range. Even if the company delivers more in the middle of the range, it is still a growth versus US$782 million in 2024, and a test of whether gross margins can stay on the trend the company communicates as a long-term goal.

Risks: what could go wrong with this story

• Geopolitics and export restrictions that may limit access to components, customers or the ability to supply certain equipment configurations.
• Revenue concentration in China, which increases sensitivity to the local investment cycle and regulatory intervention.
• Competitive pressures in wafer cleaning, where large players may respond with price, product bundling or investment capacity.
• Execution risk when scaling as rapid growth tests manufacturing, supply chain and service infrastructure.
• Corporate and cash structure with a Chinese entity, including rules around reserves and profit transfers that may limit flexibility in extreme scenarios.

How professional analysts see the company

For example, analysts offer an interesting perspective Needham & Companywho have been following the company for a long time in the semiconductor sector. In their comments, they repeatedly highlight the combination of above-average revenue growth, improving margins and a relatively conservative valuation, with geopolitical exposure to China remaining the main reason for the discount.

At the same time, Needham points out that the firm is one of the few suppliers in the wafer cleaning space that has been able to grow faster than the overall WFE market without sacrificing profitability. In their view, the key catalyst for the next few years is the ability to maintain a technological edge while gradually reducing regional concentration, which could lead to a reduction in the risk premium in valuation.

Investment scenarios

Pessimistic scenario

The pessimistic scenario combines two things: tighter export restrictions and a sharper slowdown in China's investment cycle. In such a situation, the company could face a shortfall in orders or pressure on the supply of certain components. The impact would not only be reflected in sales growth, but also in margins, as lower capacity utilisation usually leads to worse absorption of fixed costs. The key point, however, is that the firm is reportedly net cash and thus should not be forced to address survival through a share issue or crisis financing. In this scenario, a stagnation or decline in share price and a multi-year "waiting period" are more likely than an existential problem.

Baseline scenario

The baseline scenario is the one that best fits the development to date. The company continues to grow, but the pace normalizes from the extreme 40-50% towards the lower teens, which is logical. The $850-950 million outlook for 2025 fits this picture. In this scenario, the investment thesis relies on continued expansion of the installed base, a gradual increase in recurring service revenue, and maintaining gross margins in the range that the company has gradually improved. The market may continue to value the firm conservatively due to geopolitics, but the investor is harvesting value through earnings per share growth and a progressively more robust margin profile.

Optimistic scenario

The optimistic scenario has two legs. The first is purely business: the company will maintain above-average growth by expanding its portfolio beyond basic cleaning and by making inroads outside of China. The second leg is valuation: once concentration concerns diminish or export restrictions prove "manageable", the valuation discount may narrow. This is important because, even without the "AI premium", the company already has a profile that merits higher multiples than a normal cyclical supplier if it can sustain margins and profit growth. In such a scenario, the return can be a combination of profitability growth and re-rating.

Looking ahead: what the company specifically promises and what the market expects

Management ACM Research has long shared the ambition to maintain above-average growth rates in the coming yearsprimarily through a combination of an expanding product portfolio, higher penetration with existing customers and continued investment in domestic semiconductor manufacturing in Asia.

Short-term outlook (next 1-2 years)

Based on publicly communicated expectations and market estimates, it is anticipated that:

• sales should continue to grow at a double-digit rate, with the market working with a scenario approximately 20-30% year-on-year growth after a record year in 2024.
• operating margins should remain in the mid-rangearound 14-16%, despite continued investment in development and production.
• earnings per share to continue to growalbeit at a slower pace than sales, driven by capacity expansion.

Management has repeatedly stressed that the priority is not short-term margin maximisation but scaling the business and consolidating its technological positionwhich is important to read correctly in the context of valuation.

Medium-term outlook (3-5 years)

Analyst estimates and market commentary paint a more ambitious picture:

• Revenues could approach the USD 1-1.2 billion mark within a few years.if the company maintains its pace of expansion and there is no significant cyclical cooling.
• EPS growth is estimated by consensus to average around 20% per annum.
• Improving operating leverage should lead to a gradual increase in return on equity (ROIC), which is one of the key factors for an eventual re-rating of the stock.

The market is also pricing in the company's ability to to finance its growth largely from its own resourceswithout the need for a significant increase in debt, which is consistent with its current balance sheet position.

What to take away from the article

• The company has nearly tripled revenues over the past three years while significantly improving margins, confirming that this is not a cyclical fad but a workable business model.
• At the core of the value is not promises of future technologies, but a critical role in the chip manufacturing process where every improvement in yield and purity has a direct financial impact.
• A CEO and founder with a deep technical background is a key asset, because execution and understanding of details, not marketing, is critical in semiconductor equipment.
• A strong balance sheet and net cash significantly reduce risk in the worse phases of the cycle.
• The biggest opportunity is a combination of structural market growth and gradual diversification outside China.
• The biggest risk remains geopolitics and revenue concentration, which is also the main reason why the title is more cautiously valued than parts of the sector.

Nvidia’s $5 billion equity investment in Intel is not a routine financial allocation, but a calculated move within a rapidly reshaping semiconductor landscape. At a time when chipmaking capacity has become a matter of national resilience rather than pure market efficiency, this transaction places Nvidia at the intersection of technology leadership and industrial strategy. The deal sends a clear message: the future of advanced computing in the US will not be built in isolation.

What makes the move notable is not Intel’s current performance, but its role in the broader supply chain. As the US pushes to rebuild domestic semiconductor manufacturing, Intel remains one of the few players capable of operating at scale. Nvidia’s capital injection strengthens that effort while quietly reducing its own long-term dependency on external foundries, particularly in an increasingly fragmented geopolitical environment.

Financial oxygen for Intel after years of heavy investment

For Intel, $INTC represents a clear relief for Nvidia's $NVDA entry . In recent years, the company has invested massively in building new factories in the US and Europe to regain technological sovereignty and compete with manufacturers such as TSMC $TSM and Samsung $SMSN.L. However, these moves have put a significant strain on its balance sheet, increased debt and put pressure on investors to return capital.

Nvidia's $5 billion investment:

• Strengthens Intel's cash position without the need for additional debt
• comes from a strategic partner, not a speculative investor
• increases the credibility of Intel's long-term manufacturing strategy

The market sees the move as confirmation that Intel - despite past mistakes - remains a key link in the US chip ecosystem.

Why Nvidia is investing in a company that competes with it

From Nvidia's perspective, this is not a classic stock investment with the goal of short-term profit. Nvidia is buying Intel not to control it, but because the future of AI will not just be about chip design, but also about manufacturing capacity, geopolitics and supply chain stability.

Nvidia is extremely dependent on external manufacturing, especially at TSMC. As the AI boom continues to accelerate, the availability of advanced manufacturing becomes a strategic bottleneck. Intel, which is transforming itself into an open third-party chipmaker, may be one of the few alternative manufacturing options in the US and Europe in the long term.

Thus, the investment may:

• open the door to future manufacturing collaborations
• strengthen US technological autonomy vis-à-vis Asia
• reduce systemic risk for the entire AI ecosystem

Regulators give the green light, market remains cautious

US antitrust authorities have approved the investment, confirming that the transaction is not perceived as anti-competitive. Nvidia does not become a dominant shareholder and does not gain control over Intel's strategy.

Nevertheless, the market reaction was rather weak. Nvidia's shares weakened slightly, while Intel's shares remained without significant movement. This suggests that investors are reading the move as a long-term strategy rather than an immediate catalyst for profitability for now.

A symbol of a broader change in the chip industry

This transaction illustrates well how relationships are changing in the semiconductor world. Previously clearly separated roles - chip designer, manufacturer, customer - are beginning to blend. In the era of artificial intelligence, it is no longer just about technological superiority, but about:

• production stability
• political support
• the ability to finance extremely expensive capacity

By investing in Intel, Nvidia is effectively saying that a strong and financially stable Intel is in its own strategic interest. For Intel, it is again a confirmation that its efforts to return to the big leagues are supported by even the strongest players in the market.

What investors can take away from this

For investors, this is not a simple "winner and loser" story. Nvidia remains the dominant force in the AI revolution, but at the same time, it is securing future flexibility. Intel, on the other hand, is gaining time, capital and confidence, but still needs to deliver the technological results to justify that confidence.

This deal is not a bet for next quarter. It's a bet on what the global chip industry will look like in the next ten years - and that's why it's worth paying attention to.

Despite the macro headwinds facing Europe — including slower GDP growth, structural scepticism from global investors and competitive pressure from U.S. equities — pockets of value are emerging on the German exchange. Here we explore three fundamentally strong companies trading at significant discounts to their fair prices based on Bulios metrics, with robust cash flows and resilient business models that the broader market has yet to fully appreciate. This article navigates the structural reasons behind their valuation gaps and what long-term investors should consider when assessing European opportunities in an era defined by global economic divergence. 

The situation in Europe

European equity markets, and the German one in particular, are going through a prolonged period of structural scepticism on the part of investors. While US indices have benefited from the dominance of the tech giants in recent years, Europe has remained under pressure by a combination of weaker economic growth, higher regulatory burdens and geopolitical risks. In addition, Germany as an export-oriented economy has been hit by the global trade slowdown, the energy crisis and weakening industrial production.

From an investment perspective, however, this context is crucial. Low expectations have historically been one of the the main sources of future returns. Many large German companies are now trading at prices that reflect stagnation rather than the ability to adapt, despite the fact that their business is globally diversified and less dependent on purely domestic demand, which many investors still believe.

Moreover, the current environment of higher interest rates highlights the importance of companies with robust cash flow, disciplined capital structures and the ability to pay a sustainable dividend. These characteristics are typical of some traditional European blue-chip companies. And this now gives them room to accumulate ahead of potential future growth.

Market context: the German stock market and interest rates

The German stock market, represented mainly by the DAX index, is characterised by a high proportion of cyclical sectors, financial institutions and industrial conglomerates. In contrast to the US indices, technology companies play a smaller role, which has led to the German market underperforming over the last decade. At the same time, however, this means less sensitivity to valuations based solely on future growth.

Politics European Central Bankswhich raised interest rates significantly in response to inflation had a twofold impact on European equities. In the short term, it has increased pressure on valuations and economic activity, but in the long term it has improved the investment attractiveness of sectors such as insurance and telecommunications, where higher rates support investment returns or cash flow stability. For capital-intensive sectors, such as the automotive industry, higher rates are more of a problem (Volkswagen $VOW, among others, has paid the price, which we will also get to in this article).

In this environment, German equities are in an interesting position. They combine relatively low valuations, a high proportion of cash flows returned to shareholders and exposure to global trends without being priced at a high growth premium. Let's take a look at them.

Allianz $ALV.DE

Allianz has long been one of the most important financial institutions in Europe and one of the largest insurance groups in the world. It is a typical example of a company that does not look attractive at first glance in terms of strong share price growth, but on closer inspection offers a combination of stability, strong cash flow and a valuation that does not quite match the quality of the business.

Allianz's business model is built on three main pillars. The first is the traditional non-life insurance business, which includes property, liability and commercial risks. The second pillar is life and health insurance, which is more stable in terms of margins but more sensitive to the interest rate environment and regulations. The third and often underestimated segment is asset management, mainly carried out through the subsidiaries PIMCO and Allianz Global Investors. This segment delivers less capital-intensive returns and increases the overall diversification of the Group.

