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

How was Q1 2026?

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

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

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

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

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

• Full presentation with results.

Management commentary

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

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

Outlook

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

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

Long-term results

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

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

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

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

Shareholding structure

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

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

Fair Price

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

Top points of analysis

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

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

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

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

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

Company introduction

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

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

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

Business and products

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

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

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

Market and addressable potential

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

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

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

Competition and market position

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

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

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

Management and CEO

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

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

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

Financial performance

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

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

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

Cash flow and capital discipline

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

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

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

Balance sheet and debt

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

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

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

Valuation and valuation interpretation

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

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

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

Growth catalysts and outlook

Positive catalysts include:

• Further growth in outpatient imaging

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

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

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

Key metrics to watch include:

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

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

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

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

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

Risks

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

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

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

Investment scenarios

Optimistic scenario

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

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

A realistic scenario

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

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

Negative scenario

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

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

The share price performance and story of recent years

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

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

What to watch next

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

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

• Debt development, interest coverage and refinancing terms.

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

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

What to take away from the article

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

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

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

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

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

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

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

SPDR Portfolio S&P 500 ETF $SPYM

About the Fund

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

Key parameters of the fund

Why $SPYM is interesting

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

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

Sector composition

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

A detailed overview of the fund can be found here.

Vanguard S&P 500 ETF $VOO

About the Fund

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

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

Key parameters of the fund

Why VOO is interesting

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

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

Comparison with SPYM

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

All information about the fund can be found here.

Vanguard Total Stock Market ETF $VTI

About the Fund

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

Key Fund Parameters

Why VTI is interesting

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

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

Replication methodology

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

Full details of the findo can be found here.

iShares Core S&P 500 ETF $IVV

About the Fund

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

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

Key Fund Parameters

Why IVV is interesting

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

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

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

Comparison with VOO

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

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

An overview of the entire fund can be found here.

Comparison of funds and market competition

Overview of key parameters

Market competition

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

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

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

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

Summary

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

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

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

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

What not to overlook when choosing similar funds

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

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

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

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

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

Conclusion

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

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

The start of the problem

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

Credit bureaus' counterattack

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

Debt announcement + price target cuts

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

🔍My view

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

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

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

How the IPO fits into SoftBank's strategy

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

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

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

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

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

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

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

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

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

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

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

PayPay's numbers: growth and monetization

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

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

Risks and potential implications for investors

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

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

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

What to watch next

Investors should watch:

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

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

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

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

Conclusion

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

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

Top points of analysis

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

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

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

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

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

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

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

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

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

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

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

What needs to work for this to work

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

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

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

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

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

How it becomes money: the drivers of growth

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

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

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

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

3) Venmo - younger audience and partnerships

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

4) Cash flow and capital allocation

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

The numbers that support the thesis

Key numbers 2021-2024

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

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

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

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

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

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

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

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

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

Dividend and sustainability

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

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

Dividend stress test (indicative)

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

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

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

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

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

Warning signs for dividend and capital policy

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

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

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

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

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

Valuation - what's included and what's not

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

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

What the market values and what it fears

What the market values:

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

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

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

What the market fears:

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

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

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

Risks

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

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

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

Risk Checklist

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

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

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

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

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

Investment scenarios

Optimistic scenario

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

• Revenues 2028: roughly $42-45 billion.

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

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

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

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

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

Realistic scenario

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

• 2028 revenues: roughly $38-41 billion.

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

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

• Valuation: P/E 11-13, P/CF 9-11.

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

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

Pessimistic scenario

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

• 2028 revenues: about $35-37 billion.

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

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

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

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

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

What to watch next - KPIs and milestones

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

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

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

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

• BNPL volume and profitability growth, loan portfolio quality.

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

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

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

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

What to take away from the article

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

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

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

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

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

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

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

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

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

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

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

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

What’s going on?

We can break the situation into 3 main events

1.

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

2.

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

3.

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

Opportunity or trap?

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

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

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

Do you hold any of these stocks?

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

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

The exact path and composition of the index

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

Which segments of the economy grew

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

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

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

The structural problem that precedes war

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

Data distortions

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

The war with Iran and the oil shock

The Strait of Hormuz and historically unprecedented supply disruptions

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

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

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

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

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

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

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

Stagflation risk: The worst-case scenario for the Fed

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

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

What the Fed can do

Confirm the pause

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

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

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

New Fed Chairman Kevin Warsh: A different philosophy

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

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

US interest rate developments since 2018

Impact on equity markets

S&P 500 under pressure, energy drags

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

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

Impact on individual sectors

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

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

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

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

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

Strategy

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

• The length and intensity of the Iranian conflict,

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

• new Fed leadership.

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

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

What to watch next

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

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

Conclusion

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

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

• energy inflation caused by geopolitical conflict,

• persistent structural inflation in services and housing,

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

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

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

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

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

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

Third year of pressure on supply

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

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

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

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

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

Auto business vs. robotaxis and robots

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

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

Capital expenditure and the threat of a cash burn

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

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

When and under what conditions might the trend break?

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

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

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

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

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

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

• zero supplygrowth is a "win"

• less decline than last year "neutral"

• faster decline than the previous year "problem"

What to watch next

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

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

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

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

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

Conclusion

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

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

What was 2025 like?

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

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

• US tariffs

• significant costs of changing Porsche's product strategy

• unfavourable exchange rate and price/mix effects

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

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

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

• Full presentation with results.

Management commentary

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

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

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

Outlook 2026

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

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

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

Long-term results

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

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

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

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

Shareholding structure

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

• Porsche Automobil Holding SE: 31.9%

• Foreign institutional investors: 18.3%

• Qatar Holding LLC: 10.4%

• Federal State of Lower Saxony: 11.8%

• Private shareholders / others: 25.7%

• German institutional investors: 1.9%.

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

Dividend

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

Fair Price

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

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

Top points of the analysis

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

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

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

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

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

Company introduction

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

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

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

Business and products

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

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

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

Market and addressable potential

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

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

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

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

• expand the range of additional services per unit

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

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

Competition and market position

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

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

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

Management and CEO

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

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

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

Financial performance

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

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

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

Cash flow and capital discipline

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

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

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

Balance sheet and debt

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

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

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

Valuation

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

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

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

• grow at a double-digit rate

• maintain or improve margins

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

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

Growth catalysts

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

Measurable metrics include:

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

• number of units and customers managed

• share of revenues from ancillary services

• operating and free cash flow margins

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

Risks

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

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

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

Investment scenarios

Optimistic scenario

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

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

A realistic scenario

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

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

Negative scenario

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

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

The share price performance and story of recent years

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

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

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

What to watch next

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

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

• Ancillary services revenue share and growth.

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

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

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

What to take away from the article

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

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

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

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

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

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

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

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

Verizon Communications $VZ

The extent of the debt and its origins

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

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

Ability to repay and cash flow profile

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

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

Fighting for customers in a saturated network

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

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

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

Ford Motor Company $F

Debt as a reflection of transformation

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

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

Ford Pro as hidden value

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

Dividend distribution

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

Risks: cyclicality and EV division losses

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

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

AT&T $T

Debt history

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

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

5G optical networks as a rescue

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

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

Dividend: the eternal question of sustainability

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

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

Comparison with the market and competitors

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

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

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

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

Strategic view

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

The key is always to answer three questions:

• For what purpose was the debt incurred?

• Is there sufficient cash flow to service it?

• Is there a credible plan to reduce it?

For all three companies, there are answers.

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

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

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

What to watch next

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

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

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

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

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

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

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

Conclusion

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

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

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

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

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

How was the last quarter?

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

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

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

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

• Full presentation with results.

Management commentary

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

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

Outlook

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

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

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

Long-term results

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

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

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

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

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

News

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

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

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

Shareholding structure

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

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

Analyst expectations

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

Fair Price

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

How was the last quarter?

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

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

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

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

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

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

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

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

• Full presentation with results.

Management commentary

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

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

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

Outlook

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

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

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

Long-term results

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

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

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

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

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

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

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

News

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

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

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

Shareholding structure

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

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

Top points of analysis

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

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

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

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

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

What has changed: insider selling vs. the new Palantir

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

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

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

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

What needs to happen for stocks to keep rising

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

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

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

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

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

Growth drivers

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

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

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

The numbers that support the continued growth thesis

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

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

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

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

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

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

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

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

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

Valuation: what's in and what's out

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

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

What the market values / fears

• What the market values:

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

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

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

• What the market fears:

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

  • Slowing AI demand growth or shifting budgets to competitors.

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

Macro and market

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

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

Risks

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

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

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

Risk Checklist

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

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

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

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

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

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

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

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

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

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

Investment scenarios

Optimistic scenario

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

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

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

• EPS: 2-3 times 2025 levels.

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

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

Realistic scenario

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

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

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

• EPS: 1.5-2 times 2025.

• Valuation: P/E 40-60, P/S 15-25.

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

Pessimistic scenario

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

• 2028 revenue: $7-8 billion (CAGR ~15-20%).

• Operating margin: 20-25%, FCF margin: 30-35%.

• EPS: flat or only modest growth vs. 2025.

• Valuation: P/E 20-30, P/S 7-12.

• Overall: significant price correction, long period of valuation "cushioning", company remains profitable but shareholder returns are weak; dividend may not emerge until longer term in such an environment.

What to watch next

• Evolution of overall revenue growth quarter by quarter (hold 30-40% y/y vs. slowdown below 25%).

• US commercial revenue growth (target >100% y/y in the coming years).

• Operating margin and FCF margin (maintain or improve vs. cost pressure).

• Evolution of stock compensation and dilution (growth rate in share count).

• Revenue structure: share of commercial vs. government segment and internationalization.

• New large contracts and TCV (Total Contract Value) in AI segments.

• Any changes to AI and defense technology regulation in key regions.

• Management comments on cash usage (R&D vs. M&A vs. buybacks).

• Competitor signals (Microsoft, Amazon, Google products and contracts in similar areas).

• Other insider transactions - whether Thiel and management continue to just "fox" positions or massively reduce exposure.

