If there were a perfect story for a nuclear renaissance, NuScale Power $SMR would be a strong contender. The only company in the world with small modular reactor technology certified by the U.S. Nuclear Regulatory Commission. A pioneer that is several years ahead of the entire industry. And yet, the stock traded on the NYSE is hovering around $10 in June 2026—while a year ago it was trading above $57.

A regulatory monopoly that lasts 15 years

NRC certification for a 77-megawatt-electric reactor module is a key competitive advantage that cannot be bought or copied. The approval process typically takes several years, and NuScale was the first in the world to complete it; the certification remains valid for another 15 years.

Up to twelve modules can be combined at a single site, with a total output of up to 924 megawatts. The reactors utilize passive safety systems that do not require an external power supply for cooling—a technical feature that significantly reduces risks compared to conventional nuclear power plants.

But regulatory advantages alone don’t make money, and that’s where the complications begin.

Billions in Plans, Modest Revenues

The results for the first quarter of 2026 show why investors are nervous. Revenue fell sharply and losses deepened—the company is still burning through cash without a single commercial reactor in operation. On the other hand, NuScale holds approximately $1 billion in liquidity and capital resources, giving it sufficient operating headroom for several years ahead.

BofA resumed coverage in late May 2026 with a “Neutral” rating and a $12 price target, with analysts highlighting a key issue: real commercial revenue is pushed back to the early 2030s. Northland, on the other hand, maintains an “Outperform” recommendation with a $19 target, while Cantor Fitzgerald remains at “Buy.” The consensus among 17 analysts hovers around an average target price of $15.36 —more than 60% above the current price.

"Progress on key projects in Romania and TVA confirms that NuScale’s technology is ready for commercial deployment. The challenge for the company now is to convert these partnerships into concrete orders."

Northland Securities Analyst

A breakthrough called ENTRA1 and TVA

Despite weak market numbers, real milestones have emerged in recent months.

Partner company ENTRA1 Energy signed an agreement with the Tennessee Valley Authority to deploy up to 6 gigawatts of SMR capacity across seven U.S. states—the largest planned SMR program in U.S. history. The program calls for up to 72 NuScale reactor modules deployed across several sites. The agreement is non-binding for now, but it represents the largest institutional commitment the small modular reactor industry has seen to date.

At the same time, a project on paper in Romania has been successfully transformed into a concrete investment plan. In February 2026, the state-owned energy company Nuclearelectrica approved the final investment decision for a six-module power plant in Doicești—on the site of a former coal-fired power plant. It is the most advanced SMR project in all of Europe and, at the same time, the first instance where NuScale can begin discussing actual construction, not just a feasibility study.

"The priority for 2026 is the commercialization of our SMR technology, including full readiness for the production of the first modules."

John Hopkins, CEO of NuScale Power

Why the stock has nevertheless fallen 84% from its peak

The key question is simple: if the company has such partnerships, why is the market punishing the stock so harshly?

The answer lies in timing. The TVA agreement remains non-binding, and NuScale still hasn’t signed a single contract with guaranteed payments for a completed reactor. The Romanian project, meanwhile, faces a decision on next steps in mid-2026, while construction of the first commercial unit in the U.S. or Europe is realistically a matter for the end of this decade or the beginning of the next.

Meanwhile, the market bought into nuclear enthusiasm in 2024 far too early—the 52-week high of over $57 now looks like speculative overreach. It is being dragged down by slower monetization than investors expected and persistent losses.

Another factor is insider selling— CEO John Hopkins sold approximately 77,000 shares in March 2026, divesting himself of 69% of his direct stake. That is not a signal that instills confidence in the market.

The SMR market is growing, but competitors aren’t resting

According to analysts, the global small modular reactor market is expected to reach $10 to $16 billion by 2034, corresponding to annual growth of around 9%. Geographically, Asia and the Pacific lead the pack with a one-third share, but Europe is showing the fastest growth rate —which fits well with NuScale’s bet on Romania.

But the competition isn’t sleeping. Amazon $AMZN has invested $500 million in X-energy and ordered over 5 gigawatts of SMR capacity. Bill Gates’ TerraPower is building a demonstration reactor in Wyoming with the goal of launching by 2030. Oklo $OKLO has preliminary NRC approval for a microreactor in Idaho. Kairos Power is nearing construction of a 140-megawatt unit for the Tennessee Valley Authority.

NuScale has a regulatory lead, but the money and names behind its competitors are not insignificant.

A Bet on Patience

Shares are currently about a third cheaper than at the start of 2026. The analystconsensus sees fair value significantly higher, but with one important condition: agreements must be converted into actual construction contracts.

The company has enough cash to weather the transition period. NRC regulatory certification is a competitive moat that cannot be easily overcome.

At the same time, every one-year delay in the commercial launch means another year of burning through cash without revenue from reactor operations. And in an industry where schedules are traditionally delayed, this is a risk that must be taken seriously.

The HEICO investment thesis rests on three pillars: first, the company holds structural dominance in the PMA aftermarket, where it is the only company in the world to operate the largest portfolio of FAA-approved replacement parts for aircraft engines—with a 15–40% price difference compared to OEM supplies. Second, the Electronic Technologies Group (ETG) is benefiting from a record defense spending cycle and—to a limited but tangible extent—from the AI infrastructure boom through high-reliability electronic components. Third, HEICO’s acquisition machine has transformed the company from a single small supplier into a federation of over 100 specialized entities. The key question for investors today is not whether the business works. It does. The question is whether a P/E of ~59x and a market cap of ~$47 billion sufficiently discount the value proposition.

KEY ANALYSIS POINTS

• Q2 FY2026: Record upon record. Net income +49%, revenue +25%, operating income +41%, EBITDA +37%—all at historic highs. EPS beat by 24.6% surprised the market, which expected $1.33; HEICO delivered $1.66.

• Organic growth of 18% is not the result of acquisitions. Consolidated organic revenue growth of over 18% in Q2 FY2026 shows that the momentum comes from the core business—demand for aftermarket parts and defense electronics—not just from a series of M&A deals.

• Two divisions, two records: FSG (aviation aftermarket) revenue grew by +21% to $929M, with an operating margin of 26.2%. ETG (defense/industrial electronics) revenue grew by +34% to $460M, with an operating margin of 26.5%. Synchronized performance across both segments is rare.

• PMA moat with 19,500+ approved parts. HEICO Parts Group is the world’s largest independent supplier of FAA-PMA approved parts—and adds ~500 new certified components annually. The regulatory barrier to entry is virtually insurmountable.

• Bank of America ranks HEICO at the top of the mid-tier data center supply chain. The truth is: ETG power management products (DC-DC converters, passive components via Exxelia) are also heading into AI infrastructure—but for now, this is just a supplement to the core aerospace/defense business.

Products, Segments, and Business Architecture

HEICO $HEI operates in two complementary segments. This is not a conglomerate without logic—both segments share a DNA of high reliability, rigorous certification, and market dominance.

Segment 1: Flight Support Group (FSG)

~67% of revenue

Aviation aftermarket—spare parts, repairs, overhauls

• 19,500+ FAA-PMA-approved parts for engines

• DER repairs and overhauls (engines, APUs, landing gear)

• Thermal insulation blankets, specialty components

• Distribution (including non-HEICO PMA parts)

• Clients: all major global airlines + military air forces

• Q2 FY2026: $929M in revenue (+21% YoY), margin 26.2%

Segment 2: Electronic Technologies Group (ETG)

~33% of revenue

High profitability – electronics for defense, aerospace, and industrial applications

• DC-DC converters (Apex Microtechnology, VPT, 3D Plus)

• Passive components – capacitors, inductors (Exxelia, >50k parts)

• Infrared cameras, laser rangefinders, microwave switches

• Memory modules, digital recorders, EMC shielding

• Power supplies for aircraft, satellites, missiles, drones

• Q2 FY2026: $460M in revenue (+34% YoY), margin 26.5%

Key to understanding the model: HEICO does not manufacture entire aircraft or defense systems. It manufactures components inside things that fly and shoot. This is intentional—regulatory barriers are higher (every part must be FAA/EASA certified), margins are more stable, and the company is not exposed to the volatility of manufacturing entire platforms.

Main growth drivers

1. Global commercial aviation—a structural tailwind. The global aircraft fleet is growing at a rate of ~2.8% per year (projected through 2035). An aging fleet (the average age of a modern narrow-body aircraft is over 12 years) means higher consumption of spare parts and maintenance. Every flight hour generates demand for PMA components.

2. Global defense spending – a boom in NATO. CEO Victor Mendelson stated during the earnings call that the company is “firing on all engines” with record or near-record orders in most major markets. Defense spending by NATO countries is rising in response to geopolitical tensions, U.S. stockpiles are being replenished following depletion caused by the Ukraine conflict, and investments in new platforms (drones, missiles, unmanned systems) are driving ETG demand.

3. Space Economy - Artemis II and Commercial LEO. In April 2026, three HEICO subsidiaries (3D Plus, Exxelia, VPT) delivered mission-critical components for NASA’s Artemis II. Memory modules, capacitors, magnets, and radiation-hardened DC-DC converters are precisely the types of components that the space economy increasingly needs—and where alternatives are practically nonexistent.

4. Acquisitions as a systematic multiplier. Over the past 6 months, HEICO has completed 5 acquisitions: EthosEnergy A&C (aeroderivative turbines), Axillon Fuel Containment, Sherwood Avionics ($45M rev, APU/avionics MRO), Southwest Antennas (RF/microwave for defense), Cook Defence Systems (armored vehicles, UK, NATO).

• Number of acquisitions = HEICO has completed 90+ acquisitions in total since the 1990s.

Data center angle: Bank of America pick – what’s behind it

Bank of America ($BAC ) ranked HEICO 2nd in its mid-tier data center supply chain ranking (positions 18–37 out of 67 companies). At first glance, this is surprising—HEICO sounds more like an aerospace company than a player in AI infrastructure. The reality is different.

⚡ Power Management

DC-DC converters (Apex, VPT, 3D Plus) are critical for powering servers, switches, and GPU clusters. AI workloads require 3–5 times more power than traditional computing.

🔌 Passive Components

Exxelia capacitors, inductors, and resistors (50k+ part numbers, >3,000 customers) are also used in telecommunications and industrial hardware that powers data centers.

📡 RF & Microwave

Southwest Antennas (new acquisition in April 2026) and ETG RF components are relevant for network infrastructure and edge computing deployments.

💾 Memory Modules

Specialized memory modules for harsh environments are used in hardened servers for government and defense cloud deployments.

🛡️ EMC Shielding

Electromagnetic shielding and connectors for harsh environments are becoming increasingly relevant for densely populated hyperscale server halls.

⚠️ Reality:

Key figure for a sober analyst’s perspective: The ETG segment accounts for ~33% of HEICO’s total revenue. Of this, “other industries” (including telco, medical, and electronics) make up 18.7% of ETG—that is, approximately 6% of the company’s total revenue. Part of this goes to the data center supply chain. Estimated direct data center exposure for HEICO: 2–4% of total revenue. However: Bank of America apparently values the technological relevance of ETG components in the context of the power management boom, rather than direct sales to hyperscalers.

Market Position, Competition, and Moat

HEICO Parts Group is certified as “the world’s largest independent supplier of FAA-PMA-approved engine parts and aircraft components.” With a portfolio of over 19,500 approved part numbers and the production of ~500 new ones annually, HEICO holds a structurally privileged position in the aerospace aftermarket, where regulation (FAA/EASA) itself prevents new players from entering the market.

The closest comparable player is TransDigm $TDG, but with a key difference: TransDigm is more aggressive in its pricing policy (higher pricing power), while HEICO builds loyalty through price advantages (15–40% savings).

Numbers

Valuation: a premium for quality, but at what cost?

HEICO has never traded cheaply. Its historical P/E ratio ranges from 55x to 75x—the market pays a significant premium for consistency, predictability, and a business model that has virtually never disappointed. Following a record Q2 FY2026 and a ~12% stock increase, the P/E ratio stands at around 59x on a TTM basis, making HEICO more expensive than the aerospace/defense sector average (~40x), but cheaper than its closest competitors (~77x).

An upward re-rating could occur if: (1) ETG demonstrates the sustainability of 34% revenue growth in H2 FY2026 and maintains margins of 22–24%; (2) the data center/AI narrative organically aligns with ETG’s results; (3) new PMA approvals accelerate beyond 500 units/year. Downside: leverage rising above 2.5x Net Debt/EBITDA, significant disappointment in ETG margins, or a failed acquisition.

Risks

Valuation - premium

A P/E of ~59x compared to an industry average of 40x means the market will not tolerate any missteps. A single quarter with lower margins or disappointing organic growth could lead to a 15–25% pullback, even if fundamentals remain solid. HEICO’s history confirms this: after Q1 FY2026 (results slightly below high expectations), the stock fell 12%.

OEM Counteroffensive in the Aftermarket

OEM engine manufacturers (GE Aerospace, Pratt & Whitney, Safran) are actively competing for the aftermarket: they are lowering prices for their own parts, entering into long-term flight-hour agreements, and pushing airlines toward exclusive contracts. If this pressure intensifies, it could erode HEICO’s PMA market share—this hasn’t happened yet, but the risk exists.

ETG margins are volatile depending on the product mix

Management has explicitly warned that ETG GAAP operating margins may fluctuate depending on the mix of products delivered in a given quarter. The 22–24% guidance for FY2026 is achievable but not guaranteed. The Q1 FY2026 ETG operating margin (~19.7%) was lower than Q2 (~26.5%)—the difference illustrates the actual volatility.

Rising leverage following a wave of M&A

Net Debt/EBITDA rose from 1.60x (end of FY2025) to 1.74x (April 2026) following four acquisitions in H1 FY2026. If acquisitions continue at the same pace, leverage could exceed 2.5x—a level at which the market will begin to question financial flexibility and dividend sustainability.

The cyclical nature of commercial aviation

The Covid crisis reduced air traffic and impacted the FSG segment. Although global aviation has fully recovered and demand for PMA parts is structurally strong, dramatic shocks (pandemics, recessions) could temporarily depress FSG revenue by 20–30%.

Regulatory risk – FAA and EASA

Changes in certification requirements or increased strictness by the FAA regarding PMA processes would slow the pipeline of new approved parts. In practice, the FAA PMA system has operated for decades without dramatic systemic changes, but regulations are subject to change.

Investment Scenarios (18–36-month horizon)

Optimistic scenario

$450–$520

• ETG organic growth remains at 15%+ throughout FY2026

• Acquisitions add 5–8% annually to the top line

• Data center narrative aligns with ETG results

• Operating margin exceeds 26% (consolidated)

• FY2026 EPS will reach $7.50+

Realistic scenario

$390–$430

• FY2026 revenue ~$5.0–5.2B (+12–16%)

• Operating margin 23–25%, EPS $6.50–7.00

• 3–4 tuck-in acquisitions will add ~5% to revenue

• P/E slightly compresses to 55–60x

• Stock reflects avg. analyst PT $386

• Total return ~15–20% over 18 months

Pessimistic scenario

$260–$300

• ETG margin falls below 20%

• OEMs aggressively take market share in the aftermarket

• Acquisitions fail to deliver accretion, leverage >2.5x

• Macro: Recession slashes air traffic

• P/E compresses to 42–48x

• Downside ~15–22% from current levels

What to watch next

Q3 FY2026 (August 2026)

Key sustainability test: Will ETG confirm organic growth of 15%+? Is FSG maintaining margins above 25%? What is the acquisition pipeline? Can the company maintain its pace without further increasing leverage?

PMA Pipeline - New Approvals

HEICO approves ~500 new PMA parts annually. Any acceleration (or deceleration) of this pace is a leading indicator for FSG organic growth in the coming quarters.

Defense spending and NATO expenditures

ETG is sensitive to NATO and US DoD defense budgets. Monitor defense spending in EU countries and the continuation of US defense supplemental spending—these are direct drivers of ETG demand.

Space economy – NASA Artemis + commercial LEO

Participation in Artemis II (3D Plus, Exxelia, VPT) is a signal, not a revenue event. Monitor whether engagement in the space segment is deepening—this could be an ETG growth vector for 2027–2028.

ETG “other industries” – data center monetization

In Q1 FY2026, this category grew by only +4.2% YoY. If Bank of America’s data center thesis begins to materialize, we will see this line accelerate. Monitor quarterly disaggregated revenue.

Acquisition pipeline and leverage

HEICO completed 5 acquisitions in 6 months. Net Debt/EBITDA is now 1.74x. Watch to see if management signals a slowdown in M&A for deleveraging or continues at the current pace—this will be a key indicator of financial health.

OEM response to PMA – pricing and terms

GE Aerospace, P&W, and Safran are competing for the aftermarket. Any reports of aggressive OEM price-cutting or the signing of exclusive MRO contracts with major airlines are a negative signal for the FSG thesis.

Global air traffic (ASKs, RPKs)

Demand for PMA parts correlates with flight hours. IATA statistics and major airlines’ results are leading indicators of FSG revenue. A 10% decline in air traffic → pressure on FSG demand 6–9 months later.

ROE measures how effectively a company converts shareholders’ capital into profit. If it stays above 10% over the long term, it usually signals a business with above-average profitability or a structural competitive advantage. The problem is that the same number can mean something completely different across various sectors. For banks, it is significantly boosted by financial leverage; for companies with aggressive share buybacks, it is driven up by shrinking equity; for holding companies, it can be swayed by the revaluation of their stock portfolios; and for companies following major acquisitions, it is, conversely, dragged down by write-offs.

JPMorgan Chase $JPM

JPMorgan Chase ended 2025 with a net profit of approximately $57 billion and a return on equity (ROE) of around 17%, while return on tangible equity (ROTCE) reached 20%.

What drives ROE here

The bank’s strength lies in diversification. While the wealth and asset management division reported an ROE of around 40% and consumer banking over 30%, investment banking remained around 18%. In the first quarter of 2026, the bank accelerated its pace even further, with net income jumping to $16.5 billion, ROE climbing to 19%, and ROTCE reaching 23%. The main driver was record trading revenue, where bond trading revenue rose by more than a fifth year-over-year due to market volatility.

What to watch out for

ROE for banks should always be viewed with caution, as it is significantly boosted by financial leverage. A more reliable indicator is therefore ROTCE, and even that is very strong at JPMorgan. The risk here lies more in the outlook. The boost from higher interest rates, which has inflated net interest income in recent years, is gradually fading, and management projects this metric for 2026 to be roughly at the previous year’s level. At the same time, the bank’s CEO, Jamie Dimon, has repeatedly warned of risks in the area of private lending as well as the complexity of the economic environment. Moreover, the stock is trading near historic highs, so much of its quality is already factored into the price.

Despite the current price, according to the Fair Price Index on Bulios, $JPM shares are trading significantly below their intrinsic value. That value is currently up to 31% higher.

Berkshire Hathaway $BRK-B

The Berkshire Hathaway conglomerate is a textbook example of a quality business. However, its accounting ROE has long hovered right at the 10% mark, and in the last twelve months, it has even ranged between roughly 9.7% and 10.9%. The five-year average is around 12%.

Why such a low ROE for such a high-quality company?

There are three reasons, all of which are related to the company’s massive size.

• Berkshire sits on a record cash hoard, which exceeded $397 billion at the end of the first quarter of 2026 and yields only very modestly

• the company’s equity is enormous, so even high absolute profits are diluted in relative terms

• Accounting ROE fluctuates sharply due to the revaluation of the stock portfolio. Paper gains and losses from positions such as Apple $AAPL distort reported net income to such an extent that a more honest measure is operating income, which reached $11.35 billion in the first quarter of 2026, while accounting net income was $10.1 billion

The New Era of Greg Abel

Furthermore, Berkshire has entered a new chapter. At the end of 2025, Warren Buffett handed over the CEO position to Greg Abel, who took office on January 1, 2026. In his first few months, Abel began to make full use of the accumulated cash. The company invested $10 billion in Alphabet shares ($GOOG ) and acquired homebuilder Taylor Morrison for $6.8 billion. The pace at which the cash cushion is converted into profitable investments will determine whether the conglomerate’s ROE moves significantly above the 10% threshold.

UnitedHealth Group $UNH

Health insurer UnitedHealth Group is a case of a company whose ROE is currently depressed but is gradually recovering. The current figure hovers between roughly 12% and 17%, well below the five-year average of around 22%. This is a direct consequence of the exceptionally difficult year of 2025.

Return to Profitability

2025 was a crisis year for the company. While revenue grew by 12% to $447.6 billion, the net margin fell to just 2.7% compared to historical levels of around 6%. The Optum Health division even slipped into an operating loss. Healthcare costs rose faster than the company had planned, forcing it to lower its outlook during the year, and CEO Andrew Witty stepped down. However, the first quarter of 2026 brought a turnaround. Revenue reached $111.7 billion, adjusted earnings per share of $7.23 beat estimates, and the medical-to-claims ratio (MCR) improved to 83.9%.

Risks

The main risk remains the investigation by the U.S. Department of Justice regarding billing under the Medicare program, which has no set timeline. Meanwhile, the stock has rebounded by roughly 56% from its March 2026 lows and is trading near its annual high of around $416. Much of the positive outlook is thus already priced in. UnitedHealth is a good example of how to distinguish between a valuation trap and a genuine turnaround. This is not a permanently undervalued company, but a turnaround story whose outcome depends on the continued normalization of margins.

Arm Holdings $ARM

British chip architecture designer Arm Holdings is a company that barely exceeds the 10% threshold, with an ROE of around 12% and a return on invested capital of around 14%. Yet its business model is extremely capital-light. The company does not manufacture chips; it merely licenses its architecture and collects royalties from every chip sold that uses it.

A low-cost model

Why isn’t ROE significantly higher given such high margins and a lean model? The reason lies in high research and development costs and, in particular, massive stock-based compensation for employees, which depresses net profit relative to equity. ROE thus plays a rather secondary role here; the stock price itself is the main driver of returns for investors.

Valuation is a different story

Arm shares are trading at a price-to-earnings ratio of around 360 based on the last twelve months and around 190 based on expected earnings. Earnings per share are just under a dollar, the beta reaches an extreme 3.78, and the share price has risen by roughly 196% over the past year. The valuation thus reflects years of future growth driven by demand for computing power for artificial intelligence. The fact that the company is currently exceeding a 10% ROE is, in this context, more of a side note. Investors here are not betting on current returns on equity, but on the fact that expected growth will justify this extreme multiple.

Merck $MRK

Pharmaceutical giant Merck is among the companies with the highest ROE in today’s selection. Depending on the methodology, the figure ranges from roughly 19% to 39%. The company’s gross margin, meanwhile, hovers around 82%, indicating the exceptional profitability of its portfolio.

High ROE Driven by Oncology

The main driver of profitability is the oncology drug Keytruda, the world’s best-selling drug, which generates annual revenue exceeding $30 billion. In the first quarter of 2026 alone, its sales reached $8.0 billion. The company’s total revenue for 2025 reached $65 billion, with adjusted earnings per share of around $9. The stock has risen by roughly 50% over the past year.

The patent protection issue in 2028

The biggest risk and, at the same time, the main reason for investor caution is the so-called patent cliff. Keytruda will lose its exclusivity in the U.S. in 2028, which will open the door to cheaper competition. Merck is responding with aggressive portfolio diversification and a series of acquisitions, including Verona Pharma, Cidara Therapeutics, and the planned takeover of Terns Pharmaceuticals. The new drug Winrevair is also showing promising growth, with sales nearly doubling year-over-year. The key will be whether the pipeline can replace the loss of Keytruda quickly enough. If not, today’s high ROE will come under pressure after 2028.

RTX $RTX

While some data services report an ROE of around 11.6% for RTX, others, using purely accounting-based profit, cite figures of around 6% to 7%. The reason for the difference is the goodwill impairment following the merger of United Technologies and Raytheon, which significantly reduces accounting profit.

The difference is also evident in earnings per share. For 2025, the company reported accounting earnings of $4.96, but adjusted earnings of $6.29. On an adjusted and improving basis, RTX exceeds the 10% threshold; on a purely accounting basis, it has historically failed to reach it.

Geopolitics as a tailwind

Operationally, the company is in its best shape in years. The order book reached a record $271 billion, up a quarter year-over-year, driven by the global arms cycle and global tensions. Revenue for 2025 was $88.6 billion; in the first quarter of 2026, it rose 8.7% to $22.1 billion, and adjusted earnings per share jumped 21%. Margins are improving. The main risks remain challenges with powder metallurgy in Pratt & Whitney engines, which the company estimates will have a cash impact of $1.1 to $1.3 billion, and potential regulatory restrictions on shareholder payouts. Shares have risen by roughly 60% over the past year, and the company’s market capitalization is now approaching $250 billion.

Comparison

When we put all six companies side by side, it becomes clear how little the ROE figure alone tells us about the business without further context. The following table summarizes where each company’s double-digit return comes from and what the main risk is.

Strategic Perspective

ROE above 10% is a useful filter, not a ready-made investment thesis. These six companies show that this metric must always be interpreted in the context of how it is generated and how sustainable it is. JPMorgan and Merck offer the purest quality, with high returns that are long-term and structural, although they too face specific risks in the form of a weakening interest rate cycle and a patent cliff, respectively.

A common trait among all of them, however, is the ability to generate above-average returns on capital; yet the way they achieve this differs so much that the same number means something different for each of them. The ROE metric is an excellent starting point for identifying high-quality companies, but it is only by placing it within the context of the business model, the phase of the cycle, and accounting specifics that it becomes a truly useful tool. Without this context, it can just as easily point to a sustainable competitive advantage as to a mere temporary distortion.

Adobe yesterday after market close released its financial results for the second quarter of fiscal year 2026. At first glance it’s a triumph: the company beat analysts’ estimates, reported record revenue and even raised its full-year financial outlook. Yet the stock is down about 6% in premarket trading.

Record numbers

From a pure accounting performance perspective, Adobe had an exceptionally strong quarter.

- Total revenue reached $6.62 billion, representing a year-over-year increase of 13% (11% at constant currency).

