These two stocks are The Vita Coco Company and Rollins, Inc. To review my previous deep deep articles you can find them here:

Let’s dive in as I discuss their recent Q3 results and which one I think is the better buy.

1. The Vita Coco Company (COCO)

Growth and Strategic Innovation

The Vita Coco Company continues to enjoy strong secular tailwinds as coconut water growth significantly outpaces other mainstream beverage categories in the United States. Co-Founder and Executive Chairman Michael Kirban noted during the Q3 earnings call that household penetration remains low compared to mainstream juices, sports drinks, and functional beverages, providing a substantial long-run growth runway. The core strategy focuses on expanding the overall category and capturing market share through strong brand performance, strategic private-label relationships, and international expansion into European markets like Germany and the U.K.

To sustain this momentum, Vita Coco is rolling out exciting product innovations for 2027, notably new sports-oriented flavors and "Vita Coco Kids". These additions target younger consumers and family-oriented demographics, directly engaging active youth sports participants to build long-term brand loyalty.

Financials

Vita Coco delivered robust financial results in Q3 2026, generating roughly $244 million in revenues which is a 34% increase compared to Q3 2025. Organic sales grew by 18%, while core Vita Coco Coconut Water sales increased by 15%. Private-label sales surged by 152%, heavily bolstered by the addition of Copra. Gross margin held steady at 38%, contributing to healthy improvements in operating income, net income, and earnings per share.

Reflecting this strength, management raised its full-year 2026 guidance:

• Net Sales: Expected between $810 million and $820 million (up from $790–$805 million).

• Adjusted EBITDA: Expected between $170 million and $175 million (up from $154–$161 million).

• Gross Margins: Projected around 40%.

The balance sheet remains rock-solid with zero long-term debt, $150 million in cash, and current assets comfortably exceeding all liabilities.

Risks

Key operational risks include intense competition in a saturated beverage market and high customer concentration, with two major customers accounting for 45% of total net sales and representing a significant share of accounts receivable as of September 30, 2026. Furthermore, the core Vita Coco brand drives roughly 73% of consolidated sales, and international supply chains remain vulnerable to external macroeconomic pressures such as shifting tariffs, rising shipping rates, and geopolitical tensions.

Valuation

While price-to-sales multiples sit above broader beverage sector medians, this premium is historically justified by the company's outpaced growth profile relative to peers. Crucially, the stock's forward price-to-earnings and price-to-sales ratios have compressed significantly from their summer peaks. Combined with robust double-digit top-line growth, expanding operating margins, and upwardly revised full-year guidance, Vita Coco trades at a much more reasonable entry point compared to earlier in the year, offering an attractive risk-reward profile for long-term investors.

2. Rollins, Inc. (ROL)

Management Commentary & The AI Search Headwind

Rollins has faced a challenging 2026, with the stock down approximately 42% year-to-date despite the S&P 500 moving higher. While the company operates three primary service lines—residential, commercial, and termite and ancillary—growth has decelerated, driven primarily by pressures in the residential customer acquisition channel.

On the Q3 earnings call, CEO Jerry Gahlhoff explicitly identified a shifting digital landscape as the root cause: AI and LLM-driven search engines are changing how consumers discover service providers. Unlike traditional search, LLMs recommend a fragmented mix of pest control providers, frequently omitting key consumer criteria like transparent pricing, reviews, and specific service details.

Management has enacted a corrective three-point action plan:

1. Optimize AI Visibility: Ensuring Rollins properly appears in local LLM and AI-generated search results.

2. Highlight Value Drivers: Making sure critical decision-making data—pricing, customer reviews, and exact service options—is front and center.

3. Agile Capital Allocation: Continuously testing, monitoring, and reallocating lead-generation resources.

Despite near-term friction, customer retention remains strong, and management views this as a marketing presentation issue rather than structural brand damage.

Financials

During Q3 2026, Rollins posted total revenue of $1.1 billion, representing a 6.2% increase year-over-year, though organic growth was more muted at 4.4%. Rising operating expenses compressed operating income, net income, and EPS compared to Q3 2025.

Capital allocation activity remained active: the company completed seven acquisitions totaling $27 million, paid out $87 million in dividends, and repurchased $120 million in shares. Mergers and acquisitions (M&A) are still expected to contribute 2% to 3% to revenue growth for the remainder of 2026. On the balance sheet, current liabilities remain above current assets, and long-term debt and goodwill balances reflect the company’s aggressive, ongoing M&A roll-up strategy.

Risks

The primary near-term risk centers on execution speed—specifically, how rapidly Rollins can adapt its digital marketing strategies to capture favorable placement within AI-driven search ecosystems. Additionally, because Rollins relies heavily on an M&A growth model, execution and integration risks persist. A failure to successfully integrate acquired businesses could trigger goodwill impairments, negatively impacting future earnings.

Valuation

As an established, high-quality market leader, Rollins historically trades at valuation multiples exceeding sector medians. However, a substantial stock price correction over the course of the year has driven the company's forward price-to-earnings ratio down sharply—hovering near 26x to 27x—which sits well below its multi-year historical averages that frequently exceeded 45x. Because the underlying earnings power remains intact and management is actively deploying a strategy to resolve near-term digital marketing friction, the stock presents a much more compelling, discounted entry point relative to its historical valuation norms.

Conclusion

I think both companies are relatively attractive at the moment although the businesses are trending in different directions. Vita Coco continues to deliver stellar growth figures as it’s gaining more market share across the globe and reaching her customers.

On the hand, Rollins is struggling to generate leads in it’s residential business but revenue grow is steady. Albeit, at a slower pace than management expected.

Of the two, I think Rollins is the better buy at the moment given the heavy discount and negative sentiment towards the company. Rollins is still the market leader in this niche category and have the capital and resources necessary to correct this AI search issue.

Which company do you think is the better buy?

Thanks as always for reading and happy investing!

Any thoughts on Rollins or Vita Coco? Please leave a comment below!

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Despite leaving Webush, Ives is still making calls and has recently announced his list of the top five tech stocks for 2027.

Full disclosure, I’m likely bias as I own 4 of these 5 stocks but I think it’s a solid list.

Below, I outline the basic bear and bull cases for each stock and state whether or not I own shares.

Let’s get into it!

Share

1. Nvidia (NVDA)

Recent Developments

• Data Center and AI Infrastructure Expansion: With Hyperscale revenue accounting for 60.9% of trailing revenue and Compute & Networking generating 94.2% of operating income, scaling AI data center platforms is the primary driver of NVIDIA’s financial dominance. This initiative is critical to maintaining the company’s 114.0% 3-year revenue CAGR and supporting the massive demand from cloud service providers.

• AI Enterprise and Software Ecosystem: By integrating NVIDIA AI Enterprise and specialized software solutions, the company is transitioning from a pure hardware provider to a full-stack computing platform. This initiative is essential for increasing long-term customer stickiness and diversifying revenue beyond hardware sales, as evidenced by the robust 68.4% growth in Remaining Performance Obligations (RPO).

• Automotive and Robotics Integration: Through platforms like Jetson and autonomous driving development, NVIDIA is capturing high-growth opportunities in edge computing and industrial automation. While currently a smaller portion of total revenue, these initiatives are vital for future-proofing the business against cyclicality in traditional markets and leveraging the company’s core accelerated computing expertise in new, high-margin verticals.

Economic Moat

• Network Effects: NVIDIA benefits from a powerful ecosystem effect centered on its CUDA software platform. As more developers build AI and high-performance computing applications on CUDA, the platform becomes the industry standard. This creates a virtuous cycle where the massive installed base of developers attracts more users, further cementing NVIDIA’s hardware as the essential choice for AI workloads, making it difficult for competitors to displace the platform.