In terms of sector positioning, Allianz has a distinct competitive advantage in its combination of size, geographic diversification and capital strength. The Group operates in more than 70 countries and a significant portion of its profits are generated outside Germany, reducing its dependence on the domestic economic cycle. Compared to smaller insurers, Allianz has a better bargaining position vis-à-vis reinsurers, more efficient risk management and greater resilience to claims volatility. This translates into more stable profitability and lower volatility of results over the long term.

The company's financial health is one of its greatest strengths. Allianz has a long track record of robust operating profit, high return on capital and a disciplined approach to balance sheet management. Allianz's solvency ratio, which is a key indicator of the capital adequacy of insurance companies in Europe, is consistently well above the regulatory minimum. This means that the company has sufficient capital not only to cover its insurance liabilities, but also to pay dividends and repurchase shares.

From a cash flow perspective, it is important to note that the insurance business generates cash with some lag, but at the same time generates predictable cash flows over the long term. Allianz is able to invest these funds efficiently, and higher interest rates in recent years have improved the return on newly invested capital. This effect is not immediate but gradually increases the overall profitability of the portfolio, which is one of the main reasons why analysts see the current environment as structurally favourable for insurers. It is also certainly not out of place to mention that the company has been able to significantly reduce its debt from €36 billion to €30 billion since 2022.

Allianz's dividend policy is one of the main reasons why the stock is popular among long-term investors. The company has a long-term commitment to paying an attractive and sustainable dividend that is backed by earnings and a strong capital position. The dividend yield has been above the European market average (3.94%) in recent years and, combined with occasional share buybacks, represents a significant proportion of the total return to shareholders.

In terms of valuation, according to the metrics found on Bulios, Allianz trades at a relatively low price-to-earnings ratio (14.4) compared to historical averages and global peers. Fair price index indicates that the market is projecting a rather conservative future scenario into the share price, which does not assume the full benefits of higher rates or the long-term stability of the business. In other words, investors today are paying a price that corresponds to a stagnant financial house, not a global leader with high capital efficiency.

Yet the risks associated with investing in Allianz shares are real and cannot be ignored. These include, in particular, extreme insurance events such as natural disasters, which can put a short-term strain on the bottom line. Another risk is the regulatory environment in Europe, which may limit the flexibility of capital management. Last but not least, there is the risk of fluctuations in the financial markets, which may negatively affect the value of the investment portfolio. However, all of these factors are largely inherent to the sector as a whole and Allianz, due to its size and diversification, is better able to absorb them than most competitors.

Allianz is thus a typical example of a firm whose current valuation reflects a rather general scepticism towards European financials. It is this mismatch between fundamentals and market sentiment that makes Allianz a very attractive company for many investors to follow.

Deutsche Telekom $DTE.DE

While the insurance industry benefits primarily from financial stability and the interest rate environment, the telecom sector is built on infrastructure, long-term contracts and relatively predictable cash flows. It is this combination that makes Deutsche Telekom a typical defensive stock, but thanks to its US exposure it also offers a structural growth element that is unusual by European standards.

Deutsche Telekom's business model is based on the provision of fixed and mobile telecommunications services, data transmission and digital infrastructure to households, businesses and the public sector. The long-term nature of customer relationships, the high cost of switching providers and the regulatory protection of infrastructure play a key role. The telecoms business is capital intensive but relatively stable, as demand for connectivity in a modern economy is structural, not cyclical.

A key element of Deutsche Telekom's investment thesis is its majority stake in T-Mobile US, one of the fastest growing mobile operators in the United States. This stake fundamentally changes the profile of the entire Group. While the European part of the business is characterised by slower growth, the US market offers higher margins, a more dynamic competitive environment and a more favourable long-term demographic development. As a result, a significant part of the Group's profit and cash flow growth comes from the US, which is not common among European telecom companies.

In terms of sector position, Deutsche Telekom is one of the strongest players in Europe. In Germany, it has a dominant position in both fixed internet and mobile services, and is investing heavily in the development of fibre-optic networks and 5G infrastructure. These investments put a strain on free cash flow in the short term, but strengthen competitive advantage in the long term and reduce the risk of technological obsolescence. In the European context, Deutsche Telekom is one of the few companies that can combine scale, technological quality and a relatively consistent return on capital.

Certainly, the year 2023 should be highlighted, when the company managed to achieve revenues of EUR 112 billion and a net margin of 15.89%. This lifted the group's net profit to a record EUR 18 billion. Last year, the figures returned to the levels of previous years, but they are still very high.

The company's financial health is often a subject of debate, mainly due to its high level of debt. The telecoms sector generally operates with higher debt because stable cash flow allows it to service its liabilities over a long period of time. Deutsche Telekom is no exception, but its debt structure is spread over time and interest costs are largely fixed. Crucially, operating cash flow covers both investments and dividends over the long term, which reduces the risk of financial instability.

Debt has not decreased or increased over the last 4 years and is still around EUR 140 billion. This is high for a company with a market capitalization of €135 billion, but normal in this segment.

In terms of profitability, the difference between the European and the American part of the business should be highlighted. While European operations are characterized by lower margins and higher regulatory burdens, T-Mobile US generates significantly higher operating margins and has better customer base growth momentum. This mix is gradually improving the overall profile of the Group and enhancing its ability to grow even in an environment of economic uncertainty.

Deutsche Telekom's dividend policy is relatively conservative but stable. The company focuses on dividend sustainability rather than maximizing short-term yield. The dividend yield currently stands at 3.64%.

In terms of valuation, Deutsche Telekom trades at valuations that reflect the European portion of the business rather than the full value of the U.S. exposure. The price-to-earnings ratio (11.12) and other metrics remain below historical averages, although asset quality and earnings structure have improved in recent years. Fair Price Index based on DCF and relative valuations, suggests that the market is not fully pricing in the long-term benefits of T-Mobile US or the gradual improvement in operating efficiency. As a result, the stock is currently trading 47.6% below its fair intrinsic value.

The risks associated with Deutsche Telekom are primarily regulatory and technological in nature. In Europe, further price regulation or mandatory infrastructure investments may pressure margins. Then in the US, there is the risk of intensified competition and related price wars that could slow T-Mobile US' profitability growth. Another factor is the sector's high capital intensity, which limits flexibility in times of major economic shocks.

Volkswagen $VOW3.DE

From an investment perspective, Volkswagen is both the most complex and the riskiest company in this selection. The automotive industry is in the midst of a historic transformation that combines technological change, regulatory pressure and changing consumer behavior. It is in this environment that Volkswagen is trading at valuations that imply long-term structural decline, even though the real picture of the company is much more complex.

Volkswagen's business model is based on a unique multi-brand structure covering a wide range of price segments. The group includes mass brands such as Volkswagen, Skoda and SEAT, premium manufacturers Audi and Porsche, as well as exposure to the pure luxury and sports segments. This model has historically allowed for the efficient sharing of platforms, technology and production capacity, increasing operating leverage during periods of growth. At the same time, this complexity increases management demands and slows the ability to respond to rapid market changes.

Volkswagen's position in the global automotive sector remains extremely strong. The Group has long been one of the world's largest car manufacturers in terms of production volume and has a dominant position in Europe as well as a significant presence in China. It is the Chinese market that is one of the key drivers of current developments. While in the past it was a major source of growth and profitability, in recent years it has become a source of uncertainty due to slowing demand and increasing competition from domestic EV manufacturers.

Volkswagen's financial health is often underestimated due to the cyclical nature of the business. However, the group has a large cash position and its automotive division generates strong operating cash flow in normal years. Financial services, which form a significant part of the balance sheet but have a different risk profile than car production itself, must be viewed separately. Adjusted for this segment, the automotive division's debt is less problematic than it might appear at first sight.

Volkswagen's profitability is strongly dependent on the economic cycle and the regional structure of sales. Premium brands, notably Porsche and Audi, generate significantly higher margins than the mass segment and account for a key part of the group's profits. This fact is also crucial for an investment perspective, as the market often values Volkswagen as a homogeneous manufacturing company, not as a combination of mass and premium business with different profitability. However, overall margins have been declining relentlessly in recent years. This can be seen in the following chart.

Volkswagen's dividend policy is significantly more volatile than that of Allianz or Deutsche Telekom. Dividend payments are strongly linked to the economic cycle and the Group's investment needs. In years of high profitability, Volkswagen is able to offer an above-average dividend yield, but in bad times the dividend serves more as a flexible instrument than as a stable commitment to shareholders. In recent years, the dividend has been cut very significantly, going from €9 per share last year to €6.3 per share, which was paid in May this year. A dividend of €6.36 per share has been announced for next year.

Volkswagen's share valuation is among the lowest in the global automotive sector. The price-to-earnings ratio (7.8) and other metrics, which can be found in share details on Bulios, are well below long-term averages, reflecting the market's significant pessimism. The Fair Price Index suggests that the current share price assumes long-term margin pressure and the company's limited ability to monetize the transition to electric mobility, where the company is struggling to break out.

Volkswagen's biggest risks include the high capital requirements associated with the transition to electromobility, increasing competition from Chinese manufacturers, and regulatory pressure in Europe. Another major risk is the complex ownership structure and political influence, which may limit the flexibility of strategic decisions.

Of the three, Volkswagen requires the highest level of patience and risk tolerance from investors. Indeed, a share drop that may seem significant at first sight may not be recovered in the foreseeable future. The current situation and the low share price may well become an absolutely normal feature of Volkswagen for several years.

Conclusion

European equities have found themselves in an environment of persistently low expectations in recent years as a result of a combination of slower economic growth, higher regulation and long-term comparisons with US market dynamics. This contrast has led to many established European companies being valued through the lens of risk and constraints rather than their actual ability to generate stable earnings and cash flow on a global scale. As a result, capital is often shifted into higher growth but more volatile segments, while traditional sectors remain on the sidelines, although their economic role remains crucial.

And it is this caution on the part of many investors that creates the space that can be transformed by savvy investors into strong portfolio growth over the longer term.

Salesforce is no longer trying to prove that it can grow. That question has effectively been settled. What Q3 FY2026 shows instead is a company focused on extracting durable value from its scale — tightening cost discipline, expanding margins, and converting revenue into consistent free cash flow. The narrative has shifted from expansion to execution.

Artificial intelligence is undergoing a similar transition inside the company. Once positioned mainly as a strategic vision, AI is now embedded into the product stack in ways that customers are actively paying for. This marks an important inflection point: Salesforce’s AI strategy is moving from optional enhancement to revenue-driving infrastructure, reinforcing a more mature and resilient business model.

How was the last quarter?

The third quarter of fiscal year 2026 was one of the strongest for Salesforce in years, clearly showing that the company can combine steady revenue growth with significant improvements in profitability and cash flow. Total revenue reached $10.3 billion, up 9% year-over-year, with the key subscription and support segment growing to $9.7 billion, up 10% year-over-year. This growth was primarily driven by continued adoption of cloud solutions, expansion with existing customers and growing demand for AI products.

Customer commitments are a very strong signal going forward. Current Remaining Performance Obligation (cRPO) rose to $29.4 billion, up 11% year-on-year, while total RPO climbed to $59.5 billion, also up 12%. These figures confirm a robust pipeline of future revenues and high revenue visibility for the next few years.