- Net income per share (Non-GAAP EPS) climbed to $5.96 (year-over-year increase of 18%), significantly beating market expectations. GAAP EPS was $4.25, which was affected by a non-cash goodwill impairment of $70 million related to the Publishing & Advertising division.

- Operating cash flow reached $2.17 billion, enabling the company to continue aggressive share buybacks (in Q2 it repurchased 8.5 million shares).

Based on a strong first half, management raised its full-year targets for both total revenue and earnings per share.

"We are at a transformative moment for the entire industry and for our company. The convergence of AI, autonomous agents, and the explosion in content demand is creating huge opportunities," said Shantanu Narayen, CEO of Adobe, during the conference call.

The paradox of the decline

If the results are this positive and the outlook is being raised, why are the shares weakening?

1. Betting on 'Freemium' at the expense of short-term revenue

Adobe is seeing massive interest in its AI tools, such as Adobe Express, Acrobat AI Assistant, and the generative model Firefly. The total number of monthly active users (MAU) for Acrobat and Express has rocketed from more than 700 million to more than 850 million.

To convert this interest into long-term dominance, Adobe has taken a radical step: an aggressive shift to a freemium model. It wants to first lure users into trying AI features for free and then monetize them through microtransactions and premium subscriptions.

However, this move has its cost. Management openly admitted that this transformation will temporarily reduce expected ARR (annual recurring revenue) growth from individual subscribers in the second half of the year.

2. Delay in price increases for creative tools

The shift to freemium is also linked to another unpopular decision for shareholders. Adobe decided to postpone previously planned pricing and product-line optimizations for Creative Cloud, which were to take place in H2 FY2026. As a result, the market will not see a quick influx of cash from higher subscription prices among existing users in the coming months.

3. 'Inorganic' boost to the outlook thanks to Semrush

The increase in the full-year outlook was not driven purely by organic growth. Total ARR rose to $27.10 billion, but this figure includes $480 million added from the recent acquisition of analytics platform Semrush. Without this contribution, organic growth of core ARR would have slowed to roughly 10.5%.

Personnel changes in top management

There is also activity on the personnel front at Adobe right now, which doesn't add to the stock's stability:

- Departure of the chief financial officer: The previous CFO Dan Durn unexpectedly decided to leave Adobe for opportunities outside the software industry. Steve Day, who has 20 years in Adobe's finance leadership, has taken the interim CFO role, but the market always views sudden departures of finance chiefs with caution.

- Search for a new CEO: Current CEO Shantanu Narayen plans to transition to the role of chairman of the board. The company says the search for a new CEO is proceeding successfully with the goal of having a new leader in place before planning for FY2027, but for investors this means a period of transformation without a clearly defined long-term helmsman.

My view

I have Adobe shares in my portfolio. Honestly, it's probably my largest losing position so far, where I'm down about 44%. I started buying quite early, which I now see as a mistake. I didn't anticipate how negative the sentiment around SaaS companies in general would be.

As for the results, I view them quite positively. There are things that currently don't add to the company's popularity, but it all seems like short-term noise to me. Of course competition from AI is strong and there are quite a few risks overall, but I believe Adobe will likely maintain its position. I'm not buying more shares at the moment, but I'm not selling either.

How do you perceive the situation around the company? Do you have Adobe shares in your portfolio?

When the numbers look great, but the market doesn’t think so

At first glance, Verizon $VZ offers everything a conservative investor could want. A dividend yield of 5.9%—the highest among all thirty stocks in the Dow Jones index. A P/E ratio of 10 at a time when the sector average exceeds 15. A market capitalization of nearly $200 billion and forty years of uninterrupted dividend payments.

And yet, the stock is trading around $47—roughly where it was five years ago.

That in itself says more than any financial statements. While the market values Verizon as a stable corporation, it doesn’t have much faith in it.

Frontier: A $20 Billion Bet That’s Just Getting Started

In January 2026, Verizon completed the acquisition of Frontier Communications for roughly $20 billion. This made it the owner of the largest pure-play fiber internet provider in the U.S. and expanded the reach of its fiber network to nearly 30 million households across 31 states and Washington, D.C.

Frontier is no slouch on its own—in the third quarter of 2025, it added 133,000 new fiber internet customers, 20% more than a year earlier, and fiber broadband revenue grew at a rate of 25%. After emerging from bankruptcy in 2021, this was a true turnaround.

"Frontier has pulled off an impressive turnaround, consistently delivered strong results, and the momentum is clear. Our combined forces immediately create an unrivaled fiber network."

Dan Schulman, CEO of Verizon

The strategic logic makes sense: Verizon Fios—a great fiber network so far, but geographically limited to the East Coast—is expanding inland thanks to Frontier. Where AT&T $T or Google Fiber $GOOG previously led, a new player is now entering the market with capital and a customer base.

However, the acquisition added $131 billion in total debt to the balance sheet. And this at a time when interest rates remain significantly higher than in the previous decade.

Figures worth noting

In 2025, Verizon reported revenue of $138.2 billion and a profit margin of 13%—a significant improvement from 8.7% the previous year. Earnings per share rose to $4.15, which, at the current share price, implies a P/E ratio below 12.

The wireless segment accounts for 75% of revenue and virtually all operating profits. The wireless segment’s EBITDA margin stands at 44%—comparable to AT&T and better than most global competitors.

Key metrics:

• 114 million mobile customers

• Average monthly spend per postpaid customer:$128

• 5G coverage: 230 million U.S. residents

• Annual free cash flow: $35–37 billion

• Dividend payout ratio: 58% of earnings

The 58% payout ratio is a key figure. The dividend isn’t just a marketing ploy—it’s backed by profits with a sufficient cushion. Even if profitability were to drop by a third, Verizon would likely maintain the dividend.

Analysts at 24/7 Wall St. set a target price of $55.35 with 22% upside potential, while the optimistic scenario reaches as high as $57.62. The consensus of 25 analysts tracked on StockAnalysis sees a fair value of around $51.85.

Where the Risk Lies

Verizon’s problem isn’t its results—it’s the structural pressures facing the entire sector.

Cable operators like Comcast $CMCSA and Charter captured nearly 45% of all new wireless customers in the U.S. in 2025. They’re doing it smartly: building virtual mobile networks on Verizon’s infrastructure. They pay for network access while poaching customers that Verizon will struggle to win back.

Even more pressing is Starlink. SpaceX now covers virtually the entire U.S. with a satellite network offering speeds comparable to fiber optics, targeting precisely the rural areas where Verizon and Frontier are just beginning to expand. According to TipRanks, Starlink has served over 2 million households in segments where Verizon planned to expand.

And then there’s Morningstar with its uncomfortably blunt assessment: Verizon’s network superiority is a thing of the past. Both T-Mobile $TMUS and AT&T have deployed new spectrum and technologies, closing the historical gap. Meanwhile, recent rate hikes have damaged Verizon’s reputation with customers more than management would have liked.

"Competitive pressure in the wireless segment has increased recently, but we expect Verizon and its two main rivals—T-Mobile and AT&T—to compete rationally in the coming years."

Morningstar, 2026 Research Report

The capital intensity of modernization is significant: over the past five years, Verizon has invested over $60 billion in 5G infrastructure. The return on such investments is expected in seven to ten years, and the competitive environment is evolving faster than initial projections anticipated.

What this means

Verizon is a classic example of a stock that can perform exceptionally well, but only under clearly defined conditions.

If you’re looking for stable dividend income without a significant growth story, Verizon offers one of the most attractive yields in the entire Dow Jones, backed by robust cash flow and management willing to prioritize shareholder payouts over aggressive expansion.

However, if you’re betting on capital appreciation, you have to trust that the Frontier acquisition will come in time—before Starlink and cable operators completely reshape the landscape.

Numbers that would please everyone except Jamie Dimon

JPMorgan Chase entered 2026 with results that many banks would envy. For the first quarter, the bank reported a net profit of $16.5 billion —13% more than in the same period last year. Earnings per share reached $5.94, beating the analyst consensus by a solid 49 cents. Total revenue exceeded $50.5 billion, again surpassing expectations.

The trading division recorded its best quarter ever—market revenue jumped 20% to $11.6 billion, an all-time record for the bank. Fixed-income revenue rose 21%, and equity trading revenue rose 17%. Investment banking reported $2.88 billion in fees—more than anyone else on Wall Street during that period.

And yet, the tone of the April 14, 2026 earnings call was troubling, to say the least.

"When the credit cycle hits, the losses will be worse than people expect."

Dimon said, according to American Banker.

He refused to predict a recession, but at the same time hinted that more is happening beneath the surface than the earnings reports show.

The biggest optimist in global banking—or the biggest pessimist?

Dimon’s communication style is distinctive: he uses strong language where other CEOs would speak diplomatically. This year’s annual letter to shareholders was full of warning signs—geopolitical conflicts, inflation, energy instability, and regulation, which he called outright “nonsense.”

The specific target of his criticism? Proposals to tighten capital requirements under Basel 3 Endgame and the so-called GSIB surcharges. Both could limit the bank’s ability to lend while simultaneously driving down return on equity. Dimon called these proposals “nonsensical,” arguing that they would harm the entire banking system.

The bank also lowered its outlook for net interest income for the full year 2026— from the originally announced $104.5 billion to $103 billion. Shares fell as much as 3% following the announcement. The market interprets this as a cautious signal that the bonanza of the high-rate era is gradually coming to an end.

"The losses that will come in the next credit cycle will surprise many people with their scale—this is not speculation, it is a historical inevitability."

Jamie Dimon, CEO of JPMorgan Chase, Q1 2026 earnings call

A $20 billion bet on AI

While Dimon warns of macroeconomic risks, the bank itself is doing the exact opposite of what a cautious investor would expect —it is investing heavily. The technology budget for 2026 totals $19.8 billion, which is roughly 10% of total revenue and a tenth more than last year.

A large portion of this money is going toward artificial intelligence —and not the types of AI that generate nice presentations. JPMorgan plans to deploy so-called long-running AI agents that will be able to work autonomously for one to two hours without human intervention. This represents a qualitative leap compared to today’s systems, which can only handle short, precisely defined tasks.

Derek Waldron, the bank’s chief analytics officer, described this change to CNBC: agents are no longer just tools for individual tasks, but digital workers capable of managing entire workflows across various systems. Waldron even coined his own term for them—“intellectual coherence”—meaning the model’s ability to maintain productive, independent activity over an extended period.

The results are already measurable. In private banking, AI systems analyze market movements, client positions, and research reports overnight, and bankers arrive in the morning fully prepared. The result: a 20% increase in gross sales in the private banking division. The bank believes that AI agents will eventually enable each banker to serve 50% more clients.

Shares Between Record Results and Valuation Ceiling

JPMorgan shares are currently trading around $309, with a P/E ratio of approximately 15. Over the past 52 weeks, they have ranged from $262 to $337. The dividend is $6 per year (yield around 1.9%).

Analysts have an average 12-month price target of $342; of the 12 analysts tracked, all 12 recommend buying, and none recommend selling. The bank’s total market capitalization is around $830 billion.

But here comes the key question: is a P/E of 15 cheap or expensive for the world’s largest bank? Compared to tech stocks, it looks modest, but banking is a different game. Looking at the historical valuations of JPMorgan and its competitors, this is an above-average valuation— the stock is trading significantly above book value.

"JPMorgan is a bank where you pay for quality, and historically, that has paid off. The question is whether the current valuation fully reflects this premium—or not yet."

Nasdaq Analysts, June 2026

The Dimon Paradox

The whole story of JPMorgan in 2026 reads like a paradox: the head of the world’s most powerful bank spends earnings calls warning of systemic risks, while his bank itself is investing record sums in the future and reporting historic quarterly results.

Either Dimon truly sees things that others overlook —and his consistent pattern of escalating warnings in recent months would support that. Or it’s a sophisticated regulatory strategy: by loudly naming the risks, he’s building a case for why Basel 3 Endgame or GSIB surcharges would be a mistake.

Both interpretations could be true at the same time. The bank reports its second-quarter 2026 results on July 14 —and it will be interesting to see whether Dimon’s tone softens or hardens even further.

The story isn’t without risk. The valuation is at a premium, GAAP profit is nowhere in sight, and ARR growth is slowing. Nevertheless, these numbers, this margin trajectory, and this moment of technological transition are very interesting.

Key points of the analysis

• ARR (Annual Recurring Revenue) as of Q1 FY2027 (April 2026): $1.57 billion (+32% year-over-year); at the end of FY2026, ARR was $1.46 billion. Outlook for full FY2027: $1.854–1.862 billion. The company has exceeded its own outlook every quarter in a row.

• Gross margin rose from 53% (FY2022) to over 62% (FY2024) to 80.1% in FY2026 and 80.5% in Q1 FY2027 (non-GAAP: 82.9%). This margin transformation is one of the fastest in recent years in the enterprise SaaS sector.

• Free cash flow: from +$31 million (FY2025) to $237.8 million (FY2026) —a dramatic turnaround confirming that accounting losses are driven by SBC, not operational cash burn. Q1 FY2027 FCF margin: 19%.

• Net Dollar Retention Rate (NRR): consistently above 120%, with security products contributing 40% to NRR (vs. 32% a year ago). Customers aren’t leaving—they’re expanding.

• 2,805 customers with Subscription ARR ≥ $100,000 as of the end of FY2026 (+25% YoY); cloud ARR accounts for 87% of total subscription ARR, growing +53% YoY.

• Key risk: Microsoft as both a partner and a potential competitor. Azure Backup and Entra ID pose ecosystem threats; Rubrik is dependent on its partnership with Microsoft, yet competes with it in M365 data protection.

Company Overview

Rubrik, Inc. $RBRK is a cybersecurity and enterprise software company headquartered in Palo Alto, California, founded in 2014 by Bipul Sinha and other co-founders. It went public in April 2024 at an offering price of $32 per share. The company employs approximately 4,800 people and generated over $1.3 billion in revenue in the last fiscal year (FY2026).

Rubrik defines itself as a “cyber resilience company.” Its flagship product is Rubrik Security Cloud: a cloud platform for backing up, protecting, and restoring data across enterprise environments, clouds (AWS, Azure, GCP), and SaaS applications (Microsoft 365, Salesforce, Google Workspace). In a world where ransomware causes an average of 22 days of downtime and the average ransom payment reached eight-figure sums in 2024, immutable data backup is critical infrastructure.

The second product is the new Rubrik Agent Cloud (RAC): a platform for the security and management of AI agents. As organizations deploy autonomous agents connected to internal data and systems, Rubrik monitors their actions, enforces policies, and enables the rollback of erroneous or malicious agent operations. This is a new category that, at the time of writing, does not have a clear market leader.

Business and Segments

Rubrik does not have formally separate segments like industrial conglomerates—it operates as a single integrated platform. However, the business can naturally be divided into three layers based on product maturity:

Layer 1 – Backups and Recovery (Data Protection): The historical core of the business. The company used to protect data on physical on-premises hardware (still the case for some customers today), but since 2021–22, it has been aggressively transitioning to a cloud subscription model. The transition was painful: in FY2024, revenue grew by only 4.7% (vs. 18.5% in FY2023) precisely because the company transformed its customer base from perpetual licenses to ARR. This transformation is now 87% complete—cloud ARR accounts for the vast majority.

Layer 2 – Cybersecurity and threat detection: Rubrik expanded its backup platform with ransomware detection capabilities, behavioral analysis, identity tracking, and attack impact assessment. The "Identity Resilience" product (a new layer built on top of Identity Recovery) has built a customer base with approximately $20 million in ARR over its first three quarters; 40% of Identity Resilience customers came to Rubrik for the first time—making it a new acquisition channel.

Layer 3 – AI Agent Security (Rubrik Agent Cloud): The earliest stage, but potentially the largest layer. Rubrik Agent Cloud is integrated with Amazon Bedrock AgentCore and Microsoft Copilot Studio. Features include agent monitoring, real-time rule enforcement, fine-tuning for accuracy, and the ability to undo erroneous agent actions.

The key mechanism of the entire platform is "land and expand": the customer enters through data protection (backup), the platform knows their data, processes, and identities—and adding additional modules (threat detection, identity, AI governance) is the logical next step. That is why NRR (Net Revenue Retention) consistently exceeds 120%.

Market and Addressable Potential

Data security, cyber resilience, and backup lie at the intersection of two mega-trends occurring in parallel: the explosive growth of cyberattacks and the mass migration of enterprise infrastructure to the cloud.

Ransomware has become an industry—attackers not only encrypt data but also threaten to publish it, disrupt production, and target the most sensitive systems. Insurance markets are well aware of this: cyber insurance premiums are rising, and insurers are increasingly requiring the existence of an independent, immutable backup as a condition for coverage.

Analysts estimate the addressable market for data security (protection + recovery + compliance) at $40–60 billion by 2026–2028. Rubrik targets primarily enterprise customers (Fortune 1000 and equivalents) with complex multi-cloud infrastructure in this market. The SMB and low-end mid-market segments are not yet a primary focus.

AI agent security is a new category with no track record—estimates range in the low billions in the short term, but if agent-based AI truly becomes operational infrastructure for companies within 2–4 years, this layer will be critical. Rubrik is in a strong starting position precisely because it knows the customer better than most—it has an overview of the customer’s data and operations due to its backup role.

Competition and Market Position

Rubrik operates in a fragmented but consolidating market. Key players:

Traditional backup players (Cohesity, Veeam, Commvault): Cohesity (private, following its merger with Veritas) is the closest direct rival in terms of both vision and product. Commvault $CVLT is a rival with a similar transformation effort—but an older technology base and slower ARR growth. In comparison, Rubrik maintains a premium technological reputation (developer-friendly API, cloud-native architecture, speed of deployment).

Microsoft $MSFT: Azure Backup, Microsoft Sentinel (SIEM), and Entra ID operate in the same space. Historically, Microsoft has pushed enterprise customers to use native Azure services. This is the most serious competitive threat, as Microsoft has a distribution advantage without the need for sales.

Native cloud backup (AWS Backup $AMZN, Google Cloud Backup $GOOG): Sufficient for single-cloud customers, but insufficient for multi-cloud, SaaS, and on-premises heterogeneous environments—where Rubrik dominates.

AI agent security (new axis): CrowdStrike $CRWD, Palo Alto Networks $PANW, and Zscaler $ZS do not yet have an equivalent to RAC. Rubrik is the first mover, but the winner will not be known for another 12–24 months.

Rubrik’s competitive advantages: (1) Immutable snapshot architecture—ransomware cannot encrypt backups on Rubrik because the APIs do not allow external modification. (2) Depth of data context—the company knows more about customer data than anyone else because all of it passes through Rubrik. (3) Land-and-expand economics with NRR >120%—customers add modules; they don’t leave. (4) Partner ecosystem (Microsoft, Mandiant/Google, Anthropic Mythos).

Management and Strategy

CEO and founder Bipul Sinha (age ~50) has led the company since its inception in 2014. He is a co-founder of Rubrik, was a general partner at the venture fund Lightspeed Venture Partners, and his startup is the first go-to-market story he has been involved in from the very beginning. Sinha is a media-savvy CEO who has successfully attracted customers from Fortune 500 companies, U.S. government agencies, and international banks.

In Q1 FY2026, the company promoted Jesse Green to the position of Chief Revenue Officer. The transition from founder-led sales to a professional go-to-market structure is a typical step for SaaS companies in the $1B+ ARR phase.

In September 2025, the company completed the acquisition of Predibase—a startup focused on fine-tuning and enterprise deployment of AI models. This acquisition is a cornerstone for Rubrik Agent Cloud: it enables the optimization of LLMs for customer data, with the entire fine-tuning process taking place under the security oversight of the Rubrik platform.

Strategic Focus: The company explicitly rebranded itself from a “cybersecurity company” to a “Security and AI Operations company”—signaling that AI security is now an equal strategic pillar alongside traditional cyber resilience.

Financial Performance

Revenue: Significant acceleration following a transitional year in FY2024:

• FY2022: $506 million

• FY2023: $600 million (+18.5%)

• FY2024: $628 million (+4.7% – transitional transformation of the business model from perpetual licenses to subscriptions)

• FY2025: $887 million (+41.2%)

• FY2026: ~$1,319 million (+48.8%)

• Q1 FY2027 (April 2026): $387 million (+39% year-over-year)

• Guidance for fiscal year 2027: $1,638–1,648 million

Gross Profit and Margin – Key Metrics:

• FY2022: 53.3% gross margin

• FY2024: 62.1%

• FY2025: 70.1% (GAAP; includes $67 million SBC against COGS)

• FY2026: 80.1% (GAAP; SBC in COGS reduced to $18.9 million)

• First quarter of fiscal year 2027: 80.5% GAAP, 82.9% non-GAAP

This trajectory is exceptional: in four years, the company has increased its gross margin by 27 percentage points. The reason is the transition to cloud delivery, the elimination of hardware costs, and the scalability of the SaaS model.

Net income/loss – perception vs. reality: GAAP net losses are massive, but they are overwhelmingly due to stock-based compensation (SBC):

• FY2025: net loss of $1.155 billion included $913.9 million in SBC (one-time IPO effect)

• FY2026: net loss of $348.8 million included $329.4 million in SBC

• Non-GAAP net loss FY2026: -$0.01 per share → practical breakeven point

• Q4 FY2026: first quarter with non-GAAP profit in history (+$0.04 per share)

Excluding SBC, the company would have reported operating profit in the low single-digit hundreds of millions in FY2026.

Cash Flow and Capital Discipline

Rubrik’s cash flow profile has transformed over three years from chronically negative to robustly positive:

Balance Sheet and Debt

Rubrik’s balance sheet is typical for a post-IPO growth-stage technology company:

• Cash, cash equivalents, and marketable securities (Q4 FY2026): approximately $1.7 billion

• Convertible bonds: $1.1 billion (maturity 2028–2029)

• Net cash position: approximately +$600 million (the company has a net cash surplus)

• Current assets vs. current liabilities: Rubrik has strong liquidity; the SaaS revenue model (customers pay upfront, the company provides the service on an ongoing basis) generates deferred revenue, which is financially advantageous.

Valuation

Rubrik cannot be properly valued using traditional P/E or EV/EBITDA metrics—the company is at a stage where these metrics are irrelevant or misleading due to SBC. The correct frameworks are EV/ARR, EV/Revenue, and P/FCF (forward).

At a share price of approximately $79–82 (early June 2026) and approximately 224 million shares:

Sector comparison: CrowdStrike trades at approximately 16–18× revenue, Zscaler at 10–14×, and Palo Alto Networks at 10–12×. Rubrik at 10–11× EV/Revenue with 30–39% ARR growth is, in the context of the sector, on the cheaper end for that growth rate.

What the company must deliver for the valuation to be “fair”: ARR growth ≥25% annually through FY2027 (guidance of $1.86 billion = +27%), FCF margin expansion to 20–25% over a 2–3 year horizon, sustained NRR >120%, no major competitive incidents with Microsoft. Under these conditions, an EV/ARR of ~9x is justifiable for a company with an 80%+ gross margin.

What would degrade the valuation: ARR growth slowing below 20%, Microsoft bundling causing customer churn, loss of key enterprise customers, or SBC remaining permanently high without normalization.

Risks

Microsoft—both a partner and a threat. Microsoft is Rubrik’s largest distribution partner (integration in the Azure Marketplace, MSSP program) and, at the same time, a company that wants to control the entire enterprise security stack. Azure Backup, Microsoft Sentinel, and Entra ID are direct substitutes for parts of the Rubrik platform. If Microsoft begins aggressively bundling backup with M365 E5 licenses at zero marginal cost, churn (customer attrition) in the mid-market segment could increase significantly. Signal: detect a drop in NRR below 115% or customer loss in M365-heavy verticals.

ARR growth deceleration. From 39% (Q4 FY2025) to 32% (Q1 FY2027). A deceleration trend is natural with a growing customer base, but the market will react negatively to any surprises. Guidance for FY2027 anticipates 25–26% ARR growth—if the company fails to meet this, valuation compression will be immediate.

SBC dilution. The company issues a large number of shares in the form of SBCs. Even after normalization (FY2026 SBC 329 million vs. FY2025 913 million), SBCs amounting to 25% of revenue remain high. If management does not actively manage SBCs, the FCF yield will be structurally below the EV/Revenue implied yield.

Convertible bonds. $1.1 billion in convertible debt maturing in 2028–2029. If the share price is low and the company does not have sufficient FCF, refinancing could be dilutive.

Competition vs. AI agent security. This is a new category; CrowdStrike, Palo Alto Networks, and potentially specialized startups will enter this space. Rubrik has a first-mover advantage but is not a guaranteed winner.

Investment Scenarios

Optimistic scenario (~25% probability, 18–24-month horizon)

ARR growth stabilizes at 30%+ thanks to massive adoption of AI agent security. NRR exceeds 125%. Identity Resilience surpasses $100 million in ARR. FCF margin reaches 25% in FY2028. Microsoft bundling will not result in structural churn. FY2028 ARR: ~$2.8–3.0 billion, revenue ~$2.2 billion, FCF ~$550 million. At an EV/ARR of 9–10×, EV is $25–30 billion. Potential share price: $110–130 (approx. +40–65% from ~$79).

Realistic scenario (~50% probability, 12–18-month horizon)

The company meets its guidance for fiscal year 2027: ARR ~$1.86 billion, revenue ~$1.64 billion, FCF ~$270 million. ARR growth slows to 22–25%, but margins approach 20%. NRR remains above 120%. Valuation compresses slightly from 11× to 9× EV/ARR due to the deceleration. EV ~$17 billion. Potential share price: $80–95 (roughly in line with or slightly above today’s price + analyst targets ~$86.7).

Pessimistic scenario (~25% probability, 12–24-month horizon)

Microsoft aggressively bundles backup with M365; NRR falls below 110%. ARR growth drops below 20%. Material rights headwind distorts reported revenue. FCF management disappoints – FCF margin remains below 15% even in FY2027. The market compresses EV/ARR to 6–7×. ARR FY2027 ~$1.65 billion, EV ~$10–11.5 billion. Potential share price: $45–55 (approx. –30–43% from ~$79). GAAP losses would still not pose an insolvency risk (strong cash position), but a rerating would be painful.