• Switching Costs: The deep integration of NVIDIA’s proprietary software stack (CUDA, AI Enterprise) with its hardware creates significant switching costs for enterprise and hyperscale customers. Once a data center or AI research facility builds its infrastructure and software workflows around NVIDIA’s architecture, migrating to a different hardware provider would require massive investments in re-coding, retraining models, and re-optimizing software, effectively locking customers into the NVIDIA ecosystem.

• Scale Economies: With $253.49B in total revenue and an operating margin of 64.0%, NVIDIA leverages massive scale to amortize the immense R&D costs required to maintain its technological lead. This scale allows the company to outspend competitors in developing next-generation chips and networking solutions, creating a cost advantage per unit of performance that smaller players cannot match, while simultaneously generating the capital necessary to sustain high levels of innovation.

• Cornered Resource: NVIDIA maintains a unique position through its specialized talent pool and deep expertise in accelerated computing, combined with strategic supply chain relationships. By controlling the design and software ecosystem for the most advanced AI hardware, NVIDIA effectively “corners” the market for high-end compute, ensuring that it remains the primary supplier for the world’s most demanding AI and data center applications.

Bulls Say

• Dominant Market Position in AI Infrastructure: NVIDIA captures the vast majority of its earnings from the Compute & Networking segment (94.1% of quarterly EBIT), positioning the company as the primary infrastructure provider for the rapidly expanding AI, hyperscale, and enterprise data center markets.

• Exceptional Profitability and Capital Efficiency: The company demonstrates best-in-class financial performance with a 64.0% operating margin and a 103.3% Return on Capital Employed (ROCE), indicating highly efficient operations and significant pricing power in its core segments.

• Hyper-Growth Trajectory: With a 3-year revenue CAGR of 114.0% and a 3-year diluted EPS CAGR of 225.4%, NVIDIA continues to scale at an aggressive pace, further supported by a 68.4% growth rate in Remaining Performance Obligations (RPO), signaling strong forward-looking demand.

Bears Say

• Extreme Valuation Multiples: With an EV/FCF of 72.1 and a P/B of 25.8, the stock is priced for perfection, leaving virtually no margin of safety for any deceleration in growth or market volatility.

• Concentration Risk: Revenue is heavily skewed toward Hyperscale and AI-related segments (over 90% of total revenue), creating a dangerous dependency on the capital expenditure cycles of a small group of cloud service providers.

• Sustainability of Margins: The company currently maintains an operating margin of 64.0%; bears argue that as the AI hardware market matures and competition intensifies, these historically high margins will face significant downward pressure.

My take: Nvidia is the cleanest way to play the spending wave, and I would agree with Ives Nvidia belongs on the list, though I would size it with the cycle in mind. I do think it’s one of the more reasonable names on the list when it comes to valuation.

Disclosure: I own shares of Nvidia and it’s my largest single stock position.

2. Microsoft (MSFT)

Recent Developments

• Expansion of Azure and Cloud Infrastructure: As the core of the Intelligent Cloud segment, which generates over $128B in trailing revenue, Azure is critical for maintaining Microsoft’s competitive edge in enterprise computing. The recent 21.2% quarterly growth in Azure and other cloud services highlights its role as the primary engine for scaling global digital transformation and AI-driven workloads.

• Scaling AI-Integrated Productivity Solutions: By embedding AI into the Productivity and Business Processes segment—which accounts for 54.4% of total operating income—Microsoft is driving higher value through Microsoft 365 and Dynamics 365. The 58.3% acceleration in Microsoft 365 Commercial Cloud revenue growth demonstrates the successful monetization of advanced cloud-based productivity tools and security compliance services.

• Advancement of AI and Developer Ecosystems: Through the integration of GitHub and Nuance, Microsoft is solidifying its position as the essential platform for developers and healthcare AI. These initiatives are vital for capturing long-term market share in high-growth sectors, ensuring that Microsoft remains the foundational infrastructure provider for both software development and specialized enterprise AI solutions.

Economic Moat

• Network Economies: Microsoft benefits from powerful network effects, particularly through LinkedIn and its ecosystem of developer tools like GitHub. As more professionals join LinkedIn and more developers contribute to GitHub, the value of these platforms increases for every user, creating a self-reinforcing cycle that makes it difficult for competitors to replicate the scale and utility of these networks.

• Switching Costs: Microsoft’s enterprise software suite—including Office 365, Dynamics 365, and Azure—creates significant friction for customers looking to migrate to alternative providers. The deep integration of these tools into daily business operations, combined with the complexity of data migration and employee training, ensures high customer retention. This “lock-in” effect provides Microsoft with stable, recurring revenue streams and pricing power.

• Scale Economies: With $318.27B in total revenue and massive investments in cloud infrastructure (Azure) and AI, Microsoft leverages its immense scale to lower unit costs. By spreading the high fixed costs of data centers and R&D across a massive global user base, Microsoft achieves superior operating margins (46.8%) that smaller competitors cannot match, allowing for continuous reinvestment into innovation.

• Cornered Resource: Microsoft has secured a unique position through its strategic investments in AI and its proprietary cloud infrastructure. By integrating advanced AI capabilities across its entire product stack—from Azure to Office and GitHub—Microsoft has effectively “cornered” the ability to deliver enterprise-grade AI solutions at scale, creating a distinct advantage that is difficult for rivals to emulate without similar access to massive datasets and compute resources.

Bulls Say

• Dominant Cloud and AI Positioning: Microsoft’s Intelligent Cloud segment, anchored by Azure, serves as a massive growth engine with recent quarterly growth accelerating to 21.2%, positioning the company to capture significant value from the ongoing enterprise AI and cloud transformation.

• Exceptional Profitability and Cash Generation: The company maintains elite financial health with a 46.8% operating margin and 39.3% net profit margin, providing the capital flexibility to reinvest in high-growth initiatives while maintaining a consistent dividend and strong shareholder returns.

• Diversified and Scalable Ecosystem: With a balanced revenue mix across Productivity, Cloud, and Personal Computing, Microsoft leverages its massive installed base—evidenced by 19% growth in Microsoft 365 Commercial Cloud—to drive recurring revenue and cross-sell advanced software and AI solutions.

Bears Say

• High Valuation Multiples: With an EV/FCF of 42.5 and a P/E of 23.6, the stock is priced for perfection, leaving little margin for error if growth decelerates or market sentiment shifts.

• Concentration Risk: The company relies heavily on the Intelligent Cloud and Productivity segments, which together account for over 80% of total revenue and nearly 90% of operating income, creating significant exposure to any slowdown in enterprise cloud spending.

• Growth Sustainability: Despite historical double-digit growth, maintaining high CAGR levels becomes increasingly difficult at a $2.94T market cap, and any volatility in key metrics like Azure growth could trigger a significant valuation compression.

My take: Microsoft is the most balanced name on the list, as it gets AI upside without needing everything to go right. I’d also argue it might have the widest moat of any company on this list.

Disclosure: I own shares of Microsoft and it’s my second largest single stock position.

3. Palantir (PLTR)

Recent Developments

• Artificial Intelligence Platform (AIP) Expansion: By providing unified access to open-source, self-hosted, and commercial large language models (LLMs), AIP enables organizations to transform structured and unstructured data into actionable objects. This is critical for converting complex organizational processes into tools for both human operators and LLM-driven agents, positioning the company at the forefront of enterprise AI adoption.