What to take away from the article

• Thiel's sale of around 2 million shares is large in absolute amount, but small relative to the size of Palantir; more important than the sale itself is that Thiel remains a large shareholder.

• Palantir has undergone a significant transformation in 2-3 years: from a company with negative earnings to a company with 36% net margin and 51% FCF margin.

• Growth has been driven primarily by AIP's AI platform and the explosive growth of the commercial segment in the US, while government contracts remain a strong pillar.

• Valuation is extreme and assumes long-term revenue growth of tens of percent; a slowdown could see sharp compression in multiples.

• Palantir has a very strong balance sheet and high profitability but no dividend - the return to the investor is based on growth in the value of the company.

• Key metrics to track are revenue growth, margins, FCF and revenue mix between commercial and government segments.

• Macro and geopolitics play a big role for Palantir - rising defense budgets can help, but AI regulation and political risks can hinder growth.

I'm thinking of expanding my portfolio with a stock from the healthcare sector. It seems like a relatively stable industry that becomes more important year by year. At the same time, this company's valuation doesn't look overly stretched. I haven't studied Novartis in detail yet, so I'd appreciate any opinions. I would also welcome tips on other interesting stocks in this sector.

2026 proves that even in an environment of heightened uncertainty, geopolitical tensions and volatile interest rates, there are companies that can not only outperform the market, but literally surprise it. While the S&P 500 index as a whole is going through a turbulent period, a group of stocks has been posting strong gains since the beginning of the year, across sectors ranging from energy supply to technology to biotechnology. The common denominator of these outperformers is either a structural change in their business, a significant improvement in fundamentals, or a reassessment of their value by investors in response to the new macroeconomic environment.

It is also important to understand why these companies stood out from the crowd this year. The market in 2026 rewards specific types of approaches: business renewal, direct or indirect exposure to building AI infrastructure, and companies that have fundamentally rethought their business model after the initial negative narrative no longer matches reality. It is these three categories that form the basis of most of this year's winners.

SanDisk $SNDK

SanDisk returned to the stock market as a standalone company after parent Western Digital decided to spin off its NAND flash memory division. The timing was brilliant: the flash memory market is undergoing a recovery after a protracted overcapacity that drove chip prices well below the cost of production. But those days are long gone. At the moment, memory shortages reign supreme in the market, especially in AI. As a result, top manufacturers are cutting production of "classic" RAM, dramatically increasing its price, and shifting production to high-margin AI memories.

The company is targeting both the consumer and datacenter segments, where demand for high-capacity storage is increasing as AI infrastructure grows. Meanwhile, the separation from Western Digital $WDC has allowed the company to focus management, capital allocation and product strategy exclusively on flash memory, without having to compromise with the HDD business. For investors, it's a bet on the memory cycle combined with a net spin-off value that is still in the early stages of rediscovery by institutional players.

The stock has already gained 1,577% since going public last March. The stock's growth rate for this year is 147%.

Texas Pacific Land $TPL

Texas Pacific Land is one of the most unusual companies in the entire S&P 500. It doesn't produce oil, it doesn't operate oil fields, and you won't find it in lists of traditional energy companies. But it owns over 870,000 acres of land in the Permian Basin, the world's most productive oil region, and collects royalties for every barrel someone else produces there. To that it adds revenue from water management, which is becoming an increasingly critical resource in the arid Texas environment.

This year's skyrocketing oil prices in the context of the Middle East conflict and the closure of the Strait of Hormuz play right into $TPL s hands. A higher oil price automatically increases the interest of producers in maximizing the recovery of Texas land and thus Texas Pacific's revenues without any increase in its own costs. This is one of the purest beneficiaries of the oil shock in the entire market, with extremely low leverage and a business model that inherently cannot lose from a higher commodity price. Moreover, the royalty model provides the firm with very high margins and minimal capital requirements, which is proving to be a significant competitive advantage in a high rate environment.

The stock has already gained 87.7% this year.

Moderna $MRNA

Moderna has been one of the biggest disappointments of the entire market over the past two years. The stock lost more than 80% of its value after the Covid peak, and the company has come under pressure from declining COVID vaccine revenues, an uncertain pipeline, and high research spending that the market is no longer willing to fund. This year's turnaround has therefore surprised many investors.

The turnaround is primarily due to progress in the mRNA oncology program, where Moderna is developing personalized cancer vaccines in collaboration with Merck $MRK. Results from Phase 2 clinical trials indicated a statistically significant reduction in the risk of relapse in melanoma, which the market read as a breakthrough with potential far beyond initial estimates. At the same time, the company reported better-than-expected respiratory vaccine revenues and announced severe cost cuts to bring the company closer to operational profitability sooner than analysts had predicted. The reassessment from a post-covid wreck image to an mRNA platform with real oncology prospects is a source of significant valuation re-rating, and the stock has covered only part of this space so far.

Shares of $MRNA have appreciated 88.9% in 2026.

Generac Holdings $GNRC

Generac is a manufacturer of backup generators and, increasingly, home energy management systems. The company benefited for years from a pandemic boom in home renovations and growing demand for energy independence, but then came under severe pressure from excess inventory in the distribution chain and a significant slowdown in demand. The stock has written down over 80% from its highs at that time.

This year, the situation is fundamentally reversed. Results showed better-than-expected margins and management signaled that the excess inventory had been drained from the market. Added to this is a structural catalyst in the form of an increasingly unstable US grid and expansion into the BESS (battery energy storage systems) segment, where Generac is building a product portfolio for homes and businesses. In the context of the current oil shock and revived discussions about energy security, backup power has returned to the spotlight for both consumers and institutional investors, who have stopped seeing the company as a pandemic relic and started reading it as an energy resilience play.

The stock is already up 51.4% this year.

Corning $GLW

Corning has gone through a period in the past two years where the market overlooked the company as a mature, slow business without a significant growth catalyst. But the company is a world leader in specialty glass and fiber optics, materials that are, on the surface, far removed from the exciting stories of AI and semiconductors. This year's reassessment by investors therefore surprises many, although the fundamental logic behind it is compelling.

A key catalyst is the surge in demand for fibre optics as AI infrastructure is built. Next-generation data centres require extremely dense fibre connectivity for servers, storage and network elements within halls and between sites, and Corning is one of the few manufacturers in the world capable of delivering this fibre in the volume and quality required. Demand from hyperscalers such as Microsoft $MSFT, Amazon $AMZN and Google $GOOG is far exceeding initial estimates, and Corning is gradually increasing production capacity to meet it. At the same time, the company is benefiting from renewed investment in broadband infrastructure in the U.S. under federal programs to extend connectivity to rural areas. The strong results of recent quarters, management's repeated outlook upgrades, and the increasing visibility of the order book have convinced the market that Corning is not just a defensive dividend stock, but a company with a real structural growth story driven by demand for AI infrastructure.

Shares of $GLW are up 47.3% this year, despite having already written down 20% since the February 25 peak.

Teradyne $TER

Teradyne is one of the key companies in automated semiconductor testing and industrial robots. After two years of a downturn, when demand for test equipment declined with the semiconductor market cycle and customers deferred investment in new capacity, a resurgence in orders is coming and the market is pricing it in ahead of schedule, as is customary for cyclical technology companies.

A key catalyst is the advent of AI chips, which are significantly more complex and costly than standard processors and therefore require more thorough, longer and sophisticated post-production testing. This directly increases the average order value for Teradyne while moving the entire test equipment segment into a higher margin category. Meanwhile, the company's robotics division, which produces collaborative robots for Universal Robots, is benefiting from the growing demand for automation in manufacturing in the context of the onshoring wave in the US and Europe. The combination of cyclical recovery in testing and structural long-term growth in robotics creates an investment-attractive story with multiple independent growth engines.

The stock is up 53.7% in 2026.

Western Digital $WDC

Western Digital, from which SanDisk $SNDK was spun off, now focuses exclusively on the HDD (hard disk drives) segment focused on data center and cloud storage. Ironically, it is the AI boom, which many analysts saw as a threat to traditional magnetic storage, that is proving to be its savior and a key demand driver.

Modern AI infrastructure produces huge amounts of data that need to be archived for the long term, and HDDs are significantly cheaper than SSDs per unit of data stored for this purpose. Thus, high-capacity HDDs for data centers are experiencing a significant increase in demand from hyperscalers such as Microsoft $MSFT, Amazon $AMZN or Google $GOOG, who are building ever-larger tiers of massive storage. In addition, Western Digital has completed its restructuring following the divestiture of its NAND division, and new management has imposed strict discipline on capital allocation. The market is revaluing the company from the image of a struggling conglomerate to a pure-play player in datacenter storage with a significantly improved cash flow profile and a clearer investment thesis.

The company's stock is already up 52.2% in 2026.

Comfort Systems USA $FIX

Comfort Systems USA is one of the least followed companies in the entire S&P 500, yet it is one of the highest growth companies in the entire index in recent years. The company installs and services HVAC (which are systems that regulate temperature, humidity and air quality in buildings or just data centers) systems for industrial and commercial buildings, which sounds unremarkable, but in the context of the massive data center construction in the U.S., it is an absolutely key contractor with an extremely strong bargaining position.

The data centers powering AI infrastructure generate extreme amounts of heat, and cooling them efficiently is one of the most critical challenges in the entire industry, with a direct impact on energy consumption and operating costs. Comfort Systems benefits from the fact that cooling data centers is more costly, technically complex and margin attractive than standard industry projects. Added to this is the onshoring of manufacturing in the US, which is generating strong demand for industrial facilities with demanding air conditioning and ventilation. The company has repeatedly beaten analyst estimates and the market is only gradually fully valuing it for direct exposure to AI infrastructure without having to pay a premium comparable to the valuations of chipmakers or hyperscalers themselves.

The stock is already up 47.1% this year.

Seagate Technology $STX

Seagate is a direct competitor to Western Digital in the HDD segment. It's a cycle recovery in datacenter storage driven by AI demand. However, Seagate has been under more pressure over the past two years due to increased exposure to the Chinese market, a more complex restructuring of its cost base, and market doubts about its ability to compete in the next-generation cycle of high-density recording products.