Key takeaways from the article

• What the company does: Rubrik (NYSE: RBRK) is a cloud-based cybersecurity platform for backing up, restoring, and protecting enterprise data; it is now entering the AI agent security space via Rubrik Agent Cloud.

• Why it’s an interesting investment: The FCF turnaround—from virtually zero to $238 million in a single fiscal year—confirms that the business model works and that GAAP losses are an SBC accounting artifact. A gross margin of 80%+ signals a premium SaaS nature. ARR >$1.57 billion (+32%) with an NRR >120% are metrics of a healthy and growing customer base.

• Key catalyst: AI agent security as a new category. Rubrik Agent Cloud is a product with no direct rival offering the same integration (data protection + agent governance). If agent-based AI takes off on a massive scale, Rubrik is the natural guardian of this ecosystem.

• Key risks: Microsoft as a dual-role player (partner + potential competitor), ARR growth deceleration, SBC dilution, and revenue recognition complexity related to material rights.

• Valuation: ~10–11× EV/ARR based on FY2027 guidance is a premium, but justifiable given the sector context and growth profile. This is not a “cheap stock”—it is a stock that requires faith in the sustainability of its growth trajectory.

• Portfolio role: An offensive growth stock with limited downside protection. Suitable for investors with a 3–5-year horizon, higher volatility tolerance, and the ability to look past GAAP numbers in favor of ARR and FCF. This is not a defensive or dividend stock—it is a bet that data cybersecurity and AI governance will become an indispensable layer of enterprise infrastructure.

• Key question for the next 12 months: Whether ARR growth in Q2–Q4 FY2027 will meet or exceed guidance, and whether Rubrik Agent Cloud will show its first measurable ARR—at which point it will become clear whether the AI layer is a real product or just marketing.

But that letter is mainly politics, not a market catalyst. Warren herself cannot stop the IPO — she would need the SEC led by Atkins, who, on the contrary, wants to "restart IPOs". The chance of a Friday delay is low. For an investor, it's a signal to pay attention, not a change of scenario.

I don't dismiss the substantive core of her objections. The strongest point concerns indexes: if their providers adjusted rules to allow faster inclusion of SpaceX, they push millions of passive investors into an exposure they didn't choose — at any cost. That can inflate the entry price and then hurt when things normalize.

Wednesday’s report from the U.S. Bureau of Labor Statistics (BLS) confirmed what markets had been fearing for several weeks. The Consumer Price Index (CPI), which measures how much everyday household expenses—from groceries to gasoline to rent—have risen in recent months, rose by 0.5% in May compared to April and by 4.2% year-over-year. This marks the third consecutive monthly acceleration, as year-over-year inflation stood at 3.3% in March and 3.8% in April. The United States is now further from the Fed’s 2% target than it has been in the past three years.

The May result was exactly in line with economists’ expectations. In fact, a single item accounts for more than 60% of the monthly price increase, and that is energy. Core inflation, which excludes energy and food and which the Fed monitors as a more reliable measure of actual price pressures in the economy, slowed down and came in below market estimates.

For investors, the report comes at an exceptionally sensitive time. Next week, on June 16 and 17, the Fed’s Monetary Policy Committee (FOMC) will meet, and May’s inflation data was the last major macroeconomic figure central bankers will see before making their rate decision.

Key figures from the May report

The overall CPI index rose by 0.5% in May, marking a slight slowdown from April’s 0.6% and a significant slowdown from March’s 0.9% jump. However, the year-over-year rate continues to rise. The 4.2% figure is the highest since April 2023 and means that, after two years of gradual cooling, inflation has returned to territory that U.S. households remember from the worst post-inflation years.

Both figures, monthly and year-over-year, matched exactly the consensus of economists surveyed by LSEG. The report therefore did not surprise the markets, which was reflected in a relatively calm reaction. Although stock futures were in negative territory prior to the release due to escalating tensions surrounding Iran, they recouped some of their losses after the data was released, and U.S. bond yields remained virtually unchanged.

Core inflation delivered a positive surprise

excluding food and energy rose by only 0.2% in May, which is half the April rate and less than the market estimate of 0.3%. Year-over-year, core inflation rose from 2.8% to 2.9%, which is the highest level since last September but still relatively close to the Fed’s target.

This difference between the surging headline inflation and the more subdued core inflation is key to the entire report. It shows that high oil prices have not yet spilled over into a broader range of prices in the economy. If so-called secondary effects—that is, the pass-through of higher energy costs to transportation, services, or food prices—were to begin appearing, we would see it first in core items. The May data do not yet suggest anything of the sort.

Gasoline prices rose by more than 40% year-over-year

The energy price index rose by 3.9% in May, following April’s 3.8% and March’s 10.9%. Year-over-year, energy prices are up 23.5%. The most noticeable item is gasoline, which rose by 7.0% in May after seasonal adjustment and is 40.5% more expensive year-over-year. Without seasonal adjustment—that is, in the prices Americans actually pay at the pump—gasoline prices rose by 8.6% in a single month. Heating oil is even 58.9% more expensive year-over-year.

The military conflict with Iran and disruptions to oil supplies from the Middle East have sent oil prices soaring, and American consumers felt the impact almost immediately. The BLS explicitly states in its report that energy accounted for more than 60% of the total monthly price increase. In other words, if energy prices had remained flat in May, overall inflation would have hovered around 0.2% per month, which would correspond to a completely normal, healthy pace.

Electricity is rising more slowly, while gas prices have actually fallen

Electricity prices rose by 0.6% in May and by 5.9% year-over-year, reflecting not only more expensive fuel for power plants but also the long-term strain of growing data center consumption on the U.S. transmission grid. Natural gas, on the other hand, fell by 0.5% in May, and its year-over-year growth is only 3.0%. As the world’s largest gas producer, the United States is significantly more resilient to supply disruptions from the Middle East than it is in the case of oil, which is traded on the global market and reacts to every hiccup in the Strait of Hormuz.

Housing, Services, and Goods

Housing costs continue to cool gradually

Housing, with a weight of over 35%, is by far the most important component of the entire CPI index and has long been the biggest driver of inflation. May brought good news in this regard. The housing cost index rose by 0.3% and by 3.4% year-over-year. Rents for primary housing rose by 0.4%, and the so-called owner-equivalent rent—an estimate of how much property owners would pay if they were renting their homes—increased by 0.3%. The pace of growth in housing costs thus remains well below the levels seen in 2023 and 2024 and is gradually normalizing.

This is crucial information for the Fed. If the largest component of the index continues to disinflate, it creates a counterbalance to the energy shock and increases the chance that overall inflation will return to target more quickly once the oil episode subsides.

Airfare is rising, while cars and insurance are getting cheaper

Among the items that rose in May, airfare stands out with a monthly increase of 2.7% and a year-over-year increase of 26.7%. Airlines pass on higher jet fuel costs to prices almost immediately, making this the first clear example of a secondary effect of the oil shock. Prices for communication services also rose by 1.3%, medical care by 0.3%, and personal care by 1.0%.

On the other hand, auto insurance became significantly cheaper, falling by 1.7% and 2.0% year-over-year. After years of double-digit price increases, this is a welcome relief for American drivers. Household goods also became 0.6% cheaper, and new cars 0.3% cheaper. Used car prices rose by only 0.1% and remain 2.0% lower year-over-year. The weakness in non-energy goods prices confirms that consumer demand remains rather cautious and companies have no room for across-the-board price increases.

Food

Food prices rose by a modest 0.2% in May and by 3.1% year-on-year. Food in stores became 2.7% more expensive year-on-year, while restaurant meals rose by 3.5%.

However, the biggest differences are between individual categories. Coffee is 17.5% more expensive year-on-year due to poor harvests in key producing countries, beef by 12.9% as a result of the smallest cattle herds in the U.S. in decades, and fruits and vegetables by 6.1%. Conversely, eggs—which were a symbol of rising prices just last year due to avian flu—are now 35.2% cheaper year-on-year, and dairy products have also become more affordable.

Comparison with expectations and previous trends

The following table summarizes key items from the May report and shows how extremely unevenly the current wave of inflation is distributed. While energy prices are rising at a double-digit rate, the core economy is becoming more expensive at a rate only slightly above the Fed’s target.

Source: BLS, Consumer Price Index, May 2026 (seasonally adjusted monthly data, unadjusted year-over-year changes)

The CPI-W index, which is used to adjust Social Security benefits in the U.S., rose by as much as 4.4% year-over-year. If inflation remained at elevated levels in the third quarter as well, this would mean significantly higher pension expenditures for the U.S. budget in 2027.

In an international comparison, the United States differs from Europe less than it might seem due to the energy shock. The oil shock is global and affects all energy importers. The difference, however, lies in core inflation, where the U.S. economy, thanks to a strong labor market with 4.3% unemployment, maintains higher demand pressures in services than what we see in most European economies.

What this means for the Fed

The Fed currently holds its benchmark interest rate in the range of 3.50% to 3.75%. According to data from predictive platforms, markets assign a probability of around 96% to 98% that rates will remain unchanged at the June meeting, and the May report did nothing to change that. The real drama will therefore unfold in the accompanying statement and in the committee members’ new economic projections.

The key question is whether the Fed will remove references to possible future monetary policy easing from its communication. If that were to happen, markets would interpret it as a hawkish signal—a shift toward tighter policy—which would open the door to a potential rate hike later in 2026 if energy inflation began to seep into core inflation. Meanwhile, bets on rate cuts this year have virtually disappeared from the market.

The central bank faces a classic supply-shock dilemma. Higher oil prices act like a tax that simultaneously boosts inflation and undermines economic growth. Tightening policy means risking a recession due to price movements the Fed cannot control. Doing nothing means risking that higher inflation expectations will take root in the minds of households and businesses. The textbook answer is to ignore the first round of the energy shock and react forcefully only to the secondary effects. May’s core inflation rate of 0.2% month-over-month gives the Fed room to adopt precisely this strategy.

The Warsh Factor

The situation is complicated by the ongoing leadership transition at the central bank. Incoming Fed Chair Kevin Warsh has a reputation as a hawk—that is, a central banker who favors tighter monetary policy—and is taking office at a time of strong political pressure from the White House for low rates. Paradoxically, inflation at three-year highs may help him, as it provides an argument for caution and strengthens the institution’s credibility at a time when markets will be testing it the most. For investors, this means that the Fed’s communication may be more hawkish in the coming months than the core inflation data alone would warrant.

Strategic Perspective

From an investor’s perspective, it is crucial to distinguish between inflation caused by a supply shock and inflation driven by overheated demand. The May report clearly points to the former. Historical experience suggests that energy shocks tend to be painful for markets but relatively short-lived, provided they do not trigger a wage-price spiral. Core inflation therefore remains the key indicator, and it remains under control for now.

An environment of higher inflation and rates held at higher levels for an extended period favors several asset classes. The energy sector ($XLE, $XOM, $CVX) benefits directly from higher oil prices, a trend confirmed this year by companies with exposure to U.S. production and energy infrastructure. Defensive sectors such as utilities and consumer staples, meanwhile, offer relative stability in an environment of heightened volatility.

Conversely, growth technology stocks with high valuations, whose value is based on distant future earnings, remain under pressure. Higher bond yields reduce the present value of these future profits, a mechanism that has particularly weighed on smaller software and SaaS companies ($NOW) this year. Real estate investment trusts (REITs) ($O) and highly leveraged companies, for whom refinancing is becoming more expensive, are also sensitive to interest rate movements.

At the same time, if the conflict with Iran is successfully de-escalated and oil prices return to lower levels, the turnaround could be very rapid. In such a scenario, inflation figures would begin to fall sharply as early as the turn of the year due to the high base effect, and the market would immediately return to betting on rate cuts. Investors should therefore not view the current inflationary environment as a permanent state, but rather as a transitional period, the duration of which depends primarily on geopolitics—which no one can reliably predict.

A company that still knows how to raise prices

$BTI owns brands such as Lucky Strike, Dunhill, Pall Mall, Kent, Vuse, Velo, and glo. Its greatest strength lies not in rapid sales volume growth, but in pricing power. In other words, even though fewer traditional cigarettes are being sold worldwide, the company is able to raise prices so significantly that it offsets part of the volume decline.

This is the main reason why tobacco companies have historically survived even in an environment that would be extremely challenging for most other sectors. Consumers are heavily dependent on the product, brands enjoy high loyalty, and margins remain very high. For an investor, this means one thing: BAT is not a growth stock in the style of tech companies, but rather a cash cow.

New categories are driving growth

The most important news in recent years is the shift in management’s outlook on new categories. BAT now expects revenue from products like Velo, Vuse, and other alternatives to traditional cigarettes to grow at a rate in the high double digits by 2026. Previously, the company had anticipated only low double-digit growth.

This is crucial because it is precisely these new categories that will determine whether BAT remains merely a dividend stock from the old tobacco world or manages to transform itself into a more modern nicotine company. The Velo nicotine pouches are attracting the most attention, growing across regions and, according to the company, further strengthening its global share in the modern oral category .

Dividend

$BTI is not a stock that investors buy primarily for double-digit annual revenue growth. Its main appeal lies in the combination of dividends, share buybacks, and stable cash flow.

The company announced a dividend of $3.28 per share for 2025, to be paid in four equal quarterly installments of $0.82. In addition, there is a share buyback plan totaling approximately $1.74 billion (1.3 billion pounds) in 2026.

The dividend yield alone is over 5%, but when buybacks are factored in, the total return on capital is even higher. It is also important to note that the company expects an operating cash conversion rate above 95% and aims to reduce debt to a target range of 2.0 to 2.5 times net debt to adjusted EBITDA by the end of 2026.

Comparison with Competitors

BAT’s closest competitors are Philip Morris $PM International and Altria $MO. Philip Morris is currently considered the leader in smoke-free products, mainly thanks to IQOS and Zyn nicotine pouches. Its advantage lies in the fact that it has already shifted a large portion of its business from cigarettes to alternatives.

Altria, on the other hand, is more focused on the U.S. market, and its main investment appeal lies in its very high dividend. According to Barron’s, Altria became one of the highest-yielding dividend stocks in the S&P 500 last year, with a yield of nearly 8%.

BAT falls somewhere between these two companies. It has stronger global diversification than Altria, but it lags behind Philip Morris in the smoke-free transformation. On the other hand, it offers a higher dividend yield than most typical defensive stocks, and its valuation still does not appear extremely expensive.

The problem with traditional cigarettes hasn’t gone away

The risk of a decline in traditional cigarette volumes remains. BAT itself expects global volumes in the cigarette industry to fall by roughly 2.5% in 2026, which is worse than the previous estimate of a 2% decline.

This means that pricing power, in the form of price increases, must continue to work at full capacity. If regulations, taxes, or consumer behavior were to accelerate the decline in volumes faster than the company can raise prices and grow in new categories, the stock could weaken.

Strategic View

The company is a typical stock for investors seeking high cash yields who are willing to accept sector-specific risks. A yield exceeding 5% is no coincidence. The market is thus pricing in the uncertainty surrounding regulation, litigation, the decline in smoking, and the long-term future of the tobacco business.

At the same time, however, few companies have such a strong ability to generate cash. Even with modest revenue growth, BAT can pay a high dividend, buy back shares, and reduce debt. This is a combination that, in an environment of higher interest rates, may appeal more to investors than the stories of companies dependent on cheap capital.

However, the company’s shares have managed to strengthen significantly in recent years and, following the 2018 slump and a long period of sideways movement, have sparked a new upward trend. Given that the share price is currently 70% higher than it was at the beginning of 2025, the stock is currently overvalued, according to the Fair Price Index on Bulios.

British American Tobacco remains a controversial but financially very strong stock. On one hand, there are regulations, declining smoking rates, and ethical concerns. On the other hand, there is a dividend yield above 5%, tremendous pricing power, strong cash flow, share buybacks, and accelerating growth in nicotine alternatives.

It is precisely this combination that makes BAT an attractive stock for investors who are not looking for a trendy growth story, but rather a stable cash flow. The shift toward products like Velo and Vuse will determine whether the company can transform itself from the tobacco giant of the past into the nicotine leader of the future.

The Company the World Has Stopped Printing

There are companies the market simply doesn’t like. Not because they’re failing—but because they make money from things that are slowly becoming a thing of the past. HP Inc. $HPQ is exactly such a case.

Most people know HP as a manufacturer of printers and laptops.But fewer and fewer households are buying printers these days, and things aren’t much better with laptops—the market has calmed down after the COVID boom, and HP faces pressure from Lenovo and cheaper Asian manufacturers. The result? Since last summer, the stock has plummeted from a high of around $29 to today’s roughly $19–20, its lowest level in the past 12 months.

And yet, HP is starting to be talked about as an interesting value pick. Why?

The Numbers Speak for Themselves

Let’s start with the positive. In fiscal year 2025 (which ends in October for HP), the company reported revenue of $55.3 billion—a 3.2% increase year-over-year. It’s not exactly rocket-fueled growth, but after years of stagnation, it’s a sign that the decline has stopped.

Even more interesting were the results for the first quarter of fiscal year 2026: revenue reached $14.4 billion, up 6.9% from a year ago, and earnings per share of $0.81 beat analyst estimates. The results were therefore a positive surprise.

Key valuation metrics:

• P/E ratio: approximately 9

• Dividend yield: around 6% per year

• Dividend payout ratio: 43.8%

• Free cash flow: $2.9 billion for fiscal year 2025

Management itself has admitted that, due to rising costs for memory components, it expects results to be closer to the lower end of the full-year forecast. And analysts are cautious—the consensus of 17 analysts is “Hold” with an average 12-month target of around $22–23, which is actually below the current price.

Restructuring: 6,000 layoffs and a bet on AI

In the fall of 2025, HP launched a major restructuring plan. The company announced the layoff of up to 6,000 employees and a shift in investments toward artificial intelligence. Their goal is to save $1 billion in annual costs by the end of fiscal year 2028.

Behind the entire transformation is a bet on so-called AI PCs—computers equipped with special chips for local processing of AI tasks. CEO Enrique Lores said during the earnings announcement that the company had seen “momentum in key growth areas, including AI PCs.” HP aims to be a leader in this segment and capitalize on the expected wave of corporate IT equipment upgrades, which are expected to be driven by Windows 11 and the transition to new platforms.

At the same time, the company is shifting production for the North American market by the end of 2026—more than 90% of products sold in the U.S. will be manufactured outside of China.This is a response to trade tariffs, which have cost HP hundreds of millions of dollars in previous years.

"We remain confident in our strategy and are focused on creating long-term value for customers and shareholders."

Enrique Lores, CEO of HP Inc., February 2026

Printers: a profit engine that is slowly aging

The printing segment accounts for only a third of HP’s revenue, but it is the main driver of profitability —an operating margin of over 19% is nearly four times higher than that of personal computers. The business model here has been tried and tested over the years: printers are sold at a small profit or even at a loss; the real money lies in ink cartridges and consumables.

But the trend is relentless. The digitization of the office environment is reducing print volumes, and on top of that, the share of compatible third-party cartridges—which are half the price of HP originals— is growing. The company knows this and is gradually shifting its focus to commercial and industrial printing with higher added value—where margins are higher and customers are more loyal.

"HP is facing a structural decline in the printing segment, but the commercial part of the business model is more resilient than the market recognizes. A dividend yield above 5% is attractive if the company maintains free cash flow."

Wells Fargo Analyst

Is it a value trap or a real opportunity?

A low P/E ratio and high dividend yield can signal either undervaluation or a warning of further problems. With HP, it’s more complicated.

On the one hand: the company is indeed generating solid cash flow, is disciplined in returning money to shareholders, and is entering the AI PC segment at a time when corporate customers are just beginning to replace their outdated equipment. Good timing of the restructuring could bring significant margin improvements within two years.

On the other hand: a consensus among analysts with a target price below the current market level is rare and signals that a “cheap” stock may not automatically be a good investment. The printing segment will not halt its structural decline, memory chips are becoming more expensive, and competition in the PC segment is ruthless.

The factory is running at full capacity, but the stock seems oblivious

When BMW $BMW.DE unveiled the iX3—the first model on the all-new Neue Klasse platform —at the Munich Motor Show in September 2025, no one expected what was to come. Even before the car had reached its first customers, it was sold out for the entire year of 2026. Orders from Europe alone exceeded 50,000 units, the plant in Debrecen added a second shift earlier than planned, and in Germany, the iX3 outsold the combustion-engine X3.

And yet: BMW shares are hovering around €68. The P/E ratio remains at 6. The valuation resembles a company in an existential crisis more than an automaker that has just successfully launched the most important technological platform of the past decade.

This isn’t necessarily a market error. It’s a consequence of the real problems BMW has faced over the past two years. But the numbers deserve an honest look—without excessive optimism or excessive pessimism.

What Actually Happened to the Results

2024 was a challenging year for BMW. Net profit fell by 36.9% to €7.68 billion, and the automotive segment’s operating margin plummeted to 6.3%—well below the strategic target of 8–10%. Total revenue fell by 8.45% to roughly €154 billion.

China is primarily to blame. BMW sold 625,000 vehicles there in 2025—a 12.5% year-over-year decline. For 2026, the company expects a further decline to below 500,000 units, which would be the worst results in China in the last decade. Meanwhile, domestic brands such as NIO, Xiaomi, and Huawei-backed Aito are aggressively gaining ground even in the premium segments—and customers increasingly prefer technological features over the prestige of a European brand. In January 2026, BMW therefore resorted to lowering the recommended prices for more than 30 models on the Chinese market.

Added to this was the trade war. Tariffs in the U.S. and EU reduced the automotive division’s EBIT margin by roughly 1.5 percentage points in 2025. Furthermore, the U.S. Department of Commerce deferred a portion of the tariff refunds to 2026, causing the automotive division’s free cash flow to drop to €3.24 billion—down from the originally planned €5 billion. BMW expects these refunds to return this year and has therefore set its free cash flow outlook for 2026 at more than €4.5 billion.

And yet—despite all these pressures—BMW’s net profit remained above €7 billion for the second year in a row. This is not a company falling apart.

"With the successful launch of the Neue Klasse in 2025, we have demonstrated that we are leading the BMW brand into the future with new technological systems and a fresh design language."

Oliver Zipse, then CEO of the BMW Group

Neue Klasse: More Than Just a New Platform

The new iX3 isn’t just another electric car with a round logo. It’s the first car built on an architecture in which BMW has invested over 10 billion euros —and which is set to define what the rest of the model lineup will look like.

The technical specs speak for themselves: 800V architecture, a range of up to 800 km ( , WLTP) in the top-of-the-line version, and 300–400 kW charging. Compared to the previous generation of eDrive, this represents a 10% reduction in weight, a 40% decrease in energy losses, and a 20% reduction in production costs. The new platform also features AI-based driver assistance systems that process data 20 times faster than the previous generation.

Demand exceeded all expectations: more than 50,000 orders in the first six months, with most customers ordering the car without a test drive—based purely on the premiere and technical data. The plant in Debrecen, designed to handle 150,000 vehicles per year, added a second shift earlier than planned.

Following the iX3, the i3 sedan (electric 3 Series) will arrive by the end of 2026, followed by the iX4 and the electric X5. BMW plans to build a total of over 40 models on the Neue Klasse platform by 2027.

EV Battle with Mercedes: BMW Leads, but Margins Lag

In one key metric, BMW clearly outperforms its German rival. While Mercedes-Benz $MBG.DE sold only 185,059 electric vehicles in 2024 (a 23% year-over-year decline), BMW delivered 368,523 electric vehicles —a 12% increase. Electric vehicles account for 16.7% of BMW’s total sales.

But when it comes to profitability, it’s exactly the opposite. Mercedes achieves an operating margin of around 10.7%, while BMW hovers at 6.3%. Stuttgart benefits from selling at higher prices—the S-Class and GLC models have significantly higher margins than comparable BMW products.

Here lies one of the strongest arguments for a potential improvement in BMW’s results: the margin gap is real and can be closed. The Neue Klasse platform should reduce the cost of producing electric cars —and this must gradually be reflected in the margins.

"The new Neue Klasse platform will bring significant improvements in production efficiency, which must be reflected in margins. The only question is when."

Horst Schneider, HSBC analyst

A valuation that seems unrealistic

Let’s look at the numbers objectively.

• BMW P/E ratio: approximately 6-7x at the current price of around EUR 70

• Sector average P/E: 18-28x depending on methodology

• Dividend yield: over 6% per year

• Analyst consensus: average price target of 91–92 EUR, range of 69–108 EUR, “Moderate Buy” rating

Discounted free cash flow and various valuation methods indicate a fair value in the range of EUR 110–145, with more aggressive estimates going higher. But these are models—and models are only as good as their assumptions.

The market appears to be pricing in a combination of factors: continued erosion in China, weak adoption of the Neue Klasse, and persistent tariff pressure. Given this combination, the analysts’ pessimistic target—around €69—would make sense.

However, if at least some of those assumptions turn out to be overly negative—and initial data from the iX3 suggest that the Neue Klasse has performed better than expected—then there is significant room for the stock to be revalued.

Where are the real risks

The Chinese market isn’t dead, but it’s a bit different from the European one. Domestic manufacturers there aren’t just winning on price today— they’re investing in software integration, AI, and hybrids in a way that BMW can’t keep up with in real time. If this trend continues, BMW will remain a smaller player in the world’s largest market than it has been.

The trade war is unpredictable. BMW has part of its production in the U.S. (the Spartanburg plant), but global logistics remain vulnerable. Every round of escalation adds uncertainty to the calculations, which deters investors.

And then there is the pace of change in electromobility in general. The Neue Klasse is a bet that BMW will navigate this decade of the electric revolution with technological credibility. The iX3 suggests that so far, it’s working out. But by 2027, when the platform covers the entire model range, a lot could change.

In recent weeks I’ve added several companies focused on power generation and nuclear energy to my watchlist. While media headlines are still dominated by artificial intelligence, cloud services and semiconductors, I’m increasingly looking one rung lower in the whole chain.

Every AI model, data center, factory, electric vehicle, robot or cloud service ultimately depends on one thing: electricity.