Profitability moved significantly higher. GAAP operating margin reached 21.3%, while non-GAAP operating margin rose to 35.5%, the result of management's long-term push for operational efficiency, cost optimization and better monetization of the software portfolio. Operating cash flow was $2.3 billion, up 17% year-over-year, and free cash flow was $2.2 billion, up 22% year-over-year.

Salesforce $CRM also aggressively returned capital to shareholders. During the quarter, the company repaid and repurchased shares totaling $4.2 billion, of which $3.8 billion was attributable to share repurchases and $395 million to dividends. This underscores management's confidence in the long-term cash generation and stability of the business.

• Full presentation with results.

Management commentary

Chief Executive Officer Marc Benioff in his comments, emphasized that the third quarter results confirm the soundness of the strategic turnaround that Salesforce has initiated in recent years. According to him, the company is now on a much firmer footing than ever before, combining steady growth with high operational efficiency and strong cash generation. He sees the results as proof that Salesforce can grow in a more challenging macroeconomic environment without having to revert to aggressive cost increases.

Benioff has repeatedly emphasized the role of artificial intelligence and the data platform as a key driver of the next phase of growth. He said AI at Salesforce is moving from the experimental phase into real business, where customers are seeing tangible benefits in productivity, automation and better use of data. It is the deep integration of AI into core products - CRM, data platform and analytics tools - that management believes will enable the firm to increase the value of contracts with existing clients, not just chase new customers at the cost of margin pressure.

He also devoted a significant portion of his comments to internal changes in the firm's operations. He stressed that the emphasis on operational discipline, a simpler management structure and clear prioritisation of investments is not a short-term measure, but a permanent part of the company's culture. Salesforce, he said, has moved to a stage where it is able to deliver high margins over the long term while investing in innovation without compromising financial stability.

Outlook

Salesforce's outlook remains cautiously constructive. The company expects revenue growth to continue to be more in the single digits, but with an increasing focus on margins and cash flow. The key takeaway for investors is that management is making it clear that a return to aggressive "growth at any cost" is not on the agenda.

The next few quarters will therefore be all about whether AI functions can be translated into actual customer budget items and whether cost discipline can be maintained with continued investment. If so, Salesforce may gradually move into the category of technology companies that are seen as steady cash-flow machines rather than growth experiments.

Long-term results

A look at the long-term numbers confirms that Salesforce has moved from a fast-growing but cost-intensive company to a highly profitable software leader with significant operating leverage. The company's annual revenue has been steadily increasing in recent years, and for fiscal 2026, management now expects total revenue to be in the range of $41.45 billion to $41.55 billion, which equates to roughly 9% to 10% year-over-year growth. Importantly, growth is still largely organic and underpinned by subscriptions rather than one-off items.

The fundamental structural change in recent years has been the dramatic improvement in margins. Whereas just a few years ago operating margins were well below 20%, today Salesforce is targeting long-term non-GAAP operating margins of around 34% and GAAP margins of over 20%. This shift is the result of cloud model scalability, increased automation, product consolidation and more disciplined cost management.

The company's long-term ability to generate cash is also a strength. Both operating and free cash flow are growing faster than revenue itself, and Salesforce now expects year-over-year cash flow growth for the full fiscal year 2026 in the range of 13% to 14%. This gives the company room to not only invest in AI, data platforms, and new acquisition integration, but also to increase long-term return on capital for shareholders through buybacks and dividends.

Over the long term, Salesforce profiles itself as a combination of a stable enterprise software player and a growth AI platform. High levels of recurring revenue, strong contract visibility, growing margins and robust cash flow give the company a very solid foundation for the years ahead - even in a slowing global economy.

News

The most visible news of the quarter is the de facto transition of AI from the pilot project phase to actual deployment with customers. Salesforce significantly expanded commercial use of the platform during the quarter Agentforcewhich enables companies to deploy autonomous AI agents directly into sales, customer support and marketing processes. For the first time, management openly communicated that Agentforce is no longer an add-on to existing licenses, but a standalone layer that increases the value of contracts and extends their length. This is particularly important in terms of future AI monetization, which is starting to be reflected in the order structure.

Another concrete shift has occurred with Data Cloudwhich became the centerpiece of the company's overall AI strategy this quarter. Salesforce has now enabled customers to connect structured CRM data with external data sources in real time and use that data instantly in AI models. This has practical implications, especially for large enterprise clients, who are able to integrate AI into their day-to-day operations without having to build their own data infrastructure. Management highlighted that Data Cloud is one of the fastest growing products in the portfolio today and a key consideration in renewing and expanding contracts.

There has also been significant innovation in the areas of productivity and collaboration. Salesforce has further deepened the integration of AI capabilities into Slack, expanding the use of AI assistants to summarize communications, automate tasks, and find information across corporate data. This is no longer just about improving the user experience, but an effort to increase users' daily activity and strengthen Slack's ties to other Salesforce products. This is key to the long-term strategy, as Slack is meant to act as an entry interface to the entire platform.

Shareholder structure

Salesforce's ownership structure is highly institutional, which is typical for a company of this size and importance. The vast majority of shares are held by large asset managers and index funds, while insider ownership remains relatively low. This implies greater stock stability, but also sensitivity to broader market movements and changes in the capital allocation of large funds.

Analyst expectations

Analyst consensus views the current results as confirmation that Salesforce has successfully completed the transition to a more profitable phase. Some analysts have maintained a buy recommendation following the results release and are working with price targets that imply further upside potential, underpinned primarily by a combination of stable sales, growing margins and strong cash flow. A key theme going into the next few quarters remains the company's ability to turn AI from a competitive advantage into a sustainable long-term revenue source.

Fair Price

Shares $RDDT have risen by more than 390% over the past two years, which is a solid performance. After the IPO the shares plunged significantly, but they later recovered and the company is doing quite well now. At the current valuation I won't invest in it, but after a possible correction it could be interesting.

What are your thoughts on Reddit? Do you hold $RDDT in your portfolio?

AI, technology, processors, software…

All of this has been driving the stock market in recent years. But investors are starting to forget about “classic” value stocks like Procter & Gamble $PG.

The company's shares are down nearly 20% over the past year. For a stable firm that generates massive cash flow and whose products are, quite literally, constantly in use, that's a significant discount.

A company with a market cap of over $330 billion and a dividend yield of 2.92% is now trading at about the same levels as in 2020.

Do you have this company in your portfolio as a stable holding, are you planning to buy, or, given the current situation, are you not focusing on similar stocks?

Insider buying only attracts real attention when it carries personal risk. Executives are paid largely in stock and options, but writing a multi-million-dollar check from personal capital is a different signal entirely. Tim Cook’s recent purchase of Nike shares stands out precisely because it is discretionary, material, and executed during a period of strategic uncertainty for the company.

The timing is critical. Nike is navigating a reset of its growth narrative, supply chain strategy, and brand momentum in a more competitive global market. When a board member with Cook’s operational discipline and capital allocation track record chooses to increase exposure at this stage, markets interpret it less as optimism — and more as conviction that downside risk is already priced in.

What exactly did Tim Cook do and why is it important

According to the regulatory report bought Tim Cook (Apple CEO) 50,000 shares of Nike $NKE, bringing his total holdings to about 105,000 shares worth about $6 million. This was not an option bonus or an automatic plan - it was an outright purchase for equity.

Such moves are traditionally viewed by investors as:

• a vote of confidence in the company's long-term outlook
• a signal that management considers the stock undervalued
• confirmation of support for management's current strategy

The move takes on an even stronger meaning when combined with the fact that another board member, Robert Swan, bought about half a million dollars worth of Nike stock. When multiple insiders buy at the same time, the market reads this as a coordinated signal.

The support of CEO Elliott Hill and the ongoing restructuring

Cook's purchase is also a clear statement of support for the current leadership. Nike leads Elliott Hillwho returned to the company as CEO with the task of carrying out one of the most difficult transformations in the brand's history.

Hill took over the company in a state where:

• lost some of its relevance to new, agile competitors
• it had fallen victim to an overemphasis on direct sales and partner limitations
• slipped into excessive discounting that hurt the brand and margins

His "win now" strategy relies on a return to Nike's sporting core - running, basketball, football and training - and a renewal of the brand's marketing power. There is also a renewal of senior management and an effort to reconnect product, story and retail presence.

Issues that continue to weigh on Nike

Despite insider optimism, Nike faces real challenges. The biggest of these is China, where the company reported a significant drop in sales last quarter. Waning consumer demand, growing domestic competition and geopolitical tensions are creating a very difficult environment there.

Tariffs and cost inflation are other pressures. Nike has already openly admitted that it plans to pass some of the impact on to US customers in the form of higher prices, but this risks further weakening demand. The company's shares are still down roughly 18% this year, illustrating that the market is still waiting for tangible results of the turnaround.

Nike and Apple's long-standing relationship

Tim Cook is no newcomer to Nike - he's been a board member since 2005. The partnership between Nike and Apple has deep roots, from fitness apps to special editions of the Apple Watch to a long-term collaboration in health and exercise.

Cook also actively supports Nike symbolically. He repeatedly appears in public in unique Nike sneaker designs, including custom pairs created by Japanese designers. This reinforces the brand's image in the premium and technology-oriented segment.

How to read this from an investor perspective

Tim Cook's stock purchase alone does not solve Nike's structural problems. But it is a strong indicator that people with detailed access to information believe in the company's turnaround. Combined with the purchases of other insiders, the new management strategy, and the still-strong global brand, this is a moment investors can't afford to ignore.

Nike remains in a transition phase. If Hill can stabilize China, restore growth in key categories, and keep margins in check, the current weakness could prove to be a long-term opportunity. Cook's purchase suggests that at least some insiders think so too.

The evolution of finance rarely happens through sudden disruption. Instead, it advances through infrastructure upgrades that quietly redefine speed, cost, and accessibility. Stablecoins have emerged as one of the few technologies that genuinely challenge legacy payment rails — not as an experiment, but as a working alternative that already moves value globally in seconds.

What ultimately determines winners in this space is not code quality alone. Payments and money are governed by trust, regulation, and institutional credibility. This creates a sharply bifurcated market where most projects fail outside the spotlight, while a small subset earns regulatory legitimacy and strategic relevance. The company at the center of this analysis positions itself not as a rule-breaker, but as a compliant financial layer — a distinction that fundamentally alters its long-term growth profile.

Top points of the analysis

• Stablecoins are moving from crypto-speculation to real financial infrastructure.
• The firm's current profitability is strongly tied to interest rates.
• Regulatory compliance creates a barrier to entry for competitors.
• The firm's balance sheet is extreme but economically logical.
• A payment network and proprietary blockchain can fundamentally change the source of value.
• Investment asymmetry arises between today's valuation and the future profile of the firm.

Company introduction

Circle Internet Group $CRCL is a fintech company focused on issuing stablecoins and building digital payment infrastructure. Its core product USD Coin is a digital dollar that is fully backed by liquid dollar assets and designed to meet US and European regulatory requirements.

The economic model is based on reserve management. Each token issued is backed by an equivalent amount of cash and short-term government bonds on which the company collects interest income. The model is simple, highly scalable and extremely profitable at high rates. At the same time, it creates macro dependencewhich reduces the quality of returns from the perspective of the long-term investor.