This year's results dispelled these doubts. Revenues accelerated significantly and operating margin improvement beat consensus, with management raising its full-year outlook higher than analysts had expected. A key product is the HAMR extreme high-capacity drives, which are designed specifically for the needs of hyperscalers and allow Seagate to achieve a higher average price per product than the previous generation. The market is gradually re-rating the company from the image of a laggard manufacturer of aging technology to a relevant player in datacenter infrastructure, and this re-rating has a real fundamental basis in the form of an accelerating business.

Shares have gained 35.4% since the beginning of January.

Price $CIEN

Ciena makes networking hardware and software for high-speed optical data transmission and is one of the top infrastructure suppliers to telecom operators and data centers. The company went through a significant downturn in 2023 and 2024, when the stock barely moved as telecom operators stopped investing after the covide boom and gradually de-stocked equipment bought ahead of time. This cycle of excess inventory is now behind us and the resumption of capex cycles is evident in the order data.

The advent of AI applications and their data traffic demands are starting to hit capacity limits on existing network infrastructure, and operators are being forced to invest in fibre capacity to cover the growing traffic. At the same time, Ciena is expanding into the datacenter optical connectivity segment, where demand is growing from hyperscalers building their own AI clusters with the need for extremely fast interconnection of servers and storage within and between data centers. Analysts are gradually raising target prices, and the company is returning to investors' sights as one of the direct beneficiaries of building AI infrastructure at the network layer that is less visible than the chips themselves, but just as necessary.

Shares of $CIEN are already up 36.5% this year.

Conclusion

This year's top 10 of the S&P 500 is not a random collection of names without a common key. A closer look reveals that most of these stories have one or more of three common denominators behind them: a recovery cycle after a period of excess and downturn, direct or indirect exposure to AI infrastructure, or a significant reassessment of the business model by the market after the initial negative narrative no longer matched reality. So these are not speculative bets with no fundamental basis, but companies where the narrative has actually changed and the market reacts to that change with a natural lag.

At the same time, significant appreciation since the beginning of the year is not automatically a reason to buy. For some of these stocks, valuations have approached levels where a positive scenario is already largely priced in. For others, there remains room for further upside if the fundamental thesis is confirmed in the coming quarters. The key thing to watch, therefore, is whether the acceleration in sales and improvement in margins will continue or whether this was just a one-off blip. This is what will determine which of today's outperformers will remain strong stories into 2026 and which will leave behind only a blank performance statistic with no follow-through.

These awards add yet another layer of visibility to Lockheed Martin’s backlog at a time when many tech names depend on more cyclical demand. With F-35 remaining the backbone fighter for the U.S. and multiple partner nations, and SPY-1 sustaining its role in naval air and missile defense, investors get the kind of multi‑year, government-backed cash flows that can help dampen earnings volatility.

What Lockheed got: two contracts, one clear signal

The first, larger contract is worth roughly $700.4 million and is a modification (modification) of an existing fixed-price incentive contract for the F-35 program. So it's not a completely new program, but an increase and provision of "long lead" material - that is, parts, components and parts of the supply chain that need to be ordered well in advance to make the production Lot 20 and Lot 21 aircraft possible.

These F-35s are not just for the US. The contract also includes machines for Denmark and other partner countries involved in the F-35 program, as well as Foreign Military Sales customers. Spreading the cost across multiple countries gives the program political stability - the more countries that are in, the harder it is to curtail or terminate the project.

Spreading the work: the F-35 as a global industrial ecosystem

The contract is a typical example of how the F-35 is industrially "spread out" around the world. The bulk of the work will take place in Fort Worth, Texas, where approximately 59% of the activity will take place. Other key locations are El Segundo, California (14%) and Warton, United Kingdom (9%). The remainder are manufacturing and engineering centers in Camero (Italy), Orlando (Florida), Nashue (New Hampshire), Baltimore (Maryland), San Diego (California) and various other locations outside the continental United States.

The time horizon is long: the work is to be completed by December 2030. This is exactly the type of schedulability that gives Lockheed the room to optimise production, parts procurement and negotiations with suppliers. And it's a signal to investors that the F-35 pipeline is firmly secured for at least another decade.

The work will be split among multiple sites, with Fort Worth carrying 59% of the volume, El Segundo, California 14%, Warton, United Kingdom 9%, and smaller shares going to Cameri, Italy, Orlando, Florida, Nashua, New Hampshire, Baltimore, Maryland, San Diego, California, and several other foreign locations. Completion is scheduled for December 2030, confirming that production and logistics for Lot 20 and 21 are spread out over the next four years. Funding is split between $305.9 million in F-35 Cooperative Program Partner funds and $394.5 million in Foreign Military Sales funds, with the full amount allocated upon award.

The second $60.6 million contract is for the repair of 123 components of the SPY-1 radar system, which is part of the Aegis Weapon System on U.S. Navy ships. This is a firm-fixed-price contract, all work will be performed in Moorestown, New Jersey, and orders are expected to run through March 2031. Unlike the F-35 contract, funding is not obligated immediately - no funds are released at the time of award, and individual delivery orders will be funded incrementally from Navy operating funds.

Who pays and how: Denmark, partners and FMS

Funding for the F-35 contract is split between multiple sources. Roughly $305.9 million comes from F-35 cooperative program funds - that is, from the partner nations involved in the development and production of the aircraft. Another $394.5 million comes from Foreign Military Sales (FMS) client funds, the formal mechanism by which the U.S. sells weapons to friendly nations.

The contract is being handled by the Naval Air Systems Command (NAVAIR) in Patuxent River, Maryland. This shows that the F-35, despite its aviation-centric perception, is seen as a key platform for multiple branches of the armed forces - including the Navy and Marine Corps.

Second pillar: SPY-1 radar and Aegis Weapon System

The second contract is smaller in nominal terms but strategically important. Lockheed Martin in Moorestown, New Jersey, has been awarded a $60.6 million firm-fixed-price contract to repair 123 components that support the SPY-1 radar system. The latter is part of the Aegis Weapon System - the backbone of U.S. and allied naval air and missile defense capabilities.

All work on this contract is to be performed at Moorestown. Orders will be awarded incrementally through March 2031. An interesting detail: no funds are released when the contract is awarded; the money will come incrementally in the form of individual delivery orders, funded by Navy working capital funds based on the respective fiscal years. This means it is a long-term service/maintenance business with relatively low risk and spread out cash flow.

Strategic importance: stability, diversification and 'boring' billions

For Lockheed Martin $LMT, these contracts do not represent a dramatic breakthrough, but confirmation of key trends:

• The F-35 remains a mainstay of U.S. and allied combat airpower - each additional "lot" and long-term contract increases the likelihood that the program will run for decades to come.

• Aegis/ SPY-1 and follow-on naval systems secure Lockheed's role as a key supplier for air and missile defense - an area where demand is rising rather than falling as geopolitical tensions rise.

• The 2030-2031 time horizons give the company and investors high revenue visibility and create a cushion against short-term fluctuations in other segments.

In total, it is a "boring" $761 million, but it fits into a very un-boring story: the arms giant continues to cement its position as a company that US defence and future alliance operations cannot do without, in small steps.

The impact on Lockheed's business model

From a business model perspective, contracts like these are typical examples of stable, long-term defence cash flow. Fixed-incentive contracts for the F-35 push Lockheed into efficiency - if it fits within costs, it increases its margin; if it exceeds costs, it bears some of the bump itself. This puts pressure on supply chain management, but also protects the Pentagon from unchecked budget growth. For investors, it means a relatively predictable margin if the company maintains cost discipline.

The SPY-1 contract is a typical sustainment business, where Lockheed draws on its existing installed base and naval radar know-how. Repair and spares contracts tend to be less volatile than new large acquisitions, even if they are in smaller volumes; they also tend to be margin attractive because they require specialized capabilities that few contractors have.

Importantly, both contracts spread the work and revenue over a five to six year horizon, which supports long-term capacity planning in each location (Fort Worth, Moorestown, European centers). This increases plant utilization and helps retain key engineering teams needed for other programs - from new radars to future generations of combat aircraft.

Today the situation is different – Uber is gradually increasing its operating profit and has even overtaken Tesla on the chart.

An example of how quickly a business model can turn around. 🚗📈

Just a few years ago, choosing an Apple laptop was relatively easy. Customers were faced with a handful of models that varied in size and performance, but were priced more in the premium segment. Today, the situation is markedly different.

With the advent of Apple Silicon chips, Apple has gradually begun to expand its MacBook offerings to cover a wider range of users, from students to professionals working with demanding applications. The result is a portfolio that reaches into price ranges previously dominated by Windows PCs or cheap Chromebooks. For investors watching the tech sector, this isn't just product news. It's a strategy that could change the dynamics of the entire personal computer market. And it also poses a potential problem for the two long-time leaders in the segment - $MSFT and $GOOGL.

Apple has gradually filled the entire notebook market

The strategy of $AAPL began to take shape more significantly in 2020, when the company introduced the first computers with Apple's own M1 processor. This step marked a fundamental change. Apple stopped using Intel processors and began to control the entire technology stack, from the hardware to the operating system. The result was swift. MacBook Air with the M1 chip offered performance comparable to more expensive laptops, while maintaining long battery life and a relatively affordable price. Analysts say it was one of Apple's most important product moves in a decade.

Since then, Apple has expanded its portfolio almost every year. In addition to the entry-level MacBook Air, there are now more powerful versions of the Air, professional MacBook Pro models, and older models sold at a lower price as an entry-level option. Thanks to this strategy, Apple now has laptops for virtually every customer group, from students to professional video creators and developers. Analysts say the company is gradually eliminating one of the Mac's historical problems : limited choice in the lower price ranges.

MacBook Neo: A new era of affordable computers from Apple

The new MacBook Neo, which has become the talk of the tech industry as potentially the most affordable laptop in Apple's history, fits into this strategy. It is reported to be aimed primarily at students and casual users, using Apple's power-saving Silicon chip and offering basic performance at a significantly lower price point than the current MacBook Air. Apple is targeting the lower-priced laptop segment, which has been dominated by Windows devices and Chromebooks. If these speculations are confirmed, it would be one of Apple's most aggressive moves in the affordable computing space.