The world continues to digitize, automate and electrify. At the same time, AI data centers are consuming ever larger amounts of energy. Demand is further driven by electric vehicles, heat pumps and industrial electrification. Unlike many other commodities, electricity has no real substitute in the modern economy.

From this comes a simple but, in my view, very strong investment thesis: if long-term electricity demand grows faster than supply, companies involved in power generation, nuclear fuel and energy infrastructure could be among the main winners in the years ahead.

That’s why I’ve added a few interesting names to my radar.

Nano Nuclear Energy ($NNE) I currently have set with a planned entry around 26 USD. It’s one of the most speculative companies on my list. The company focuses on developing small modular reactors (SMRs), which could significantly change the energy landscape if they succeed. If this technology gains traction, the growth potential could be enormous. On the other hand, most of the current valuation is based on expectations. Commercial deployment is still distant, regulatory processes will be demanding, and the risk of failure remains high.

Centrus Energy ($LEU) I’m watching with a planned entry around 168 USD. The company occupies a very specific position in the nuclear fuel supply chain. It specializes in uranium enrichment, an area gaining importance especially as Western countries try to reduce dependence on Russian supplies. If nuclear power truly experiences a renaissance, enrichment capacity could become a very valuable asset. The risks remain high sensitivity to political decisions and the cyclical nature of the sector.

To me the simplest investment story in the group is Constellation Energy ($CEG). The company operates one of the largest fleets of nuclear power plants in the United States and already generates stable cash flow today. While many companies benefit indirectly from the AI boom, Constellation provides something data centers cannot function without—stable, continuous electricity. The advantage is an established and profitable business. The downside is that investors are increasingly aware of this story and expectations are significantly higher than a few years ago. I plan to enter at 260 USD.

I also have Vistra ($VST) on my watchlist with a planned entry around 144 USD. The company combines traditional and renewable energy sources and benefits from rising electricity demand in energy-intensive regions. Compared to pure-play nuclear names it offers greater diversification and lower technological risk. On the other hand, it’s more exposed to electricity price developments and broader market conditions.

My investment approach for the coming days:

Some of these stocks are already trading below my originally set entry levels. Still, I’m in no rush. I currently prefer to wait for a calming of market volatility before I start building new positions. One indicator I follow is the VIX index, which helps gauge market stress and investor sentiment.

If volatility remains elevated, even high-quality companies can trade at even more attractive prices.

Patience is also an investment position.

My long-term thesis remains simple: the world will need more electricity, not less. The question isn’t whether demand will grow, but which companies will be able to extract the most value from it.

What are your favorite stocks related to power generation or nuclear energy? Do you prefer power producers, nuclear fuel suppliers, or more speculative opportunities around SMR technologies?

You can find an English version of this post on my eToro profile. If you want to follow me there or potentially copy my USD portfolio, I’d appreciate it!

The return to profitability surprised analysts

The company released its third-quarter results, which significantly exceeded Wall Street expectations. Cracker Barrel reported net income of $42.8 million, or $1.90 per share. Adjusted earnings reached $0.29 per share, while analysts had expected a loss of $0.48 per share.

Although revenue fell slightly year-over-year from $821 million to $797 million, it still exceeded market estimates, which had projected approximately $777 million. However, investors were most pleased by the improved full-year outlook. Management raised its revenue forecast to $3.27 billion to $3.3 billion and also increased its adjusted EBITDA estimate to $120 million to $125 million.

A Turnaround After a Troubled Year

As recently as 2025, the company faced significant criticism from customers. Management attempted to modernize the brand with a new logo and restaurant redesign. The customer reaction was so negative that the company eventually backed down and returned to its original identity. Criticism appeared on social media, in the media, and even among some well-known political figures.

CEO Julie Masino subsequently changed the strategy. Instead of trying to modernize the brand, the company focused on returning to what customers at Cracker Barrel $CBRL had historically valued. The company brought back some popular menu items, reinstated traditional cooking methods, and focused on improving the customer experience.

Costs Under Control

The company reduced the number of management levels, streamlined operations, and implemented a reorganization expected to yield savings of $20 to $25 million annually. This helps improve margins even as restaurant traffic remains under pressure.

In addition, average customer spending rose by more than 4% year-over-year, which helps offset the lower number of visitors. Management also stated that further efficiency-focused measures will continue throughout the coming year.

Competition and the Situation in the Restaurant Sector

The restaurant industry in the U.S. is going through a difficult period. Higher food prices, rising labor costs, and more cautious consumers are putting pressure on most restaurant operators.

Chains such as Darden Restaurants $DRI, Texas Roadhouse $TXRH, and Brinker International $EAT are trying to attract customers with a combination of loyalty programs, digital ordering, and value-driven offers.

Cracker Barrel has a specific advantage over most of its competitors. Its concept combines a restaurant with a retail store where customers can buy gifts, decorations, or regional products. This model generates additional revenue that other restaurant chains do not have. Although retail sales also declined, their performance in the last quarter was better than that of the restaurants themselves.

Management has openly admitted in the past that the brand was gradually losing relevance among customers. According to the company, a portion of its clientele never returned after the pandemic. The current strategy therefore focuses not only on cost-cutting but also on rebuilding customer relationships and returning to the brand’s original identity.

Strategic Perspective

From an investment perspective, Cracker Barrel is an example of a company trying to reverse a negative trend. Just a year ago, investors were primarily concerned with declining foot traffic, a failed rebranding, and the company’s uncertain future. Today, attention is shifting to the question of whether this marks the beginning of a longer-term turnaround.

The most positive developments are the upward revision of the outlook and the fact that the company managed to exceed analysts’ expectations by a very significant margin. The market often rewards such situations with a sharp rise in stock prices, as investors reprice future profitability expectations.

On the other hand, some risks remain. Restaurant traffic is still down year-over-year, and sales are not yet growing. Furthermore, part of the improvement in profitability was related to one-time items and cost savings. Long-term success will depend on whether the company can successfully attract customers again and stabilize revenue growth.

What to watch next

• Trends in restaurant foot traffic

• Growth in comparable sales

• Success of new menu offerings

• Further improvement in operating margins

• Pace of realizing savings from restructuring

The trend in U.S. consumer spending will also be very important. Cracker Barrel is heavily reliant on domestic customers, so any economic slowdown could once again put pressure on its results.

Cracker Barrel is currently one of the biggest surprises in the U.S. consumer sector. The company, which until recently was struggling with a decline in brand relevance and customer dissatisfaction, is now showing the first clear signs of a turnaround. Results significantly exceeded analysts’ expectations, management raised its outlook, and the stock responded with historically strong growth.

As a result, the stock has now come significantly closer to its fair value, but according to the Fair Price Index on Bulios, it still has room to reach it.

Although the company still faces challenges in the form of weaker foot traffic and a challenging environment in the restaurant sector, the latest results suggest that a return to its roots and a focus on operational efficiency are beginning to pay off.

The story is not without risk. Fixed-price contracts for both programs bring earnings volatility; the B-21 alone triggered a $477 million charge in the first quarter of 2025, and the stock has fallen over 26% from its March 2026 peak. Nevertheless—or perhaps precisely because of this—this is the type of situation where an investor with a longer-term horizon is presented with a rare opportunity to purchase decades of visible cash flows at the cost of temporary uncertainty regarding short-term margins.

Key points of the analysis

• Revenue of $41.95 billion in 2025 (+2.2% year-over-year), guidance for 2026 in the range of $43.5–44.0 billion; all four segments are growing organically at single-digit rates year-over-year; international sales grew by 20% in 2025.

• Backlog of $95.7 billion at the end of 2025 (a record) and $96 billion after Q1 2026—equivalent to 2.3 times annual revenue; 35% of this will be reflected in revenue over the next 12 months, 60% within 24 months.

• Dividend increased by 7% to a quarterly rate of $2.47 (annualized: $9.88 per share). The company has increased its dividend every year since 2003 (a 22+ year uninterrupted streak), with a 10-year CAGR of over 12%. Payout ratio relative to FCF is 42%—sustainability is solid.

• Exclusive contractor for two strategically key programs: the B-21 Raider (the only new-generation U.S. stealth bomber) and the Sentinel LGM-35A (modernization of the ground component of the nuclear triad to replace the Minuteman III). Both programs are multi-decade projects with a ramp-up phase.

• Main risk: The B-21 is still in the LRIP (low-rate initial production) phase with a fixed price—any technical or manufacturing complications will immediately translate into losses (2025 impact: –$477 million in Q1). The program’s long-term profitability depends on the final agreement on production rate terms.

Company Overview

Northrop Grumman Corporation $NOC is an American defense and aerospace contractor headquartered in Falls Church, Virginia, and one of the five largest defense contractors in the world. The company employs approximately 95,000 people and generates annual revenue exceeding $42 billion—roughly 85% of which comes from the U.S. Department of Defense (DoD) and the remainder from allied governments and civilian space agencies.

Northrop Grumman is organized into four operating segments: Aeronautics Systems (aircraft and autonomous systems), Defense Systems (strategic and missile systems), Mission Systems (radars, sensors, combat management systems), and Space Systems (satellites, rocket propulsion, space exploration). Unlike most of its defense rivals, the company does not rely on commercial customers or export contracts for more or less standardized weapons systems — its customer is overwhelmingly a single institution, and its products are typically the most complex, most classified, and strategically most significant systems in the U.S. defense arsenal.

Business and Segments

Aeronautics Systems (2025 revenue: ~$13.0 billion, 29% of total) is currently the fastest-growing segment and the one attracting the most investor attention. At its core is the B-21 Raider program—a new generation of U.S. strategic stealth bombers designed to replace the older B-1B Lancer and B-2 Spirit. Northrop Grumman is the sole contractor; the contract is comparable in nature to the F-35 for Lockheed Martin $LMT, but with the difference that the B-21 is technologically more complex in many respects. The segment also includes the production of the airframe and radar for the F-35 (supplied to Lockheed Martin), the E-2 Hawkeye early warning aircraft, the MQ-4C Triton unmanned reconnaissance system, and a growing portfolio of autonomous aerial systems (CCA – Collaborative Combat Aircraft). Q4 2025 was the strongest quarter of the year for the Aeronautics segment—revenue grew by 18% year-over-year. The downside is manufacturing losses on the fixed-price B-21 LRIP lots: in Q1 2025, the company reported a loss provision of $477 million.

Mission Systems (2025 revenue: ~$12.5 billion, 28% of total) is traditionally the most profitable segment, with an operating margin of around 13–14%. It includes radars (AESA technology for the F-35, naval combat systems), sensors, electronic warfare systems, and communication and navigation platforms. A large portion of revenue comes from classified programs. The segment has solid organic growth, supported by increasing interest from the U.S. military and its allies in modern sensor and C2 (command and control) infrastructure.

Space Systems (2025 revenue: ~$10.8 billion, 24% of total) is undergoing a transitional phase. The segment declined slightly during 2025 as some older space programs are nearing completion. On the other hand, the company is building a new backlog: in Q4 2025, it secured a contract for 18 SDA (Space Development Agency) Tranche 3 satellites, bringing the total SDA backlog to 150 satellites. Other segments include rocket propulsion (Space Launch System), the Cygnus space cargo module, and the order backlog from the National Reconnaissance Office (NRO) for classified intelligence satellites.

Defense Systems (2025 revenue: ~$8.0 billion, 18% of total) has the smallest share of revenue but solid margins and stable operating results. The flagship program is the Sentinel LGM-35A—a modernization of the ground component of the U.S. nuclear triad, aimed at replacing the Minuteman III intercontinental ballistic missiles that have been in service since the 1970s. Northrop Grumman is the sole contractor for this program as well. The program was temporarily suspended due to cost overruns (a Nunn-McCurdy breach), resumed in 2025, and in 2026, management confirmed intensified work on force planning. The segment also includes the IBCS (Integrated Air and Missile Defense Battle Command System) and ammunition—the GMLRS (Guided Multiple Launch Rocket System).

Market and Addressable Potential

The U.S. defense budget is de facto the primary market driver for Northrop Grumman—and it has been at historically high levels in recent years. The approved reconciliation bill (One Big Beautiful Bill Act, July 2025) allocated, among other things, $4.5 billion directly to expanding B-21 production capacity—a direct confirmation of the political will to accelerate and expand the program.

The geopolitical context provides a structural tailwind: Russia’s invasion of Ukraine, escalating tensions in the Pacific region, and the activity of Iran’s nuclear program have triggered unprecedented pressure from allies to increase defense spending, modernize strategic arsenals, and invest in air power. The North Atlantic Alliance has begun adjusting spending toward 2% of GDP and beyond. Northrop Grumman’s international revenue in 2025 rose by 20%—a figure consistent with the conclusion that demand outside the U.S. is accelerating.

The Golden Dome program (a next-generation missile shield, a priority of the Trump administration) could bring Northrop Grumman new contracts: the company is already testing space-based missile interceptors that could be integrated into the system. The exact scope of this opportunity remains uncertain, but it is a realistic potential catalyst exceeding the value of the current order backlog.

The total addressable market for strategic systems (bombers, ICBMs, space surveillance) is inherently oligopolistic—dozens of companies are not competing for these contracts. Northrop Grumman has established a position in this space that has no direct equivalent in the U.S. defense industry.

Competition and Market Position

In the aircraft segment, its primary rivals are Lockheed Martin $LMT (F-35, F-22) and Boeing $BA (F-15EX, B-52 Sustainment); however, there is no direct competitor for the B-21 program—Northrop Grumman has been and will remain the sole manufacturer. In the ICBM segment, the situation is identical: the Sentinel program has no alternative supplier, and a switch would be technically and politically impractical.

In the Mission Systems segment (radars, sensors), competition is fiercer: RTX (Raytheon), L3Harris, and, in certain areas, BAE Systems are competing for the same customers. Northrop Grumman holds a strong position here thanks to its technological leadership in AESA radars and extensive long-term programs (F-35 radar, AARGM-ER missile guidance system), but the market is more fragmented than in aircraft or ICBMs.

In the Space Systems segment, SpaceX (Starlink, Starship, commercial satellites) is an emerging rival, and indirectly, Boeing (SLS). In May 2026, BNP Paribas explicitly warned that a potential SpaceX IPO could put pressure on traditional defense space suppliers—this is a real risk to Space Systems’ margins over the next 3–5 years.

Northrop Grumman has three competitive advantages that reinforce one another: a monopoly position on the most strategic contracts, technological depth in the areas of classified systems (classified, SCIF-intensive programs), where the barrier to entry is nearly insurmountable, and historical manufacturing expertise accumulated over decades of work on the most complex aerospace systems.

Management and Strategy

The company’s CEO is Kathy Warden, who has held this position since 2019. Warden joined Northrop Grumman in 2008, served in leadership roles at Mission Systems and Corporate Operations, and is considered the architect of the company’s strategic focus on advanced technology and classified programs. In Q4 2025 (during an earnings call), she described the current environment as “the strongest demand environment she has experienced in her career” —which reflects both the size of the current backlog and the intensity of government demand for the B-21 and Sentinel.

In January 2026, Warden announced that, in accordance with an agreement with the Air Force, the company would begin investing in B-21 production capacity—out of its own pocket, in parallel with government funding from the reconciliation bill. Management expects this investment ($2–3 billion USD) to yield improved returns on LRIP, with a material impact on revenue and margins starting in 2027 and beyond.

In the area of financial management, an unusual turnover occurred during 2025–2026: Dave Keffer retired (February 2025), and his successor, Ken Crews, then left the company himself in February 2026 after just sixteen months as CFO. John Greene, who comes from a position outside the defense industry, has been the new CFO since January 2026. Although the double turnover in a key financial position within a short period is somewhat concerning, Warden remains consistent; the company’s strategic direction has not changed.

Financial Performance

The results of the past four years reflect a combination of long-term business health and short-term sharp fluctuations caused by loss reserves on fixed-price contracts.

Revenue has grown steadily: from $36.6 billion (2022) to $39.3 billion (2023) and $41.0 billion (2024) to $42.0 billion in 2025—a CAGR of approximately 4.7%. The outlook for 2026 projects $43.5–44.0 billion, with all four segments expected to contribute mid-single-digit organic growth.

Gross profit and margins saw a significant fluctuation in 2023: the gross margin fell to 16.7% (from 20.4% in 2022) due to increased costs from fixed-price contracts. In 2024, it returned to 20.4% and remained at 19.8% in 2025. The operating margin fluctuated similarly: 9.8% (2022), 6.5% (2023—here, the fluctuations are caused by both loss reserves and accounting adjustments), 10.6% (2024), and 10.2% (2025, with Q1 2025 burdened by B-21 commissions).

Net income mirrors this volatility: $4.9 billion (2022) → $2.1 billion (2023, -58%) → $4.2 billion (2024, recovery) → $4.2 billion (2025, stabilization). Diluted EPS follows the same pattern: $31.47 (2022) → $13.53 (2023) → $28.34 (2024) → $29.08 (2025). The outlook for 2026 anticipates diluted EPS of $27.40–$27.90—a slight decline compared to 2025, caused by B-21 investment expenditures, not a deterioration of the business.

The key point is that the company’s operating profile is fundamentally sound and stable—fluctuations in net income are generally of an accounting nature (write-downs, loss reserves for LRIP), while operating cash flow has been growing steadily over the same period.

Cash Flow and Capital Discipline

Operating cash flow increased from $2.9 billion (2022) to $3.9 billion (2023), $4.4 billion (2024), and $4.8 billion (2025). Free cash flow after capital expenditures climbed from $1.47 billion (2022) to $2.10 billion (2023), $2.62 billion (2024) to $3.31 billion (2025)—three consecutive years of FCF growth exceeding 25%. The FCF margin doubled over three years from 4.0% to 7.9%.

Capital allocation in 2025: $1.62 billion in share buybacks, estimated dividends of $1.3 billion—a total of approximately $2.9 billion returned to shareholders, i.e., ~88% of FCF. In 2024, buybacks were even more aggressive: $2.51 billion. After Q1 2026, management suspended buybacks and is focusing free capital on B-21 capex. Once the investment cycle stabilizes (likely 2027–2028), buybacks will resume.

The number of diluted shares decreased from 155.6 million (2022) to 143.8 million. (2025) – a 7.6% reduction over three years. This is a secondary positive effect that increases EPS even without organic earnings.

Balance Sheet and Debt

Northrop Grumman’s balance sheet is solid but not low-cost in terms of capital structure:

• Total assets: $51.4 billion

• Total debt: $15.7 billion (gross)

• Cash and short-term investments: $4.4 billion

• Net debt: ~$11.3 billion

• Equity: $16.7 billion

• Debt-to-equity ratio (gross): ~94%

• Net debt / EBITDA (2025): 1.57× - conservative for a defense contractor with government-guaranteed revenues

• Interest coverage (EBIT / interest): ~8× - solid

Current assets (USD 15.3 billion) exceed current liabilities (USD 13.9 billion), so liquidity is adequate. Long-term liabilities (USD 20.8 billion) are not covered by current assets—this is standard in the defense industry, where debt maturities are spread over decades.

The company’s pension fund ended 2025 with a funding ratio of 106% and a return on assets of 11.3%—effectively eliminating the need for cash contributions in the foreseeable future, which is a significant tailwind for FCF. In March 2026, a $527 million bond was repaid with cash—reducing gross debt without the need to issue new debt.

Overall, the debt structure does not pose a structural risk given the predictability of government revenues and EBITDA conversion, but a more aggressive capex phase in 2026 will put slight pressure on FCF—this must be monitored.

Valuation and Interpretation

At a share price of approximately $545 and key financial metrics for 2025:

Compared to its own history, NOC is trading at the lower end of its valuation range—in particular, P/E and EV/EBITDA are below the average of the last 5 years (historically P/E 18–23×). Compared to comparable defense players (Lockheed Martin forward P/E ~18–20×, RTX ~19–21×, General Dynamics ~17–19×), the valuation is roughly in line, but with an important caveat: these rivals do not hold a monopoly position in such specific and long-term programs.

What the company must deliver for today’s valuation to be “cheap”: Stabilization of B-21 margins and the conclusion of a production agreement with the Air Force on favorable terms, FCF of $3.3–3.8 billion in 2026–2027 according to guidance, continued organic revenue growth in the 3–5% range, and gradual conversion of the Sentinel backlog. Under these conditions, the price of $548 is significantly below fair value.

What would have to go wrong for the valuation to be “expensive”: Materially larger losses on the B-21 (write-down exceeding $1 billion), another suspension of the Sentinel program or significant cuts to the defense budget (especially strategic modernization), loss of design contracts in Mission Systems, or a sharp rise in interest rates pushing up discount factors.

Dividend - Analysis and Sustainability

Northrop Grumman’s dividend profile is one of the most stable in the U.S. defense industry.

Current dividend: Quarterly $2.47 per share (effective Q2 2026), annualized $9.88 per share. A ~7% increase was approved by the board of directors in May 2026.

History: The company has increased its dividend continuously since 2003—22+ consecutive years. The 10-year CAGR of the dividend per share is approximately 12%.

Payout ratio:

• Relative to earnings per share (2025 diluted $29.08): 9.88 / 29.08 = 34% – conservative

• Relative to FCF (2025: $3.31 billion, 142 million shares → FCF per share ~$23.3): 9.88 / 23.3 = 42% – still very safe

Total annual dividend cost with ~142M shares: approximately $1.4 billion. This corresponds to 42% of FCF for 2025 or 40% of the midpoint of FCF guidance for 2026 ($3.3 billion).

Possible one-time distortion of the payout ratio: Loss reserves for B-21 reduce accounting profit without a direct impact on FCF. If EPS in 2026 remains within the guidance range (USD 27.40–27.90), the payout ratio relative to EPS will rise to 35–36%, while relative to FCF it will remain below 45%.

Dividend policy in the context of overall capital allocation: The company has historically preferred a combination of dividends and share buybacks. In 2024, $2.51 billion went toward buybacks and $1.3 billion toward dividends (a total of ~$3.8 billion, which was more than the $2.62 billion in FCF—the company temporarily tapped into its cash reserves). In 2025, buybacks were reduced to $1.62 billion and suspended after Q1 2026. The dividend remained untouched and was increased—the board of directors thus sent a clear signal that the dividend takes priority over buybacks even during the investment phase.

Scenarios threatening the dividend:

• Unrealistic under normal conditions: Management projects FCF of $3.1–3.5 billion for 2026, with dividend costs of ~$1.4 billion—that is 2.2–2.5× coverage. The dividend would be threatened by a scenario where FCF falls below ~$2 billion on a sustained basis.

• Specific risk: If the B-21 required a series of massive loss provisions in the range of $1–2 billion annually and the company simultaneously increased capex on the B-21 to over $2 billion per year, the pressure on cash flow would be significant—but still not a direct threat to the dividend, rather to the buyback.

• Extreme scenario (unlikely): Significant defense budget cuts + technical failure of the B-21 requiring redesign → sharp drop in FCF below $2 billion → likely dividend freeze or cut.

Growth Strategy and Catalysts

Increase in B-21 production: Key catalyst. The contract to accelerate production agreed upon in February 2026 ($2–3 billion in company investments + $4.5 billion from Congressional reauthorization) creates the conditions for the B-21 to enter the full-rate production phase. Management confirmed that a material impact on revenues and margins will begin in 2027. Warden indicated that revenue from the B-21 could exceed 10% of total sales—i.e., potentially $4.5 billion+ from a single program alone. Once the B-21 enters stable production at agreed-upon prices, the fixed-price exposure will translate into a leverage effect on margins.

Sentinel ICBM (LGM-35A): The program resumed full operations following the Nunn-McCurdy re-baselining. In 2026, management confirmed intensive work on the design of the propulsion systems. Sentinel will replace the Minuteman III at least through the late 2030s, representing a contract worth hundreds of billions of dollars over its lifecycle. Improvements in Sentinel margins are another potential catalyst once program risk is reduced.

Golden Dome (missile shield): Northrop Grumman is testing space-based missile interceptors. This is a very early stage, but the size of the potential contract is enormous; the company is in the competition and possesses the relevant technology.

International expansion: Revenue outside the U.S. is projected to grow by 20% by 2025. Allied militaries—particularly Japan, Australia, the UK, and NATO’s southern flank—are investing in modernization, in which Northrop Grumman technologies (radars, sensors, autonomous systems) play a key role.

Collaborative Combat Aircraft (CCA): Unmanned escort fighter aircraft designed to extend the capabilities of piloted fighter jets. Northrop Grumman is competing with Boeing and others. The contract is potentially worth billions and is just getting started.

Investment Scenarios

Optimistic scenario (~20–25% probability, 18–24-month horizon)

The B-21 program is accelerated without further cost overruns, and the production contract is negotiated on favorable terms. FCF will reach $3.5 billion in 2026 and exceed $4 billion in 2027 as the B-21 and Sentinel enter a more stable phase. Golden Dome will bring in its first order. International sales are growing by 15%+ annually. 2027 revenue: ~$47–48 billion, EPS $33–36, FCF ~$4.0–4.5 billion. Revaluation of the multiple to 22–24× P/E, supported by improved visibility on B-21 margins. Potential price: $720–860 (approx. +31–57% from $548).

Realistic scenario (~50–55% probability, 12–18-month horizon)

2026 FCF in line with outlook (USD 3.1–3.5 billion), earnings per share USD 27.40–27.90. The backlog will remain above $95 billion; the B-21 will not generate significant new commissions. The fair value of $685 will become the gravitational center; the stock will gradually return to the $620–680 range. Dividend increased at a rate of ~7–8% per year. Potential price: $620–680 (approx. +13–24% + dividend).

Pessimistic scenario (~20–25% probability, 12–24-month horizon)

B-21 brings a massive new loss reserve (over $500 million), Sentinel slips back into redesign. The defense budget is under political pressure (debt ceiling crisis, new round of DOGE). FCF 2026 falls below $2.5 billion, earnings per share $22–24. The multiple contracts to 14–15× P/E. The buyback remains suspended. Potential price: $310–360 (approx. -35–43% from $548). The dividend would likely not be cut in this scenario, but the reinvestment logic would change significantly.