• Palantir Apollo Deployment Infrastructure: This initiative focuses on the seamless delivery of software and updates across diverse business environments. Its importance lies in its ability to allow customers to deploy software virtually anywhere, ensuring operational continuity and rapid scalability for clients who require robust, flexible, and secure software management.

• Data Integration and Operational Intelligence (Gotham and Foundry): Through the continued development of Palantir Gotham and Foundry, the company provides a central operating system for data that facilitates pattern identification and real-world threat response. These platforms are essential for intelligence and commercial organizations to synthesize disparate datasets, enabling informed decision-making and the execution of complex operational strategies.

Economic Moat

• Switching Costs: Palantir’s platforms, specifically Gotham and Foundry, act as a central operating system for an organization’s data. Because these platforms integrate deeply into the core operational workflows and decision-making processes of government agencies and large enterprises, the cost, complexity, and risk of migrating to a competitor are prohibitively high. This creates high customer retention and long-term revenue visibility, evidenced by the company’s $4.90B in Remaining Performance Obligations (RPO).

• Network Effects: As Palantir’s platforms (Gotham, Foundry, and AIP) are deployed across diverse sectors—from intelligence and defense to commercial enterprises—the software benefits from the aggregation of complex data environments. By transforming structured and unstructured data into LLM-understandable objects, the platform becomes more valuable as more organizations use it to turn processes into tools for humans and AI agents. This creates a feedback loop where the platform’s utility increases as it learns from a broader range of operational environments.

• Scale Economies: Palantir demonstrates significant capital efficiency with a Gross Profit Margin of 84.1% and an Operating Margin of 38.1%. The nature of its software-as-a-service model allows the company to spread the high fixed costs of R&D and platform development across a growing customer base, which has expanded to 1,049 customers. This scale allows Palantir to maintain high profitability while continuing to invest heavily in its AI platform (AIP), creating a barrier for smaller competitors who cannot match the R&D spend or the breadth of deployment capabilities.

• Cornered Resource: Palantir possesses a unique, specialized talent pool and deep institutional knowledge gained from over two decades of working with the most sensitive intelligence and defense datasets. This “know-how” in handling complex, high-stakes data environments is difficult for competitors to replicate, as it requires a specific combination of software engineering expertise and domain-specific operational experience that is not easily accessible in the broader market.

Bulls Say

• Exceptional Profitability and Efficiency: The company demonstrates elite operational leverage with an 84.1% gross margin and a 43.7% net profit margin, supported by high-value human capital that generates over $1.24M in revenue per employee.

• Accelerating Commercial and Government Demand: Strong momentum is evidenced by a 23.6% growth in total customer count and a massive 88.0% quarterly growth in billings, signaling rapid adoption of its core platforms (Gotham, Foundry, and AIP) across both public and private sectors.

• Robust Future Revenue Visibility: The 102.5% year-over-year growth in Remaining Performance Obligations (RPO) to $4.90B provides a clear, high-conviction runway for sustained top-line expansion and long-term contract fulfillment.

Bears Say

• Extreme Valuation Multiples: The stock trades at a P/E of 141.2 and an EV/Sales of 55.9, suggesting that the current price has priced in near-perfect future execution, leaving little margin for error or market volatility.

• Decelerating Customer Growth: While revenue remains strong, the growth rate for total customer count has slowed from 34.2% in fiscal year 2025 to 23.6% for the period ending June 2026, raising concerns about the sustainability of long-term customer acquisition.

• High Concentration Risk: With 51.2% of quarterly revenue derived from government contracts, the company remains heavily reliant on public sector spending cycles and political budget priorities, which can be unpredictable and subject to sudden shifts.

My take: I like the business a lot, but the price gives me pause, and I would rather wait for a pullback.

Disclosure: No position in Palantir.

4. Apple (AAPL)

Recent Developments

• Expansion of Services Ecosystem: With $120.48B in trailing revenue and a significant 42.4% quarterly gross profit contribution, the services segment is critical for diversifying income beyond hardware. This initiative is important because it fosters long-term customer retention and recurring revenue through platforms like the App Store, Apple Music, and Apple Pay, which command higher margins than traditional product sales.

• iPhone Market Dominance and Growth: Accounting for 52.6% of trailing revenue ($245.54B) and demonstrating strong momentum with 21.7% quarterly growth, the iPhone remains the company’s primary engine. This initiative is vital as it serves as the central gateway for the entire Apple ecosystem, driving user acquisition and cross-selling opportunities for wearables and services.

• Wearables, Home, and Accessories Integration: Generating $36.29B in trailing revenue, this segment is essential for deepening the integration of the Apple user experience. This initiative is important because it creates a “sticky” hardware environment—including AirPods, Apple Watch, and HomePod—that increases the switching costs for consumers and reinforces the value proposition of the broader Apple platform.

Economic Moat

• Brand: Apple’s brand serves as a powerful differentiator, enabling the company to command premium pricing and maintain high customer loyalty. This intangible asset is reinforced by the company’s design-led hardware and integrated ecosystem, which creates a distinct market perception that competitors struggle to replicate. The strength of the brand is evidenced by the company’s ability to sustain a 48.7% gross profit margin and high valuation multiples.

• Network Economies: Apple benefits from network effects through its integrated ecosystem of hardware, software, and services. As the installed base of devices grows, the value of the platform increases for both users and third-party developers. This is particularly evident in the App Store and the company’s services segment, which generated $120.48B in trailing revenue. The interconnected nature of the iPhone, Mac, iPad, and wearables creates a “walled garden” that increases user switching costs and drives recurring revenue.

• Counter-Positioning: Apple has successfully adopted a business model that prioritizes privacy, user experience, and hardware-software integration, which contrasts with the ad-supported, data-harvesting models of many other technology giants. By focusing on premium hardware and subscription-based services, Apple avoids the trade-offs inherent in models that rely on third-party data monetization, allowing it to capture a high-value segment of the market that is willing to pay for a superior, privacy-centric experience.

• Switching Costs: The deep integration between Apple’s hardware (iPhone, Mac, iPad) and its software/services (iCloud, Apple Pay, App Store) creates significant friction for users looking to migrate to competing platforms. Once a user is embedded in the Apple ecosystem, the cost—both in terms of financial investment and the loss of seamless interoperability—is high. This is a primary driver of the company’s consistent revenue growth and the stability of its $466.82B in total trailing revenue.

Bulls Say

• High-Margin Services Expansion: The Services segment, which now accounts for over 26% of total revenue and 42.4% of quarterly gross profit, provides a recurring, high-margin revenue stream that enhances overall profitability and reduces reliance on hardware cycles.

• Exceptional Capital Efficiency: With a Return on Total Capital of 53.9% and Return on Capital Employed of 73.0%, Apple demonstrates a superior ability to generate significant value from its investments, supported by a robust Free Cash Flow per share of $9.25.

• Accelerating iPhone Momentum: Recent performance shows a significant growth inflection, with quarterly iPhone revenue growth surging to 21.7%, signaling strong consumer demand and successful product cycle execution that continues to anchor the company’s massive $4.48T market capitalization.

Bears Say

• High Valuation Multiples: With a P/E of 35.3 and an EV/Sales of 9.7, the stock is priced for perfection, leaving little margin for error if growth decelerates or market sentiment shifts.

• Heavy Reliance on iPhone: The iPhone accounts for over 50% of total revenue, creating significant concentration risk; any cyclical downturn in smartphone demand or saturation in the hardware market directly threatens the company’s primary income stream.