The price tag of these laptops will climb to 16,990 kc.

Apple Silicon changes the balance of power

The main reason why Apple can afford this expansion is because of Apple's own Silicon processors. From the M1 to the latest generation, the M-series chips deliver a combination of high performance and power efficiency that traditional notebook processors struggle to match. This allows Apple to create thin and light notebooks with long battery life without sacrificing performance.

According to data from research firm IDC , $AAPL has seen above-average growth in PC market share in recent years. In some quarters, it has even become the fastest-growing PC maker in the world. This situation is particularly troublesome for Microsoft. Although Windows still dominates the global PC market, the success of Macs shows that some users are willing to switch to another ecosystem, especially if it offers better performance and integration with mobile devices.

A problem for Google and Chromebooks too

But Apple is not only threatening Microsoft.

With cheaper MacBook Air models, the company is starting to hit the segment dominated by Chromebooks - simple and affordable laptops running ChromeOS. These have so far been particularly popular in schools and with students.

If Apple can keep the price of entry-level MacBooks down, it may persuade some of these customers to choose a full-fledged macOS computer instead of a Chromebook . This could change the dynamics of the education market, where Google has made significant inroads in the last decade. According to Canalys data, Chromebooks account for more than half of all devices sold in the US school segment.

A quiet change in the laptop market

Apple's strategy is not based on one revolutionary innovation. Rather, it's about gradually filling gaps in the market model by model, price level by price level. As a result, Apple now offers a laptop for almost every customer. And it's this breadth of offerings that may be more important in the long run than the technology specs of individual models alone.

In the past, Apple has dominated the premium segment. If it can keep prices competitive in the more affordable categories, the MacBook could become a more common choice than ever before. And that would mean that the PC market, which for two decades has been almost synonymous with Windows, is beginning to change in ways that seemed unlikely just a few years ago.

In Texas and Arizona, Zoox plans to deploy a limited fleet of SUVs for mapping before advancing to supervised autonomous runs. The new facilities are expected to add hundreds of jobs and test how its vehicles perform under the region’s heat, dust, and wide highways - stress conditions that push sensors and AI systems to their limits.

Zoox between Waymo and Tesla

The robotaxi market today is formally led by Waymo, which has commercial operations in major cities and records millions of rides per year, while Tesla $TSLA is building on its production capacity and Full Self-Driving software as a path to a robotaxi fleet from existing cars. Zoox, on the other hand, is betting from the start on a robotaxi designed "from the ground up", without steering wheel and pedals, with a cabin for four passengers sitting facing each other.

From an investor's perspective, the difference in business model is important. Waymo is already charging fares in some cities, Tesla is monetizing Autopilot and Full Self-Driving software packages, while Zoox is so far providing free rides in Las Vegas and San Francisco as part of pilot programs and preparation for future charging. Zoox executives talk about commercial operation on a larger scale being a matter of a few years before the service is financially viable - the current phase is primarily about validating technology, processes and safety. That said, Amazon is still funding a long development cycle at Zoox, with high investment and limited immediate returns.

Why Dallas and Phoenix: a technical and political test

The choice of Phoenix and Dallas is not random. Phoenix is one of Waymo's core markets and has become a practical laboratory for autonomous taxis in a less complicated urban environment with a relatively favorable regulatory approach. Dallas offers a different type of traffic: sprawling city, high speeds, freeways, suburbs, but without the extreme traffic density and hilly terrain of San Francisco.

For Zoox, the combination of San Francisco + Las Vegas + Phoenix + Dallas is an opportunity to cover a variety of use scenarios: dense urban environments with complicated intersections and cyclists, tourist traffic around the Strip, and the sprawling Sun Belt city with long routes and freeways.

From a technical perspective, it is about validating the robustness of the sensor suite (lidar, radar, cameras), thermal battery management, and trajectory planning algorithms in conditions that differ significantly from coastal California. From a regulatory perspective, it is important that the trials are taking place in jurisdictions perceived as more open to experimentation with autonomous driving, which may expedite data acquisition and permitting for broader operations.

Fusion Center: what robotaxi operation looks like in practice

The new Fusion Center in Scottsdale will serve as a fleet control center where data from the vehicles converges and where operators provide what is known as remote guidance, or remote guidance in situations that the autonomous system cannot resolve with sufficient certainty. Zoox already operates similar centers in the Bay Area and Las Vegas, and the new Arizona location is the third hub with this type of infrastructure.

The concept of teleguidance is key to scaling robotaxi: the car is in fully autonomous mode the vast majority of the time, but in a small fraction of situations (such as an uncharacteristic road closure or police intervention), it hands the decision to an operator who remotely suggests a solution. This reduces the requirements for "perfect" autonomy in every conceivable situation, but also creates demands on personnel, data infrastructure and operational processes that are not common in conventional transport services.

Investors in Amazon should see the Fusion Center as part of the fixed cost base of the future robotaxi business. Such centers are expensive to build and operate, but at higher fleet and ridership densities, their costs are spread over more miles - a typical operating leverage model: either volume is achieved or costs remain disproportionately high.

Safety and Washington: a forum that can change the rules

The expansion of Zoox's activities comes shortly before a national forum on autonomous vehicle safety, hosted by the US agency NHTSA and featuring the heads of Waymo, Zoox and Aurora. President Donald Trump' s administration is looking for ways to speed up the deployment of robotaxis, but is also facing pressure over safety incidents and public concerns.

The regulatory framework is a binary risk for robotaxi:

• If NHTSA and individual states create clear, predictable rules for testing and commercial operation, fleets can expand relatively quickly

• if there is a sharp tightening after a major accident or political pressure, it could halt expansions for a time, including fresh projects in Dallas and Phoenix

For Amazon, this means that the timing of the return on investment for Zoox is not just a function of technology and demand, but also the regulatory cycle in Washington. The presence of Zoox CEO Aicha Evans alongside leaders from Waymo and Aurora suggests the unit wants to be right there in the rule-making that will set the pace and terms of robotaxi deployment in the coming years.

Risks and potential impacts

In the short term, the main risk is operational execution: entering two new cities, building depots and a Fusion Center, hiring hundreds of employees and expanding the fleet in parallel adds significantly to the complexity where delays or technical issues can easily arise. Any incident - from a minor accident to a major traffic incident - can trigger a media and political reaction that translates into more stringent testing conditions.

In the medium term, the economics of the model are one of the key issues. Zoox must demonstrate that it can transition from free pilot runs to a fully paid-for operation with sufficient vehicle occupancy and utilization to budget the high capital expenditure on vehicles, depots and the Fusion Center for sufficient miles. At the same time, Waymo's competition and Tesla's ambitions put pressure on both price per ride and service availability; a purely premium robotaxi service could prove too narrow a segment.

In the long term, the binary risk is whether robotaxis become a mass part of urban transport or remain limited to a few pockets of the city and special routes. If the wider public or regulators prove unwilling to accept autonomy on a large scale, Zoox would remain a technology project with limited business rather than a full-fledged transport infrastructure.

What to watch next

In the coming months, the pace of fleet expansion in Dallas and Phoenix will be key: how many cars are actually on the streets, how quickly they transition from manual mapping to autonomous mode, and whether Zoox reports major incidents or, conversely, "boring" traffic without problems. It will also be important to see if and when Zoox switches from free to paid rides in Las Vegas and San Francisco, and what the reaction of competitors, especially Waymo and Tesla, will be in the same or similar locations. From a regulatory perspective, the outcome of the NHTSA forum will be crucial, specifically whether there will be proposals for new federal standards for autonomous vehicles or pilot programs in selected states.

This is not a classic “property landlord.” It is a financial machine built on mortgage assets, servicing, securitization, and asset management, amplified by leverage that can help returns in good times and hurt quickly in bad times. The right way to read the dividend is as a starting point, not a conclusion. The key questions are whether the payout survives different rate scenarios, what level of margins and return on equity the business must deliver, and what needs to go right for the discount to book value to narrow.

Top points of the analysis

• The firm has been generating billions in revenue over the long term, growing from roughly $1.7 billion to over $5.1 billion in four years, reflecting aggressive portfolio expansion and acquisitions.

• Profitability is attractive: operating margins are around 35-40% and net margins over 10%, though EPS has fallen from roughly $1.69 to $1.06 in the past year due to higher costs and lower one-time gains.

• The stock is trading at around 0.65 times book value and around 9-10 times earnings, suggesting the market is discounting low asset quality and higher debt.

• A dividend of around $1 per year ($0.25 per quarter) gives a yield of around 9% and has a history of over a decade, but is closely linked to earnings cyclicality and sensitivity to the interest rate environment.

• The investment thesis is that management can maintain net margin and return on capital in a less favorable interest rate environment while gradually reducing the riskiness of the balance sheet, which over time could push the discount to book value.

Company performance

Rithm Capital Corp. $RITM operates as a real estate finance player focused primarily on mortgage assets and related services, rather than as a traditional owner of office or retail properties. Its business is based on the fact that it purchases, manages and restructures portfolios of mortgage loans, invests in mortgage-backed securities, and also offers servicing and investment services to third parties. In practice, this is a combination of interest income, fees, asset management and any gains from revaluations or sales of portfolios.

A critical element of the business model is the sustainability of customer and partner relationships - in both mortgage servicing and structured products, barriers to transition are high due to complex infrastructure, regulation, and data and reporting requirements. Once an institution or investor decides to outsource (hand over activities to an external provider) loan servicing or portfolio management, transitioning to another provider is costly and operationally challenging, generating stable revenue and high retention.

Geographically, the firm is closely tied to the U.S. market, which makes it a direct bet on U.S. mortgage trends, interest rates, and the quality of the household loan portfolio. Clients include both large financial institutions and investors who need to manage portfolios of mortgages and related instruments, and secondarily borrowers whose payments form the basis of cash flow. All of this combines to create a business that can be very profitable but is also highly sensitive to the financial cycle and the quality of risk management.