Key takeaways from the article

• What the company does: Northrop Grumman is a defense contractor specializing in strategic systems (B-21 bomber, Sentinel ICBM), space technologies, and advanced sensor systems—a company with a monopoly on the U.S. military’s most sensitive contracts.

• Why it’s an attractive investment: A $96 billion backlog (2.3× annual revenue) provides exceptional revenue visibility for the next 2–3 years. FCF has grown by 25%+ for three consecutive years, while the dividend continues a 22-year streak of increases. The stock is trading at a 25% discount to Morningstar’s fair value of $685 at a TTM P/E of ~17×.

• Catalysts: B-21 production ramp-up, finalization of the production contract with the USAF (impact on margins starting in 2027), Sentinel program renewal, Golden Dome, international expansion.

• Key risks: Fixed-price contracts (any technical complication = immediate loss), dual dependence on the political will of a single customer (the U.S. government), capex-heavy phase in 2026–2027, and CFO transition with a newcomer to the industry.

• Dividend: A yield of ~1.8% ($548) doesn’t look appealing as a main selling point, but a 22-year streak of uninterrupted increases and a payout ratio of 34% relative to EPS / 42% of FCF is a sign of financial discipline and sustainability—this is a dividend that grows with the stock price, not stagnates.

• Role in the portfolio: A defensive industrial stock with elements of a long-duration growth story. Suitable for investors with a 3–5-year horizon seeking a combination of robust FCF, controlled debt, and exposure to government defense spending independent of the economic cycle. This is not a high-yield story or a fast-growth stock—it is systematic value creation supported by monopoly contracts.

• Key question for the next 12 months: Whether the company will meet its FCF guidance (USD 3.1–3.5 billion) in 2026 without significant new B-21 commissions. If so, there is realistic potential for a re-rating toward fair value.

The company announced a record $39 billion in orders for AI servers and remains one of Nvidia’s $NVDA most important partners in the data center sector. However, it wasn’t demand that worried investors. The company announced a plan to raise up to $7 billion through new shares and convertible securities, which sparked concerns about significant dilution for existing shareholders. As a result, the stock lost nearly 8% in a single day and is falling another 8.6% today before the market opens.

Record Demand for AI Servers

Over the past two years, Super Micro has become one of the major winners of the AI revolution. The company supplies complete server solutions equipped with state-of-the-art chips from NVIDIA, which are used by data centers, cloud companies, and artificial intelligence providers.

The latest announcement revealed that the company currently has orders totaling approximately $39 billion from more than twenty customers. This backlog represents one of the largest order backlogs in the company’s history and confirms that demand for AI infrastructure remains exceptionally strong.

Why are the shares falling?

It is precisely this enormous growth that is creating a new problem for the company. The company needs a massive amount of capital to purchase components, processors, memory, and graphics accelerators even before customers take delivery of the final systems.

Management has therefore announced a comprehensive financing plan totaling up to $7 billion. The package includes:

• the issuance of new common stock worth $1.25 billion,

• the issuance of $3.75 billion in convertible preferred stock,

• a program for the gradual sale of shares worth up to $2 billion.

It is precisely these new shares that pose a problem for investors. If the company issues more shares, current shareholders will own a smaller share of the company’s future profits. This process is known as shareholder dilution, and the market typically reacts negatively to it.

Negative cash flow reveals the other side of the AI boom

Although revenue is growing at a record pace, Super Micro burned through approximately $6.8 billion in free cash flow last year. The reason is not operational problems, but rather the speed of growth.

The company must pre-finance production and purchase expensive components in large volumes. The faster the number of orders grows, the greater the pressure on working capital.

This problem is not unique to Super Micro. Other companies tied to AI infrastructure are experiencing similar pressure as they strive to keep up with record demand for computing power.

Margins remain a sensitive issue

Historically, Super Micro has operated with significantly lower margins than, for example, Nvidia. While Nvidia sells high-end chips with a gross margin exceeding 70%, Super Micro primarily acts as a server solutions integrator.

In recent quarters, the company’s gross margin has been under pressure due to high component prices and an aggressive competitive environment. Although it has recently improved from approximately 6% to nearly 10%, analysts are still debating whether this trend is sustainable in the long term.

Competition and Market Position

AI infrastructure is not just a Super Micro story today. Companies such as Dell Technologies $DELL and Hewlett Packard Enterprise $HPE are also growing significantly.

Dell has reported record AI server orders in recent quarters, and its backlog has surpassed historical highs. HPE, in turn, is benefiting from growing demand for enterprise data center solutions.

Investors are therefore increasingly comparing whether Super Micro’s valuation is more attractive than that of its competitors, given its margins and financing risks.

According to the fair price on Bulios, $SMCI shares remain overvalued even after yesterday’s drop. However, if the market opens today with a loss of over 8%, as it currently appears in the pre-market phase, the current price could come significantly closer to that fair value.

Strategic Perspective

The current stock decline does not mean the company is falling apart.

The company still has a record order backlog, operates in one of the fastest-growing segments of the technology market, and benefits from the ongoing expansion of AI data centers.

However, the market is now grappling with the question of whether growth will justify the costs associated with it. Investors today are not only evaluating the number of orders but also the company’s ability to finance expansion without significantly harming existing shareholders.

What to watch next

• the development of gross margins,

• the pace at which the backlog is converted into actual revenue,

• the impact of the planned stock offering,

• cash flow trends,

• new orders related to the Nvidia Blackwell and Vera Rubin platforms.

Overall sentiment surrounding AI infrastructure will also be a key factor. The recent sell-off in tech stocks has shown that investors are increasingly sensitive to valuations and the capital needs of companies operating in this sector.

Super Micro $SMCI remains one of the most prominent players in AI infrastructure, and its record $39 billion backlog confirms that demand for its servers is not waning. However, the current stock decline is reminding markets that rapid growth isn’t always automatically good news for shareholders.

Wall Street is now primarily focused on the cost of this growth. If the company manages to convert its record orders into profitable growth while stabilizing cash flow, the current decline may prove to be temporary. However, if the need for additional capital continues to grow, stock volatility may persist in the coming quarters.

When a company generates more cash than it can meaningfully invest in its growth, it essentially has two ways to return it to shareholders. The first is a dividend; the second is a share buyback. While dividends are highly visible and regular, buybacks tend to be less conspicuous; however, they can be all the more valuable to a long-term investor. This is because they reduce the number of shares in circulation, so that each remaining share represents a slightly larger stake in the company and its future profits.

The metric that captures this effect is the buyback yield. It is the value of repurchased shares relative to the company’s market capitalization. The key point is that reputable data sources calculate it as a net figure, i.e., after deducting newly issued shares. This is because a company may buy back shares on one hand, but simultaneously issue new shares on the other, typically as compensation for management and employees. If new issuances outweigh buybacks, the net buyback yield is negative, and the number of shares increases despite the buybacks. It is precisely this nuance that distinguishes companies that are actually returning capital from those that are merely using buybacks to mask dilution.

Following the era of cheap money, when growth was the primary focus, investors are now paying closer attention to how companies handle their profits. An active and well-funded buyback program is often seen as a signal that management considers its own shares to be undervalued and, at the same time, has enough cash to afford the buyback.

Walt Disney $DIS

Walt Disney has gone through a challenging period of restructuring its streaming business, and a return to capital discipline is now at the core of the company’s direction. In fiscal year 2025, which ended in late September 2025, the company reported revenue of $94.4 billion, and net income jumped to $12.0 billion from the previous $7.6 billion, thanks in part to the elimination of losses in streaming. Adjusted earnings per share rose by 19%.

The most important news for shareholders, however, came in the outlook. For fiscal year 2026, Disney is targeting $7 billion in share buybacks, double the $3.5 billion repurchased in fiscal year 2025. This is the second-highest annual plan in the company’s history. With a market capitalization of around $180 billion, this target corresponds to a forward buyback yield of approximately 4.1%. On a trailing basis—that is, based on buybacks actually executed over the past year—the figure is currently lower, at around 2.6%, precisely because a large portion of the program has yet to be carried out.

How the buybacks are financed

The key point is that the buyback is not financed by debt, but by free cash flow. Management expects operating cash flow of around $19 billion and capital expenditures of $9 billion for fiscal year 2026, leaving roughly $10 billion in free cash flow. The company will use this to cover both the buybacks and a dividend of approximately $2.6 billion. Meanwhile, Disney has raised its dividend for 2026 by 50% to $1.50 per share, so this is not a situation where buybacks are being made at the expense of other forms of capital returns.

The decision to prioritize aggressive buybacks over an even more significant dividend increase is a strong signal in itself. Management is essentially saying that it considers the stock to be undervalued. Disney is currently trading in the $100 range, very close to its fair value.

Risks

Disney is undergoing a generational leadership transition, with Josh D’Amaro replacing Bob Iger as CEO and former Morgan Stanley $MS CEO James Gorman taking over as chairman of the board. A change at the top always carries the risk of uncertainty regarding strategy. Moreover, the $7 billion buyback is a target, not a commitment, and if cash flow falls short of expectations, the company may slow down the program. Overall business growth remains in the single digits, so the return on buybacks hinges on whether Disney can maintain profitability in streaming and parks.

Chubb $CB

Chubb is one of the world’s largest providers of insurance and reinsurance and is among the companies for which returning capital to shareholders is a long-standing part of its DNA. Unlike Disney or Visa, this is not a strategy of rapid growth, but a stable profit generator with a global reach across both commercial and personal insurance. It is precisely this predictability that makes buybacks at Chubb a reliable, albeit at first glance less conspicuous, driver of value.

For fiscal year 2025, the company returned a total of $4.91 billion to shareholders. Of that, $3.39 billion came from share buybacks, executed at an average price of roughly $282.6 per share, and $1.52 billion from dividends. With a market capitalization of around $125 billion, the volume of buybacks corresponds to a trailing buyback yield of exactly 3%.

The pace of buybacks continues to accelerate

A look at the latest data also shows an acceleration. In the first quarter of 2026 alone, Chubb repurchased approximately 3.5 million shares—about 0.9% of all shares—for $1.14 billion. If the company were to continue at this pace for the entire year, the annual buyback volume would approach $4.4 billion, corresponding to a buyback yield of around 3.5%. Added to this is the dividend that Chubb pays, currently $0.97 per share per quarter (now $1.02), which is expected to increase further. Furthermore, the company is operating under an approved $7.5 billion buyback program, so it has room to continue.

Risks

The main risk for Chubb is not related to buybacks but to the insurance industry cycle. The company itself points to weakening pricing in property and casualty insurance and has not renewed some of its large accounts, suggesting that the market is entering a softer phase in terms of rates.

Furthermore, high losses from natural disasters can weigh on results in individual quarters. While buybacks are reliable, their future pace depends on whether the insurer can maintain strong underwriting margins even in a less favorable environment. Furthermore, following strong growth, the stock is trading near historic highs. However, according to the fair value on Bulios, it remains significantly undervalued.

Visa $V

Visa is the world’s largest payment processor, and its business model is among the most profitable in the entire market. The company earns money on every transaction processed through its network without bearing the credit risk of the payments themselves. The result is extreme margins and a massive amount of free cash flow, which Visa has long returned to shareholders primarily through share buybacks.

For fiscal year 2025, which ended in September 2025, Visa repurchased approximately 54 million shares for $18.2 billion, at an average price of $335 per share. Total capital returns, including dividends, reached $22.8 billion for the year. The net buyback yield is 3.44%.

Acceleration of buybacks and a new $20 billion program

The current pace has accelerated significantly. In the second fiscal quarter of 2026 alone, which ended in late March, Visa repurchased approximately 25 million shares for $7.9 billion. Together with dividends, it returned $9.2 billion to shareholders in a single quarter. If the company were to continue at this pace, the annualized volume of buybacks would approach $30 billion, which, with a market capitalization of around $640 billion, would mean a buyback yield well above four percent. In April 2026, the board of directors also approved a brand-new multi-year buyback program worth $20 billion.

Strong results also supported the acceleration of buybacks. In the second quarter of fiscal year 2026, Visa increased net revenue by 17% to $11.2 billion, the fastest growth since 2022. The dividend remains relatively low, at around a 0.7% yield, as the focus of capital returns clearly lies on buybacks. What is worth noting is the exit of Berkshire Hathaway, which has completely divested from both Visa and rival Mastercard $MA as part of a broader portfolio reshuffle.

Risks

Regulatory pressure on the level of interchange fees is a constant issue for payment networks, and any interventions could have a negative impact on margins. In the long term, the company faces competition from new payment methods and so-called agency trading, in which it is itself investing. Furthermore, Visa’s valuation is among the highest in the market, making the stock sensitive to any slowdown in transaction volume growth. However, Visa’s buybacks are among the best-funded and most stable of the three.

Comparison

In absolute terms, Visa is clearly the most active buyer of its own shares, having repurchased $18.2 billion worth of shares over the past year and aiming even higher. Disney offers the most significant percentage increase thanks to a doubling of its program, while Chubb represents the most stable, albeit slowest, option.

Strategic Perspective

Share buybacks alone are not a reason to buy a stock. Their value to an investor arises only if the company buys back shares at a reasonable price and, at the same time, has a healthy business that finances the buybacks from its own cash, not from debt. From this perspective, Visa is the clearest example, as it repurchases shares from an exceptionally profitable business model and easily finances its buyback programs. Disney is a bet on a turnaround and on the fact that management is buying back its own shares when it considers them cheap. Chubb, on the other hand, is a conservative choice for an investor seeking a stable return on capital from a defensive sector.

At the same time, a word of caution applies. The high pace of buybacks at both Visa and Chubb is based on the last quarter and may not be sustained throughout the year. For Disney, the $7 billion target is contingent on meeting the outlook. Moreover, buybacks make the most sense when the stock is undervalued. However, every investor must assess this for themselves.

The problem is the market didn’t exactly celebrate it on Monday — the shares fell nearly 2%. And honestly, that doesn’t seem irrational to me. Apple didn’t present anything that was technologically revolutionary. Google Gemini on Pixels and Samsungs can do comparable things. OpenAI and Anthropic have models that are ahead in raw performance. Apple is betting that a combination of privacy, ecosystem, and native integration will beat raw performance — and that’s a legitimate wager, but we’ll see the result in 12–18 months, when these devices are in the hands of tens of millions of people. For now, it’s mainly a promise.

The investment thesis is more complex than it appears at first glance. NIO has ceased to be the story of a single premium brand with thin margins and has become a company with three distinct brands targeting three different market segments: NIO (premium segment above 400,000 CNY), ONVO (family mid-market), and FIREFLY (premium compact vehicle). At the same time, it owns a battery-swapping infrastructure, in which it has invested over 18 billion yuan, and is building its own chip and AI ecosystem. The key question remains, however: is this strategy sustainable in the increasingly intense competitive environment of the Chinese EV market, where BYD is aggressively rolling out ultra-fast charging as an alternative to battery swap technology?

KEY ANALYSIS POINTS

• Double-digit YoY revenue growth: Q1 2026 revenue of $3.70 billion (+112.2% YoY) is not the result of a weak base—it reflects genuine volume growth and a shift in the product mix toward higher-priced models.

• Margins at an all-time high: Avehicle margin of 18.8% in Q1 2026 (vs. 10.2% in the same quarter last year) indicates that the ES8, as the flagship model, is indeed delivering economies of scale and a favorable product mix.

• The three-brand strategy is working: ONVO delivered over 38,000 vehicles in Q4 2025; FIREFLY managed 19,000 units in its first full quarter. The multi-brand approach expands the addressable market without cannibalizing the premium segment.

• First GAAP profit in history (Q4 2025): Net profit of $40.4 million in Q4 2025 is a psychologically and fundamentally key milestone—NIO had reported quarterly losses throughout its entire existence.

• The Q2 2026 outlook is ambitious but realistic: Management expects 110,000–115,000 deliveries (+52–60% YoY) with revenue of CNY 32.8–34.4 billion. The new ES9 and ONVO L80 models are the main growth drivers.

• Liquidity is solid but not comfortable: Total financial assets exceeded CNY 48 billion as of March 31, 2026, of which cash and cash equivalents amounted to CNY 8.8 billion. Debt is roughly offset by liquid assets.

• Valuation remains low on a forward basis: With a market cap of ~$14 billion and estimated 2026 revenue of around $18–19 billion, NIO is trading at less than 0.8x P/S—significantly below global EV manufacturers.

What has changed at the company

As recently as early 2025, NIO $NIO was viewed as a company under existential stress. Gross margins hovered in the low single digits, quarterly losses exceeded $1 billion, and the question of whether the company would be able to survive without further dilution was entirely legitimate. The Altman Z-score hovered below –1 (distress zone). Today, the picture is different—though not without its shadows.

A major turning point came with two concurrent changes. First, the product mix shifted toward higher margins: the revamped ES8 became the dominant player in the large SUV segment above 400,000 CNY, and its economics improve with every additional thousand units delivered thanks to economies of scale. Second, management has introduced real cost discipline: R&D expenses in Q1 2026 fell by 40.7% year-over-year, and SG&A by 20.5%. Management has committed to keeping R&D at CNY 2.0–2.5 billion per quarter and SG&A below 10% of revenue—these are specific, measurable targets, not general statements.

The third change is the company’s architecture itself. NIO has transitioned from a single premium brand model to an ecosystem of three autonomous brands sharing a technological core (battery swap, smart driving, chips). This represents a fundamentally different capital and market logic—and the market has not yet fully recognized its value.

How this translates into revenue

The basis for monetization is straightforward: vehicle sales account for approximately 89% of revenue. The remaining ~11% comes from ancillary sales (energy solutions, insurance, service, used cars). The key to profitability is not just volume, but the margin structure on each vehicle.

A vehicle margin of 18.8% in Q1 2026 roughly corresponds to Tesla’s $TSLA level in 2021—though NIO achieves this in the Chinese market, where price competition is far more intense. This margin is driven by three factors: (1) a favorable product mix (the ES8 and ES9, priced above 400,000 and 500,000 CNY respectively, carry significantly higher margins than the fleet average), (2) reduced supply chain costs thanks to in-house development of key components (Shenji’s proprietary chips, proprietary smart-driving stack), and (3) operational leverage —with higher volume, fixed production costs are spread across more vehicles.

TheBattery-as-a-Service (BaaS) model allows customers to purchase a vehicle without a battery and pay a monthly subscription fee for access to the battery swap network. This model generates recurring revenue and lowers the vehicle’s upfront price—but at the same time burdens NIO with the capital intensity of the infrastructure. The swap network as a profitable segment is still a distant goal; management is talking about a target of a 20% margin on sales by 2026.

Key point: NIO is not a cheap car. The ES8 costs over 400,000 CNY (~$55,000), and the ES9 over 500,000 CNY. NIO is not waging a price war with BYD—it is deliberately distancing itself from it. This is the right strategic decision, but it means that the total addressable market in China is structurally smaller.

Main growth drivers

1. New models in H2 2026. The ES9, a flagship SUV priced above 500,000 CNY, began deliveries on May 27, 2026. This model is intended to confirm that NIO can succeed even in the absolute premium class—a segment dominated by Porsche, the BMW 7 Series, and the Mercedes EQS. CEO William Li has described the ES9 as “the new benchmark for premium executive SUVs.” It is a highly asymmetrical bet.

2. ONVO as a volume driver. The ONVO brand, targeting families with the L60 and the new L80 (launching May 15), generates volume in the highly competitive 200,000–300,000 CNY segment. In Q4 2025, ONVO delivered over 38,000 vehicles, and in May 2026, over 12,000 (+91.5% YoY). The L80 is ONVO’s first 5-seat large family SUV—and it’s a direct competitor to Li Auto and BYD Denza.

3. Scaling the battery swap infrastructure. The fifth generation of swap stations compatible with all three brands of the NIO Group will be deployed starting in Q2 2026. Each station can handle over 480 swaps per day. During the 2026 Chinese New Year, the network handled over 2 million swaps. The growing installed customer base (over 1.14 million cumulatively as of May 31, 2026) is an increasingly valuable asset for the swap business.

4. AI and Smart Management. The NIO World Model (NWM) will receive updates for all vehicles across all three brands in June 2026. The proprietary 5nm automotive chip is in mass production. Subsidiary Shenji (chips) secured CNY 2.257 billion in funding at a valuation exceeding CNY 8 billion. The technology layer—chips, AI, and the cloud—is an increasingly important differentiator in the Chinese EV market, and NIO is actively building it in-house.

Market Position and Competitive Landscape

The ES8 was the best-selling model in China for five consecutive months in the large SUV segment above CNY 400,000—across all fuel types. It reached 90,000 units in just 195 days since its relaunch. In absolute terms, NIO is able to compete with traditional luxury brands. This is a significant shift from the situation two years ago.

In the context of the Chinese market as a whole, NIO’s results for April 2026 (+22.8% YoY) are remarkable: BYD reported –15.5% YoY in April, XPeng –11.5% YoY, Li Auto was effectively stagnant. NIO is growing where others are stagnating or declining.

But there is an important nuance: BYD and NIO do not compete directly. BYD dominates the volume segment; NIO operates in the premium class. NIO’s direct competitors are rather Li Auto, Xpeng, Zeekr, and Aito (Huawei/Seres). Li Auto is stagnating due to problems with the MEGA and the lack of a pure-electric hit model. Xpeng is recovering but still struggling with margins. Zeekr (Geely) and Aito are the most dangerous new entrants in the segment.

The biggest strategic threat is neither Li Auto nor XPeng, but BYD’s flash charging offensive. BYD plans to deploy 20,000 megawatt charging stations by the end of 2026 (from 10% to 97% in 9 minutes). If customers accept ultra-fast charging as a sufficient substitute for battery swapping, NIO’s unique differentiator weakens. CEO William Li is holding his ground for now: battery swapping is reportedly “the most convenient way to recharge,” and a swap can be completed in 3 minutes without having to wait at a charging station. The technical argument is defensible, but the consumer narrative will have to be rewritten.

What the market is pricing in correctly—and what it may not

The market is correctly pricing in: persistent losses on an annual basis. Despite significant improvements, NIO remains unprofitable on a GAAP basis for the full year (2025: net loss of $2.1 billion). The consensus expects GAAP profitability as late as 2027–2028. That’s an additional 1–2 years of uncertainty.

The market may be underestimating:

(a) The speed of margin expansion. Moving from a vehicle margin of 10% (Q1 2025) to 18.8% (Q1 2026) in 12 months is extraordinary. The consensus expects a full-year 2026 vehicle margin of ~17–18%, and management has said the same. If the ES9 increases the average vehicle price and the mix continues to shift toward premium models, there is margin upside that the market has not fully priced in.

(b) The value of the Shenji chip division. Valued at over CNY 8 billion (~$1.15 billion) following the recent financing, this entity represents value that is virtually absent from NIO’s market capitalization (~$14 billion). If Shenji pursues a standalone listing—as speculated—this represents hidden value.

(c) Infrastructure swap as “tollroad”-class assets. 3,753 stations with a CNY 18 billion investment have the potential to generate recurring revenue when fully utilized. At current P/S valuations, the market virtually ignores this infrastructure.

Figures supporting the thesis

Valuation: what’s in the price and what isn’t

At a share price of ~$5.50 and a market capitalization of approximately $14 billion, NIO is trading at a trailing P/S of ~1.1x (2025 revenue: $12.5 billion) and a forward P/S of ~0.75–0.80x based on estimated 2026 revenue of around $18–19 billion (the analyst consensus projects full-year revenue of ~CNY 130 billion, i.e., ~$18.8 billion). In its update following the Q1 2026 results, Morningstar set the fair value at $6.50, which corresponds to 0.9x 2026 P/S, and classifies the stock as undervalued.

Of the 26 analysts tracked by S&P Global, NIO has a Buy consensus with an average target price of $6.72–$6.94. However, the range is significant: the lowest target is $4.01 (Barclays, Underweight) and the highest is $9.03. This dispersion alone tells us something important—the market does not agree on the fundamental thesis.

An upward re-rating could occur if NIO achieves full-year non-GAAP operating profitability in 2026 (as management promises) and if Q2 delivery guidance is met or exceeded. In such a scenario, the company could transition from a “turnaround story” to a “growth story”—and with that would come a different class of investors and higher valuation multiples.

A downward rerating will occur if the vehicle margin in H2 2026 falls below 17% (management warns of input cost pressures starting in Q2), cash burn accelerates the need for another share issuance (shares outstanding rose by 10.6% over the year), or if the ES9 fails to achieve expected volumes in the premium segment.

Risks

BYD ultra-fast charging vs. battery swap moat

BYD plans to deploy 20,000 megawatt charging stations by the end of 2026 (10% → 97% in 9 minutes). If the market accepts flash charging as a sufficient alternative, NIO’s key differentiator will be structurally weakened—and with it, the justification for the CNY 18 billion investment in the swap network. NIO’s CEO stands behind battery swapping, but the technological argument is harder to communicate to consumers than the “9 minutes” figure.

Annual GAAP profitability remains a distant goal

Although Q4 2025 was the first profitable quarter in history, the full year 2025 ended with a net loss of $2.1 billion. The consensus expects GAAP profit no sooner than 2027–2028. A two-year horizon of uncertainty is too long for many investors—especially in light of the increasing number of shares.

Dilution and Capital Intensity

The number of shares outstanding increased by 10.6% in one year (to 2.5 billion). The infrastructure swap requires constant capital expenditures (~$867M CapEx for 2025). Free cash flow was negative (–$439M). If growth slows or margins disappoint, there is a risk of further capital increases and erosion of value per share.

April slowdown in deliveries—a signal or noise?

April deliveries (29,356) were significantly below March’s pace (35,486) and below expectations. The stock reacted with a –7.5% drop. Management attributed the decline to a temporary effect during the transition to new models, and May (37,705) confirmed an acceleration. However, it is important to monitor whether the April shortfall will recur in other months as a structural pattern.

Geopolitical Risks and Tariffs

NIO sells in Europe and the Middle East through FIREFLY. An escalation of tariffs by the EU or the US on Chinese EVs could limit international revenue and slow global expansion. The Chinese EV market in China itself, however, remains the primary target.