What differentiates the firm from its competitors is not the issuance of stablecoin itself, but its strategic ambition to move up the value chain - from a passive reserve holder to an active operator of the payments infrastructure. This is where Circle will decide whether it remains a cyclical "rate play" or becomes a structural infrastructure player.

Stablecoins as a new financial layer

Stablecoins today fulfill a role that the traditional banking system addresses inefficiently. Cross-border payments are slow, expensive and dependent on correspondent bank networks. Stablecoins circumvent this problem by transferring value directly at the digital infrastructure level, rather than through bank accounts.

Crucially, it is not the most technologically open solution that wins at this layer, but the most trusted. It is crucial for companies, banks and government institutions that the digital dollar meets regulatory standards, has transparent reserves and is auditable. This significantly narrows the field of competitors.

This approach makes USDC an "institutional stablecoin". Growth may not be the fastest during the boom phases of the crypto market, but it is significantly more stable during periods of regulatory pressure when weaker projects disappear from the market.

Management and capital discipline

CEO: Jeremy Allaire

Jeremy Allaire is one of the key architects of the regulated approach to stablecoins. He founded Circle with a vision to create a digital money compatible with the traditional financial system, not a replacement standing outside of regulation. He has many years of experience in internet and payment technologies and a strong reputation in regulatory circles.

Its management style is conservative, focused on long-term credibility. This is reflected in slower expansion, but also in the fact that Circle has survived regulatory upheaval that has removed many competitors from the market. From an investor's perspective, Allaire is more of an "infrastructure CEO" than a growth visionary - a key trait in this sector.

The weakness of this approach is a lower tolerance for risk and slower monetisation of new products. The company often builds a position before it starts to fully monetise, which puts pressure on margins and investor patience in the short term.

Financial performance: How to read the results of a firm that is neither a bank nor a fintech

Financial Performance Circle Internet Group cannot be evaluated by looking at a single year or the traditional "revenue growth = company health" view. The key is the dynamics of three variables simultaneously: the volume of USDC in circulation, the interest rate environment and the cost structure associated with monetizing reserves and building infrastructure.

Between 2021 and 2024, the company has undergone an extreme transformation. Revenues grew from less than USD 85 million to more than USD 1.67 billion, which is not classic organic growth, but a function of two factorsa dramatic increase in circulation USD Coin and a sharp rise in interest rates. In other words, Circle has gone from a small infrastructure firm to a major holder of profitable reserves in just three years.

But the key point is that the quality of this growth has been uneven. Gross profit peaked in 2023 and has already declined year-over-year in 2024, despite higher revenues. This clearly shows that the company is not in an operating leverage mode but in an investment phase. Operating costs are growing faster than revenues as Circle invests massively in compliance, technical infrastructure and the payments network. This pressure on margins is not a failure of the business, but a conscious strategic choice.

More importantly, reading the results through rate sensitivity. The high profits of recent years are not structurally guaranteed . With a 200 basis point drop in rates, the firm's net interest income would fall by hundreds of millions of dollars per year without changing the USDC. This means that current profitability is not a "run-rate"but a cyclical peak.

From an investor perspective, therefore, the fundamental question is different: Can Circle convert USDC's volume growth into less cyclical, transactional revenue before rates drop significantly?

Potential: from interest to payment rails (projections and expectations)

Circle's greatest long-term potential lies not in the issuance of stablecoin itself, but in the active use of USDC as a payment infrastructure. As long as the firm remains merely a reserve manager, its returns will always be a function of monetary policy. But if USDC becomes the backbone of payment flows, the economics of the firm will change fundamentally.

Circle Payments Network (CPN) is an attempt to create a global payment rail for corporate and institutional use. This means moving from a passive "hold reserves and collect interest" model to a "process money flow and collect fees" model. This difference is fundamental from a valuation perspective.

If we start from conservative assumptions:

• a global B2B payments market in the order of hundreds of trillions of USD annually
• i 0,05-0,10 % effective fee per transaction
• and only fraction of a percent of market share

then we are talking about potential billions of dollars in revenuethat are independent of interest rates. That's an order of magnitude different business than the current interest margin.

Analyst estimates suggest that the stablecoin segment alone could grow at around 50% CAGR by 2030, with Circle seen as the preferred partner of financial institutions due to regulatory compliance. If non-interest income were to be able to account for, for example 30-40% of revenue, the firm's macro-sensitivity would be reduced to the point where the market would start to value it as an infrastructure fintech rather than an interest rate derivative.

Own Blockchain Arc plays a supporting role here. Stable and predictable transaction costs are key for enterprise use cases and allow for guaranteed pricing models to be offered. This is something that public blockchains are struggling to address and where Circle can gain a competitive advantage.

Most optimistic scenario: Needham and a target price of $250

One of the most bullish voices among analysts is investment bank Needham, which has been making a strong case for the stock Circle Internet Group is working with a target price of around $250. This estimate deviates significantly from the market average and suggests a belief in an extremely strong growth scenario in which Circle becomes not just another cryptocurrency title, but a key infrastructure player in digital finance.

The logic of this view is primarily based on the assumption that Circle can capitalize on its dominant position in stablecoins over the long term and gradually translate its technological relevance into a sustainable and highly scalable business. In this scenario, Needham evaluates the company not through the lens of short-term crypto market volatility, but as a platform that can benefit from the mass adoption of digital payments, the tokenization of financial flows and the institutional adoption of blockchain solutions.

At the same time, the $250 price target implies a significant valuation expansion, which the analyst appears to be building on a combination of rapidly growing Circle product usage, operating leverage, and a gradual transition from the growth phase to a stable cash flow generation phase. In such a scenario, the market ceases to view Circle as a speculative title tied to sentiment around cryptocurrencies and begins to value it similarly to a technology infrastructure with global reach.

Needham's estimate thus represents more of a a longer-term vision rather than a conservative 12-month projection. It's a bet that Circle can take advantage of structural changes in the financial system and become one of the winners of the new digital payments era. It is this ambition and the scale of the potential market that explains why this price target is so significantly above the average of other estimates.

Sensitivity analysis: how dependent is the business on rates

The current economy Circle Internet Group is inherently highly macro-sensitive. The bulk of revenues and virtually all operating profit today are derived from interest income on reserves backing USD Coin. This means that the company is not only exposed to the growth of the stablecoin market, but also an indirect bet on the level of short-term interest rates in the US.

Taking a simplistic view, every 100 basis points change in rates has an order of magnitude impact in the hundreds of millions of dollars per year on a company's interest income, depending on the current volume of USDC circulation. This creates a situation where Circle can report very strong results even without significant volume growth, but still face a rapid decline in profitability when rates fall without anything changing at the product level.

A 100-150 basis point rate drop scenario would put significant pressure on operating margins that could only be partially offset by cost savings. In this environment, it remains to be seen whether investments in payment infrastructure are starting to bear fruit. If, in such a scenario, transaction and non-interest income would still make up only a marginal portion of revenue, the market would likely continue to price the firm as a cyclical interest rate business.

Conversely, a scenario of a deeper decline in rates, say 200-300 basis points, would be a real stress test of the investment thesis. In that case, the distinction between "stablecoin issuer" and "payment infrastructure operator" would become an existential question. In this environment, if Circle could generate increasing transaction volumes over its own network and increase non-interest income, the nature of the company and its valuation would change. If not, expectations would be significantly overstated.

There is one key lesson for the investor: tracking earnings without the context of rates is misleading for Circle. The key is to watch whether the company's growth gradually loses correlation with monetary policy developments.

Competitive map: where Circle has an advantage and where it is vulnerable

The competitive landscape for stablecoins and digital payments is crowded at first glance, but in reality it is highly polarised. Most projects are either at the technological edge with no institutional relevance or, conversely, in the traditional banking system with no technological flexibility. Circle sits between these poles, which is its greatest strength - and potential weakness.

The most frequently mentioned competitor is Tether $USDTUSD. The latter dominates in volume and liquidity, especially in the crypto world. However, its weakness is limited transparency and regulatory acceptance, which virtually precludes deeper institutional use in the US and Europe. For Circle, this means that in pure crypto use-cases it will always be difficult to displace Tether, but in the institutional segment the competitive pressure is significantly less.

The second group of competitors consists of traditional banks and potential state digital currencies. These have the trust and regulatory support, but suffer from slowness, high costs and low flexibility. If there is a mass introduction of state digital currencies, this could limit some of the growth potential of stablecoins. At the same time, these systems are unlikely to replace a global, open payment infrastructure for commercial use in the short term.

A third competing group is fintechs and payment networks that are trying to digitise cross-border payments without their own stablecoin. These may offer user simplicity but remain dependent on banking infrastructure and its limits. Circle gains an advantage here through vertical integration - it controls both the digital asset and the payment layer.

Investment scenarios: three paths, three different companies

Pessimistic scenario

Interest rates fall faster than the market expects. Interest income on USDC reserves declines significantly, while CPNs are slow to develop due to regulatory complexity and bank caution. Non-interest income remains marginal. The company remains profitable but with significantly lower margins. The market values it as a volatile financial intermediate layer with no clear identity. Valuations are stagnant or falling.

Realistic scenario: hybrid model

Rates fall gradually. Interest yields weaken but do not collapse. CPN expands, transactional revenue grows but does not yet form the dominant part of revenue. The firm operates as a hybrid - part interest business, part infrastructure. Profitability is stable but without dramatic re-rating. The stock offers solid long-term returns, not explosive growth.

Optimistic scenario: transformation into an infrastructure platform

CPN has established itself as the standard payment layer for select segments of B2B payments and cross-border transfers. Non-interest income makes up a significant portion of revenue, rate sensitivity declines. The market is no longer valuing Circle as a "rate play" and is starting to see it as an infrastructure fintech with recurring revenue. There is a significant revaluation.

What to take away from the article

• Circle is not a classic fintech or crypto firm, but a financial infrastructure in transitionwhose current profitability is largely a reflection of the macro environment, not the final form of the business.
• The key source of value today is not revenue or short-term profit, but the volume and quality of USDC circulationbecause it is from this base that transactional and infrastructure monetization can emerge.
• The current results should be read as a cyclical peak in the interest rate businessnot as a long-term run-rate; without a successful transformation, profitability would decline in a lower rate environment.
• The real investment upside lies not in the growth of the stablecoin market per se, but in whether Circle can turn USDC into an active payment rail with recurring fees.
• Regulation is not a threat in this case, but a competitive barrierthat limits the number of relevant rivals and increases the value of reputation and trust.
• The action is in the nature of an asymmetric long-term option: the downside is limited by USDC's stable fundamentals, the upside arises only in the event of a successful infrastructuralisation of the business.
• The investor should primarily follow the the growth rate of non-interest income, the adoption of the Circle Payments Network, and signals that the company is approaching its infrastructure profile, not short-term earnings fluctuations.

The semiconductor industry is on the brink of historic growth as AI demand drives revenue expansion and new market leadership. Bank of America’s latest outlook highlights key chip makers with robust profitability metrics and strategic positions across AI accelerators, advanced packaging, and memory solutions. From established giants to tech infrastructure plays, these stocks aim to capture the next wave of industry expansion. Investors seeking exposure to long-term secular trends should understand why these picks stand out. 