Business

At the core of the business is a portfolio of mortgage assets - from residential mortgages to mortgage-backed securities to various structured products that carry interest income and possibly capital gains upon restructuring or sale. This gives the firm a relatively high gross margin (around 80-85%) because the cost is not traditional production costs, but primarily financing costs and operating overhead. Pricing power here is not manifested in the form of price increases in the "product", but in the ability of the firm to structure transactions and financing to maintain an attractive spread between the return on assets and the cost of capital.

The second pillar is servicing and servicing services - mortgage portfolio management, collections, restructuring and reporting. Here, high retention is key: once set up, processes and systems lead to long-term contractual relationships that generate recurring fee income with less capital intensity than asset holding alone. These services also create an information advantage - the firm has detailed data on the behaviour of portfolios, helping it to better manage risk and allocate capital.

The third area is the asset management and investment platform, where the firm manages third-party capital and collects management and performance fees. This is a segment with a potentially high return on capital as it requires relatively little of its own balance sheet and relies more on expert know-how and distribution. Its importance may therefore grow over time, especially if it is successful in acquiring new mandates and scaling assets under management.

Regulatorily, the business is tied both to standard rules for real estate investment trusts and to regulation of the mortgage market and capital markets in general. This adds complexity but also creates barriers to entry for new players - it takes years to build the infrastructure, licensing and track record in this area. In practice, this means that the firm competes with established institutions rather than new start-ups, which strengthens the sustainability of its position.

Market and addressable potential

The market in which the firm operates is huge - the US market for mortgage loans and mortgage-backed securities alone is in the trillions of dollars, and a significant portion of this market is actively managed and structured. In recent years, it has been shaped by a rapidly rising rate environment that has depressed new issuance, but has also increased the breadth of interest margins and created opportunities in restructuring and discounted asset purchases. For players with capital, access to cheaper funding and the ability to manage risk, this can be an attractive entry period.

Market growth going forward will not be linear. The volume of new mortgages and refinancing will depend on rates, house prices and regulation, while the demand for active portfolio management and servicing outsourcing is structural - banks and financial institutions have a long-term incentive to reduce fixed costs and outsource some activities to specialists. This opens up room for the firm to increase its share in the management and services segment even if the volume of new loans fluctuates cyclically.

Competition

In the mortgage and real estate trust segment, which combines asset holding, servicing and other services, the firm competes with other specialist REITs and financial players. Relevant competitors include other mortgage trusts and platforms focused on mortgages and related securities, or larger financial institutions that retain some activities in-house. Compared to these, the analysed company profiles as a relatively diversified player with a combination of in-house portfolio and fee-based business.

From a product perspective, its offering is particularly competitive where it combines the ability to transactionalise portfolios, provide full service and also offer a third party investment platform. Distribution is primarily through institutional channels - banks, insurance companies, funds and other investors for whom size, track record and the ability to handle complex transactions are important. Margins in these segments are higher than "commodity" management, but also more dependent on counterparty trust and reputation.

• Direct competitors in the mortgage real estate trust sector include Annaly Capital Management $NLY, AGNC Investment $AGNC, Starwood Property Trust $STWD, Blackstone Mortgage Trust $BXMT and Redwood Trust $RWT.

• In the mortgage loan servicing business, the firm competes heavily with the likes of Mr. Cooper and PennyMac Financial, which are also aggressively buying portfolios from banks and other institutions.

• In the asset management segment, it is now competing with large alternative asset managers such as Blackstone and Ares Management, which target similar institutional clients.

Management and CEO

The company is headed by Michael Nierenberg, who has led the firm for many years and is closely associated with its strategic shift from a pure mortgage REIT to a broader real estate finance platform. His career has been associated with large investment banks and managing mortgage and structured products, which translates into an emphasis on transactional opportunities, the use of leveraged finance and complex deal structuring.

The firm states: Michael Nierenberg leads Rithm Capital as CEO, President and Chairman and has been with the firm since 2013. He assumed the role of CEO and President in November 2013 and has been Chairman of the Board since May 2016. Prior to joining Rithm, he led global mortgage and securitized products at Bank of America Merrill Lynch and before that had similar responsibilities at J.P. Morgan, where he also sat on the investment bank's board.

In terms of capital discipline, management has a mixed profile. On the one hand, it has been able to grow revenues over the past few years, maintain relatively high operating margins and pay a long-term dividend even in challenging periods. On the other hand, high debt levels, sensitivity to the interest rate environment and earnings volatility show that the strategy is highly pro-cyclical - when conditions deteriorate, the impact on results is noticeable.

Management's priorities in recent years have included both growing the portfolio and developing new segments (particularly third-party asset management) and maintaining an attractive dividend policy.

Financial performance

Over the past four years, the firm's revenues have increased from approximately $1.7 billion to over $5.1 billion, with the largest jump coming during a period of significant portfolio expansion and increased activity in the mortgage asset market. However, revenue growth has not translated into linear earnings growth - operating profit has hovered around $2-3 billion, with the most recent year bringing a decline of roughly one-third, reflecting a combination of higher costs and the normalization of some one-time items. Gross margins remain very high (over 80%), but it is operating margins and net profit that are sensitive to the cost of funding and the credit environment.

Net profit has been in a range of approximately USD 0.6-0.95 billion per annum over the last four years, with high year-on-year volatility. EPS has declined from roughly $1.84 to $1.06, with some of this decline related to higher shares outstanding (increasing the share base by more than 20% over four years) and some related to lower portfolio profitability. The share count trend shows that the company is not afraid to issue capital when it sees opportunities - this is typical for REITs, but for existing shareholders it means dilution, which needs to be viewed alongside dividend yield.

Operating leverage works both ways: in years when transactions can be monetized and the spread between asset yield and cost of funding is favorable, margins grow significantly. Conversely, when funding costs rise or asset quality deteriorates, net profit falls sharply, even if revenues rise. This is why the standard deviation of EPS is about 90% - investors must expect that results will not be "boring" but cyclical.

Cash flow and capital discipline

A company'scash flow is significantly more volatile than accounting earnings, which is somewhat expected in a mortgage REIT. In recent years, operating cash flow has alternated between very strong positive values and significantly negative values, particularly during periods when the firm has aggressively expanded its portfolio and changed its financing structure. That said, net income and accounting margins alone are not enough - the key is to monitor whether, after adjusting for working capital and non-recurring items, there is enough cash left over for a dividend and potential buyouts or investments.

Capital intensity is an important item - whether in the form of asset purchases or investment in systems and infrastructure. In years when there are large portfolio purchases or structuring of new deals, investment cash flow goes deep into negative territory, which is somewhat normal in this model but increases sensitivity to funding conditions. Thus, free cash flow after investments varies significantly from year to year and cannot be interpreted in the same way as for a stable manufacturing company.

Capital discipline is mainly reflected in how the firm handles the combination of debt, equity issuance and dividends. In the past, it has used both new share issuance and debt to fund portfolio growth while maintaining a dividend policy. This makes sense if it can allocate capital to profitable deals, but it increases the importance of getting the timing right - in a worse cycle, high leverage quickly returns like a boomerang.

Dividend: level, cover and stress test

The dividend is a central element of the investment thesis for this stock. The company currently pays about $0.25 per share quarterly, or about $1 per year, which at the current price implies a dividend yield of about 9%. Historically, it has had a streak of more than a decade of regular payouts, although there have been adjustments to the dividend amount over the past few years in response to changes in the environment and structural shifts in the business.

Dividend cover by earnings is relatively comfortable on the face of it. With a net profit of around USD 0.6-0.9 billion and a share count of around 560 million, the annual dividend payout implies an annual dividend burden of around USD 0.55-0.60 billion, a payout ratio roughly in the 60-90% range depending on the specific year. This is not always extremely aggressive, but in the context of earnings cyclicality and high leverage, one has to take into account that in a worse year the cover may approach the edge, especially if reserves need to be raised or face higher funding costs.

For cash flow, the picture is more complex. In strong years, the company generates significantly positive operating and free cash flow that covers the dividend by a wide margin, while in years with large investments or portfolio rebuilding, free cash flow is negative or just around zero. In practice, this means that dividend sustainability depends on management's ability to manage the timing of investments, refinancing and potential asset sales so that, on average, there remains a "dividend cushion" - that is, the portion of cash that the firm has left after dividend payments even in more challenging years.

Dividend cushion and scenarios

In a realistic scenario, where net profit is in the range of USD 0.7-0.9 billion and the firm is able to stabilise operating cash flow, the dividend cushion could be around USD 0.1-0.3 billion per year after dividend payments, which is around USD 0.6 billion. This would allow for continued selective investment, managed deleveraging or potentially modest buybacks without jeopardising the dividend.

In a worse-case scenario, which would combine a decline in net income below USD 0.6bn, higher funding costs and pressure on provisioning, the company could find itself in a situation where the dividend burden consumes virtually all earnings and free cash flow depends on transaction opportunities and potential asset sales. In such a case, management would be faced with the choice of "reprinting" the dividend in the short term through balance sheet and higher leverage, or temporarily reducing it to protect the capital position.

The company's historical behavior and management's communications suggest that the dividend is a key element of the company's identity and relationship with investors. This increases management's incentive to maintain the current level for as long as possible, but at the same time it is not realistic to expect it to be completely untouchable in the event of a significantly worse cycle. It makes sense for an investor to view the dividend as an attractive "coupon" that offsets risk, but not as a guaranteed income regardless of earnings and balance sheet trends.

• Debt makes up roughly three-quarters of total assets, and the debt-to-equity ratio is around 4.7, meaning that for every dollar of equity, there are several dollars of foreign equity. Liquidity ratios, such as the current ratio of around 0.25, then suggest that current liabilities far exceed current assets, and the firm thus relies on continuous refinancing and access to financing.

• An interest coverage ratio of around 3.6 indicates that operating earnings can cover interest costs multifold, but with a relatively limited buffer should earnings fall or the cost of funding rise significantly.

Valuation and valuation interpretation

The valuation of the share is very attractive at first sight. The title trades at around 0.65 times book value, around 9-10 times earnings, with a price to earnings ratio of around 1 and a dividend yield of around 9%. Compared to many other income titles and the mortgage REIT sector, this is a significant discount, suggesting that the market either doesn't trust asset quality, long-term earnings sustainability, or the balance sheet - or a combination of all three.