• Stagnant Long-Term Growth: Despite recent quarterly spikes, the 5-year revenue CAGR of 6.1% suggests a mature company struggling to maintain high-growth momentum, which may not justify its premium valuation in a competitive tech landscape.

My take: Apple is a quality business, and the capex spend isn’t as bonkers as some of mega cap companies. I also really like what Apple is doing with their services business.

Disclosure: I own shares of Apple and it’s my third largest single stock position.

5. CrowdStrike (CRWD)

Recent Developments

• Expansion of the Falcon Platform: By offering a comprehensive suite of cloud-delivered modules—including threat intelligence, managed security, and IT operations—CrowdStrike drives high-margin subscription revenue, which currently accounts for 95.2% of quarterly revenue. This initiative is critical for maintaining the company’s 75.1% gross profit margin and deepening customer integration.

• Scaling Annual Recurring Revenue (ARR): The company is aggressively growing its ARR, which reached $5.84B as of the quarter ending July 31, 2026, representing a 25.4% growth rate. This focus is vital for long-term financial stability and predictability, as it provides a recurring foundation that supports the company’s massive $10.70B in Remaining Performance Obligations (RPO).

• Driving Customer Retention and Upselling: With a Dollar-Based Net Retention Rate of 115%, CrowdStrike prioritizes expanding its footprint within existing accounts. This initiative is essential for maximizing the lifetime value of the customer base and offsetting the costs associated with high-growth customer acquisition, ultimately aiming to transition the company toward consistent positive net income.

Economic Moat

• Network Effects: CrowdStrike’s Falcon platform benefits from a powerful data network effect. As more endpoints are protected, the platform collects and analyzes more threat data, which in turn improves the efficacy of its threat intelligence and automated detection capabilities for all users. This creates a virtuous cycle where the platform becomes more valuable to existing and prospective customers as the collective intelligence grows.

• Switching Costs: The company’s deep integration into customer IT environments—covering endpoints, cloud workloads, identity, and data—creates significant friction for customers looking to switch providers. With $10.70B in Remaining Performance Obligations (RPO) and a high reliance on subscription revenue (95.2% of quarterly revenue), the platform acts as a mission-critical security layer. Replacing a comprehensive, cloud-delivered security stack involves high operational risk, retraining costs, and potential security gaps, effectively locking customers into the ecosystem.

• Scale Economies: CrowdStrike leverages its massive scale to achieve high operational efficiency, evidenced by a 75.1% gross profit margin. By spreading the high fixed costs of developing its cloud-native platform and maintaining global threat intelligence infrastructure across a large and growing base of subscription customers, the company maintains a cost advantage that smaller, niche competitors struggle to match. This scale allows for continuous reinvestment into R&D while maintaining a dominant market position.

Bulls Say

• High-Margin Recurring Revenue Model: With 95.2% of quarterly revenue derived from subscriptions and a robust 75.1% gross profit margin, the company demonstrates a highly scalable business model that prioritizes predictable, high-quality cash flows.

• Strong Growth Momentum: The company is sustaining significant scale, evidenced by 25.4% year-over-year growth in Annual Recurring Revenue (ARR) to $5.84B and a massive 48.6% surge in Remaining Performance Obligations (RPO) to $10.70B, signaling strong future demand and long-term contract visibility.

• Platform Stickiness and Expansion: A Dollar-Based Net Retention Rate of 115% highlights the company’s success in expanding its footprint within existing accounts, proving the effectiveness of the Falcon platform in driving customer loyalty and increasing lifetime value.

Bears Say

• Extreme Valuation Multiples: The stock trades at an EV/Sales of 40.7x and an EV/FCF of 107.9x, pricing in near-perfect execution and leaving zero margin for error in a competitive cybersecurity market.

• Lack of Profitability: Despite significant scale, the company reports a negative operating margin of -3.1% and negative net income, indicating that the business model has yet to demonstrate consistent bottom-line profitability.

• Decelerating Efficiency: With a Return on Total Capital of -2.1% and a P/E ratio of -6,831.4, the company struggles to convert its high revenue growth into meaningful shareholder value or efficient capital returns.

My take: The company is executing very well, but buying after a run like this makes me cautious.

Disclosure: I own shares of Crowdstrike and it’s my sixth largest single stock position.

Conclusion

Clearly, there is a lot to like in this list, as each company sits on a different layer of the AI buildout, from chips to cloud to software to devices to security. My concern is valuation, especially for Palantir and CrowdStrike, where the businesses are great but the stocks already reflect a lot of that.

If I were putting new money to work today, I would start with Microsoft and Nvidia and keep CrowdStrike on my watchlist for a better entry.

Which stocks do you own or are on your watchlist?

Happy Investing and thanks as always for reading!

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That being said, today I’d like to discuss a company that I believe is hurting because of the various AI tools and I’d be surprised if the business makes it in the long-run. That business is Fiverr.

Let’s dig into this business as I share why investors may ultimately want to pass on Fiverr.

Growth Headwinds

For those unfamiliar with Fiverr, it’s an online marketplace platform that connects businesses with freelancers offering digital services that range from graphic design and software development to content creation and translation. Founded in 2010 and headquartered in Israel, the company built its brand around low-friction, transactional freelance gigs.

Fiverr generates revenue through two primary segments: its core Marketplace (transaction fees matching buyers and freelancers, representing ~69% of revenue) and Services (advertising, Seller Plus subscriptions, and acquired SaaS solutions, representing ~31%).

Taking a step back and looking at the big picture, reviewing the segment breakdown over the last three fiscal years reveals that Fiverr’s core transaction engine has been shrinking under the surface. Headline revenue increases were sustained almost entirely by non-marketplace services and acquired businesses rather than organic platform growth:

Marketplace revenue fell in both FY2024 and FY2025. Services revenue grew over 50% in each of those years, driven by acquisitions like AutoDS in 2024 and Yaballe in 2025. Goodwill rose from $110.2 million to $126.3 million in 2025 alone.

As acquired growth inevitably laps itself, that protective cushion disappears. In Q1 2026, services growth slowed to 30.0%, and by Q2 2026 it slowed to just 2.0%. Consequently, with marketplace revenue declining double digits (-13.6% in Q1 and -15.5% in Q2), total revenue swung to a steep 10.0% drop in Q2 2026.

Management acknowledged that services softness stems directly from lower marketplace traffic. The two segments are interdependent: a smaller marketplace yields fewer sellers purchasing ads and seller subscriptions.

When describing the underlying shift in user activity on the Q2 earnings call, Fiverr’s CFO candidly noted:

“Low-value transactional work currently represents the majority of our marketplace and is decelerating at a faster and stronger rate than the growth associated with our high-value work.”

While spend per buyer increased 15.6% to $368 and projects over $1,000 grew 13%, these higher-value projects still represent only ~15% of total completed work—far too small to offset the broader transaction collapse.

Financials

Zooming in on 2026, Fiverr’s quarterly operating performance and user metrics demonstrate a clear decelerating trajectory.

Active buyers dropped to 2.7 million in Q2 2026 which is a decline 21.9% YoY and a severe decline from the 4.3 million peak recorded in 2022. Free cash flow also fell 45.5% YoY in Q2 to $13.6 million.

Management raised its adjusted EBITDA outlook in April only to slash full-year revenue and margin targets three months later in July:

At the midpoint of the revised full-year range ($364M), the guidance implies Q4 2026 revenue of approximately $77 million which is a decline of nearly 28% compared to Q4 2025 ($107M). Implied Q4 adjusted EBITDA drops to ~$7 million (a single-digit margin). Because adjusted EBITDA excludes share-based compensation ($51.4 million in FY2025, or ~12% of revenue), an EBITDA run-rate of $7 million per quarter means the core business will likely return to GAAP operating losses once stock compensation is factored in.