Input cost pressures in H2 2026

Management explicitly highlighted an increase in input costs of more than CNY 10,000 per vehicle starting in Q2 2026. This is a headwind for vehicle margins in H2—yet management is maintaining its full-year guidance of 17–18%. If costs continue to rise, achieving this target may become more difficult.

Liquidity risk (short-term)

A current ratio of 0.98 (below 1) and a D/E ratio of 2.46 are concerning at first glance, but total financial assets exceeding CNY 48 billion ($6.9 billion) provide a sufficient cushion in the short term. An Altman Z-score in the distress zone remains a relevant signal until the company achieves sustained operational profitability.

Investment Scenarios (18–36-month horizon)

Optimistic scenario

The turnaround is fully confirmed

$9–$12

• ES9 reaches 5,000+ units/month and maintains a margin above 20%

• NIO achieves non-GAAP operating profitability for the full year 2026

• ONVO L80 conquers the family SUV segment, with deliveries of 20,000+ units/month

• GAAP profitability arrives in H2 2027

• Shenji chip division goes public separately, unlocking hidden value

• The market will revalue NIO to 1.3–1.5x 2027E P/S

Realistic scenario

Gradual but non-linear progress

$6.50–$8.50

• 2026 deliveries of 450–500k vehicles (+35–50% YoY)

• Vehicle margin holds steady at 17–18% despite cost pressures

• Non-GAAP operating profit for 2026 achieved

• GAAP profit expected in 2027–2028

• Stock price to rise slightly above analyst consensus of ~$7

• Battery swap remains relevant

Pessimistic scenario

Credit pressure and missed windows

$3.00–$4.50

• ES9 disappoints: price war erodes margins in the premium segment

• BYD flash charging takes over the narrative, swap demand stagnates

• Vehicle margins fall below 15% in H2 2026

• Need for further capital increase – significant dilution

• GAAP profitability is shifting to 2029+

• Stock price falls below 0.5x P/S

What to watch next

Q2 2026 results (August 2026)

Key test: Will the guidance of 110–115k deliveries be confirmed? Will vehicle margins hold above 17%? Will non-GAAP operating profit remain positive? This is the first real stress test for the new models.

ES9 ramp-up (June–August 2026)

How quickly will the ES9 settle into 3,000–5,000+ units/month? Is this flagship truly capable of competing with the Porsche Cayenne or BMW iX? Monthly delivery data is a key leading indicator.

Customer reaction to BYD flash charging

Monitor NIO customer satisfaction surveys regarding battery swaps and any data signals indicating whether BYD’s 2nd-gen Blade Battery is influencing purchasing decisions.

FIREFLY and European expansion

FIREFLY is present in 10 European countries. The planned hybrid for the West could open new markets without EU EV barriers. Monitor registration data in Europe.

Shenji chip division (IPO or partnership?)

With a valuation of CNY 8B+ and active funding, watch for any signals regarding a possible standalone listing, chip licensing to third parties, or partnerships. These are potential value unlockers.

NWM (Nio World Model) update – June 2026

Smart driving is becoming increasingly important in the Chinese EV market. If the June NWM update receives strong user feedback, it will strengthen NIO’s overall technology narrative.

ONVO L80 ramp-up (June–September 2026)

The L80 is ONVO’s first 5-seat large SUV. Success in this segment would significantly bolster the volume aspect of the thesis. Target: 10,000+ units/month by the end of Q3 2026.

Key Takeaways

Since the beginning of 2025, NIO has experienced the fastest margin expansion in its history. Vehicle margins jumped from 10% to 18.8%, revenue doubled year-over-year, Q4 2025 brought the company’s first GAAP profit, and the three-brand strategy (NIO, ONVO, FIREFLY) is generating real volumes of over 37,000 vehicles per month. This is not marginal progress—it is a structural turnaround.

At the same time, this thesis is conditional. Full-year GAAP profitability will not materialize until 2027–2028 at the earliest. BYD’s ultra-fast charging challenges the very core of why customers choose NIO. The share count is growing, and capex remains high. The ES9 will be a key test of whether NIO can truly establish its brand in the absolute premium segment.

At a forward P/S ratio of around 0.75–0.80x on revenue expected to exceed $18 billion in 2026, the valuation is modest—but historically, this has signaled buying opportunities rather than a trap. Analyst consensus (Buy, average target ~$6.72) and institutional interest (Bank of America doubled its position) signal that smart money is beginning to take the turnaround seriously. Morningstar sees a fair value of $6.50 and classifies the stock as undervalued.

Elon Musk is reportedly in direct contact with the management of ASML $ASML regarding the TeraFab project, a massive chip fab in Texas meant to support the AI, robotics and data center ambitions of Tesla, SpaceX and xAI.

ASML is an absolutely crucial company for the entire semiconductor world. It is practically an irreplaceable supplier of the most advanced lithography machines, especially EUV, without which the most advanced chips cannot be manufactured at scale.

In other words: anyone who wants to produce cutting‑edge AI chips will sooner or later run into ASML.

📈 According to available information, the TeraFab project involves an investment of around 119 billion USD. The goal is to create domestic manufacturing capacity for advanced chips that could power Tesla's autonomous driving, Optimus robots, xAI data centers and potentially even SpaceX's space infrastructure.

The project is also expected to involve Intel $INTC , which could contribute its manufacturing technology and gain one of the most visible opportunities in the foundry business.

💡 The timing is interesting.

The CEO of ASML warned that demand for chips driven by AI, robotics and satellite technologies could face long‑term limits due to constrained manufacturing capacity. According to him, the entire semiconductor market could by 2030 grow to a value of up to 1.5 trillion USD.

And this is exactly where Musk's strategy starts to fit together.

Tesla has long ceased to be valued by the market merely as a carmaker. SpaceX is not just a rocket company. xAI is not just another chatbot project. All of these companies need enormous amounts of computing power.

⚠️ The risk, of course, is that Musk often comes up with extremely ambitious plans whose implementation tends to be costly, long and complex.

Building a cutting‑edge chip fab is not the same as building another car factory. It is a capital‑intensive project, dependent on suppliers like ASML, Applied Materials, Tokyo Electron, memory companies, the energy sector and geopolitics.

What is your opinion on this news, and how do you view the market position of Musk's companies?

If Komerční banka $KOMB.PR were operating in the US or German market, its valuation would have long ago attracted the interest of institutional investors. A return on equity of over 14%, a 100% dividend payout ratio, a strong capital position - and yet the stock trades at a P/E of around 9. This is a fairly common picture on the Prague Stock Exchange. The question is whether it lasts too long.

A bank that makes money without any big surprises

For 2025, KB posted a net profit of CZK 18.06bn - 5% more than the year before. The result was mainly driven by a net dissolution of provisions and a significant reduction in operating expenses. Total sales for the year reached CZK 36.9 billion.

Although net interest income in the fourth quarter rose by only 0.5% compared to the previous quarter - below analysts' consensus - KB compensated for this with the excellent quality of its loan portfolio. The share of non-performing loans fell to 1.6%, while the volume of corporate loans increased significantly in the last quarter (+4.3% q-o-q).

The client base grew by 42,000 customers to 2.268 million. The volume of loans increased by 6.8% to CZK 905.8 billion, deposits by 5.8% to almost CZK 1.089 trillion.

"Komerční banka's operating results remained slightly below expectations in 2025. However, thanks to the release of provisions, the bank delivered 5% year-on-year growth in net profit to CZK 18.1bn. Management has previously announced that it will pay out all of last year's profit to shareholders."

Karel Nedved, analyst at Fio banka

For the third time in a row, all profits paid out

The April 2026 AGM approved a dividend of CZK 95.60 per share - 100% of net profit for 2025. The total payout amounted to CZK 18.1bn. The dividend was paid on 25 May 2026.

This is the third time in a row that KB has distributed all of its profits to shareholders. For 2024, it was CZK 91.30 per share, and for 2023 it was CZK 82.66. The dividend yield to share price is thus close to 8% gross - well above what Czech government bonds offer.

But the total generosity is probably not over. The outlook for 2026 assumes a payout ratio of 80% of net profit. Bloomberg analysts estimate the 2026 dividend at around CZK 72-76 per share - still attractive, just a bit more sober.

Capital above regulatory requirements, digitalisation complete

KB's capital adequacy ratio at the end of 2025 is 18.6%, while CET1's core capital is 17.7%. The regulatory minimum requirement lies well below that - giving KB a comfortable cushion that gives it room to manoeuvre both for dividends and potential acquisitions.

A significant milestone was reached in the area of digitisation: KB completed a massive migration of clients to the new KB+ platform in 2025, with the app crossing the 1.5 million active users milestone. According to management, this allowed the bank to slim down its operational structure and reduce costs. Bankers' capacities, which were tied up in the migration, are now being redirected to sales - i.e. mortgages and consumer loans, where the bank plans to gain market share more aggressively.

Key financial metrics for 2025:

• Net profit: CZK 18.06 billion

• Total revenue: CZK 36.9 billion

• Loan volume: CZK 905.8 billion (+6.8%)

• Customer deposits: CZK 1.089 trillion (+5.8%)

• Capital adequacy ratio: 18.6%

• Dividend: CZK 95.60 per share (100% of earnings)

P/E below 9 and 30% upside according to analysts - but beware of risks

The analyst consensus works with an average target price of around CZK 1,088, with a high of CZK 1,190. In current trading, this implies a potential of tens of percent. Meanwhile, the distribution of recommendations is quite clear: of the 13 houses surveyed, three recommend buying, nine hold, and none sell.

The P/E valuation of around 8-9 remains well below the average of comparable European banks, where similar institutions trade at multiples of 12-15. The question is why the gap persists.

Part of the answer lies in the risks the market assigns to regional exposure. Implementation of the Basel IV regulatory framework may increase capital requirements by 1.5-2 percentage points - this would make it difficult to maintain a 100% payout ratio. The CNB's lower base rate (currently 3.5%) is gradually squeezing net interest margins as banks need to offer more competitive terms to depositors. And then of course there are the fintechs - Revolut, Wise, etc. are consistently eroding margins in the payments segment, where the younger generation naturally gravitates to cheaper alternatives.

Three big banks, one oligopoly

KB together with ČSOB and Česká spořitelna hold over 70% of the Czech banking market. The majority owner - the French group Société Générale $GLE.PA with almost 60% of the shares - ensures a stable strategic background and access to international capital markets.

This market concentration has its advantages and disadvantages. On the one hand, it limits price competition and helps maintain healthy margins. On the other hand, regulators and the new MREL (minimum eligible liability requirements) rules increase funding costs, which in turn tightens margins.

KB is performing solidly in this environment. This is not a dramatic growth story, but rather a bank that is consistently earning, delivering on promises to shareholders, and waiting for the market to reassess higher.

Numbers that would cause euphoria elsewhere

Imagine an oil company with a P/E ratio of 5.6, a dividend yield of around 9.9%, and production rising 11% to 3 million barrels of equivalent per day in 2025. Analysts call it a "Strong Buy" and the average price target hits $21. The stock, meanwhile, is trading below $18.

That's Petrobras $PBR-A - Brazil's state-owned oil giant, which is one of the world's largest oil producers, yet trades at a significant discount to rivals like ExxonMobil $XOM or Shell $SHEL.

Investors distrust Petrobras for reasons that have nothing to do with drilling or refineries.

Pre-salt: technologies that competitors envy

The key to understanding Petrobras is so-called pre-salt production - extracting oil from deposits hidden under a thick layer of salt in the deep waters of the Atlantic off the Brazilian coast. This technology, which requires drilling to depths of more than 7,000 metres below the seabed, now accounts for 81% of the company's total production.

The 2025 results are impressive: total production reached 3 million barrel equivalents per day, proved reserves rose to 12.1 billion BOE, and the refinery was operating at 93% of capacity - a ten-year high. Gasoline production broke the record set in 2014.

The pace accelerates further in 2026. First quarter production hit a record 3.23 million BOE per day, up 16% year-over-year, and the Buzios field alone surpassed one million barrels per day in a single day. Meanwhile, first quarter production has already exceeded the overall production target set for the full year 2026.

"Petrobras has demonstrated the ability to generate record results even in an environment where oil prices have fallen by 14%. Operational excellence in pre-salt areas simply gives them a structural advantage over the competition."

TipRanks analyst, May 2026 report

Financial health: debt lowest in 17 years

For 2025, Petrobras generated operating cash flow of $36 billion - even though the price of Brent crude oil has fallen 14% year-on-year. Adjusted EBITDA excluding non-recurring items was $43.8 billion, and net profit excluding non-recurring effects was $18.1 billion. The debt to EBITDA ratio is around 1.4x - still well below the company's 10-year median of 2.4x.

This trajectory continues in the first quarter of 2026. According to the Q1 2026 results, revenue rose to $23.5 billion (from $21.1 billion in the same period last year) and shareholders' equity increased to $85.3 billion.

Key metrics in numbers:

• P/E: 5.22

• Dividend yield: 9.48%

• Analyst price target: $21.37 average

• Market capitalization: $115 billion

• Breakeven oil price: approximately $59 per barrel in 2026

Why does the stock seem cheap?

Petrobras is not a classic private corporation - the Brazilian federal government holds a majority of voting rights and de facto decides the composition of the board of directors and management.

In practice, this means that the company must sometimes pursue goals other than net profit. A classic example: when fuel prices rise and the government faces political pressure, Petrobras lowers diesel prices, even though this cuts margins. It recently cut diesel prices in response to a government subsidy plan - news that immediately knocked the stock.

The second risk is currency. The Brazilian real is a volatile currency, and for a foreign investor held in dollars, any drop in the real reduces the value of the investment, no matter how well the company does operationally.

"Petrobras offers an attractive valuation and strong cash flow, but the key risks - political interference, no oil price hedges and structural debt from lease obligations - must be fully accepted by the investor."

TipRanks, earnings call analysis, Q1 2026

Expansion: 14 new platforms by 2028

Petrobras' future does not look stagnant. Management has approved a 2026-2030 capital expenditureplan of $109bn, with 71% going into exploration and production in pre-salt areas. The goal is to achieve production of 2.7 million barrels per day as the new standard by 2028 - that is, to keep this year's record as a permanent base.

The company plans to launch a total of 14 new FPSO platforms by 2028. Three will be added in 2025 alone - Maria Quiteria, Marechal Duque de Caxias and Anna Nery - with a total addition of 100,000 barrels per day.

Meanwhile, the dividend policy envisages payouts of $45-50 billion over the entire plan to 2030, funded by free cash flow, while keeping gross debt below $75 billion.

Undervaluation or trap?

Petrobras is one of those investment stories where fundamentals and market price live separate lives. A P/E below 6 for a company with that kind of cash flow and reserves would normally attract capital like a magnet. But the "Brazilian political risk discount" is a real and historically recurring phenomenon.

Those who look at this risk pragmatically - accepting state influence as a given constant and betting that fundamentals will eventually prevail - see 32% upside to a fair price and a dividend that is unmatched in the energy sector.

The company that slept through the first wave of AI

For years, Intel $INTC was synonymous with computer processors. It dominated the PC and server market, and its x86 architecture formed the foundation of the modern computing world. However, the situation began to change with the advent of mobile devices and later artificial intelligence.

While Nvidia $NVDA was able to transform its GPUs into the main engine of the AI revolution, Intel remained primarily focused on the traditional CPU segment. This was followed by several years of technological delays, loss of manufacturing dominance and increasing market dependence on Taiwanese manufacturer TSMC $TSM. In 2024, the situation culminated in the stock plunging more than 25% in a single day after the company suspended its dividend and announced sweeping cuts.

The rise of Lip Bu Tan

The turning point came with the arrival of new CEO Lip Bu Tan, who took over the company in 2025. Tan is a respected figure in the semiconductor industry due to his tenure at Cadence Design Systems $CDNS.

Under his leadership, Intel has begun restructuring, strengthening management and focusing on more effective execution of its long-term strategy. According to management, the company has been able to stabilize its financial situation and create the conditions for a return to growth.

AI doesn't have to be just about GPUs

It's about a new generation of AI systems that don't just function as chatbots answering questions, but can independently perform tasks, plan actions or collaborate with other systems.

This is where traditional processors (CPUs) are starting to become more important. While training models still requires extremely powerful GPUs from Nvidia, running large-scale AI systems often uses a combination of GPUs and CPUs. Analysts point out that the growing number of AI agents may significantly increase demand for server CPUs, an area where Intel still has a very strong position.

According to TriOrient 's Dan Nystedt, CPUs make up the majority of Intel's business, and their return to the center of AI infrastructure could be one of the main drivers of the company's recovery.

The king of AI remains intact

Although there is talk of a possible Intel comeback, it doesn't mean a weakening of Nvidia's $NVDA position. The Jensen Huang-led company still holds a dominant share of the AI accelerator market, and its Blackwell chips set the standard for training the most advanced models.

Data centers around the world are investing hundreds of billions of dollars in AI infrastructure, and most of that investment is still going to Nvidia. Thus, Intel is not seeking to directly displace Nvidia from the market, but rather to capture a larger portion of the overall AI ecosystem.

CPUs and GPUs as partners

This is not a CPU versus GPU battle. Modern data centers use both technologies simultaneously.

GPUs perform the massively parallel computations required for machine learning, while CPUs manage the operation of systems, data management and communication between components. If the number of AI applications continues to grow exponentially, both Nvidia and Intel stand to benefit.

Intel's biggest competitor

If Intel has a chance to make a comeback, it will have to face AMD $AMD first and foremost. The company, led by Lisa Su, has managed to gain a significant share of the server processor market over the past few years, and its EPYC products have become a serious alternative to Intel's solutions.

In addition, AMD has also successfully entered the AI accelerator field, where it is gradually expanding the range of Instinct chips.

It will not be enough for Intel to benefit from the growing demand for CPUs. The company must also convince customers that its products can compete on performance and energy efficiency.

A manufacturing giant that is changing the industry

One of Intel's main problems in recent years has been the loss of manufacturing dominance. While Intel has historically designed and manufactured its own chips, TSMC has gradually built a dominant position in the production of the most advanced semiconductors.

Today, it produces an estimated 90% of the world's most advanced chips, making it a key player for companies like Nvidia, AMD and Apple $AAPL.

Intel is therefore looking to rebuild its own foundry business and become an alternative to TSMC. The success of this strategy could have a major long-term impact on the company's bottom line.

Comparison with competitors

The current situation in the semiconductor sector shows some interesting trends:

• Nvidia dominates AI accelerators.

• AMD is gaining share in server processors.

• TSMC dominates the most advanced chip manufacturing.

• Intel is looking to capitalize on the return of CPU relevance and rebuild its own manufacturing capabilities.

Strategic view

Intel represents one of the most exciting opportunities in the semiconductor sector today. Unlike Nvidia, which is already prized as the dominant winner of the AI revolution, Intel's future depends primarily on the successful execution of a turnaround.

The key question is not whether AI will continue to grow. Rather, it is whether Intel can tap into the emerging demand for server CPUs while restoring its manufacturing competitiveness.

What to watch next

• The evolution of demand for server CPUs in AI infrastructure,

• The pace of agent AI expansion,

• the progress of Intel Foundry's manufacturing processes,

• market shares relative to AMD,

• new contracts with cloud service providers,

• management comments on AI strategy.

Intel's position has changed significantly over the past two years. The company, which many investors wrote off after a series of strategic missteps and technology delays, is emerging as a candidate for one of the biggest "resurrections" in the semiconductor industry.

Although Nvidia remains the dominant force in the AI revolution, the growing importance of CPUs in the next generation of agent-based AI is creating an opportunity for Intel that few saw just a year ago.

Beta measures how strongly a stock's price moves relative to the overall market. A value of 1 indicates that the title (stock) moves, on average, as much as the index. A beta greater than 1 indicates greater sensitivity and greater swings in both directions, while a beta less than 1 indicates that the stock reacts more moderately to market movements. For the investor who wants to hold quality companies in his or her portfolio, but also doesn't want to see double-digit swings every day, a beta below 1.5 is a useful filter.

A low beta does not guarantee that a stock cannot fall. It just means it has historically reacted less dramatically to market movements. Some titles have a low beta because of a stable business model, others because they are in a deep downturn and behaving differently from the rest of the market. We took a close look at 5 titles that share a relatively muted sensitivity to the fluctuations of the broader market.

Bank of America $BAC

Bank of America is one of the largest U.S. banks and its beta has been around 1.18 for a long time. This means the stock is slightly more sensitive than the market as a whole, but far from speculative titles. For the banking sector, this level is fairly typical, as bank performance is directly dependent on the economic cycle and central bank policy.

Bank of America's banking business is built on a huge and diversified base. The firm combines retail banking, wealth management, investment banking and active trading. This breadth of activities means that no single segment determines the fate of the entire firm, which dampens fluctuations. In addition, the bank serves millions of clients and its revenue base is largely predictable, especially on the net interest income side.

What is currently driving the results

The key driver today is net interest income, the difference between what the bank earns on loans and what it pays on deposits. The bank has raised its outlook for growth in this metric after strong quarterly numbers, and management is communicating continued expansion in both loans and deposits. Meanwhile, the bank trades on a price-to-earnings ratio of around 13, a rather conservative valuation in the context of the broader market. Added to this is a dividend yield of around 2%.

The main risk

Sensitivity to Fed decision. If the yield curve flattens significantly or credit growth slows, interest income growth could also slow. The bank is inherently tied to the economic cycle, so any deterioration in consumer sentiment would be reflected in the quality of the loan portfolio. While beta suggests moderate volatility, it does not imply immunity to macroeconomic cooling.

For now, however, everything looks like at least one interest rate hike will come before the end of the year, which is a positive for $BAC.

GE Aerospace $GE

GE Aerospace, the successor to the former General Electric conglomerate after its breakup, now focuses exclusively on aircraft engines and related services. The firm's beta of various ranges roughly between 1.1 and 1.4.

A business model with built-in stability

The aerospace industry has one extremely valuable characteristic: a long and predictable service cycle. An engine is not sold as a one-off, but generates revenue from maintenance, repairs and spare parts for decades of its life. This so-called aftermarket forms a significant part of the company's margin and generates a recurring, relatively stable revenue stream. It is this structure that helps dampen the company's volatility, even though demand for new aircraft is itself cyclical.

Share valuation

GE Aerospace is benefiting from a continued recovery in air travel and record demand for new engines. Shares hit all-time highs near $348 earlier this year and are currently trading around $322. Recent quarterly earnings beat analysts' estimates by more than 16%, confirming that the service business and new engine deliveries are running at high speed. However, after a share price rise of more than 85% in 2025, the fair value today is at much lower levels.

What to watch out for

The stock has gained multiple times over the past two years and market expectations are now high. If there are operational issues in the supply chain or airline growth slows, the market reaction could be felt despite a relatively moderate beta. Moreover, the aviation sector is cyclical over the long term, so the current phase of prosperity may not last forever.

SAP SE $SAP

German software giant SAP has the lowest beta ever of today's selection at 0.7-0.9. It's also the only title whose low beta partly reflects the fact that the stock is going through a significant downturn and therefore behaving differently from the rallying tech market.

The low beta

SAP has written off around 40% of its value over the past year and is trading near its yearly low. When a stock falls at a time when the broader market is stagnant or rising, its statistical correlation with the market decreases, which mathematically pushes the beta down. Thus, the low beta here is partly indicative of the title's current momentum, not solely defensive quality. This is a fundamental difference from, say, Bank of America.

The business model

The view on fundamentals, meanwhile, is surprisingly solid. SAP is undergoing a transition from a licensing model to a cloud-based subscription model, which complicates the comparison of numbers in the short term but increases the proportion of recurring revenue in the long term. In its Q1 2026 results, the company reported cloud revenue growth of 27% in constant currency, beating profitability estimates.

Risk

The question is whether the price drop is an opportunity or a warning. The market has clearly questioned the pace of the move to the cloud and the sensitivity of European software to corporate IT spending. The low beta here is not to be seen as a "safety" but as a signal that the stock has disconnected from the sentiment of the rest of the market. This can be an opportunity for those who believe the fundamentals, but it can equally portend a longer period of decline.

Analog Devices $ADI

Analog Devices is an American manufacturer of analog and mixed-signal semiconductors whose chips are used everywhere from industrial automation to automobiles to data centers. The company's beta is around 1.18, slightly above the overall market. That's unusual for a semiconductor company, as the entire sector tends to be perceived as highly volatile. For example, Nvidia $NVDA has a Beta above 2.

Why isn't the beta higher

Diversification of the end markets is key. Unlike companies dependent on a single product cycle, Analog Devices supplies many industries with different dynamics. Industrial, automotive, communications, and consumer electronics all have their own cycles that partially balance each other out. Added to this is the high proportion of long-life analog chips in customer designs, which increases revenue stability.

Current momentum

The company is riding a strong semiconductor cycle driven by AI infrastructure. Revenues for the second fiscal quarter of 2026 grew 37% year-over-year and beat the high end of guidance, and management expects further acceleration. Shares are trading around $410, near all-time highs. In addition, the acquisition of Empower Semiconductor expands its position in AI power, a fast-growing segment.

Things to consider

Valuation has reached high levels after a sharp rise, with a price-to-earnings ratio around 60. The market is therefore pricing in a continuation of the strong cycle. Meanwhile, the semiconductor industry is cyclical by nature, so if AI demand cools or overcapacity emerges, the stock's sensitivity could rise above that implied by historical beta. A high valuation increases the risk of a rapid correction in the event of any disappointment.

Interactive Brokers $IBKR

Interactive Brokers is one of the most respected electronic brokers in the world, especially popular among advanced and professional investors. With this title, however, you need to be especially careful when interpreting the beta.

Beta on the edge

While sources agree on the beta below 1.5 for the previous four firms, they differ on Interactive Brokers. Some providers list the beta around 1.25 to 1.33, while others place it higher, up to 1.70. This means that according to some calculation methodologies, IBKR would not fall into the "below 1.5" category at all. The reason for the differences is the different periods and frequencies of data used in the calculation.