In terms of individual multiples, price-to-book value and earnings ratios are most telling, while the classic P/S metric is less important here because earnings in this business are not directly comparable to manufacturing or service firms. A P/B well below 1 means that the market is discounting either portfolio revaluation risk or generally poor asset quality.

For a "cheap" valuation to turn into an "expensive" one, there would have to be either a significant decline in earnings and dividends or a fundamental deterioration in asset quality that would require write-downs and recapitalization. Conversely, in order for the discount to book value to narrow and multiples to move to levels closer to more stable earnings titles, the firm would need to demonstrate several years in a row of: more stable profitability, better quality cash flow, a gradually improving balance sheet, and a sustainable dividend with no signs of "wringing out" capital. In such a scenario, the P/B could move closer to 1 and the P/E to the higher double digits, implying significant price upside even with conservative earnings growth.

Risks

Product and sector concentration is a key risk - high exposure to mortgage assets and the US housing market means that any deterioration in credit quality or a sharp decline in house prices could have a significant impact on the balance sheet and profitability. Signals to watch are deteriorating asset quality metrics, rising charge-offs, higher non-performing loan ratios and pressure on margins.

Another risk is high debt and dependence on the funding market. If financing conditions deteriorate (higher rates, lower counterparty appetite, tighter regulation), the firm could face higher debt costs or reduced access to refinancing, which would directly threaten profitability and the dividend. Investors should monitor interest coverage, funding cost trends and the refinancing calendar.

The third risk is execution - management's ability to properly time asset purchases and sales, investments and acquisitions. Poor decisions in a highly leveraged environment can quickly destroy capital value, while periods of good performance can tempt overly aggressive growth. Signals of trouble can include sharp increases in equity issuance at inopportune moments, sudden reserve increases, negative surprises in asset quality, or frequent adjustments to dividend policy.

Investment scenarios

Optimistic scenario

In the optimistic scenario, the interest rate environment stabilizes or improves slightly, the quality of the mortgage portfolio remains solid, and the firm is able to leverage its platform to grow fee-based asset management and services business. In this case, revenue could grow at a single-digit to low double-digit rate, operating margins would hover around forty percent, and EPS would stabilize or gradually grow back toward $1.5-1.8.

With a maintained or modest dividend growth, an improving balance sheet, and more stable cash flow, the market could begin to narrow the discount to book value. The P/B could move towards around 0.9-1.1 and the P/E into the 10-12 range, which would mean a potential share price increase of several tens of percent from current levels, plus an ongoing dividend yield of around 8-9% per annum.

A realistic scenario

In the realistic scenario, results will remain cyclical but stable on average: revenue will fluctuate with minor swings around current levels, margins will fluctuate depending on the spread between asset yield and funding cost, and EPS will stay in the $1.0-1.5 range. The dividend will be sustainable over the long term, although it is possible that in some bad periods management may consider a minor adjustment to protect the balance sheet.

In this scenario, valuations could remain near today's levels - P/B around 0.6-0.8, P/E in the single-digit to lower double-digit range. The main source of yield would then be the dividend itself, which would provide an attractive cash yield even with modest fluctuations in the amount, while capital gains would be more complementary and dependent on market sentiment towards the mortgage and real estate trust sector.

Negative scenario

In the negative scenario, there would be a combination of higher funding costs, deterioration in mortgage asset quality and weaker investor appetite for complex structured products. Revenues may remain high in the short term due to revaluations and transactions, but operating margins and net profit could fall significantly. EPS could fall below $1 and some years could be profitable close to zero or in slight negative territory net of reserves.

In such a situation, management would likely have to take a dividend cut to protect the capital position, and the market would further widen the discount to book value. The P/B could move below 0.5 and the P/E would lose its telling value if earnings become too volatile. The share price could fall in such a scenario until the market believes in a new, sustainable dividend level and balance sheet stabilization.

What to watch next (KPIs)

• Net earnings per share (EPS) on a quarterly basis and its trend relative to the dividend per share.

• Debt-to-equity ratio and interest coverage trend.

• Asset quality: proportion of problem loans, charge-offs, potential losses in the portfolio.

• The evolution of the cost of funding and the ability to refinance debt on acceptable terms.

• Growth of fee-based business: asset management and service revenues, volume of assets under management.

• Development of free cash flow after investments and the 'dividend cushion' after dividend payments.

• Management's policy towards the dividend: stability, possible adjustments and communication of reasons.

What to take away from the article

• This stock offers a very attractive dividend yield of around 9%, but in the context of a highly leveraged, cyclical balance sheet and volatile cash flow.

• Valuations below book value and in the single-digit to low double-digit P/E reflect market skepticism about asset quality and long-term earnings sustainability, not a "free gift."

• Dividend sustainability depends on management's ability to stabilize profitability, manage the cost of funding, and maintain a reasonable "dividend cushion" even in bad years.

• The key risk lies in the combination of high debt, sensitivity to the interest rate environment and concentration in mortgage assets.

• For an investor who accepts higher cyclical risk in exchange for a high cash yield, this may be an attractive dividend opportunity - but only if there is active monitoring of the above KPIs and a willingness to reassess the position if the balance sheet or asset quality deteriorates.

Oil prices jumped another nearly 15% overnight. Over the past week, oil prices have risen by 45%.

Donald Trump won't like this, because as I said in my TikTok video, more expensive oil means everything becomes more expensive. And all of this can set off an inflationary spiral.

The Fed is now under a lot of pressure because it can't cut interest rates.

If rates were to rise, money would become much more expensive, which Donald Trump also doesn't like, since he is paying off the U.S. debt with new bonds that he needs to be cheaper.

Global financial markets have entered the past few days in an environment of significantly heightened volatility. One of the main reasons for this is the sharp rise in oil prices, which in a very short period of time has fundamentally changed investors' expectations about inflation, interest rates and future economic growth. In fact, the price of Brent crude oil rose above USD 100 per barrel during the last trading hours, which represents one of the most psychologically important levels on the commodity market. More important, however, is the pace of this rise. On Friday, the price of oil jumped 15.7% in a single day, the biggest one-day rise since 2020 and one of the biggest price shocks in the energy market in decades. But that changed today, when the price of a barrel of oil shot up by as much as 25% in the financial market, and that was while stock markets were still closed.

Such a sharp move immediately triggered a reaction in the financial markets. Major US stock indices began to weaken and investors began to significantly reassess valuations across sectors. The S&P 500 index, which was still hovering near all-time highs last week, came under severe pressure. Today, before the markets opened, futures on this most famous US index were writing off as much as 2.2%. In recent hours, however, this decline has receded slightly.

The reason for this is quite simple. The rapid rise in energy prices poses a double problem for the stock market. On the one hand, it increases the costs of companies, which can reduce their margins and profitability, and on the other hand, it puts additional pressure on inflation, which in turn affects the monetary policy of central banks.

Indeed, oil is one of the most important commodities in the global economy. It influences the prices of transport, manufacturing, logistics and agriculture. If its price rises rapidly, the effects spill over across the economy very quickly. Higher energy prices are reflected in production costs, which are often passed on by companies to consumers. This in turn leads to rising consumer inflation. For investors, the oil price is therefore one of the key macroeconomic indicators that often foreshadows broader economic changes.

Yet history shows that sharp increases in oil prices have almost always meant increased volatility in financial markets. Indeed, energy shocks often come when the global economy is already in a slowdown or when financial markets are exposed to other macroeconomic risks. It is the combination of high energy prices and a slowing economy that is very uncomfortable for equity markets. In such a situation, investors begin to reassess expectations about future corporate earnings growth, while increasing the discount rates they use to value stocks.

Moreover, the current situation is specific in that it comes at a time when the US stock market is still trading at relatively high valuations. The S&P 500 index has been underpinned in recent years primarily by the strong growth of technology companies and expectations linked to the development of artificial intelligence. However, these valuations are very sensitive to changes in interest rates and inflation. As soon as there are signs that inflation may remain higher for longer, investors become much more cautious.

To understand why the current rise in oil prices is causing such a strong reaction in financial markets, it is useful to look at historical parallels. Indeed, sharp price shocks in the oil market are nothing new and have been repeatedly shown in the past to have a significant impact on inflation, monetary policy and equity markets.

Oil shocks

One of the most famous examples is 2008, when the price of oil shot up to an all-time high of around $147 per barrel. This extreme rise was caused by a combination of strong global demand, geopolitical tensions and speculative capital in commodity markets. Oil then rose by more than 70% in a matter of months. For the global economy, this meant a significant increase in energy and transport costs, which in turn led to rising inflation in many countries.

Stock markets reacted very sensitively to this development. The S&P 500 index gradually began to weaken and in the following months fell by more than 50% from its highs. Of course, the rise in oil prices alone was not the only cause of the financial crisis, but it contributed significantly to the pressure on the economy and the financial system. Higher energy costs have reduced consumer spending power and increased corporate costs, leading to a decline in economic activity.

Graph of oil price development (per barrel) since 2006 - weekly

A similar, albeit shorter, shock also came in 2020, when the oil market went into extreme volatility during the covid pandemic. In April that year, there was even a historic situation when the price of US WTI crude oil briefly went into negative territory. However, after the subsequent economic recovery came the opposite extreme. The price of oil rose sharply within a few months and the energy market was one of the most volatile segments of the global economy.

The next significant rise came in 2022, when Russia's invasion of Ukraine caused one of the biggest energy shocks in decades. The price of Brent crude oil then rose back above $120 a barrel, while natural gas prices in Europe shot to all-time highs. This rise in energy was one of the main factors that led to a sharp rise in inflation around the world.

The reaction of the stock markets was very similar to previous cases. 2022 was one of the weakest years for global equities since the financial crisis. The S&P 500 index fell by around 19%, while the Nasdaq technology index fell by more than 30%. This was precisely because of the combined effect of high inflation and the rapid rise in interest rates that central banks used to tame it.