Clearly, the financials are showing a worrying picture and the business faces numerous threats which I’ll get into next.

Risks

Fiverr has numerous risks but I’m going to cover the three that I believe are the most significant to the business:

1. Direct Generative AI Disruption: Disruption from AI tools is actively altering customer demand. In its FY2024 20-F, Fiverr noted that AI "may present challenges" and "could reduce demand." In the FY2025 20-F, that language shifted to "the evolving AI landscape has reduced the demand for simple and low-skilled services." On the Q2 call, management confirmed that Writing & Translation services fell 24% on a TTM basis due to tools like ChatGPT, Claude, and Gemini.

2. LLM & Search Traffic Deterioration: Fiverr has traditionally relied heavily on search engine traffic to acquire buyers, spending $132.0 million on sales and marketing in 2025 (31% of revenue). The company warned in its latest 20-F that users are increasingly starting queries with LLM assistants rather than traditional search engines. CEO Micha Kaufman noted that Google's integration of Gemini into search directly impacts referral traffic.

3. Extended Turnaround Horizon: Management states that its operational shift toward higher-value work requires at least six quarters before showing up in financial results, pushing a potential recovery into 2028.

Valuation

To me, Fiverr looks like a classic value trap. At roughly $8.55, Fiverr has a market cap of roughly $307 million and about $308.5 million of cash, bank deposits and marketable securities as of June 30. Even after subtracting around $34 million of earn-out and holdback obligations from the year-end balance sheet, the market is valuing the operating business at close to nothing.

Currently, the stock trades at about 10.5 times trailing earnings and about 7 times forward earning. I think the trailing multiples are the wrong way to look at this business right now. The earnings in the denominator include interest income on cash that has since been used to repay debt, and the free cash flow in the denominator came from quarters when revenue was growing. On the new guidance, revenue is falling close to 30% by the fourth quarter and adjusted EBITDA margins are heading toward single digits. A company trading at cash is only cheap if the cash stays on the balance sheet or comes back to shareholders, and management said on the call that it is prioritizing the balance sheet and investing in the transformation. It did not repurchase any shares in the second quarter.

If the business is breaking even or losing money on a GAAP basis while stock compensation keeps diluting shareholders, the cash per share slowly erodes, and I have seen plenty of stocks trade below cash for years in that situation. To me, this is a classic value trap, where the valuation looks statistically attractive but the business underneath it is still getting smaller every quarter.

Conclusion

Fiverr is another founder-led business and Kaufman holds a significant amount of stock which I like to see. However, that stock could prove to be worthless soon as AI tools and replace many of the easier gigs on Fiverr’s platform.

I’m out on Fiverr and think that even value oriented investors should be cautious of this one.

Thanks as always for reading and happy investing!

Any thoughts on Fiverr or any businesses you’d like me to analyze next? Drop your suggestions in the comments below:

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The Company

Garmin was founded in October 1989 in Lenexa, Kansas, by engineers Gary Burrell and Min Kao, who had worked with military satellite navigation and believed GPS could become an everyday consumer technology. The company started out as ProNav before settling on Garmin, a combination of the two founders' first names, and its first product was a GPS unit that sold for $2,500. The U.S. Army became its first customer in 1991 and the company went public in December 2000. Today Garmin runs its operations out of Olathe, Kansas, is legally domiciled in Schaffhausen, Switzerland, employs roughly 23,000 people, and is led by CEO Cliff Pemble, with Min Kao still serving as chairman.

Garmin has five segments. Fitness, at 34.5% of first half 2026 revenue, covers running and multisport watches like the Forerunner line, Edge cycling computers, smart scales and the new screenless CIRQA smart band. Outdoor, at 23.8%, includes adventure watches such as the fenix and Instinct lines, handheld GPS devices, inReach satellite communicators and golf products. Marine, at 18.4%, sells chartplotters, sonar, trolling motors and Navionics charts. Aviation, at 14.1%, supplies flight decks and avionics to aircraft manufacturers and the aftermarket, and Auto OEM, at 9.1%, builds infotainment and cockpit systems for automakers.

Zooming out, the long-term record is excellent. Revenue grew from $5.23 billion in 2023 to $7.25 billion in 2025, an increase of nearly 39% in two years, and 2025 operating income came in at $1.88 billion with diluted EPS of $8.59. Garmin carries no long-term debt and ended the second quarter with about $4.4 billion of cash and marketable securities. Clearly, there is a lot to like about this company, which is exactly why I think the valuation deserves a harder look.

Fitness In Focus

Of Garmin’s five different reporting segments, the Fitness segment continues to outshine the others as it brought in the most revenue and reported the highest year-over-year change, as you can see below:

One of the biggest product releases in the Fitness segment was Garmin’s new CIRQA Smart Bands. This is a screenless product that offers wellness and fitness insights without requiring a subscription. Garmin’s management team noted the results so far were “very, very strong.” Personally, I love this idea, as I think many consumers are sick of looking at screens, so this kind of product shows how well Garmin continues to innovate. I believe it also increases the company’s TAM, as this type of product speaks to a different type of clientele.

Outside of the CIRQA launch, Garmin also acquired TrainingPeaks and TrainHeroic in July. These are training platforms for players and coaches. When speaking about TrainingPeaks and TrainHeroic and how these platforms will fold into the Fitness segment, here is what Garmin’s CEO Clifton Pemble had to say on the Q2 earnings call:

The synergies we’re thinking about in TrainingPeaks and TrainHeroic really has to do with our product line and the ability to offer what I would call a 360-degree experience for our customers where using our devices, they record information that is then loaded into the training platform and coaches are able to review that and provide recommendations, which then modifies the behaviors of the users. So we feel like that’s a fantastic thing to achieve to be able to give a full experience to our customers of training and improvement.

Like the prior quarter, the Outdoor segment once again was the lone segment seeing a decline in revenue. Garmin’s management team noted this segment should see better results in the back half of the year with new products like the Approach Z10, which is a rangefinder for golfers, benefiting the segment.

Moving on to international growth, I think it’s a positive that the business is also seeing continued growth in all three regions, as you can see below:

However, growth did slow in EMEA and APAC compared to the prior quarter.

Next’s let review on the Income Statement. Garmin’s revenue growth continues to outpace costs of goods sold and operating expenses, which is resulting in margin expansion and an improvement in bottom line net income and earnings per share compared to the fiscal year 2025 periods, as you can see below:

The improvement in gross margins I find particularly impressive, as Garmin has continuously expanded their margins over the past five consecutive quarters:

However, management did note that $21 million of tariff refunds did help contribute to the margin expansion this quarter. However, the team also noted they expect higher memory costs in the back half of 2026, which could impact margin levels.

Even with those higher memory-related costs, Garmin’s management is still expecting gross margins to come in at roughly 59.7% for the year, and thus they are raising their full-year guidance to $8.05 billion in revenue (compared to the prior guide of $7.9 billion).

Garmin continues to have a very strong balance sheet with more current assets than current liabilities, no long-term debt, and a growing retained earnings balance, as you can see below:

Risks

Garmin faces numerous risks but I’m just going to mention three which I think are the largest for the business:

1. Intense Competition in Wearables and Consumer Electronics: Garmin operates in highly saturated markets (Fitness and Outdoor) against tech giants like Apple, Google and other specialized fitness brands. A loss of market share or pricing power due to feature parity or aggressive discounting by competitors could compress the company's 60.1% gross margin.