Bank of America $BAC in its latest forecast highlightedthat the global semiconductor market is set to cross the $1 trillion mark for the first time in 2026, with artificial intelligence and related infrastructure playing a key role in this growth. Strong year-on-year increases in sales and demand are expected across segments ranging from microchip manufacturing to sophisticated software tools for designing and testing them.

In this context, some technology stocks appear particularly interesting because their position in the value chain is strong and the expected market growth is embedded in their fundamentals. Based on Bank of America data, our team has identified several companies that should be able to benefit from the anticipated market growth while showing solid financial health, a strong market position and long-term demand for their products or services.

While the most familiar faces AI boom are often companies like Nvidia $NVDA or Broadcom $AVGO, there are a group of other technology companies that have a strategic role to play in the overall technology ecosystem. They are not just chip makers, but also manufacturers of semiconductor fabrication equipment, providers of key quality control tools or software solutions essential in the design and testing of integrated circuits.

Let's introduce them. For each company, we will analyse not only their position in the technology chain, but also fundamental factors, market performance, competitive advantages and reasons, and profitability, which is extremely high for these companies.

Lam Research $LRCX

Lam Research is one of the most important, yet often overlooked, players in the entire technology sector. It is not a manufacturer of the chips themselves, but a company without which modern semiconductors would be virtually impossible. Lam Research specialises in the manufacture of equipment and technologies used in chip manufacturing, particularly in the areas of etching and thin film material deposition. These processes are essential in the production of ever smaller, more powerful and energy efficient chips that are essential for artificial intelligence, data centres and modern electronics.

From a shareholder's perspective, Lam Research is a typical example of a company that benefits from a long-term structural trend rather than a short-term cycle. Demand for its technologies is directly linked to global investment in semiconductor manufacturing. When chipmakers decide to expand capacity or move to more advanced manufacturing processes, Lam Research is one of the first suppliers they turn to. It is this fact that makes it one of the major winners in the expected growth of the chip market, which Bank of America expects to exceed the one trillion dollar mark by 2026.

Financially, Lam Research has long been a high-quality company. The company has high operating margins as a result of the technological sophistication of its product portfolio and its strong negotiating position with customers. Indeed, chipmakers cannot simply replace Lam Research's equipment with a cheaper alternative without significantly impacting quality and production yield. This allows the company to maintain stable profitability even during periods when the entire semiconductor sector is undergoing a cyclical cooling.

According to Bulios' profitability ratio Lam Research is doing very well. Operating margins stand at 33%, making it one of the companies with strong financial stability.

In terms of capital discipline, Lam Research is also very interesting. The company generates strong free cash flow, which it uses through a combination of share buybacks and dividend payments. This is particularly important for long-term investors because it means the company is not only growing, but also returning capital to shareholders. Even in periods of weaker demand, Lam Research has been able to maintain a healthy balance sheet and low debt, which reduces risk in the event of a deeper market slowdown.

The market sees strong potential for Lam Research, particularly with the advent of artificial intelligence. AI models require extremely powerful chips with high transistor densities, which are becoming increasingly complex to manufacture technologically. This increases the demand for advanced manufacturing equipment, where Lam Research has long had a very strong position. At the same time, analysts point out that while investment in chip manufacturing is cyclical, the trend towards miniaturisation and growth in computing power is long-term.

Lam Research is also interesting to investors because it offers exposure to the growth of the semiconductor market without a direct bet on a particular chipmaker. In other words, the firm benefits from the growth of the entire industry, whether one manufacturer or another is doing best. This allows the firm to act as a more stable element in the portfolio than the chipmaker stocks themselves, whose results can fluctuate more depending on demand for specific products.

Overall, Lam Research can be described as a technology company with very strong fundamentals, a clear role in the semiconductor ecosystem, and a high sensitivity to long-term trends such as artificial intelligence, automation, and data center growth. It's no surprise, therefore, that its stock is up 132% this year and is now at an all-time high.

According to Fair Price on Bulioswhich is calculated based on DFC and relative valuation, however, the company is now overvalued. It is therefore worth keeping an eye on Bulios to do a thorough analysis.

KLA $KLAC

KLA is one of those technology companies that are not so visible at first glance, but without which the entire semiconductor industry simply would not function. While chip makers compete for power, transistor size and energy efficiency, KLA stands in the background as a key player in ensuring that the production of these chips is even possible at the necessary quality. It is this role that makes KLA one of the most strategic companies in the entire technology ecosystem.

KLA's core business is process and quality control systems for semiconductor manufacturing. Simply put, the company develops and supplies equipment that can detect even microscopic defects on chips during the various stages of production. The more complex and smaller the chips, the more important this inspection becomes. This is where the strength of KLA's business model comes into play. As the technological complexity of production increases, so does the indispensability of its products.

From an investment perspective, it is crucial that KLA does not operate in the cyclical part of the semiconductor market in the same way as the chip manufacturers themselves. While manufacturers may face sharp fluctuations in demand at certain times, KLA's inspection and measurement technologies are needed virtually all the time. As manufacturers invest in the next generation of production, they cannot afford to skimp on quality and accuracy. This creates a relatively stable demand for CLA even in the less favourable phases of the cycle.

KLA is one of the key companies for the coming years precisely because of this structural trend. With the advent of artificial intelligence, advanced data centers and increasingly complex chip architectures, the pressure on precision manufacturing is increasing. Every error is extremely costly and loss of yield can mean billions of dollars in losses. In this environment, KLA sells the solutions needed to produce the most advanced semiconductors.

Financially, this model translates into above-average profitability over the long term. KLA is one of the companies with high operating margins (33.4% in 2024), which is the result of its technological lead and very limited competition. The company has a dominant position in the process control segment. Moreover, entry barriers are extremely high. Not only because of the technology itself, but also because of long-term customer relationships and the integration of equipment directly into production lines. This means that KLA customers do not change suppliers overnight.

What is also interesting is that the investment in KLA is not a pure bet on one particular trend, such as artificial intelligence only. The company is benefiting from broader technological developments such as the miniaturisation of chips, the move to new manufacturing nodes, the increasing complexity of architectures and higher reliability requirements. AI is only accelerating and amplifying this trend.

Another important aspect is capital discipline. KLA has long generated strong cash flow, which it uses to both further develop technology and return capital to shareholders. The company regularly pays a dividend (currently 0.6% per annum) and also makes share buybacks, a combination that investors appreciate in technology companies.

In the context of the prediction that the semiconductor market will reach a value of one trillion dollars by 2026, KLA seems like one of the cleanest ways to participate in this growth without having to bet on a specific winner among chipmakers. Whatever architectures or manufacturers dominate, the need for precise manufacturing control will remain constant.

Analog Devices $ADI

Analog Devices is one of the technology companies that, while not in the media spotlight, plays a key role in the entire semiconductor industry. While artificial intelligence companies are often associated with powerful digital chips and graphics processors, Analog Devices operates in an area without which modern technology could not function - the processing of analog signals and their conversion into digital form. It is this ability to connect the physical world with digital systems that gives the company a long-term strategic advantage.

Analog Devices' core business is the development and manufacture of analog, mixed-signal and digital integrated circuits used in industrial applications, automotive, telecommunications, healthcare and data center applications. This means that the company is not dependent on one short-term trend, but on a wide range of end markets that have long-term structural growth. This diversification is positively reflected in the stability of sales and profitability.

In terms of fundamentals, Analog Devices is a typical example of a technology company with a very high quality business. The company has long achieved above-average operating margins (17.35% in 2024), which have been well above the semiconductor sector average in recent years. This is due to a strong bargaining position vis-à-vis customers, high product value added and relatively low price sensitivity. Analogue chips are often tailored to specific applications and are difficult and costly to replace with competitors.

Unlike more cyclical memory or logic chip manufacturers, Analog Devices' business is less susceptible to sharp fluctuations in demand, which is a significant advantage.

Another strength is the ability to generate free cash flow. Analog Devices has a long history of generating high cash flow, which it uses both to invest in R&D and to return capital to shareholders through dividends (current annual yield is 1.43%) and share buybacks. This is an important distinction from many growth technology companies, which, while growing rapidly, have limited profitability. ADI, on the other hand, combines growth with financial discipline.

In terms of valuation, Analog Devices stock has historically traded at a premium to the broader market, reflecting its quality and stability. Despite this premium, valuation remains relatively reasonable in the context of expected growth and high margins. Investors are not just paying for an AI story here, but for a long-established business model that is capable of operating through different phases of the economic cycle. The Fair Price Index at Bulios reports that $ADIstock is currently overvalued by 19.22%.

Analog Devices' strong position in industrial applications, where demand is being driven by the digitization of manufacturing processes and improvements in energy efficiency, is also playing a significant role. These trends are not short-lived and provide a solid basis for revenue growth in the coming years. This nature of demand is one of the reasons why analysts consider Analog Devices a lower-risk technology investment compared to companies heavily dependent on one market segment.

Overall, Analog Devices can be seen as a technology company that may not deliver the fastest growth, but offers high quality, stability, and predictability. Its stock is up 32% this year, which may seem small to some in terms of the sector, but let's not forget that the company pays a dividend and is much better off financially than the vast majority of the sector.

Cadence $CDNS

Cadence Design Systems is also, like the previous firms, a very different type of technology company than semiconductor or equipment manufacturers, yet its role in the overall ecosystem is absolutely crucial. Cadence specializes in software development for the design, simulation and verification of integrated circuits, SoCs and complex electronic systems. Without these tools, it would be impossible to design advanced chips for artificial intelligence, data centers, automotive or consumer electronics. Cadence stands at the very beginning of the semiconductor industry value chain, which gives it an extremely strong and long-term stable position.

One of the main reasons why Cadence is so interesting is the structure of its business model. Most of the company's revenue comes from long-term licensing agreements that customers renew regularly. This means a high degree of revenue predictability and very low sensitivity to short-term fluctuations in chip demand. Even in periods when semiconductor manufacturers are cutting back on capital expenditure, design teams must continue to develop new generations of chips, ensuring stable demand for Cadence tools.

In terms of financial metrics, Cadence has long been one of the best-performing technology companies in the market. The company has high operating margins (22.74% in 2024), strong return on capital and very stable free cash flow. These characteristics are typical of software-dominant companies, where variable costs are relatively low and each new customer significantly increases profitability.

Another key factor is the increasing complexity of modern chips. With the advent of artificial intelligence, the complexity of design and testing is increasing dramatically. This creates a natural barrier to entry for new competitors and strengthens the position of established players, of which Cadence is one. In addition, customers rarely switch design software vendors because switching would mean high costs, risk of errors and development delays. This customer lock-in effect is one of the main reasons why Cadence is able to maintain high margins even in a competitive environment.

The company is investing heavily in expanding its portfolio towards the design of systems for artificial intelligence, high-speed connectivity and automotive electronics. The automotive sector in particular, especially the area of autonomous driving and advanced assistance systems, represents significant long-term growth potential for Cadence. Every new vehicle contains more and more chips and their design is extremely complex, increasing manufacturers' dependence on cutting-edge electronic design tools.

From a market perspective, Cadence is often seen as a less visible winner in the technological transformation. It does not sell chips or finished devices, but it does supply the infrastructure without which the entire ecosystem could not function. This is reflected in the relatively lower volatility of the stock compared to semiconductor manufacturers, which are more exposed to cyclical fluctuations. Shares of $CDNS are up 6.3% for 2025, having rather weakened in the last 5 months, thus stealing from higher earlier gains. Investors are more cautious on this stock as it has strengthened significantly over the past few years. Currently, even according to the Fair Price Index, the stock is trading 34% above its intrinsic value.