It is this historical experience that explains why investors are reacting so sensitively to the current rise in oil prices. Energy shocks often trigger a chain reaction in the economy. Higher energy prices lead to higher inflation, which in turn forces central banks to tighten monetary policy and higher interest rates push down stock market valuations.

The current rise in oil prices is thus not just an isolated event on financial markets. Investors see it as the potential start of a broader macroeconomic trend that could affect inflation, monetary policy and economic growth in the months ahead.

Oil price linkages with equity markets and the economy

To understand why the sharp rise in oil prices is triggering such a strong reaction in financial markets, we need to look at the mechanism by which energy affects both inflation and equity valuations. Oil is not just any commodity. Oil is one of the key inputs of the entire global economy. It affects virtually every sector, from transport to manufacturing to agriculture to chemicals. Once its price starts to rise rapidly, the effects spill over very quickly across the economy.

The most visible impact is in inflation. Indeed, energy makes up a significant part of consumer price indices. If oil becomes more expensive, the price of fuel, transport or heating usually rises very quickly. These changes are then reflected in the broader price indices monitored by central banks. Historically, however, sharp increases in oil prices have often led to a rapid acceleration in inflation. For example, in 2022, when the price of oil rose sharply following Russia's invasion of Ukraine, US inflation reached its highest level in more than 40 years.

Such a situation poses a very difficult problem for central banks. When inflation rises, they are usually forced to react by tightening monetary policy, i.e. by raising interest rates. Higher rates in turn make financing more expensive throughout the economy, from mortgages to corporate loans to government bonds. This slows economic activity, which has a direct impact on corporate profits and investment.

It is here that the impact on the stock market is beginning to be felt. Stock valuations are based on expectations of future profits. When valuing companies, investors use a discount rate that reflects interest rates in the economy. If these rates rise, the present value of future earnings falls. In other words, higher interest rates automatically reduce the fair valuation of stocks.

This effect is most pronounced for growth technology companies, which generate much of their expected earnings in the future. This is why the technology sector often reacts much more sensitively to rising interest rates than, for example, energy or banking companies. So if inflation starts to rise because of expensive oil and the market starts to expect higher rates, technology stocks are among the first to be hit.

But in addition to the impact on monetary policy, the rise in oil prices has another important effect. It increases costs for companies. Energy is a significant item in many companies' budgets. Higher fuel prices increase transport, logistics and production costs. Companies are then faced with the decision of whether to pass these costs on to customers through higher prices or to absorb them in their margins.

In both cases, this is a negative scenario for stock markets. If firms raise prices, this may further increase inflation and reduce consumer spending power. If they do not raise prices, their margins and profits fall. Investors are thus beginning to reassess their expectations of companies' future performance.

• Higher inflation,

• higher interest rates

• pressure on corporate margins

These are all reasons why sharp rises in oil prices often lead to falling stock markets.

The bond market

Another very important factor that is beginning to emerge in the context of rising oil prices is the bond market. Bonds are often the first to react to changes in inflation and interest rate expectations. If investors start to assume that higher energy prices will lead to higher inflation, they usually start to demand higher yields on government bonds. This means a fall in their price and a rise in yields across the yield curve.

Bond yield chart (US10Y) as of 15 May 2025 - daily

Meanwhile, US government bond yields are among the key indicators for stock valuations. The 10-year US yield (US10Y) is often considered the benchmark risk-free rate that serves as a reference point for valuations of almost all financial assets. As these yields begin to rise, the so-called discount rate, which investors use to value future corporate earnings, increases. The result is downward pressure on stock market valuations.

Yet history shows that the combination of an energy shock and rising bond yields can be particularly unpleasant for equity markets. For example, in 2022, when energy prices and inflation were rising sharply, one of the fastest rises in US bond yields in decades occurred at the same time. At that time, the yield on the 10-year US Treasury bond jumped from around 1.5% to over 4% in a matter of months, significantly changing financing conditions across the economy.

This development had an immediate impact on the stock markets. Higher bond yields mean not only a higher discount rate for equity valuations, but also a more attractive alternative for investors. If investors can get a higher yield from relatively safe government bonds, some capital often moves from equities into bonds. This process is particularly visible in an environment of heightened uncertainty or rising inflation.

The current situation therefore creates a very sensitive environment for equity markets. Indeed, the sharp rise in oil prices increases the likelihood that inflation will remain higher for a longer period of time. This in turn limits the scope for central banks to cut interest rates quickly. In addition, if bond yields start to rise significantly, the pressure on equity valuations could intensify further.

It is therefore important for investors to monitor not only the oil price itself, but also the bond market reaction. Indeed, it is the relationship between these two markets that often signals whether this is just a short-term price shock in the commodity market or the beginning of a broader macroeconomic change that could affect financial conditions throughout the economy.

Conclusion

The current rise in oil prices is thus not just a transitory commodity market shock for financial markets, but a potentially important macroeconomic signal. Indeed, energy shocks have historically often acted as a catalyst for broader economic change. Higher energy prices increase inflationary pressures, worsen corporate margins and also complicate central bank decision-making. For equity markets, which have benefited in recent years from a relatively stable environment of low inflation and available capital, this could be a significant change in conditions.

This is why investors are now keeping an eye not only on the oil price itself, but more importantly on its wider implications for financial conditions in the economy. Should energy prices remain at elevated levels or continue to rise, this could mean a prolonged period of higher interest rates and more cautious capital. In such an environment, equity market valuations tend to be more sensitive to macroeconomic changes and volatility often increases. Further developments in the energy market may thus play a key role in determining the direction of global equity markets in the coming weeks.

I will add to $SOFI again today, and if the dip continues, I will keep buying. I’m also watching $AMD, which I’d like to buy around $180, which seems quite realistic given the current sentiment.

At the same time, AMD is strengthening its data-center angle. Meta signed a large deal for up to 6 GW of Instinct GPUs, with first deliveries planned for the second half of 2026. For investors, the interesting part is the link between these two tracks: premium AI PCs for steadier client revenue, and hyperscaler GPUs for share gains in a market long dominated by Nvidia. The near-term risk is execution and timing—how fast OEM volumes ramp on desktop AI PCs, and how smoothly AMD delivers multiple large AI projects.

Ryzen AI 400: AI on the desktop

The new Ryzen AI 400 and Ryzen AI PRO 400 for the desktop build on a combination of Zen 5 cores, RDNA 3.5 integrated graphics and second-generation XDNA 2 NPUs with up to 50 TOPS, designed to run assistants, AI applications and language models locally. $AMD is targeting users to run more demanding AI tasks - from design and engineering applications to generative functions and locally running LLM - without relying on the cloud, which has both privacy and latency implications. For the PRO segment, it adds enterprise management and security features so corporations can standardize on a fleet-enabled AI desktop platform.

The portfolio includes six desktop models, with an 8-core Ryzen AI 7 450G/450GE configuration (16 threads, up to 5.1GHz, 8 CU Radeon 860M) and two 6-core Ryzen AI 5 models with Radeon 840M, available in 65W and 35W variants. Compared to the Ryzen 9000 with pure Zen 5 cores, the Ryzen AI 400 have a weaker CPU part due to the use of Zen 5c, but better integrated graphics and more importantly NPUs - so it is a different type of product than pure gaming or performance CPUs. AMD states in the press release that AM5 desktop systems with Ryzen AI 400 will be available from Q2 2026 from major OEMs like HP $HPQ, Lenovo $LNVGY and Dell $DELL, which gives a good signal that this will not be a fringe lineup.

AI PCs as a new category, and where AMD is in it

The Ryzen AI 400s are the first desktop processors for so-called Copilot+ PCs, machines designed to handle much of the AI functionality of Windows and applications directly on the device. Microsoft's $MSFT has set a minimum NPU performance requirement for Copilot+, and with 50 TOPS, AMD is putting itself at the parametric base of the future AI PC standard. This creates both a simple marketing story for OEMs ("AI PC") and a technical framework that favors chips with NPUs - conventional CPUs without a dedicated accelerator take a back seat in the premium segment.

Historically, AMD has often been perceived as the choice for performance/price or gaming machines in the desktop segment, while the professional and enterprise segment has been more strongly associated with Intel $INTC. Ryzen AI PRO 400 may disrupt this pattern by offering businesses a combination of local AI, integrated graphics for the regular office, and remote management in a single package. If AI features in mainstream work tools (Office, CAD, creative software) become standard, AMD may move higher up the value chain - from a pure "performance" option to the "preferred base" for AI workstations.

Meta, 6 gigawatts and AI in data centers

But the desktop isn't the only area where AMD is making strides in AI. Late February brought the announcement of an expanded strategic partnership with Meta Platforms to deploy up to 6 gigawatts of AI infrastructure based on Instinct GPUs and Helios servers. The first gigawatt is scheduled to ship in the second half of 2026 and will leverage custom GPUs on the MI450 architecture and the sixth generation of EPYC "Venice" server processors. This diversifies Meta's suppliers beyond Nvidia and gives AMD long-term visible volumes in a segment where it otherwise competes piece by piece.

Market analyses point out that AMD's AI business rests on two pillars: data centers and client devices. On the server side, the MI400/MI450 is meant to address rapidly growing inference and training, with companies like Meta, Microsoft and other hyperscale players looking for a second vendor alongside Nvidia. On the client side, the Ryzen AI 300/400 are intended to bring AI capabilities directly to PCs and mobile workstations - creating a base on which to push software licenses and services. If the two segments can be rolled out in parallel, it could bring AMD's revenue structure closer to a diversified AI player, not just an "outsider" fighting for share.

Risks and potential impacts

The short-term risk is primarily how fast the AI PC category will realistically take off and what the specific orders from OEM partners will be in Q2 and Q3. If demand remains more of a marketing wave than a real need to upgrade for AI, Ryzen AI 400 growth may be slower than PR suggests. Another near-term risk is technological: AMD needs to deliver stable drivers, software support, and optimizations for key AI applications, or the NPU advantage will turn into a paper parameter.