2. Technological Obsolescence and R&D Execution: Garmin’s business model relies on continuous innovation across diverse segments like Aviation and Marine. Failure to keep pace with rapid advancements in software, sensor technology, or autonomous systems could render existing product lines obsolete, threatening the company's 27.6% operating margin.

3. Cyclicality of Discretionary Spending: A significant portion of revenue is derived from premium consumer products (Marine, Outdoor, Fitness). Economic downturns typically lead to reduced consumer spending on non-essential luxury or hobbyist equipment, which would directly impact revenue.

Valuation

At about $285, Garmin trades at roughly 28 times management’s 2026 pro forma EPS guidance of $10.00 and about 29 times trailing GAAP EPS of $9.69. On cash flow the picture is less friendly. After subtracting roughly $4.4 billion of cash and marketable securities, the enterprise value is around $50 billion, or about 36 times the $1.4 billion of free cash flow management expects this year, which is a free cash flow yield on the market cap of only about 2.6%. The dividend yield is about 1.5%.

To test what the price implies, I ran a reverse discounted cash flow model starting from the $1.4 billion free cash flow guide, using a 10% discount rate, a 3% terminal growth rate and a ten-year forecast period, and then added back the net cash. Garmin would need to grow free cash flow at roughly 15% a year for a decade to justify the current share price:

For context, revenue growth is guided to about 11% this year, the four segments outside of Fitness are growing around 5%, and free cash flow itself is only expected to grow about 3% in 2026. If I assume free cash flow can compound at 11% for ten years, which I still think is generous, the model gives me about $216 per share. From another viewpoint, at 22 times the 2026 guide the stock would be around $220, and even at 24 times, which is roughly its five-year average forward multiple, it would be around $240.

To me the stock is pricing in a decade of mid-teens growth from a company that is guiding to a slower second half.

Conclusion

I want to be clear that I am not questioning the quality of this business. Garmin has no debt, about $4.4 billion of cash and securities, a founder-built culture of engineering and vertical integration, a dividend that keeps growing and a Fitness segment that keeps winning. Products like the CIRQA band and the TrainingPeaks acquisition show management is still finding new ways to grow, and that is a big part of why I remain a fan of the company.

My issue is simple and that’s outside of Fitness the business is growing at about 5%, the record second quarter margin was helped by a tariff refund and a lower warranty accrual, management’s own guidance implies second half operating income growth of about 5%, free cash flow is guided nearly flat as capital spending doubles, and the share price requires something close to 15% annual free cash flow growth for ten years.

I would rather own Garmin at a price that leaves room for a normal year, so I am rating the shares a Sell. I would become more constructive closer to $220.

Thanks again for reading and happy investing!

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As a parent, I get ideas from my kiddos to see what they are interested in. Build-A-Bear Workshop (BBW) is one store my kids love to visit every time we go to the mall and I have on special occasions purchased a stuffy or two.

Aside from my children constantly bugging me about visiting the store, BBW also came on my radar when Michael Burry had some of his company to his position.

The business is having a rough 2026 as weak traffic in the first half of 2026 has led to downward revenue revisions. Let’s see if this correction in BBW was overdone or if they are ongoing concerns for this kid-friendly business!

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The Company

What I like about Build-A-Bear is that the brand has real staying power. Nearly 30 years in, the make-your-own experience still means something to kids, parents, and a growing group of teen and adult collectors. Here are some facts of BBW illustrating the company’s brand power:

Management’s plan leans on location expansion, wholesale and licensing, and gifting, which to me are sensible ways to stretch a well-known brand further. Partner location growth is a vital part of BBW’s expansion efforts. Below you can see partner locations (with companies like Carnival Cruise Lines and Great Wolf Lodge) have continued to grow over the last few years:

Financials

Moving on to the financials, this is where my enthusiasm cools off. Looking across the last three quarters, revenue went from growth of 2.7% in Q3 of fiscal 2025, to a 2.4% decline in Q1 of fiscal 2026, to a 7.2% decline in Q2 to $115.3 million. The detail that gives me the most pause is the breakdown of net retail sales, as existing stores added $0.5 million in Q3 of last year, subtracted $7.5 million in Q1, and then subtracted $10.9 million in Q2. Digital sales, which management calls its single largest store, declined in all three quarters as well, and Europe swung from 12.8% growth to a 15.9% decline over the same stretch.

Profitability tells a similar story once the one-time items are removed. Q1 looked strong on paper, with gross margin jumping to 63.8%, but most of that came from a $10.4 million benefit tied to IEEPA tariff refunds after the Supreme Court ruling, including $7.0 million related to prior-year costs. Excluding that $7.0 million, pre-tax income fell about 18% in Q3 of last year, 14% in Q1, and 24% in Q2. Retail gross margin also fell 360 basis points in Q2 to 54.0%, and management pointed to occupancy cost deleverage and more promotional activity as the reasons.

Furthermore, I would argue that Q2’s $0.70 of diluted EPS still flatters the underlying business. SG&A fell from $56.4 million to $51.4 million, but the company attributes that mainly to lower incentive compensation, which I do not view as a lasting source of savings. Some of the remaining inventory-related tariff benefit and interest on the refund also flowed through the quarter. On top of that, the diluted share count fell 5.4%, so EPS declined about 25% while net income declined about 29%.

Lastly, cash flow has moved in the wrong direction. Operating cash flow was $26.1 million in the first half compared to $32.0 million a year ago, while capital expenditures more than doubled to $15.4 million. That left free cash flow of $10.7 million versus $25.7 million in the prior-year period, and cash on hand fell to $14.0 million from $39.1 million. The company still has no borrowings, which I appreciate, but these trends are not what I want to see from a business I would consider high quality.

Burry’s Take

As I mentioned above, legendary investor Michael Burry recent took a position before Q2 earnings. After the subpar results, here is what Burry had to say, “In my view, the takeaways from earnings are the commercial revenue guide down to flat, from +20% previously, as well as both the Walmart (WMT) non-renewal and international franchising falling by a third. This suggests strategy failure.”

Then Burry went onto to state, “I spy an atypical turnaround dance. There is a bit of a kitchen sink feel to the quarter, but that impression does not hold up very well to a review of the financials. No impairment charges, inventory write-downs.”

I agree with Burry there is a risk the company’s strategy is failing and there are some other serious risks which I’ll get into next.

Risks

The first is consumer demand, as the company warns that consumer interests can change rapidly and that its results depend on generating interest in the interactive experience. With summer merchandise missing, existing-store sales falling faster each quarter, and e-commerce shrinking, I think it is fair to wonder whether the collector wave that powered 2024 and 2025 is cooling. The business also relies on licensors like Sanrio, Disney, and Pokémon for a meaningful part of its appeal.

The second is tariffs and supplier concentration. Five vendors supplied 75% of merchandise in fiscal 2025, up from 69%, and sourcing is split roughly 51% China and 44% Vietnam. The IEEPA refund was a nice one-time lift, but the administration has moved to collect tariffs under other laws, and guidance already assumes an effective tariff rate of about 12.5%.

The third is the store footprint itself. Some leases include termination provisions if stores miss sales thresholds, and U.K. leases include rent reviews that can only move upward. With the company leaning into longer extensions, I think occupancy deleverage could stick around longer than investors expect if traffic does not recover.