Conclusion

The technology sector is entering the next phase of its evolution where it is no longer just about the speed of growth, but more importantly the ability to manage its complexity. Artificial intelligence, manufacturing automation and increasing demands on chip performance are putting pressure on the entire semiconductor ecosystem - from design to manufacturing to quality control. This is why companies that are not only at the end of the chain as manufacturers of finished products, but also ensure the functioning of the technology infrastructure itself, are coming to the fore.

The companies analysed in this article represent different but interconnected parts of the technology ecosystem. Semiconductor equipment manufacturers, inspection and measurement companies, and providers of software tools for chip design form the backbone of the industry. Without their technologies, it would not be possible to achieve the higher efficiencies, smaller production processes, and reliability that the market demands today.

The actions associated with the semiconductor ecosystem today are no longer just a bet on future innovation, but a reflection of a deeper transformation of the entire industry. The growth of data, the proliferation of artificial intelligence, and the push for manufacturing efficiency are creating an environment where there is an increasing emphasis on quality, precision, and the long-term sustainability of technology solutions. It is in this context that it makes sense to analyse technology companies not only according to their growth story, but also according to their actual role in the overall segment.

Snowflake continues to prove that demand for modern data platforms has not peaked, even as the cloud market matures and enterprise budgets remain selective. In the third quarter of fiscal 2025, the company demonstrated that usage-driven analytics, AI-ready data architectures, and vendor neutrality remain compelling value propositions for large organizations navigating increasingly complex data environments.

At the same time, the quarter reinforced a familiar tension in Snowflake’s story. While revenue growth remains strong and customer engagement continues to deepen, operating costs stay elevated as the company prioritizes product expansion, AI integration, and ecosystem development. For investors, the key debate is no longer whether Snowflake can grow — but how efficiently that growth can be converted into durable margins over the next phase of the cycle.

How was the last quarter?

Snowflake reported revenue of $1.21 billion in the third quarter of fiscal 2026, representing 29% year-over-year growth. Product revenue remains a key metric, reaching $1.16 billion and also growing at a 29% rate. This confirms that the core of the business - the data platform itself - remains the main driver of the results.

A very important signal of the quality of the growth is the retention rate of revenue from existing customers, which reached 125%. In other words, existing clients are, on average, increasing their spend by a quarter a year without the company having to aggressively chase new customers. The number of clients with annual product sales exceeding $1 million rose to 688, indicating Snowflake $SNOW's growing position in large organizations.

From a profitability perspective, the improving operating structure is evident. Gross margin on product sales on a non-GAAP basis is around 76% and the company reported a positive operating result on an adjusted basis. Free cash flow exceeded $110 million, confirming that Snowflake is gradually moving from a growth phase to a more mature model with an emphasis on cash flow.

• Full presentation with results.

CEO commentary

CEO Sridhar Ramaswamy in his comments, highlighted that Snowflake is becoming a cornerstone of customers' data and AI strategies. He paid particular attention to the rapid adoption of the product Snowflake Intelligencewhich, according to management, has seen the fastest ramp-up in the company's history.

Management is also highlighting strategic partnerships with AI model providers, cloud services and application platforms. The goal is not just to provide a repository of data, but to create an environment where companies can instantly translate data into decisions, automation and real business value.

Outlook

For the fourth fiscal quarter, Snowflake expects product revenue in the range of $1.195 billion to $1.200 billion, representing additional year-over-year growth of approximately 27%. At the same time, the company expects continued improvement in operating margin and steady free cash flow generation.

At the full fiscal year 2026 level, management has reaffirmed product revenue expectations of around $4.45 billion, with a target product gross margin of approximately 75% and an operating margin approaching 9%. This suggests that Snowflake is no longer just a "future story" but is gradually becoming a structurally profitable platform.

Long-term results

Looking at the last few years, it is clear that Snowflake is undergoing extremely rapid expansion. Revenues have grown from just under $600 million in 2021 to over $2.8 billion in 2024, and the growth rate remains above average even after this expansion. Gross profit is growing even faster than revenue itself, demonstrating the very strong operating leverage of the business.

At the same time, it is evident that the company is still investing massively in operations, development and acquisitions. While the operating loss is relatively stable year-on-year, Snowflake remains in a phase where it prioritises long-term platform building over short-term accounting profitability. EBITDA is gradually improving, indicating a tipping point that could be pivotal to the company's investment story in the years ahead.

Shareholder structure

Snowflake's shareholder structure confirms strong institutional trust. Approximately 74% of shares are held by institutional investors, with Vanguard, BlackRock and JPMorgan among the largest. Relatively low insider ownership is typical for companies at this stage of development and does not indicate a structural problem, especially with such a strong institutional backing.

Analyst expectations

Analysts agree that Snowflake is among the key long-term bets for the development of the data economy and artificial intelligence. Expectations are primarily focused on continued spending growth from existing customers, monetization of AI tools, and incremental margin improvement. Target prices are generally well above current levels, with valuation pressure remaining the main risk should growth slow.

Fair Price

The global gaming industry has reached a point where scale is no longer the primary differentiator — endurance is. While gaming now rivals film and music combined in revenue, the economic reality is far from evenly distributed. A small group of publishers captures the majority of profits, not because they release more titles, but because they control franchises capable of absorbing decade-long development cycles and monetizing them far beyond launch.

This dynamic creates a recurring analytical trap for investors. Financial statements often deteriorate precisely when a company is making its most consequential bet. Costs peak years before revenues arrive, balance sheets tighten, and margins compress — not due to weakening demand, but because capital is being deployed ahead of monetization. In this environment, the most expensive game in history is not merely a product launch. It is a stress test of capital discipline, brand power, and investor patience — and potentially the moment where short-term financial weakness converts into long-duration cash flow dominance.

Top points of the analysis

• The gaming market is structurally growing, but the economic value is concentrated with only a few global IP owners.
• The company's business model is extremely cyclical, with long investment phases followed by strong monetization.
• Most revenue today comes from recurring payments and digital content, not one-off sales.
• Current loss-making is due to cost phase and accounting effects, not a collapse in demand.
• The balance sheet is tighter, increasing the importance of a successful execution in the coming years.
• The impending transition to a new monetization phase for key IP may fundamentally change the company's financial profile.

Company performance

Take-Two Interactive $TTWO is one of the world's leading publishers of video games and interactive entertainment. The company is behind franchises that rank among the absolute top of the industry in terms of cultural impact and economic value. The key feature of its business is not the high number of titles released, but the ability to monetise a limited number of extremely strong brands across generations of players and platforms over the long term.

The economics of this model are built on a combination of one-off sales at launch and long-term revenue from online modes, digital content and microtransactions. These recurring revenues now account for roughly 83% of net bookings, fundamentally changing the nature of the business from the historical "hit-driven" game publishing model. The lifespan of individual titles extends over many years and revenues are spread over time, while costs remain concentrated at the beginning of the cycle.

However, this approach also implies a high volatility of results. During the development and preparation phase, the company is burdened with massive fixed costs that are reflected immediately in the financial statements, while revenues are delayed. But once a title hits the market and the fixed costs are already "sunk", every additional dollar of revenue has a very high contribution to margin. This creates the potential for a sharp improvement in profitability in a relatively short period of time.

Management and capital discipline

The company is led by Strauss Zelnickwho has been at the helm since 2007 and is one of the longest serving CEOs in the gaming industry. His key asset is his ability to combine creative risk taking with financial discipline in an industry where the temptation to "buy growth" is often destructive.

Under his leadership, the company has long relied on a strategy of concentrating capital in a few projects with the potential to become global phenomena, rather than spreading resources across a large number of mediocre titles. This approach increases the volatility of results but maximizes the return on capital if successful. At the same time, Zelnick has experience in the broader media business, which translates into an emphasis on long-term IP monetization, not just short-term sales records.

The weakness of this style is a willingness to accept significant short-term deterioration in financial metrics in favor of long-term value. This is evident in the increase in costs, debt and accounting losses in recent years. It is therefore crucial for investors to monitor whether management can switch into monetization and balance sheet stabilization mode once the investment phase is complete.

Financial performance - the long-term picture

The financial performance of recent years has shown the extreme volatility that is typical of a cyclical gaming model. Revenues were around $5.35 billion in the last fiscal year and stagnated year-over-year, which at first glance may appear to indicate growth exhaustion. In reality, however, this is a result of the timing of major releases, not a structural decline in demand.

Gross margins have remained around 50% for a long time, confirming that the product economics themselves remain healthy. The problem is the explosive growth in operating costs, which have far outstripped the rate of revenue growth in recent years. These costs include development expenses, marketing, integration of acquisitions and amortisation of intangible assets. The result is a deep operating loss in excess of $3.5 billion in the last year.

It is critical to distinguish that this loss is not due to gross margin collapse, but primarily due to the timing of costs. Historically, this company has repeatedly shown that there is a sharp improvement in operating leverage after a key title launch, as fixed costs remain flat while revenues grow. The current numbers therefore reflect the end of the investment phase rather than a sustained destruction of value.

Cash flow and economic reality

From a cash flow perspective, the situation is tighter than for defensive titles. Operating cash flow is weak and the company is not currently generating enough cash to fully cover investments and debt service. This increases sensitivity to project delays or weaker take-up of new titles.

At the same time, the gaming business operates in waves. Historical experience shows that periods of weak cash flow are often followed by several years of significant cash surpluses after a successful release. The key issue is therefore not the absolute level of cash flow today, but the ability of the company to get back into strong monetisation mode in the years ahead.

Balance sheet and financial stability

The balance sheet is the weaker side of the investment profile. Net debt is around USD 2.8 billion, liquidity ratios are strained, and an Altman Z-score of around 2.3 signals elevated financial risk. This is not an imminent threat, but a clear signal that the company does not have unlimited room for further mistakes.

The current balance sheet increases the importance of a successful execution strategy. If the monetization phase is delayed or fails to meet expectations, the pressure on the capital structure could be significant. Conversely, a successful transition to the monetization phase would allow for a rapid improvement in debt and a return of financial flexibility.

Potential growth catalyst

The company's biggest growth catalyst lies not in the launch of the new play itself, but in the the timing of the transition from the investment phase to the monetisation phase. The game business is extremely asymmetric: costs are incurred years in advance, while revenues materialise in leaps and bounds and then persist for long periods. Today, the company bears the full burden of development costs, marketing and amortisation, without the corresponding revenues being visible on the income statement.

Upcoming release Grand Theft Auto VI represents a turning point in the cycle in this respect , not just another product in the portfolio. The previous installment in the series sold more than 215 million copies and is still generating significant revenue more than a decade later. This is quite exceptional within the media industry and demonstrates that this IP is not about a short-term "release effect" but about a long-term monetization ecosystem.

A key difference from the past is the revenue structure. Today, it is roughly 83% of net bookings are recurring consumer spendingnot one-off sales. This means that the main economic value is not transferred to the results in the year of release, but in the following few years. Once fixed costs are "locked in" and new revenue starts flowing in, operating leverage can work very aggressively - sales growth translates into profits many times faster.