Why a stock may be more sensitive

The brokerage business is inherently tied to investor activity and the state of the markets. When trading volume and volatility increases, a broker's revenue increases. When markets quieten, activity declines. This creates a natural link to the market cycle. In addition, Interactive Brokers offers leveraged products, further increasing sensitivity.

Strong fundamentals

Despite the higher sensitivity, this is an extremely high-quality firm. It reported record net sales and strong account growth in the first quarter of 2026, despite the decline in the S&P 500 index during the period. The firm's pre-tax margin stands at a respectable 77%, which is exceptional in the sector. Shares hit an all-time high near $91 in early June and are currently trading around $87. Return on equity is over 20%, which is indicative of an efficient business model.

Comparison with the market

Beta varies by source and period of calculation. Values provided are intended as a guideline range.

The table shows that SAP has the lowest beta, but it is the one that is most difficult to interpret due to the long-term decline in share price. On the other hand, Bank of America and Analog Devices have a beta that is slightly higher, but underpinned by genuinely stabilizing business characteristics.

Strategic view

A low beta is not synonymous with safety, and a high quality company does not necessarily mean low volatility. If an investor is looking for titles that dampen portfolio volatility, firms whose low beta stems from the structure of the business, i.e., similar to Bank of America in scale, GE Aerospace in service model and Analog Devices in diversification, make the most sense.

In general, beta is a useful but incomplete tool. It should be just one filter, supplemented by an analysis of valuation, business quality and cycle phase.

Beta is an indicative measure of relative sensitivity, not a guarantee of a calm investment course. Bank of America, GE Aerospace and Analog Devices represent companies whose moderate volatility is based on the structure of their business. SAP notes that low beta can also be the result of a downturn, and thus a bet on turnaround rather than stability. Interactive Brokers shows that even for a quality firm, it is important to check whether a low-beta classification will hold up at all.

It makes sense to use beta as one of the filters when putting together a portfolio, but always in combination with a look at valuation, earnings quality and the stage of the market cycle. Only then does the number become a truly useful tool.

How a market star became a controversial stock

As recently as June 2024, Novo Nordisk $NVO shares were trading at an all-time high of over $137. Today, they're trading around $43 - roughly a third of their value then. For investors who entered at the top, it's a painful lesson. For those watching the situation from afar, a different question arises: is this valuation a reflection of real problems or of exaggerated market pessimism?

The company reported sales of DKK 309.1 billion for 2025, up 6% year-on-year, net profit of DKK 102.4 billion and an operating margin of over 41%. These are numbers that most pharmaceutical companies would have signed up to even in golden times.

And yet the stock trades at a P/E of just 10.3 - more than 57% below the healthcare sector average and well below the company's own 10-year average of 26.

Wegovy vs. Zepbound

The key to understanding the sell-off is one weakness: the growing competition from Eli Lilly's $LLY and its Zepbound product. The latter shows 5% to 7% greater weight loss than Wegovy's semaglutide in clinical trials. In the US market, Lilly has managed to build a dominant position, according to available analyses, from virtually no starting point two years ago.

Meanwhile, Wegovy continues to grow: for the full year 2024, its sales reached DKK 65.1 billion, up 56% year-on-year. But even these figures have not been enough to allay investor fears about what comes next.

In early 2026, Novo Nordisk came up with an answer: a tablet form of Wegova. And so far, it looks promising. In the first quarter of 2026, the company exceeded analysts' expectations, with sales up 32% at constant exchange rates to DKK 96.8 billion. Injectable Wegovy was up 12% to DKK 18.2 billion, while tablets generated over DKK 2.26 billion in the first quarter alone, at the very start of sales. In addition, CEO Mike Doustdar reported that around 80% of users of the tablet form are people who have never taken GLP-1 drugs before - so the tablets are not competing with the injection, but expanding the overall market.

"Weg's tablet formulation appeals to patients who are afraid of needles or cannot self-inject. It's not a substitution, it's a new segment of demand."

Mike Doustdar, Novo Nordisk CEO, CNBC, May 2026

https://www.youtube.com/embed/Ujq3kSsZeeg?rel=1

Ozempic in decline, but stronger companies are surviving this too

While Wegovy is growing, diabetes blockbuster Ozempic saw its Q1 2026 sales fall 8% YoY. However, it still beat analysts' estimates. Ozempic remains the only GLP-1 drug approved to slow the progression of chronic kidney disease in diabetics - a niche indication that gives it staying power even as new competition arrives.

Still, the company maintains a strong market position: with a 33.7% share of the global diabetes treatment market (unchanged over the past twelve months), 26 million patients on insulin products and distribution in 170 countries, it is not a player that is easily replaceable.

Key financials for 2025:

• Revenue: DKK 309.1 billion (up 6%)

• Net profit: DKK 102.4 billion (+1%)

• Operating margin: 41.3% (operating profit DKK 127.7 billion)

• Wegovy: DKK 79.1 billion (+21%)

• Ozempic: DKK 127.1 billion (+6%)

• Free cash flow: DKK 28,3 billion

Pipeline as insurance: CagriSema and semaglutide in higher dose

Novo Nordisk has played two cards in the next round of the battle with Eli Lilly. The experimental CagriSema - a combination of semaglutide and cagrilintide - achieved a weight loss of 22.7% in 68 weeks in the REDEFINE 1 clinical trial. A higher dose of semaglutide 7.2 mg then led to a 20.7% reduction in another study. Both figures are close to the results of Lilly's tirzepatide, which has so far been clinically more effective.

If CagriSema makes it through more advanced phases of testing and wins regulatory approval, the company could restore technological parity - or even an advantage. In addition, UK regulator NICE recommended Wegova in April 2026 to reduce cardiovascular risk, opening the way for wider reimbursement from the health system.

Three risks that the market is not forgiving

The pessimistic outlook for Novo Nordisk is not just based on Eli Lilly. There are real threats that cannot be overlooked.

1. Starting in 2027, the U.S. government will begin directly negotiating the prices of the company's three key products - Ozempic, Rybelsas and Wegova - under the Medicare program. According to estimates, this could reduce US market revenues for the affected products by 15% to 25%.

2. The Donald Trump administration is working on a so-called Most Favored Nation pricing policy that would mandate pharmaceutical companies to offer American patients the lowest prices applicable anywhere in the world. For Novo Nordisk, whose highest sales come from the US, this would be a severe hit to margins.

3. Potential tariffs of up to 250% on pharmaceutical imports would dramatically change the cost structure of companies dependent on global production chains.

The combination of these factors explains why the company issued guidance for 2026 anticipating a decline in adjusted sales of 4% to 12%. Even so, management upgraded this forecast slightly in May 2026, from the previously announced -5% to -13%.

What does the valuation say: undervaluation or warning?

A consensus of 23 Wall Street analysts rates NVO as a Hold with an average target price of $65.56 - at the current price of around $43, that's a potential upside of over 50%.

The valuation alone is compelling: P/E of around 11, dividend yield of 3.77%, forward P/E of 13.3 versus fair value estimates of around 25.

Historically, the company has never been this cheap - it last posted similar levels during the global financial crisis in 2008.

Three scenarios for where the stock could be in two years:

• Optimistic (CagriSema gets approval, tablets strengthen globally): P/E return to 20, growth potential +50%.

• Realistic (gradual loss of Weg's share but stable diabetes division): P/E around 15-17, potential +33%

• Pessimistic (Lilly dominance over 70% of market, full impact of Medicare + tariffs): P/E below 8, downside potential -20%

The market is valuing the company closer to the pessimistic scenario at the moment - even though the fundamentals are significantly better than the valuation suggests.

Is this an opportunity for patient investors, or a signal that the market knows something the numbers haven't yet picked up? That's for each of us to answer for ourselves.

Numbers rise, stock falls - a classic case of the market wanting more

If someone had told you in January 2025 that Duolingo $DUOL would report over $1 billion in revenue and $414 million in net income for the year, quadruple the previous year, you probably would have expected the stock to fly up. But the reality is the opposite.

Duolingo closed out 2025 with $1.04 billion in revenue, a 39% year-over-year increase. Yet the stock has lost about 79% of its value over the past 12 months - from an all-time high of over $545,achieved in May 2025, it has plummeted to its current roughly $109.

How is this possible? The key is to understand what the market was buying during the euphoria and what it is seeing now.

Year 2025: boom, then a cold shower

In early 2025, Duolingo was one of the biggest stories in the US tech market. Viral campaigns, exponential user growth driven by AI features and optimism around the edtech sector drove valuations to astronomical heights.

Then came the turnaround. Growth in daily active users, which had reached 49% in Q1 2025 thanks to the "Dead Duo" viral campaign, slowed to 21% in Q1 2026 as 2026 approached. Analysts who had grown accustomed to hypergrowth numbers interpreted this as a signal of a slowdown and sold.

Yet the absolute numbers look different:

• 56.5 million daily active users in Q1 2026, up 21% year-over-year

• 137.8 million monthly active users

• 12.5 million paying subscribers

• Q1 2026 revenue: $292 million

The paradox of modern markets: the company is growing 27 percent annually and analysts assign it a "Sell" rating.

"Q1 was about execution. We said we would prioritize better learning and user growth - and that's exactly what we did."

Luis von Ahn, co-founder and CEO of Duolingo

Away from revenue maximization

Behind the stock's decline is a conscious decision by management that has not yet been greeted with enthusiasm by the market. The company's management announced that 2026 will not be about maximizing short-term revenue, but about building user engagement.

What does this mean in practice? Duolingo is purposefully expanding access to AI-powered features to free users - which reduces gross margin. The original 73% gross margin from Q1 2026 is guided to drop to around 69% in the second half of the year. Investors, used to rising margins, are reading this as a warning.

Yet there is solid logic behind this decision. More free AI tutors means higher engagement, longer time on the app, and ultimately higher conversions to paid plans. But this won't translate into results in one or two quarters.

"We're moving into 2026 from a position of financial strength - healthy profitability, strong cash position, no debt and we expect to generate over $350 million of free cash flow this year."

Gillian Munson, CFO Duolingo

What analysts are saying: consensus "hold" and target prices below current levels

The analyst reactions are interesting to say the least. While back at the turn of 2024/2025 most recommendations were "buy" with target prices in the $200-$290 range, the tone today is much more cautious.

DA Davidson raised the target price to $90 from the original $85, but maintained a neutral rating. Morgan Stanley lowered the target to $95 from $100 and maintains "equal weight". Evercore ISI is targeting $97. A consensus of 23 analysts gives an average 12-month price target of $104.55 - actually about where the stock trades now.

In other words, analysts see neither much upside potential nor reason for panic selling. The situation is aptly characterized as "fairly priced" - and Morningstar subscribes to that view directly.

Another signal is worth noting: the company repurchased roughly 514,000 shares of its own stock in Q1 2026 under an authorized $400 million buyback program. So management is not selling - instead, it is buying at current prices.

Risks that the market does not exclude from the game

It would be incomplete to overlook legitimate concerns. Duolingo faces three challenges that are not easy.

1. Dependence on Apple and Google's distribution channels - the App Store and Google Play generate the vast majority of sales, and any change to the rules of these platforms will immediately impact results.

2. AI competition. ChatGPT or Google Gemini can now provide language learning without the need for a separate app. Duolingo recognizes this and is responding by transforming from a phrase translation tool to a comprehensive learning platform - Duolingo Math, an extension of its course portfolio, AI tutoring. But the transformation takes time.

3. The saturation of Western markets. Penetration of language apps in the US and Europe is high, new growth must come from Asia. The good news: CEO von Ahn specifically mentioned China at the last earnings call as a region where the company is making profitable performance in performance marketing.

Billion in revenue, but valuation back on the ground

Duolingo today trades at a market capitalization of about $5 billion on revenue of over a billion - that's a price-to-sales ratio of about 5x. By comparison, at the time of the $545 bubble valuation, that ratio was over 25x.

Whether that's "cheap" or "fair" depends on how one sees the medium-term story. Management's guidance for the full year 2026 calls for revenue of $1.205 billion and adjusted EBITDA of $310 million. The balance sheet is clean: $1.1 billion in cash, no debt.

A company that was just finding its way to profitability four years ago is now generating hundreds of millions in free cash flow. The market is pricing it cautiously for now - but Duolingo hasn't played this round by a long shot.

Walmart $WMT has always been seen as a boring safe bet. Low margins, huge revenues, a reliable dividend. But beneath the surface a transformation is taking place that fundamentally changes the company’s investment story. Advertising, e‑commerce, premium membership — Walmart has quietly copied Amazon’s playbook. And so far it’s working for them.

The macro environment, however, doesn’t help. Trump’s tariffs on Chinese goods are putting direct pressure on the supply chain, and CEO Doug McMillon admitted that costs are rising every week. The Federal Reserve is keeping interest rates higher for longer and U.S. consumer sentiment is fragile. Still, Walmart trades comfortably at a P/E of 43×.

Historical parallel: Amazon in 2013

This is exactly what we saw with Amazon $AMZN ten years ago. A company with thin margins and massive turnover. Skeptics said, "But they hardly make any profit." Meanwhile Amazon was building an advertising business, Prime membership and cloud infrastructure, and the market rewarded that only five years later. Walmart today stands at a similar crossroads. The question is whether management can execute to the end.

🧠 Business model and the company's moat

Walmart operates over 10,750 stores in 19 countries. Each week its stores and digital platforms are visited by roughly 270 million customers. The whole business rests on three key pillars.

1. Price power. Walmart buys in such enormous volumes that no competitor can systematically undercut its prices in groceries. Revenue from the grocery segment makes up roughly 56% of sales and that is a natural resilience against Amazon’s attacks. Nobody orders fresh vegetables online at industrial scale.

2. Physical network as a logistics backbone. Over 4,600 stores in the U.S. is not just retail but a distribution infrastructure that allows delivery of groceries, goods and medicines to 93% of the American population in under three hours. Amazon cannot do that without its own brick-and-mortar stores.

3. Advertising and membership flywheel. This is the key inflection point in the whole story. Walmart’s global advertising business reached $4.4 billion. E‑commerce accounts for 18% of net sales and has been growing over 20% annually for two consecutive years. The advertising business is pure margin—no extra warehouse, no driver. That's exactly the Amazon effect, just with a five‑year delay.

📊 Fundamental analysis

Revenue and profitability

Walmart's revenues are growing consistently, from $572 billion in 2021 to $713 billion in 2025. Operating margin improved to 4.4% and net income reached $21.9 billion with year‑over‑year growth of 12.6%. The key trend is clear—the operating leverage is working. The advertising business and membership are natural margin accelerators without the need to scale physical retail.

Balance sheet

Cash stands at $10.7 billion, long‑term debt $34.6 billion. Net debt of about $30 billion is perfectly manageable for a company generating $41 billion in operating cash flow. Net Debt/EBITDA around 0.7×. No debt time bomb.

⚠️ Red flag: exploding CapEx

Capital expenditures rose from $13 billion in 2022 to $26.6 billion in 2026. That cuts free cash flow roughly in half, which fell from $15.1 billion to $12.7 billion. Walmart is massively investing in logistics, automation and technology—which is the right strategy—but the immediate impact on FCF is real and many analysts overlook it.

💰 Valuation and DCF analysis

1. Conservative approach (FCF CAGR 4%, WACC 9%)

This yields a fair value of $65–75, roughly 40% below the current price of about $119.

2. Base case approach (FCF CAGR 7%, WACC 8%)

Gives a fair value of $95–105, still below the current price.

3. Optimistic approach (FCF CAGR 10%, WACC 7.5%)

Brings a modest upside to $140–155.

Today the market is buying Walmart’s story as a tech‑retail hybrid with an advertising flywheel and is paying a premium for it that fundamental FCF methodology does not yet fully support.

⚠️ Risks we must not ignore

Tariffs and China.

It’s estimated that roughly 60% of Walmart’s non‑grocery goods come from China. Tariffs can either increase prices for consumers or squeeze Walmart’s margins. CEO McMillon openly admitted that price increases will continue into the third and fourth quarters of fiscal 2026. Walmart’s everyday low‑price philosophy is under direct pressure, and that is an existential risk for the entire brand.

Leadership transition.

In January 2026 Walmart announced that John Furner will become president and CEO while Doug McMillon steps down after a decade at the helm. Replacing the CEO at a company with $681 billion in revenue in the middle of a trade war is not a negligible risk.

Valuation leaves no room for error.

A P/E of 43× for a company with a 4.4% operating margin is a premium valuation that presumes flawless execution. Any disappointment, e‑commerce slowing below 15% annually, or a slide in gross margin could trigger a sharp correction.

💭 My investment view

Walmart is a classic example of a company where the business and the price tell two different stories.

The business is better than it was five years ago. The advertising flywheel truly works, e‑commerce is growing consistently, and the physical network is a competitive advantage that Amazon cannot replicate overnight.

The price is a different story. Paying 43× earnings for a retailer with a 4.4% operating margin doesn't make sense to me at current rates. A FCF yield of 1.3% is quite reasonable for a defensive name. And fully believing the optimistic DCF scenario in an environment of tariff wars and uncertain macro requires a lot of optimism.

Walmart is a company I want to own, but certainly not at any price.

Personally, I would target an entry price around $95. That would align with the base DCF scenario with a margin of safety of 15–20%. If the price falls below $80, I would start to question the transformational story itself and reassess.

Maximum allocation for me personally: 3–5% of the portfolio.

How do you view retailers? Do you hold any positions?

But at the same time, it's a typical "quality but more expensive" story. The valuation is around a P/E of 50, P/S over 5 and P/B over 13, while the debt (Net Debt/EBITDA over 5 times) means that much of the growth is debt-fuelled. The dividend is there, but with a yield of around 1% it is a cosmetic bonus. Those who go into this stock are mainly buying long-term nuclear contracts and an oligopoly position in critical infrastructure, not a cheap cash-flow title.

Top points of analysis

• Revenues are growing steadily and rapidly: over 2022-2025, total revenues have risen from $2.23bn to $3.20bn, equivalent to cumulative growth of around 43% over three years - an above-par pace for a 'defence' industry.

• Profitability isn't linearly beautiful: while gross profit is growing, operating profit is down 15% in 2025 due to a jump in operating costs - showing that revenue growth is being offset by higher costs and the ramp-up of challenging projects, not net margin expansion.

• Still, net profit and EPS are growing: net profit climbed to ~330mn. USD330, EPS to USD3.60, both up ~17% y/y - so the company is effectively "delivering" earnings growth from a shareholder perspective, even as operating profit has faltered over the past year.

• Free cash flow has improved significantly: FCF has jumped from c. $46m to c. $4m. USD 46 million in 2022 to USD 295 million in 2022. USD 295 in 2025 - more than a sixfold increase, despite the relatively high capex. An FCF margin of around 9% is decent, but not enough to justify a P/E of 50 on its own.

• Leverage is aggressive: a net debt/EBITDA of over 5x and Debt/Equity of 1.58 mean the company is riding higher leverage than most traditional "defense" titles would be comfortable with - especially when combined with a high valuation.

• The new $1.4bn naval contract extends the predictability of the business: it is the first of five annual contract packages under the US Naval Nuclear Propulsion programme to 2030, plus a separate contract for Ford-class aircraft carriers - this confirms the firm's role as a key supplier, but also further increases its reliance on one large customer (the US Navy).

Company introduction

BWX Technologies, Inc. $BWXT is an American industrial company with a narrow focus on nuclear technology. The primary focus of the business lies in the design, manufacture, and service of nuclear reactors and related components for the U.S. Navy, primarily for nuclear-powered submarines and aircraft carriers. In addition, it is involved in civilian nuclear projects, Department of Energy programs, and certain specialized areas such as radioisotopes for medicine.

The company is in the Aerospace & Defense sector, employs approximately 8,700 people and is headquartered in Lynchburg, Virginia. Its role in the naval nuclear program makes it essentially a U.S. "strategic asset" - the ability to manufacture and service nuclear propulsion for military ships cannot simply be outsourced abroad or quickly replaced by new players.

Business and segments

BWXT's business can be broadly divided into three main areas:

• The Naval Nuclear Propulsion Program (USNP) business - this is the core of the company. It includes the manufacture of nuclear reactors, pressurized water vessels, steam generators, fuel modules and other key components for nuclear-powered submarines (Virginia and Columbia programs) and aircraft carriers (Ford-class).

• Government Nuclear Programs (DOE and other agencies) - This includes contracts for research, safety, dismantlement, and maintenance of nuclear infrastructure within the U.S. Department of Energy and related agencies. These projects are smaller than the naval program, but add stability and diversification.

• Civil and other nuclear activities - production of components for civil reactors, participation in small modular reactor (SMR) or advanced reactor projects, specialised services and production of radioisotopes for the medical sector.

It is clear from the figures that the main driver of growth is naval programmes. Revenues from US$2.23 billion (2022) to US$3.20 billion (2025) - a combination of higher volumes on ongoing programmes, new contracts and the gradual ramp-up of production for new generations of ships. These projects are multi-phased, often delivered in incremental milestones over several years, creating a "pipeline" of revenue with high visibility.

Market and addressable potential

BWXT's addressable market is relatively narrow but deep:

• Naval Nuclear Propulsion - The U.S. fleet of nuclear-powered submarines and aircraft carriers is a long-term program where there is a clear plan to replace older vessels with new ones and where there is the political will to maintain a nuclear-powered core Navy. This is more or less "resistant" to normal budget cycles.

• Civilian nuclear power - decarbonisation trends are bringing nuclear back into play as a stable resource, but projects are slow, capital intensive and politically sensitive; BWXT complements the portfolio here rather than standing on civilian nuclear.

• Advanced nuclear - SMRs and other advanced technologies may create a new, broader market in the next decade where BWXT's know-how will have value, but for now it is more of an "option" than a certain source of turnover.

• Government nuclear programs - dismantlement, safety, and research are continuous but not as dynamic growth segments that give the company additional stability.

Overall, it's not an exponentially growing, "unlimited" market like cloud or AI. Rather, it's a combination of a stable to moderately growing defense program with a potentially attractive, but so far spread over time, advanced nuclear story. This is important for valuation perception: growth is decent, but inherently "slower and more certain", not hyper-growth.

Competition and market position

In the nuclear marine segment, BWXT is essentially an oligopolistic player - there are a very limited number of companies that have:

• the necessary licenses and security clearances

• manufacturing facilities and processes certified for nuclear reactors

• know-how from decades of work with the US Navy and DOE

This is an extremely strong competitive advantage. Moreover, it is strategically unacceptable for the U.S. Navy to rely on foreign suppliers, so the barriers to entry are also political. Thus, the company has a position that is much stronger than that of "regular" defense contractors.

In the civil nuclear market and in DOE projects, competition is already wider - global engineering and nuclear firms, EPC contractors, etc. There BWXT is not automatically a winner, but benefits from its reputation in the defense segment. But the company today is not a "we're going to conquer the entire civilian nuclear world" story - the civilian segment is complementary.

Summary: in a key segment, BWXT has an extremely strong position that is not easily threatened. This is one of the main reasons why the market can afford to value this company at a significant premium.

Management and strategy

CEO Rex D. Geveden is leading the company at a time when nuclear issues are increasingly moving from defense to civilian energy. Under his leadership, BWXT:

• Expanding capabilities for naval programs

• Increases investment (capex) in infrastructure modernization and expansion

• develops new projects in the field of advanced nuclear and radioisotopes

The strategy is clearly one of growth and investment: instead of paying out maximum free cash flow to shareholders, the company has decided to raise leverage, invest in capacity and capture as much of the demand that is coming in the nuclear segment in the coming years. This is an approach that may work in the long term, but it increases cyclical and financial risk - if major programmes slow down or margins fall, high debt can quickly become a problem.

Financial performance

There are three key lines of sight over the last four years:

1. Revenue:

   • 2022: $2.23 billion.

   • 2023: USD 2.50 billion

   • 2024: USD 2.70 billion

   • 2025: USD 3.20 billion

   This is consistent growth, roughly 8-18% per year. The more significant acceleration is in 2025 (+18.3%).

2. Margins and profit:

   • Gross profit grows from $552m in 2010 to $552m in 2010. USD 552 million (2022) to USD 732 million (2022). USD 772 (2025), but the pace is more moderate than for sales, suggesting cost pressures.

   • Operating profit grows from $349m between 2022-2024. USD 381mn to USD 381mn by 2022-2022. It fell to USD 323mn in 2025, but fell to USD 323mn in 2025. USD 408m - mainly due to a jump in operating costs to USD 408m. USD 408 million (+48.7% YoY).

   • Net profit still rose to $330mn in YTD. USD 330 (+17% YoY), EPS to USD 3.60.

   This combination says: the business is growing, but the cost base is under pressure and can "eat up" part of the opex in one year. Net profit is also growing due to factors outside of net opex (e.g. financing structure, taxes, one-off items).

3. EBITDA:EBITDA 551.5 million. USD 5.5 million in 2025 (+16.3% YoY) shows that the "economic core" of the business is improving, but margins are not extremely high - this is a capital intensive industry, not software with 40% EBITDA margins.

So BWXT is not a hyper-growth company with explosive margins, but a solid growth industrial where revenue growth translates into earnings growth, but with some volatility at the margin level.

Cash flow and capital discipline

The cash flow picture is critical for an investor:

• Operating cash flow: 244.7m (2022) → 363.7m (2023) → 408.4m (2024) → 479.8m (2024). This is a very nice trend - CF is growing faster than revenue, which means improvement in working capital and monetization of projects.

• Capex: roughly 150-200 mil. USD 150-150 million per year, with the last year at USD 184.6 million. USD. These are large amounts, but understandable given the nature of the business (nuclear).

• Free cash flow (FCF):46.4m (2022) → 212.4m (2023) → 254.8m (2024) → 295.3m (2024). Here you see the "improvement story" - FCF more than sixfold in three years.

From Capital Discipline:

• Buybacks are relatively small (USD 30m in 2025).

• the dividend is very low

• most of the FCF plus new funding goes into investments and cash strengthening

This is a realistic strategy for a company that is in growth mode and sitting on long-term contracts. But it also means that the "shareholder today" gets only a small portion of value through dividends and buybacks.