Lastly, there is capital return and leadership risk. The company explicitly warns that weaker results could restrict buybacks or the dividend and that its borrowing base depends on inventory and receivables, which matters more with only $14.0 million in cash. Chris Hurt also became CEO in June, and guidance has now been lowered twice this year. Of all these, demand is the risk I will be watching most closely, as the others become far more manageable if traffic returns.

Valuation

With roughly 12.3 million shares outstanding at $25.71, Build-A-Bear has a market cap of about $317 million and an enterprise value of about $303 million. Management now expects fiscal 2026 revenue of $500 million to $525 million and pre-tax income of $60 million to $68 million, or $53 million to $61 million excluding the prior-year portion of the tariff refund. At the adjusted midpoint and a 24% tax rate, I get about $3.50 in EPS, which puts the stock at roughly 7x earnings with a 3.6% dividend yield.

From a quality standpoint, the returns are still respectable. Even treating the store leases as debt, I estimate return on invested capital was around 20% last fiscal year and is tracking closer to the mid-teens this year. Free cash flow was $39.5 million last year, or about 76% of net income, but first-half conversion has fallen to roughly 40%. If the back half resembles last year with the lower capital spending management has guided to, I think free cash flow could land somewhere between the mid-$20 millions and $30 million, which would be a yield of roughly 8% to 9%.

The issue for me is that a low multiple is only a bargain if the earnings hold up. Guidance implies second-half pre-tax income of $24.5 million to $32.5 million compared to $32.3 million last year, so even the high end is flat. If existing-store declines continue and pre-tax income slides to around $45 million, EPS would be about $2.80, and at 7x that is roughly $20 per share. If the company lands near the low end of guidance at about $55 million, EPS of around $3.40 at 8x gets me to about $27, which is close to today’s price. If traffic stabilizes and pre-tax income recovers to around $65 million, EPS of about $4.00 at 10x would be about $40.

Conclusion

While I think there’s promise with Build-A-Bear, I do think there are plenty of risks at the moment especially as it relates to strategy and the change in management. I’d like to see the company’s Q3 filing to see if traffic improves as management has told us should.

For now, unlike Burry I’m not in a hurry to add BBW and will wait at least for Q3 before I decide if this is a stock worth owning.

What are your thoughts on BBW?

As always, thanks for reading and happy investing!

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I’ll admit I’ve been burned on apparel companies as sold my Nike investment last year after the company’s under performance and management change. While it’s a fantastic company, the business mishaps by the prior management team (DTC vs Wholesales decisions) won’t be easy to undo.

Today, I’d like to discuss a COVID darling that has crashed and burned as of late and that’s Lululemon (LULU). While, I have been tempted at various points to “buy the dip” I don’t see the light at the end of the tunnel for the business.

Let’s dive in as I share why even value investors may want to steer clear of this one.

Recent Events

LULU is getting investor attention because of their new release earning which was far from stellar.

The stock fell roughly 20% after the company reported second quarter fiscal 2026 results on September 3 and now trades near $102, against a 52-week range of $97.99 to $225.98 and roughly 80% below the December 2023 high of $511.29. Market capitalization is down to about $11.3 billion. On the company's own updated full year guidance the shares change hands at under 11 times earnings. To an investor this may seem like a steal for a “premium” brand company, but let’s dig in further.

Revenue of $2.416 billion was down 4.3% from $2.525 billion, and comparable sales fell 9%, or 10% in constant dollars. Everyone has seen those figures by now. The revenue disaggregation tables inside the filing are the part I think most investors are skipping.

Three things stand out to me.

1. The only channel that grew is the one I least want to see growing. Company-operated stores fell 6.5% and e-commerce fell 5.9%, while the “other” bucket, which is where outlets, warehouse sales, wholesale and temporary locations sit, grew 10.9% and moved from 11.0% of revenue to 12.7%. When the full-price channels shrink and the clearance-adjacent channel grows, that is the markdown story showing up in the revenue line rather than only in the margin commentary.

2. Canada was down 11.0%, which is worse than the 8.0% decline in the United States. The weakness keeps getting framed as an American consumer problem tied to the social media commentary in the spring, and there is probably something to that, but Canada is the brand's home market and it is falling faster.

3. The international story is thinner than it looks. China Mainland revenue rose 3.6% in dollars, which reads as the one bright spot left, and yet comparable sales there were down 8% on a constant dollar basis. The gap between those two numbers is new stores and a weaker dollar, not demand. Rest of World grew 4.7% in dollars with comps down 3%, which is the same situation with a smaller number attached.

I would also flag that accessories and other categories fell 13.4%, as that is usually the first line to go when a brand loses the impulse purchase.

Financials

The earnings beat is where I part company with the bulls most sharply.

lululemon received $134.5 million of IEEPA tariff refunds in the quarter plus $4.1 million of associated interest, and the company itself says that added 560 basis points to both gross margin and operating margin and $0.86 to diluted EPS. Here is what the quarter looks like with and without it.

Reported gross margin rose 202 basis points to 60.5%, which on its own is the kind of number that builds a bull case in a quarter when revenue declined. Strip the refund out and gross margin is roughly 55.0%, down about 355 basis points. Operating margin looks worse still on the same treatment, at roughly 13.2% against 20.7% a year ago, which is a decline of about 750 basis points.

While the refund is real, it’s not evidence that merchandise economics improved. The contingencies note is explicit that future refund amounts are uncertain and that no additional assets were recognized as of August 2, 2026, so the company itself declined to put another dollar of this on the books.

Also, two other things have me cautious. SG&A grew 5.7% to $1.006 billion while revenue fell 4.3%, pushing the expense ratio from 37.7% to 41.7% of sales, and corporate and unallocated costs rose 11.4% in the quarter and 9.1% for the first half. The business is adding overhead into a shrinking top line.

The earnings decline is also being flattered by the buyback. Net income fell 11.2% to $329.2 million while diluted EPS fell only 5.8% to $2.92, as the share count dropped 5.7%. lululemon spent $695.1 million on repurchases in the first half against $312.2 million of free cash flow, and cash fell from $1.807 billion to $1.390 billion. There is no debt problem here, but roughly half of the EPS defense is being funded out of the cash pile.

All in all, I’d say there is not much in this quarter that I would call encouraging.

Risks

Let’s touch on a few of the biggest risks I see moving forward for the business:

Supply Chain and Inventory Management: As a retailer with a global footprint of 574 stores and a significant Direct-to-Consumer segment, Lululemon faces risks related to manufacturing disruptions, rising logistics costs, and inventory obsolescence. Inefficient inventory management could lead to heavy discounting, directly impacting the 18.3% operating margin.

Brand Dilution and Competitive Positioning: Lululemon operates in a highly saturated athletic apparel market. Failure to maintain its premium "lifestyle" brand image or inability to differentiate from lower-cost competitors could erode its strong 55.7% gross margin, forcing price concessions and damaging long-term profitability.

Execution Risk in Diversification: The company’s expansion into new categories like footwear and interactive fitness platforms requires significant capital allocation. If these initiatives fail to achieve scale or provide adequate returns on the 32.5% return on capital employed, it could drag down overall corporate efficiency and shareholder value.

Management Turnover: Heidi O'Neill takes over as chief executive officer and her Nike background in product and brand makes her a solid choice but it takes time and effort to change course. Sometimes the effort can be more than expected, just look at Elliott Hill at Nike for example.

Valuation

After this quarter, full year fiscal 2026 guidance is now $10.35 to $10.50 billion of revenue, a decline of 5% to 7%, with diluted EPS of $9.48 to $9.73. At $102 that is about 10.7 times the guidance midpoint. Back out the $0.86 tariff refund benefit that is already sitting inside the guide and it is about 11.7 times. For a business that was earning mid-30s segment operating margins in the Americas as recently as last year, neither of those multiples is demanding.