Analyst estimates reckon that the first full fiscal year after release could bring in revenues of around $9 billion, which would represent a leap from current levels. But the important thing is not the revenue number itself, but that, it's how quickly the margin structure improves. If the historical pattern repeats itself, operating expenses will no longer grow at the same rate and much of the additional revenue may be siphoned into EBIT and cash flow.

At the same time, this catalyst must be viewed realistically. It is a time-concentrated event with high expectations. The risk of delays, weaker monetization or cost shifting to later periods cannot be ignored. Therefore, this catalyst is not an investment thesis in itselfbut an amplifier of the overall cyclical profile. If it comes to fruition, it can fundamentally change the financial picture of a company. If not, the current balance sheet position will quickly reveal the weaknesses of the strategy.

The sensitivity framework: what determines the success of monetisation

The key risk and opportunity of the entire investment thesis lies not in the launch of the new game itself, but in the the ability to monetise the player base over the long term. The historical success of the series creates a high bar of expectations, but it also distorts reality: the economic outcome will not be determined solely by the number of copies sold in the first months, but by how deeply and how long players engage with the online ecosystem.

The downside is when a strong launch is confirmed, but player activity and willingness to spend on additional content begins to fade quickly. Weaker online monetization, lower microtransaction spending or a shorter game world lifespan would mean that the operating leverage would only partially kick in. In such a scenario, while the company would see revenue growth, margins and cash flow would remain below expectations, limiting the ability to quickly reduce debt and increasing pressure on the balance sheet.

In contrast, the positive sensitivity scenario is built on repeating - or even outperforming - the pattern familiar from the previous section. If player engagement can be kept high for several years and digital content continues to expand, the focus of the economics may shift from one-off sales to stable, high-margin cash flow. In this case, every additional dollar of sales translates into profit significantly faster than in the past, and the investment phase appears rational, not excessive, with hindsight.

This sensitivity framework shows that investment is not a binary bet on the "success or failure of a single play." It is a range of outcomes where the decisive variable is not the launch itself but the depth and length of monetisation. This is where the distinction between merely normalising results and actually turning a company into a strong cash generator will break down.

How much did Grand Theft Auto V actually earn

Since its release in 2013, GTA V has become the highest-grossing entertainment product of all time across film, music and games. It's not just the number of copies sold, but the the ten-year monetization cyclethat is virtually unprecedented in the media industry.

Game sales (one-off revenue)

• Sold more than 215 million copies
• Average price realized over time (launch + discounts + re-releases): ~35-40 USD

👉 Estimated cumulative revenue from game sales:
≈ 7.5-8.0 billion USD

That alone would make GTA V an extremely successful title. But that's less than half of the story.

GTA Online - a long-term monetization machine

The real turning point came with GTA Online, which gradually changed the economics of the entire game.

• Microtransactions (Shark Cards)
• Digital content
• Long-term player engagement
• extremely low marginal cost

Conservative investment estimate:

• ~600-700m. USD 600600 per year in the best years
• Gradual decline, but still a strong contribution after 10 years

👉 Cumulative GTA Online Revenue (2013-2024):
≈ USD 3.5-4.0 billion

Investment scenarios

Realistic scenario: normalisation after the investment phase

In the realistic scenario, the key title is released without significant delay and the company gradually moves from investment mode to the monetization phase. Revenues increase significantly, but more importantly the margin dynamics change. Operating expenses are growing slower than revenues, depreciation and amortization is gradually declining and EBIT is returning to positive. Cash flow is stabilising and allowing a gradual reduction in net debt.

In this scenario, the current valuation is not extremely cheap, but it is no longer risky. The stock may move more sideways or rise slightly as the market begins to view the company as a standard cyclical media business with strong IP, not a troubled title. The investment return here is driven primarily by risk reduction, not dramatic overvaluation.

Optimistic scenario: operating leverage and re-rating of valuation

The optimistic scenario assumes that the monetisation of the new phase of IP exceeds expectations not only in terms of revenue volume but above all in terms of revenue structure. Recurring payments, online modes and digital content generate stable cash flow, while the cost base remains relatively fixed. EBIT and free cash flow are growing significantly faster than revenues and the company is positioning itself to be a strong cash generator within a few years.

In such an environment, the investment narrative changes dramatically. The market stops valuing the company as a "risky bet on one release" and starts to see it as a a long-term monetizable media ecosystem. This opens up room for re-rating valuations towards higher multiples of revenue and profit. The combination of EPS growth and valuation change can deliver above-average long-term returns in this scenario.

Pessimistic scenario: execution fails, balance sheet under pressure

The pessimistic scenario works with a combination of delayed releases, weaker monetisation and persistent cost pressures. Revenues grow, but less than the market expects, and operating leverage does not fully materialize. EBIT remains weak, cash flow is insufficient to rapidly reduce debt and the balance sheet remains stretched.

In this scenario, the current valuation proves too optimistic. The market begins to re-emphasise financial risks, volatility and management's limited room for manoeuvre. The stock may undergo a significant correction as the investment story shifts from a "cyclical opportunity" to a structurally challenged title.

What to take away from the article

• The gaming business is cyclical and capital intensive, but extremely profitable for top-tier IPs.
• Current loss-making reflects an investment phase, not a collapse in demand.
• Balance sheet increases sensitivity to execution strategy.
• Moving into a new monetization phase can fundamentally change a company's financial profile.
• Investment is a bet on the right timing of the cycle, not on short-term numbers.

🚨BREAKING NEWS🚨

$NVDA is acquiring the company GROQ (not Musk’s GROK) for $20 billion. (excluding the Cloud segment)

✅ It specializes in inference — the phase when a finished AI responds to the user. Its chips are known for their extreme speed in generating text (LLM)

✅ With this acquisition, Nvidia eliminates the risk of being overtaken in this part of the market by a new, more efficient technology. From a long-term perspective, this strengthens the market position of $NVDA (MOAT). This is a BULLISH message for the shareholders of this giant.

After several years of declining relevance, foreign smartphone brands are staging a notable comeback in China. Recent shipment data point to a sharp rebound, driven primarily by premium devices, with Apple emerging as the key beneficiary. The resurgence does not reflect a broad market expansion, but rather a redistribution of demand within a largely mature ecosystem.

What makes this shift significant is its timing. Chinese consumers appear increasingly willing to trade up again, prioritizing ecosystem quality, software integration, and brand reliability over price. In a market where domestic manufacturers have dominated volumes through aggressive pricing and incremental innovation, premium differentiation is once again proving capable of capturing share. For global brands, this marks a return from defensive positioning to selective growth.

Apple $AAPL is finding its footing again

Although the available data is not broken down by manufacturer, analysts agree that Apple is the main driver of growth. iPhones make up the vast majority of foreign shipments in China, and so November's jump suggests an improvement in sentiment towards a brand that has been under heavy pressure in recent quarters.

Apple faced a combination of several negative factors in 2024: Huawei's aggressive return to the premium segment, political restrictions on the use of iPhones in the government sector, and generally weaker consumer demand in China. But November's developments show that these pressures may not be structural but cyclical.

Price incentives, strong demand during shopping festivals and the gradual stabilisation of the Chinese economy have played a key role. Importantly for Apple, growth is not coming from the low-end, but from the premium segment, where the company has the highest margins and strategic value.

The Chinese market is not changing in volume but in structure

Overall market growth of less than 2% confirms that China is no longer the growth engine for global smartphone sales. The market is saturated and stagnating in volume terms. But the struggle for share and customer quality is all the more important.

Foreign brands, especially Apple, are benefiting from the return of consumers who are willing to pay more for the ecosystem, software and long-term support. Domestic manufacturers may dominate volumes, but they face pressure on margins and high competition among themselves.

Huawei remains a strong player, thanks largely to its own chip ecosystem and national sentiment, but November's numbers suggest its return may not automatically mean a long-term displacement of foreign brands.

Geopolitics gives way to consumer realities

The growth in foreign shipments is also interesting from a geopolitical perspective. In recent years, there have been fears that US technology firms would systematically lose ground in China due to regulatory and political pressures. However, recent data shows that consumer behavior is more pragmatic than political rhetoric.

Chinese consumers still make their phone purchase decisions based on product quality, brand and user experience. If Apple offers an attractive combination of price, performance and service, geopolitical friction will take a back seat.

What this means for investors

November's jump in shipments is not a one-off curiosity, but an important signal to investors watching Apple and the broader technology sector. China remains a key market for Apple, and any sign of stabilisation or a return to growth has a direct impact on the long-term outlook for both revenue and margins.

It is also a reminder that the "Apple is losing China" story is not black and white. The market is volatile, price and sentiment sensitive, but still open to quality foreign products. If the positive trend is confirmed in the months ahead, it could mean a reassessment of the risks investors have recently attributed to Apple.

November's data thus represents not just a statistic on phone sales, but an indicator of a deeper change in sentiment in one of the world's most important technology markets.

A dividend yield above 10% is usually interpreted as a warning sign. In most sectors, such a payout reflects deteriorating fundamentals or an unsustainable capital structure. Energy midstream infrastructure operates under a different logic. Revenue is not driven by commodity prices, but by volumes locked into long-term, take-or-pay contracts that shift risk away from the operator and toward producers and end users.

This business model prioritizes distributable cash flow over earnings growth. Capital allocation is designed to support predictable quarterly distributions, supported by regulated-like assets, inflation-linked escalators, and minimal exposure to demand shocks. For income-focused investors, the appeal lies not in rapid expansion, but in durability: cash flows that persist across cycles and support payouts even when energy markets turn volatile.

Top points of the analysis

• Yield of around 10% is covered by operating cash flow, not debt
• Distribution is covered at approximately 1.3x, creating a safety cushion
• 51 consecutive quarters of distribution growth is an extraordinary figure
• The business is built on long-term, predominantly fee-based contracts
• High debt is structural but stable and serviceable
• This is a title for income investors, not a growth strategy

Company presentation and business model

Delek Logistics Partners $DKL is an MLP that owns and operates midstream energy supply chain infrastructure. The portfolio includes pipelines, terminals, storage facilities, processing units and water infrastructure. A key feature of this business is that most of the revenue is not directly dependent on oil or gas prices, but on volume and contract fees.

A substantial portion of the assets serve the parent company, Delek US, which ensures long-term capacity utilization. At the same time, the company is gradually diversifying its revenues through third parties and acquisitions such as Gravity Water Midstream and H2O Midstream. These steps strengthen cash flow stability and reduce risk concentration.

From an investor perspective, the key point is that this type of infrastructure generates relatively stable EBITDA across the cyclewhich is the ideal basis for a high dividend payout over the long term.

Dividend history: consistency instead of volatility

Delek Logistics Partners is one of a very small group of MLPs that have been able to not interrupt distribution growth even during extreme periodsincluding pandemics, energy crises or sharp changes in interest rates. The company currently holds a series of of 51 consecutive quarterly distribution increaseswhich is an extremely strong signal in terms of income strategy.

The pace of distribution growth has been moderate rather than aggressive, which is important. The company is not trying to maximize short-term payout growth, but long-term sustainability. This discipline is one of the reasons why distributions have not been cut in the past, even in periods of higher volatility.

From a long-term investor's perspective, continuity is more important than momentum. Here, DKL fulfils exactly the role that a dividend title should: stable income with moderate but persistent growth.