Balance sheet and debt

Here's where we need to be honest: BWXT has a balance sheet that is already much liked:

• Net Debt/EBITDA of around 5.2x - that's on the borderline of what most conservative investors consider comfortable for an industrial company in the defense segment.

• Debt/Equity of 1.58 - more than 1.5 times debt-backed equity.

• On the other hand, the firm now holds higher cash (end 2025: ~$507m) due to significant funding this year, so short-term liquidity is enhanced.

In an environment where projects are long and cost forecasting is not always perfect, such leverage is riskier than for firms with short cash-flow cycles. Navy contracts are certain, but if there were a significant slippage, cost increase or political pressure to change budget priorities, debt would become a much bigger issue.

Valuation and award interpretation

The combination we see:

• P/E ~50.7×

• P/S ~5.18×

• P/B ~13.65×

• Market cap ~$17 billion, EV ~$19 billion

• P/FCF ~57× (at FCF ~$295m)

This is a typical valuation for a "quality growth company" but not for a classic industrial with ~10% net margin and debt over 5× EBITDA. The takeaway:

• The market is assuming a long period of above-average sales and earnings growth

• expects the company to be able to gradually reduce debt without sacrificing growth

• expects nuclear programs (both naval and advanced nuclear) to expand and BWXT to maintain its strong position

For an investor, that means this stock is very sensitive to any disappointment - if growth starts to look like "only" 5-7% per year, or debt doesn't move down over the long term, the room for re-rating down (e.g. to a P/E of 25-30 times) is significant.

Dividend - analysis and sustainability

Current dividend:

• Annual dividend ~$0.27 per share

• Dividend yield roughly 1%

• Payout ratio to EPS ~7-8%, to FCF ~9%

BWXT's payout history is more "consistently symbolic" than growth aggressive. The company pays a dividend but doesn't make it a big issue and management clearly prefers to reinvest capital into the business and strengthen the balance sheet.

Sustainability is essentially a non-issue - with such a low payout and growing FCF, there would have to be really big problems for the company to cut the dividend. The real question is not "will the dividend survive?" but "does it make sense to hold the stock because of it?". The answer: no. The dividend is just a fringe benefit with BWXT.

Scenario:

• Baseline: dividend grows slowly, at a single-digit percentage rate, yield stays around 1%.

• Bullish: if there is more significant deleveraging and FCF continues to grow, the company could add buybacks or raise the payout over time - but that would be more of a second half of the decade issue.

• Bearish: in the event of strong downward pressure on debt or project issues, the dividend could stagnate, but a full cut is unlikely given the payout.

The $1.4 billion US Navy contract - what exactly does it mean

A new package of contracts from the US Naval Nuclear Propulsion Program worth more than US$1.4 billion is an important milestone, but more as a confirmation of the existing thesis than as a completely new story.

Structure:

• A $1.285 billion contract for long-lead materials for the nuclear propulsion program; this is the first of five annual "task orders" available through 2030.

• 165 million. USD 165,165 - contract for reactor components and fabrication work for Ford-class aircraft carriers.

• Production will run at manufacturing facilities in Ohio and Indiana; BWXT also recently delivered four large steam generators for the USS Doris Miller (CVN 81).

The takeaway:

• Backlog: the contract represents roughly 40-45% of current annual sales, spread over multiple years - strengthening sales visibility and capacity utilization through at least the end of the decade.

• Operational leverage: higher volume can help to better spread fixed costs (machinery, engineering), which is a chance to improve margins in future years.

• Capex and working capital: on the other hand, this means more cash tied up in inventory and partial backlogs and a potential need for additional capex - this is consistent with the company already increasing investment and debt.

• Concentration risk: the naval program's share of the overall business mix is growing even more - the firm is increasingly a "single theme" story for the US Navy and in terms of future cash flow.

For the investor, this is a signal that the business thesis - "BWXT is a key nuclear supplier to the US Navy" - is not only valid, but is being further reinforced. At the same time, this is not a new sector or a new type of customer - rather a deepening of existing dependence.

Growth strategy

Key catalysts for the coming years:

• Full utilization and capacity expansion for the naval program: as new contracts and annual task orders ramp up through 2030, BWXT has an opportunity to improve operational efficiency and margins.

• SMR and advanced nuclear: if some of these projects reach the commercial phase and BWXT has a role as a module or component supplier, this could open up a new source of growth outside the US Navy.

• Deleveraging: a gradual deleveraging from today's >5x EBITDA to 3x or lower would remove a significant portion of the risk "premium" and create room for more shareholder-friendly capital policies (higher dividends, buybacks) in the future.

• Possible acquisitions: if the company acquires a complementary business (e.g. radioisotopes or civil core), this may improve diversification - but could also raise leverage in the short term.

Risks

• Valuation: with a P/E of 50 and P/FCF >50×, the company cannot afford weaker years - any disappointment (revenue growth below 5%, margin pressure, project delays) could lead to a sharp revaluation multiple.

• Debt: Net Debt/EBITDA >5× is a risk in the nuclear project business - not in the sense that it will go bankrupt tomorrow, but in the sense that it will have less room to manoeuvre in the event of market or project shocks.

• Concentrated buyer: the US Navy and the US government are great payers, but a change in political priorities, a slowdown in budgets, or a redirection of money elsewhere would be keenly felt.

• Cost and project risk: nuclear projects are complex - higher labor, material costs, unexpected technical complications, all can easily "eat" margins.

• Technology and regulatory risk: new nuclear technologies (SMRs etc.) are subject to strict regulation; failure in this segment could damage reputation and core business.

Investment scenarios

Optimistic (3-5 years): revenues grow 10-12% p.a., margins improve due to better absorption of fixed costs and successful cost management of new contracts. EBITDA grows at a double-digit rate, Net Debt/EBITDA drops below 3x, Advanced Nuclear starts generating visible revenues. EPS grows around 15-18% per annum, market sustains P/E of 35-40x. Total return (price growth + dividend) can exceed 15% per year.

Realistic: Revenues grow 7-10% per year, margins stabilize at current levels, FCF grows single digits, debt gradually reduces to 3-4× EBITDA but not dramatically. EPS grows 10-12% annually, P/E gradually compresses to 25-30×, so some of the EPS growth is "eaten up" by the decline in the multiple. Total return around 8-12% per year.

Pessimistic: Revenue grows only 3-5% per year or occasionally stagnates due to delays or budget pressures, margins are pressured by higher costs and challenging projects, some contracts carry lower profitability, Net Debt/EBITDA stays high or rises. EPS stagnates or grows only modestly, P/E re-rated towards 15-20x, stock can fall 30-50% from today's levels - even if the company itself remains profitable and survives.

What to take away from the article

1. BWX Technologies is a specialized nuclear player with a key role in the U.S. naval nuclear program and very strong barriers to entry - this is not a conventional "commodity" industry.

2. Revenues and cash flow have been growing at a rapid and relatively steady pace in recent years, and a new $1.4bn US Navy contract confirms the long-term visibility of the business through to 2030.

3. Profitability is not without blemish, however - a jump in operating costs in 2025 shows that margins are sensitive to cost pressures and the ramp-up of new projects.

4. Debt is high (Net Debt/EBITDA >5×) and valuations extremely stretched (P/E ~50, P/FCF >50×), so any disappointment could lead to a hard downward repricing.

5. A dividend of around 1% is safe and well covered by FCF, but not a reason to hold this stock - the main argument is the long-term nuclear growth story.

6. It makes sense for an investor to think of BWXT as a smaller growth position in a nuclear/defense theme, not as a dividend or low-risk value pillar of a portfolio.

7. Key metrics to track are backlog and revenue growth, margin development, Net Debt/EBITDA, and how the company is managing cost and project risk in an environment of high expectations and high valuations.

Is it worth taking profits at its new highs and reinvesting into cheaper stocks? (e.g. $NVDA $META $UBER $MSFT…)

🟢 The metrics look solid going forward 👇

🟢 However, on the other hand the valuation is also fairly rich 👇

🟢 I do like how management handles free cash flow 👇

I'm not selling the shares for now, although I understand those who wanted to sell to increase their cash position / use the freed capital for other opportunities.

How are you positioned in $ASML? What would you buy instead of it..❓

Why a strong labour market is hurting stocks today

The relationship between the labour market and stock prices is far from straightforward, and therein lies the source of the misunderstanding. Intuitively, one would expect more jobs to mean a stronger economy, higher consumption, and therefore higher corporate profits and higher stock prices. At certain points in the cycle, that is indeed how it works. But in today's environment, it is much more than the earnings data itself that determines how strong the numbers will affect the Federal Reserve's decision-making. After all, the market is trading not the current economy, but expectations about future monetary policy.

The discount rate and the long duraction of growth stocks

The key to understanding this is the so-called discount rate. The value of each stock is essentially the sum of all the future earnings of the firm converted to present value. The interest rate is used to make this conversion, which is called discounting. The higher the rates, the less future profits pay today because the investor has the alternative of a safe bond yield. A thousand dollars of profit in ten years is almost worth its full value at zero rates, but at five percent its present value drops significantly.

This effect hits growth and technology companies the hardest. For them, the vast majority of expected profits lie far in the future, making them extremely sensitive to rate changes. When 10-year US Treasury yields rise, these are among the first to go down. That's why technology indices have moved almost mirror-image to bond yields in recent years. Value companies, on the other hand, are much more resilient to rate movements.

The Fed's dual mandate

Unlike some other central banks, the US Federal Reserve is supposed to simultaneously attend to two objectives, namely maximum employment and price stability. These two objectives often go against each other, and it is in their tension that market movements are born.

When the labor market is weak and unemployment is rising, the Fed can focus on supporting the economy and cut rates without risking inflationary fuel. Conversely, when the labor market is strong and unemployment is low, the Fed has a free hand and can shift all of its attention to fighting inflation, since the economy can clearly bear higher rates. Thus, in an inflationary environment, strong labor data acts as a green light for the hawks on the committee who are pushing for tighter policy.

And that is exactly the point today. As recently as early 2026, the market was pricing in further rate cuts. But the jump in inflation driven by the energy shock has reversed the entire calculation. Add to this the evidence that the labour market is in good shape and the last argument for monetary easing disappears. Thus, paradoxically, strong labour numbers increase the risk that rates will remain higher for a longer period of time, or even rise in the extreme case.

Bonds are making a comeback as a competitor to equities

The third, often neglected, level is the competition between stocks and bonds for investor capital. In the era of zero interest rates, the slogan TINA, or "there is no alternative", was in effect. Bonds yielded virtually nothing, so investors had no choice but to buy stocks even at high prices.

This situation is different today. When a 10-year US bond yields over 4.5% with virtually no risk, it becomes real competition for equities. Some capital is shifting out of stocks and into bonds, especially the most expensive and speculative titles. Every additional rise in yields that strong labour data triggers puts equities at a double disadvantage. First, it increases the discount rate, and second, it makes a competing asset more attractive. That is why the market reaction to the May report was so sharp.

Summer 2025: same report, opposite reaction

The summer of 2025 is a great illustration. Back then, the US economy also published a strong jobs report, even with a fall in unemployment, and the market reaction was exactly the opposite. Both the S&P 500 and the Nasdaq closed at all-time highs and the Dow Jones added hundreds of points. The strong data was read positively by investors at the time, as evidence that the economy was resilient and headed for a so-called soft landing. The fear of recession was then greater than the fear of inflation, and so the good news was indeed good news.

Inflation expectations

The difference between the summer of 2025 and June 2026 is not in the labour data; that was strong in both cases. The difference is in the inflation backdrop. In the summer of 2025, inflation was falling or under control, so the strong labor market did not raise concerns about monetary policy tightening. In 2026, by contrast, inflation accelerated sharply, giving the same strong data a very different meaning. From the market's perspective, it is no longer a resilient economy, but an overheated economy that the Fed will have to put the brakes on.

One cannot automatically say that good economic numbers knock stocks every time. It is always important to assess what the market is more afraid of at any given time, recession or inflation. In 2026, the fear of inflation and higher rates clearly wins out.

May labour market report

Let's look at the specific numbers now, because they are behind the nervousness in the markets. The Bureau of Labor Statistics (BLS) reported that the US economy created 172,000 new jobs in May. At the same time, the analyst consensus was expecting only around 80 to 88 thousand, so the result roughly doubled expectations. It was one of the biggest surprises of recent months.

It was the third stronger result in a row, which was also preceded by a significant upward revision of the previous months. March's figure was raised to 214,000 and April's to 179,000, altogether some 93,000 more than originally reported. After three months of successive downward revisions to the data pointing to a weakening labor market, the reversal came. The labor market in early 2026 was actually stronger than it appeared in real time.

Other key points of the report include:

• Unemployment remained at 4.3% for the third straight month, steady and historically very low. The labor market has stopped deteriorating, which is enough of a signal for the Fed to maintain restrictive policy.

• Wages grew by 0.3% month-on-month and 3.4% year-on-year. The pace of wage growth slowed slightly from the previous 3.6%, which was the only reassuring part of the report from an inflation perspective. This is because softer wage growth reduces the risk of a so-called wage-inflation spiral.

• Job creation was tightly concentrated. Leisure and hospitality (around 70,000) and local government added the most. Healthcare remained a steady contributor. In contrast, the financial sector lost 22,000 jobs.

The last point is important. Such a strong overall figure, standing largely on seasonally prone sectors such as hospitality, is a little less robust than it first appears. The high representation of seasonal and government jobs means that the quality of growth has not been as high as its quantity. But the aggregate picture is critical for the Fed, and it shows a labor market that is holding up. And that is enough to keep rates higher.

The energy shock from the war with Iran

It all started with the conflict with Iran, which erupted this spring and disrupted oil supplies through the Strait of Hormuz, where about a fifth of the world's oil flows. The price of Brent crude jumped from around $70 a barrel before the war to $118 at the end of April. Although prices have erased some of the rise following the fragile ceasefire, they remain well above pre-war levels. This energy shock was immediately reflected in consumer prices.

Inflation in the US has accelerated sharply. In March, it climbed to 3.3% year-on-year and in April it already reached 3.8%, the highest level since 2023. Energy accounted for more than 40% of the April increase, with petrol prices rising by more than 28% year-on-year and air fares and food becoming more expensive. Inflation thus moved away from the Fed's 2% target again after five years above it just as the market was preparing to cut rates.

For the Fed, this presents an extremely difficult dilemma. This is because it is a so-called supply shock, i.e. inflation driven by a shortage on the energy supply side, not overheated demand as in 2022. The central bank has two options. Either it "ignores" the supply shock and waits for it to subside on its own, or it responds with higher rates out of fear. The key point is that a strong labor market significantly pushes the Fed toward the second option. If the economy were weakening, the Fed could more easily ignore energy inflation. But when the labor market is strong, the risk grows that a temporary shock becomes a more permanent problem, and the Fed feels pressure to act.

Market reaction

The claim that stocks fell because of strong labor data is only half true. The reality is a bit more complicated.

What actually happened on the day of the announcement

On the day of the report, the Nasdaq Composite weakened 4.2%, its worst one-day decline in more than a year. The S&P 500 lost 2.65%, ending a nine-week streak of gains, the longest since 2023. Meanwhile, the reaction spilled across asset classes:

• Bond yields: the 10-year yield added about 7 basis points to 4.54%, while the two-year yield, which most closely tracks rate expectations, climbed to 4.16%, the highest since early 2025.

• Gold $GLD fell 3.6% as the market began to factor in higher real interest rates hurting the precious metal with no yield.

• Sentiment: the VIX fear index rose nearly 40% during Friday.

Broadcom kicked off the panic

Much of the drop was not dragged down by labor data, but by Broadcom's $AVGO results. The latter fell more than 12% after posting below-expectation earnings, dragging the entire semiconductor sector down with it. Intel weakened by about 6% and Micron $MU by about 7%. This is a classic example of a downturn where negative sentiment spills over to the entire industry.

Moreover, a number of analysts pointed out that the move was largely due to positioning, not fundamentals. The semiconductor sector was heavily overbought after the previous sharp rise, so the correction was to some extent a waiting game for any trigger.

The market was met with a combination of several negative impulses at once on the day. Strong labor data raising Fed concerns, weak results from the tech flagship, and overblown valuations for the growth sector. When factors like these come together, the resulting move tends to be more abrupt than would be consistent with any one cause.

New Fed chief Kevin Warsh

Jerome Powell ended his tenure as chairman on May 15 and Kevin Warsh took over. Thus, the June 16-17 meeting will be his very first as chairman and his first press conference will be a highly watched event. For the market, which has become accustomed to Powell's speeches, this is another source of uncertainty, as the new governor's communication style is still a big unknown.

Warsh himself is a contradictory figure. He was a member of the Fed's Board of Governors from 2006 to 2011, when he was one of the youngest governors in history, and played a significant role during the 2008 financial crisis. He was confirmed by the Senate by a narrow 54 to 45 vote, the closest vote on a Fed chief in modern history. It is also unusual that his predecessor Powell remains a member of the Board of Governors, something that has not happened for almost eighty years.

From an analytical perspective, what is most interesting about Warsh is the tension between two opposing pressures:

• A reputation as a hawk: Warsh has long been known as a critic of the Fed's bloated balance sheet and an advocate of a tighter, more disciplined central bank. His slogan is to fight inflation first, communicate less and narrow the Fed's scope. This would normally mean higher rates and pressure for continued balance sheet reduction.

• Ties to Trump: Warsh was nominated for the job by President Trump, who in turn has openly called for significantly lower rates. Surprisingly, Warsh himself moderated his tone during the hearing and gave a less hawkish impression.

As a result, there is real uncertainty about which direction Warsh will take. The market, meanwhile, is leaning towards a hawkish interpretation, helped by the minutes of the April meeting, where a majority of committee members began to concede that higher rates may be needed due to resurgent inflation. At the same time, however, it should be remembered that no Fed chairman makes decisions alone. Rates are set by the 12-member committee and Warsh needs to convince a majority to make his policy.

Rates are in the 3.50% to 3.75% range, where the Fed took them after cutting them at the end of 2025. Meanwhile, the June meeting itself should end with rates left unchanged; tools tracking market expectations give this option an overwhelming majority. But after the May report, investors began fully pricing in a quarter-percentage point rate hike by the end of the year.

Taper tantrum 2013

The most famous example is the so-called taper tantrum of 2013. Then Fed chief Ben Bernanke merely hinted that the central bank would begin to slow its bond purchases, a quantitative easing program. The market immediately began to panic, realising that the era of cheap money was coming to an end. Ten-year bond yields jumped from around 1.6% to almost 3%, stocks and bonds plummeted, and the sell-off hit emerging markets particularly hard, with capital fleeing back to the US en masse.

Characteristically, at the time, any good economic news, whether it was strong jobs numbers, better GDP or lower unemployment claims, sent stocks down as it brought the end of Fed support closer. However, equities recovered from the shock relatively quickly, while bonds took the brunt of the main and prolonged blow. This is an important message for today as well.

Tightening Cycle 2022

At the time, the Fed was aggressively raising rates in an attempt to tame the highest inflation in decades, which had climbed to nine percent. Each strong jobs report, with the economy adding hundreds of thousands of jobs per month, led to rising yields and falling stocks. Investors were actually hoping for weaker data that would prompt the Fed to ease the pace. Instead, they were given evidence that the economy was tolerating the tightening and the central bank could continue. At the time, growth and technology stocks were undergoing their deepest correction since the financial crisis.

But there is one crucial difference between 2022 and today. In 2022, it was demand-driven inflation and disrupted supply chains following a pandemic, while today it is primarily a supply-side energy shock.

Early 2025

The same pattern was repeated in early 2025, when an unexpectedly strong jobs report knocked stocks and buried hopes of a quick rate cut. Even then, interest rate-sensitive strategies and the most leveraged firms proved the most sensitive. Stocks and bonds then posted several weeks of negative returns in a row.

Comparison of historical episodes

For a better overview, the following table summarises the key features of each episode:

The common feature of all these episodes is the same. When the market expects monetary easing and data arrives signaling otherwise, a sharp but usually short-lived reaction follows. Yet there is a second, more optimistic lesson from history. Rising rates usually occur because the economy is strong, and that may not be bad news for equities in the long run, even if the journey is nervous.

Who gains and who loses in a world of higher rates

In particular, the following tend to be under pressure:

• Expensive growth and technology titles: Their valuations are based on the distant future, so higher discount rates hit them hardest. This affects some software companies as well as the most expensive AI titles.

• Debt-laden firms: Higher rates make it more expensive for them to refinance debt and cut into profits. Real estate funds and capital-intensive sectors are also vulnerable.

• Gold-type assets: short-term, as rising real yields increase the opportunity cost of holding them.

In contrast, they perform relatively better:

• Banks and the financial sector, which benefit from higher interest rates and a steeper yield curve through higher interest margins.

• Value firms with current profits, stable cash flow and low debt.

• Defensive sectors with strong pricing power that can pass on higher costs to customers.

Even a quality firm with long duration can quickly strengthen in a period of rate calm, as 2020, 2021 and most of 2025 have shown. Sector preferences in a higher rate environment are therefore more a tactical than a strategic issue.

A strategic view

• In the short term, rate sensitivity, sentiment and positioning dominate the market. In the long term, whether companies are actually growing and generating profits is the deciding factor. Overnight declines, however dramatic, often have little to do with the long-term value of companies.

• As the June example showed, a sharp decline can be a combination of several factors and largely a technical correction of an oversold sector.

• The Fed has a new governor with a conflicted reputation, an energy shock of uncertain duration, and inflation where it is unclear whether this is a temporary blip or the start of a new trend. In such an environment, diversification and a long-term horizon make sense rather than betting on a specific rate direction. Moreover, history shows that such episodes tend to be highly volatile but usually short-lived.

What to watch next

• Inflation data (CPI): will come out just before the Fed meeting (Wednesday).

• The tone of Kevin Warsh's first statement at the June 16-17 meeting and his first press conference. The key will be whether the new chairman will open or close the door to a possible rate hike and how he views the Fed's balance sheet.

• Bond yields: the two-year yield is the best barometer of rate expectations. A further rise in it would pressure growth stocks, while a fall in it would relieve them.

• Energy prices and the situation around the Strait of Hormuz

• Technology companies' earnings season: Broadcom showed how quickly one title's disappointment can take down an entire sector.

The strong May report knocked stocks not because the economy is weak, but precisely because it is too strong for the Fed to consider cutting rates in an environment of resurgent inflation. Add to that Broadcom's results and the overblown valuation of the technology sector, and the resulting decline was steeper than the jobs data alone would account for.

Meanwhile, history shows that similar episodes, whether it was a taper tantrum in 2013, tightening in 2022 or early 2025, tend to be tumultuous but usually short-lived.

Should we buy, or wait?

We're already buying $SPGI and we want an even better price for $META and $NVDA. Is that right?

Today's trading day tested the nerves of anyone with a portfolio stuffed with technology. After months of the market being driven forward by a single idea, artificial intelligence, it's sobering. Thanks to repeated positions and FOMU, stocks were very fragile. After today's US labour market report, the odds of an interest rate hike before the end of the year have increased significantly. It is currently around 43%. And that's not good news for tech stocks. Money has started to disappear from these stocks.

Where has the money gone? Among today's biggest winners is a sector that's so boring it's fascinating: consumer staples. And its most famous and largest representative is Procter & Gamble $PG

Escape to safety

When the future is uncertain, people stop buying new technology, but they keep buying laundry detergent and diapers. This resilience to economic fluctuations is exactly what makes consumer goods manufacturers so-called defensive stocks.

The Consumer Staples Select Sector SPDR $XLP fund, which tracks this very sector, has gained 0.65%. The tech-heavy Nasdaq weakened nearly 5% today.

"Skepticism toward technology investments is pushing capital out of expensive growth stocks. That plays to the defensive trade's advantage."

The results confirm a comeback

A defensive component is nice, but it wouldn't be enough without results. But the company didn't let investors down and delivered very solid numbers in the most recent quarter.

Revenue grew 7% to $21.2 billion and organic growth was 3%. Volume sold added 2%. For the first time in a full year, volume grew across the board.

Why is this important? Because growth driven by price increases has a ceiling. Customers will eventually switch to competitors or private labels. Volume-driven growth means people are actually buying more units.

• Core EPS: $1.59, up 3% year over year

• Growth across all 10 categories and 7 regions - no weak link

• Beauty segment dragged results, grew 7% organically

• The shaving and healthcare segments remained weak, with volume down 2%

King of dividends

If P&G has one thing it does better than almost anyone in the world, it's dividends. In April 2026, the company announced its 70th consecutive payout increase and raised its quarterly dividend to $1.0885, or $4.35 a year.

Seventy years without a break is extremely rare. Among the so-called dividend kings, of which there are five dozen, only five companies have reached that mark. Moreover, P&G has paid a dividend continuously for over 130 years. It has survived oil shocks, financial crises and pandemics.

For the full fiscal year 2026, the company plans to distribute about $15 billion to shareholders: about $10 billion in dividends and another $5 billion in share buybacks. At a share price of around $145, that works out to a dividend yield of around 3%. That's above average by P&G's standards, because a lower share price automatically raises the yield. But investors are cautious about the future, as is management.

"What do we know today about what the world will look like three months from now? I'm glad I don't have to give an outlook for next year today."

Andre Schulten, Procter & Gamble CFO

Boredom at a reasonable price

Not everything is rosy. Management warned that tariffs will cost the company about $400 million after taxes, and higher energy prices linked to tensions in the Middle East will add another $150 million or so. Management therefore expects full-year earnings to be more towards the lower end of the guidance range.

What is interesting, however, is where the stock is priced after last year's plunge. P&G is trading at around 21 times earnings, below its 10-year average of around 22.8 times. For a company of this quality, valuations have hit near five-year lows. Analysts at UBS are similarly bullish and have raised their price target to $172, which would give it decent upside room from current levels.

However, according to the fair price on Bulios, $PG stock is already above its intrinsic value.

The market tends to forget about defensive stocks when the euphoria around growth peaks, and only remembers them in moments of panic. P&G's price for 2026 is back about where it started, and today's jump of more than 4 percent is a reminder that all it takes is a whiff of uncertainty to turn capital back toward safety.