In the medium term, the execution of large AI contracts plays a big role. The 6 GW Instinct GPU deal with Meta is capital intensive and runs across multiple product generations; any slippage in MI450 or EPYC "Venice" production could shift revenue recognition and increase costs. At the same time, competition from Nvidia $NVDA and other players means that AMD cannot build on a high price premium, but rather on the performance/price combination, which may limit margin expansion. Moreover, in the PC segment, AMD is competing with both Intel and a new generation of chips from other NPU-focused manufacturers, so maintaining share will require a rapid iteration of the product roadmap.

In the long term, the binary risk is whether AI PCs will actually become the standard or remain a relatively narrow category of more expensive devices. If mass deployment of "Copilot+" and similar platforms is delayed, AMD would have to rely more on data centers and servers, where it has a smaller ecosystem and less power compared to Nvidia. Another binary element is large cloud contracts: if a major partner (typically Meta) were to significantly reduce or shift the contract to its own ASIC solutions, this would directly hit expected growth. Export regulation of advanced chips and geopolitical risks are also a factor that may have an "on/off" effect on part of the market, especially in China and other sensitive regions.

What to watch next

In the coming months, the key will be what specific models of AI desktops and workstations with Ryzen AI 400 will be announced by HP, Lenovo and Dell and at what price levels they will be available. Also to watch closely are the metrics listed for AMD's next quarterly results: revenue growth in the client chip segment, AI processor share of the mix, and gross margin trends. On the data center side, how Instinct GPU orders develop, confirmation of other large contracts post-Meta, and market awareness of the MI400/MI450 ramp-up will be important. Signals from Microsoft and other software partners on whether they are optimizing their AI features primarily for NPU platforms and how AMD figures in these integrations will also be significant.

Conclusion

A key variable in AMD's story in 2026 becomes the ability to turn its technical lead in NPUs into a true AI PC standard while delivering large AI contracts in data centers without major hitches. If AI PCs take off according to the OEM's roadmap and the Meta contract translates into visible growth in the server business, the current "AMD as a second source in AI" thesis may shift towards a role as a structural co-leader; the tipping point would come when AI PCs turn out to be a narrow segment and AI servers remain in the hands of one dominant rival, reopening the question of how much of today's "AI premium" in AMD's valuation is actually justified.

This week brings European industrial earnings and very important US macro data.

💻 Monday

Results after the close:

Hewlett Packard Enterprise $HPE – report for the enterprise infrastructure segment.

🚗 Tuesday

Results before the open:

NIO $NIO – the Chinese electric vehicle manufacturer will provide further insight into the dynamics of the local EV market.

Results after the close:

Oracle $ORCL – it’s important to watch especially the growth of cloud services and demand for AI infrastructure.

Volkswagen $VOW3.DE – a significant report for the European auto sector.

📈 Wednesday

US CPI inflation – one of the most important macro data points of the week.

Results before the open:

Porsche $P911.DE – the luxury segment of the auto market.

Results after the close:

Rheinmetall $RHM.DE – one of the fastest-growing players in the European defense sector.

📊 Thursday

Initial jobless claims – the regular weekly indicator of labor market health.

Results after the close:

Adobe $ADBE – a key report for software and creative tools.

ČEZ $CEZ.PR – results of the domestic energy company.

BMW $BMW.DE – another view on the European auto sector.

📉 Friday

Core PCE inflation – the Fed’s preferred inflation gauge.

Q4 GDP – will show how strong the US economy really was at the end of the year.

JOLTS – the number of job openings – an important indicator of labor market tightness.

Consumer confidence – will complete the picture of US household sentiment, which is key for a consumption-driven economy.

What will you be watching most closely this week?

In his words, manufacturers have committed to speed up production of selected systems to four times the current rate. The push comes at a time when U.S. military operations and rising tensions in the Middle East are increasing the consumption of expensive missiles and interceptors. This is not isolated news for investors watching the defense sector. It hints at a broader trend: rapid rearmament and long-term growth in military spending that could fundamentally change the dynamics of the entire industry.

The White House meeting and the plan to quadruple production

Donald Trump announced the plan after meeting with the heads of several of America's largest defence companies. Among the participants were representatives from companies such as $BAESF, $BA, $HON, $LHX, $LMT, $NOC and $RTX.

According to the President, the companies agreed on the need to significantly increase the production of so-called "exquisite class" weapons, i.e. technologically very advanced and at the same time difficult to produce systems. This category includes, for example, Tomahawk missiles , Standard Missile-6 or the most advanced versions of Patriot PAC-3 MSE interceptors.

According to Trump,the increase in production is to take place as quickly as possible. Meanwhile, some production lines have been expanding for several months, so part of the production expansion is already underway. The meeting also reflects the US administration's broader concern that current conflicts are gradually depleting supplies of key munitions. Modern anti-missile systems or precision missiles can cost millions of dollars apiece and often take years to produce.

War and empty warehouses

The impetus for accelerating production is primarily due to the ongoing conflict between the United States, Israel and Iran. Hundreds of missiles and interceptors have been fired in the first days of operations, according to defence analysts, rapidly reducing the US military's stockpile. During the brief conflict in 2025, for example, U.S. and Israeli forces used more than 150 THAAD interceptors, about a quarter of the global stockpile of such missiles.

The problem is that production of such weapons is not easily scalable. Production of Patriot interceptors today is around 600 to 650 units per year, and it may take several years to increase significantly. The Pentagon has therefore been entering into framework agreements with manufacturers in recent months to speed up production of key systems, including Patriot, THAAD and Tomahawk missiles.

Defence sector back in investors' sights

For stock markets, this development has a clear logic. Weapons companies are among the main beneficiaries of rising military budgets. Analysts point out that increased demand for missiles and anti-missile systems can significantly boost the revenues of companies such as Lockheed Martin, Northrop Grumman or L3Harris Technologies.

The defence sector has already responded with growth this year. For example, the iShares U.S. Aerospace & Defense ETF has gained roughly 10% in 2026, while the broader S&P 500 index has been flat. Moreover, some analysts point out that this is not just a short-term reaction to the current conflict. Rising military spending is a global trend, and the United States is considering further budget increases, while Europe and Asia are also ramping up defense investments.

Political pressure on arms companies

At the same time, Trump has put strong pressure on defence firms to invest more in production in recent months. Earlier this year, he signed an executive order to limit dividends and share buybacks at arms companies if they fail to accelerate delivery of military equipment.

In doing so,the administration wants to force companies to channel more capital into new factories, production lines and research. The move is relatively unusual in U.S. defense policy because the government has traditionally left the capital structure of contractors to their discretion. For investors, this means that the sector can be both an opportunity and a source of regulatory risk.

A new era of arms manufacturing

Events in recent weeks show that the global security environment is changing rapidly. Modern conflicts consume vast quantities of precision missiles and anti-missile systems, which are technologically and logistically challenging to produce. This creates a paradox: the most advanced weapons, which are supposed to provide technological superiority, are also becoming one of the greatest constraints on military strategy.

This is why governments are today pushing manufacturers to massively expand their capabilities. If these plans actually come to fruition, the defence industry may within a few years resemble more like Cold War-era mass production than today's relatively limited production of high-end systems. For investors, then, something else may be more important than the conflicts themselves: whether arms companies can turn political pressure and record budgets into long-term production growth and thus a more stable order flow for many years to come

In 2023 many investors were writing the company off. The shares fell by tens of percent and traded just above $70.

Today the situation is completely different and the shares are worth more than twice as much as three years ago.

What happened, how did the court cases unfold, and how did the company get out of the worst of it?

The company 3M $MMM found itself in one of the biggest crises in its history in 2023, mainly due to extensive legal disputes and environmental problems. All this overshadowed its stable business and even more than 100 years of uninterrupted dividend payments. You can read more about the dividend in the article.

The largest lawsuit

The most attention was drawn to a class action by U.S. soldiers who accused the company that its product Combat Arms Earplugs (earplugs supplied to the military) had a design defect and failed to properly protect hearing during shooting.

Up to 260,000 plaintiffs gradually joined the litigation, making it the largest class action in the history of U.S. courts. Several early verdicts awarded the injured very large compensations and investors began to worry that total costs could reach tens of billions of dollars.

Dangerous chemicals

Another major problem were lawsuits related to PFAS chemicals, known as “forever chemicals,” which hardly break down and were found in drinking water in various parts of the U.S. Many U.S. cities and water utilities accused 3M of contaminating water sources and demanded compensation for testing and cleaning the water.

Resolution

During 2023 the company began to address these problems gradually. In June it announced a settlement related to PFAS of up to approximately $12.5 billion, to be paid out over several years.

A few months later another key agreement followed. 3M agreed to the payment of up to $6 billion to settle disputes over the military earplugs. Although these were very large sums, the market took these steps positively, because investors finally gained a clearer picture of the scale of the legal risks.

Changes in approach

The company then announced strategic changes, including ending PFAS production by 2025 and restructuring the business, for example the planned spin-off of its healthcare division into a separate company.

Spinning off a substantial part of the company

3M's healthcare division had long been one of its most profitable segments, focusing on a broad portfolio of products and services for hospitals. 3M $MMM decided to separate this part of the business to simplify the group's structure and allow investors to better value the individual segments. In 2024 a separate company, Solventum $SOLV, was created, whose shares were distributed to existing 3M shareholders. The goal was to create two more specialized companies.

Improved investor perception

After resolving the key legal disputes and announcing restructuring steps, investor sentiment began to gradually improve. They gained greater certainty about the company's future costs and began to refocus on 3M's strong industrial business, stable cash flow, and long dividend history.

100 years of uninterrupted dividend payments!

Yes, that's right. As unbelievable as it may seem, $MMM has, without interruption, paid dividends to its investors for over 100 years straight.

And note, that's not all regarding the dividend. Since 1959 the company increased the dividend every year, which amounted to more than 64 years of uninterrupted dividend growth. However, this long-standing streak ended in 2024, which was related to the spin-off of Solventum $SOLV.

Nothing followed but stock growth

The combination of all these factors led to a gradual shift in the market's perception of the company and shares $MMM began to rise again after the earlier period of steep decline.

So what happened since the lows of 2023? The company got rid of its biggest burden in the form of legal disputes, separated part of its business, and set a clearer path forward for investors.

The shares reacted by rising, up 149% from the nearly $70 level mentioned.