1) The main risks of MLPs for the ordinary investor

• Distribution No guaranteed dividend, can be reduced at any time
• High dependence on debt and capital markets
• More complex taxes and administration compared to shares
• Limited investor influence on management and strategy
• Sensitivity to Rising interest rates

2) Who has priority in payouts

• Lenders (banks, bonds) - absolute priority
• General Partner - Fees, often priority rights
• Preferred units (if any)
• Ordinary limited partners (retail investors) - only last

3) What's in it for the investor

• LPs are not a substitute for dividend shares, but an income supplement
• High yield = higher structural risk
• The key is to monitor Distribution and debt coverage, not just percent of yield

Payout ratio and distribution coverage: key point of the whole thesis

For MLPs, the classic payout ratio on net income does not make sense. The critical metric is distributable cash flow (DCF) and its ratio to the distribution paid. Delek Logistics Partners expects distribution coverage in 2025 to be approximately 1,3×, which means the firm generates 30% more cash than it pays out to investors.

This cushion has several important functions. First, it allows the firm to absorb short-term fluctuations in cash flow without having to dip into distributions. Second, it creates room for reinvestment in growth projects without the need for massive debt raises. And third, it gives management the flexibility to continue to gradually increase distribution.

From a dividend security perspective, this is a healthy level. It is not an extremely conservative approach, but neither is it an aggressive "blood" payout.

Cash flow: the real dividend driver

For dividend MLP-type titles, the cash flow is the only metric that really makes the difference. Book earnings, EPS or return on equity have only limited predictive power. In the case of Delek Logistics Partners it is therefore crucial to analyse the long-term development of operating cash flow, capital expenditure and the ability to generate cash net of necessary investments.

Operating cash flow has been stable in recent years around USD 200-225 million per yearwhich confirms the high predictability of the business. Even in 2024, when there was a slight year-on-year decline in OCF, the level of cash remained sufficient to cover distribution and part of the investments. This is a key difference from riskier dividend titles where payouts depend on external funding.

Free cash flow is more volatile, which is normal for midstream infrastructure. Years with lower FCF are not the result of deteriorating operations, but increased capital expendituretypically on expansion of processing capacity, terminals or water infrastructure. These investments are not speculative, but contractually based and aimed at future cash flow stability.

From a dividend investor's perspective, it is important that the company never finances distribution purely with debt. Even in investment-intensive years, the core of the payout is operating cash, which significantly reduces the risk of a sudden reduction in distribution.

Free cash flow vs. distribution: how big is the safety cushion

Free cash flow net of capex is not constant for DKL, but that in itself is not a problem. The key point is that distributable cash flow (DCF) - i.e. cash available for distribution - in the long term exceeds distributions paid out by around 30%.

Distribution coverage at the level of 1,3× means that even at:

• a slight decrease in volumes
• a temporary rise in interest costs
• or higher maintenance investments

the firm has enough room to keep the payout unchanged. This cushion is exactly what an investor expects from a stable income title. It is not overly conservative, but it is not dangerously stretched either.

It is also important to follow the trend. The distribution coverage has been above 1.2x for a long time, indicating that management isn't sacrificing future stability in favour of short-term higher returns.

Debt and interest costs: where the real risk lies

Delek Logistics Partners operates with a high level of debt, which is structurally typical for MLPs. However, the crucial question is not "how much debt" but whether the debt can be serviced from operating cash in the long term.

The total debt is around USD 1.9 billionwhile EBITDA exceeds 390 million USD. This implies a debt to EBITDA ratio of approximately 4,8-5,0×, which is a higher but still acceptable level for a stable midstream infrastructure with long-term contracts.

The weakest point is interest coverage of around 1.6×which increases the company's sensitivity to a higher rate environment. However, this does not pose an immediate threat to the dividend. Rather, it limits the pace of its future growth. In such an environment, management is likely to favor stability over aggressive payout increases.

From a dividend investor's perspective, this is an important signal: the risk is not a reduction in the dividend, but a slowdown in dividend growth if rates remain high over the long term.

Dividend stress test: what would have to happen to put the payout at risk

For a DKL distribution to be truly at risk, a combination of several negative factors would have to occur simultaneously:

• a significant and sustained decline in transported volumes
• a deterioration in contractual conditions
• a simultaneous significant increase in interest costs

A fall in volumes alone would probably only lead to a slowdown in distribution growth. Similarly, higher rates alone are not critical as long as EBITDA remains stable. Only a combination of operational and financial pressure would create a scenario where management would have to reassess payouts.

Business quality: why cash flow is stable beyond dividend logic

The fundamental strength of Delek Logistics Partners lies not in the dividend itself, but in the nature of the assetsthat make the dividend possible. The company operates in the midstream infrastructure segment, where the return on capital is not driven by commodity prices but by the volume, availability and contractual security of capacity. This fundamentally reduces the volatility of returns and makes the business relatively resilient to the fluctuations of the energy cycle.

Most of the revenue comes from long-term, predominantly fee-based contracts, often of the type take-or-paywhich guarantee a minimum level of revenue regardless of short-term demand trends. These contracts create high visibility of future cash flows and reduce the risk of sharp drops in revenue. At the same time, this is infrastructure that cannot be easily replaced - pipelines, terminals and processing units are capital intensive, regulatory complicated and locally anchored.

The link to the parent company is also an important aspect Delek US. This ensures stable underlying demand for capacity, which strengthens the predictability of revenues. At the same time, it is not a one-sided dependency - the company has been purposefully expanding its cooperation with third parties in recent years, thereby reducing the concentration of risk. The result is a business that is not just a "dividend cow" but a functional infrastructure with long-term economic value.

Growth levers beyond the dividend: where company value can continue to be created

Delek Logistics Partners is often seen as a ready-made, mature title whose main function is cash distribution. This view is simplistic. The firm has several growth levers that, while not leading to explosive earnings growth, can increase EBITDA, cash flow stability and asset value over the long term..

The first growth lever is organic infrastructure expansion. Projects such as Libby 2 gas processing plant or the development of water infrastructure are not speculative investments, but responses to specific demand backed by contracts. These investments increase system capacity while deepening relationships with existing customers.

The second lever is acquisition of complementary assets, particularly in water and supporting infrastructure. These segments are less cyclical and contribute to further cash flow smoothing. In terms of long-term strategy, this is a shift towards an even more defensive profile.

A third, often overlooked option is potential drop-down transactions from the parent company. These may bring new assets into the MLP structure at relatively attractive terms in the future. If executed in a disciplined manner and with distribution coverage in mind, they can support EBITDA growth without disproportionately increasing risk.

These growth factors alone may not lead to significant share price appreciation, but enhance the long-term sustainability of the business and create scope for continued distribution growth in a less favourable macro environment.

Management and capital allocation: discipline over aggressiveness

• CEO since 2012 Uzi Yemin

The quality of management at midstream MLPs is not known by media visibility, but by the ability to allocate capital in a balance between growth, debt and investor payouts. In this regard, Delek Logistics Partners' management has been consistent and disciplined.

Management has long prioritised sustainable distribution coverage over maximising short-term returns. This is reflected in both the level of payout and the pace of payout increases. Instead of aggressively growing distributions, it opts for gradual, regular increases that are covered by cash flow and do not require leapfrogging debt.

In terms of investments, there is a clear tendency to channel capital into projects with clear returns and contractual security. The company avoids expansions that would increase operational risk or significantly worsen the balance sheet profile. This is particularly key in a higher interest rate environment where capital allocation errors are quickly punished.

From an investor's perspective, it is important that management does not give the impression of sacrificing long-term stability for the short-term attractiveness of the stock. On the contrary, the overall approach suggests that the priority is maintaining the confidence of income investors and protecting cash flow across the cycle.

Investment scenarios: how the story may unfold in the coming years

Baseline scenario: stable infrastructure with high returns

In the baseline scenario, the Delek Logistics Partners is primarily a defensive infrastructure asset with stable and predictable cash flow as its core value. The volume of products transported remains relatively stable, new projects are executed selectively and with contractual security, while EBITDA growth is gradual rather than dynamic.

Distribution in this scenario continues to grow modestly but consistently, with coverage around 1.2-1.3 times. Debt remains high but serviceable, without the need for major refinancing interventions. The stock is behaving in this environment as income instrumentwhere most of the total return comes from cash paid out, not from price appreciation.

For the investor, this scenario means attractive long-term income with relatively low volatility but limited capital upside.

Optimistic scenario: EBITDA growth and gradual revaluation

The optimistic scenario assumes that growth levers beyond the dividend itself start to play a more prominent role. New infrastructure projects and acquisitions prove to be above-average returns, volumes increase and revenue diversification reduces dependence on a single customer or region. EBITDA grows at a faster than historical rate, while capex gradually declines as major projects are completed.

In this scenario, the balance sheet profile also improves, with the debt to EBITDA ratio slowly declining, interest cover stabilising and the market starting to see the company as a a higher quality and less risky midstream infrastructure. This may lead to a slight valuation overvaluation, not dramatic, but enough for the share price to contribute to the total return in addition to the dividend.

Dividend growth continues here, possibly accelerating slightly, without compromising the sustainability of the payout. For an investor, this would be a scenario that combines a high ongoing yield with limited but meaningful capital appreciation.

Pessimistic scenario: pressure on the balance sheet and stagnation in value

The pessimistic scenario assumes a combination of several negative factors. Volume pressures or deteriorating contract terms lead to a decline in EBITDA, while higher interest rates increase debt servicing costs. Distribution coverage tightens towards the 1.0-1.1× mark, limiting management flexibility.

In this environment, there is unlikely to be an immediate reduction in distribution, but rather a freeze and the postponement of growth projects. The market would continue to price the title purely as a riskier income instrument, with no expectation of growth. The share price could stagnate or decline slightly, while the dividend yield would remain high.

For the investor, this would be a scenario where cash collection remains the main benefit, but with a higher level of nervousness and a smaller safety cushion.

Risks of investing in DKL

🔴 Structural and legal risks (MLP model)

• This is not a traditional stock, but a MLP units - the investor is Partner, not a shareholder
• Tax Form K-1, more complex taxation and higher administrative complexity
• Foreign investors often higher withholding tax and worse tax optimization
• Not suitable for certain types of accounts (retirement, tax-advantaged accounts)

🔴 Risk of business concentration

• Strong Dependence on parent company Delek US Holdings
• Limited customer diversification and geographic concentration
• Problem at parent company may quickly spill over into DKL's cash flow

🔴 Dividend sustainability risk

• Very high dividend yield = market pricing in risk
• Payout dependent:
• • stable shipping volume
  • debt refinancing
  • availability of capital
• If margins fall, this can lead to freezing or reduction of the dividend

🔴 Debt and interest rate risk

• Relative Higher debt burden typical of the MLP sector
• Sensitivity to:
• • Rising interest rates
  • worse refinancing conditions
• When debt markets are stressed, there may be Priority of debt over dividend

What to take away from the article

• Dividend yield over 10% is covered by operating cash flow, not debt
• Distribution coverage around 1.3x creates a meaningful safety cushion
• Debt is high but serviceable at current EBITDA levels
• The biggest risk is not a reduction in the dividend, but a slowdown in dividend growth
• This is typical income title for long-term holdingnot for speculation