The problem is that the denominator will not sit still. Management guided full year revenue down 1% to flat in Q1 and down 5% to 7% one quarter later, cutting the EPS midpoint about 13% in the same step, and Q3 is now guided to revenue of $2.29 to $2.32 billion with EPS of $0.93 to $0.98. A cheap multiple on a number revised down twice in six months is a moving target, not a margin of safety.

To me this is the standard turnaround valuation trap, where the multiple looks statistically attractive and the earnings base underneath it is still sliding.

Conclusion

LULU still generates real profit and holds $1.39 billion of cash with no long-term debt, so this is not a solvency argument. It is a simpler one. Revenue is falling, Americas comps are down 12%, the full-price channels are shrinking while the discount channel grows, unit costs and lease commitments are both rising, the margin beat came from a refund that will not repeat, and management has cut its own numbers twice.

While the management change is certainly needed, I can’t allocate funds to a business continuing to decline with no end in sight. While this business may be one that creates items consumers love, it is not a business I want to invest in.

Thanks as always for reading and happy investing!

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For this week’s article, however, I want to touch on what some big investors are buying. I always like to look at 13F filings and see what “super investors” are buying and to see if there’s kind of a consensus or popular picks.

Again, I’d like to just caution everybody to do their own research, since even though these are highly touted investors, they obviously make mistakes as well.

So, looking at the latest 13Fs for Bill Ackman, Chris Hohn, Terry Smith, and Pat Dorsey, I’ve come up with a list of three stocks that I think are the top-quality buys amongst this group.

Of this list, I’d say Ackman is probably the most outspoken and most well-known. He has had successes with companies like Brookfield and Chipotle.

Terry Smith is one of my favorite investors to follow because I love his mantra, which is basically 1. Find great companies 2. Buy at a reasonable price and 3. Do nothing after you acquire them. I think it is a sound strategy. I really enjoyed his book, Investing for Growth. However, Smith has come under some fire lately because his portfolio hasn’t done great since the COVID pandemic, and there’s definitely some high turnover in his account. But, he’s made some exciting new acquisitions that I think could be pretty promising.

Pat Dorsey kind of follows a similar Buffett-type approach that he likes to find quality businesses that “ any idiot can run.” Dorsey’s got a small, highly concentrated portfolio.

Hohn has a small and concentrated portfolio as well, focused on names that are, maybe you might argue, anti-AI plays or monopolies or duopolies in companies with a very strong position within their current market.

Now, below is a list of the portfolio changes in Q2 2026 for these super investors.

Chris Hohn’s Portfolio:

Pat Dorsey’s Portfolio:

Terry Smith’s Portfolio:

Bill Ackman’s Portfolio:

You’ll see a handful of similar names on this list but now I’ll go over the three I’d argue are the most similar or I should saw, these investors all feel are good buy candidates.

1. Uber

Uber is easily the one these super investors all have the highest conviction in. Ackman upped this position so the fund’s second largest position. Smith added in to his portfolio (it’s not his sixth largest holding) and Dorsey significantly added to his position as well.

I’m not going give an in-depth analysis for each of these picks but I’ll give a bull/bear overview.

Bulls Case

• Uber’s role as the premier ridehailing and delivery demand aggregator positions it as the perfect partner for autonomous vehicle companies looking to scale AV fleets and achieve high utilization rates.

• Strong core user base growth reinforces Uber’s network effect, generating a virtuous cycle where more riders on the platform encourage more drivers to join the platform and vice versa.

• Uber’s large user base provides rich data for further improvement to supply demand matching algorithms, enhancing its proprietary fleet management software and value proposition to AV companies.

Bears Case

• AV companies have a superior cost structure because AV companies do not need to pay drivers. AV companies will develop exclusive applications and effectively cut Uber out of the entire market.

• Uber’s value proposition to AV companies is fragile and concentrated on lower-margin fleet management services like charging and cleaning.

• Ridehailing is still a relatively new industry, which leaves plenty of room for increasing regulations. The mandatory classification of gig workers as full-time employees could compress margins and hurt the company.

2. S&P Global Inc.

Dorsey, Hohn and Ackman all hold S&P Global Inc. Ackman added this company to his portfolio in Q2 and Dorsey and Hohn upped their positions (5th largest holding for both Dorsey and Hohn).

Bulls Case

• Ratings revenue, which has high incremental margins, has often surprised to the upside, such as in 2020, 2021, and 2024. In addition, refinancing walls could support stronger than expected issuance.

• The spinoff of Mobility (Carfax) may strengthen management’s focus and accelerate organic subscription revenue growth.

• S&P Global’s benchmarks are difficult to displace and value-based pricing could result in a greater than expected pricing power and margin growth.

Bears Case

• Higher interest rates, corporate deleveraging, and increased spreads could lead to a decline in bond issuance, which would weigh on ratings revenue. Notably, spreads in 2024 and 2025 for high-yield were lower than usual, indicating relatively loose credit conditions.

• Market intelligence faces a variety of competitors such as FactSet, LSEG, and Bloomberg, and a tougher macro environment could elongate sales cycles. Also, the rise of AI could lower the barrier to entry for competitors.

• The rise of private credit poses a challenge for rating agencies, as private credit is often unrated.

3. Netflix

To be honest, this was a tough choice going with Netflix because there were a handful of other options. Visa, Mastercard, Google, and Meta were other popular buys for these super investors but as I more closely align with Ackman and Smith I’m going with Netflix as both of these investors initiated a position in Netflix in Q2 2026.

Bulls Case

• Netflix has already attracted a massive customer base and level of profitability. This advantage versus competitors makes it more likely a virtuous cycle can continue, with Netflix securing more content that attracts and holds more subscribers.

• Advertising-supported subscriptions open Netflix to a wider pool of subscribers and a major new source of revenue.

• Netflix has significant room to grow in international markets where it has already shown promise with local content.

Bears Case

• Netflix faces competition that it has not had to deal with in the past. As consumers have more options for quality streaming services, it’s more likely that Netflix could get cut out of some consumer budgets.

• Netflix’s US business is mature, with very high penetration of total households, meaning price increases may need to be a bigger component of future growth.

• Netflix will need to spend more on content—through sports rights and local international investment—to increase membership and prices at rates it has historically, when it worked from a lower base and with less competition.

My Two Cents

I think these are all solid selections, although to be clear I don’t own Uber, S&P Global or Netflix. Of the bunch, the one I’m most interested in is S&P Global. Three of these four super investors own and it’s a larger position for them (outside of Terry Smith). I think of the three it has the most durable moat as well so I plan to do more digging into S&P Global.

That’s all for these week. If you’d like a deep dive into any of these companies drop a comment below.

Happy Investing!

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Likely, while many people know NerdWallet, investors might not be familiar with this small-cap stock.

Let’s dive in to see if this a business worth investing in or just using for financial advice.

The Company and Management Team

NerdWallet is on a mission to provide clarity for all of life’s financial decisions. The company provides financial guidance to consumers as well as small to mid-sized businesses (SMBs).

If an individual searches for a phrase such as “What’s the best credit card for travelers?” on Google, likely NerdWallet will be the top of one’s search results.

I’ve used NerdWallet when researching financial topics such as credit cards or high-yield savings accounts and have found the results very satisfactory.

NerdWallet generates essentially all of their revenue through fees paid by financial services partners. These partners pay when a consumer satisfies certain criteria. For example, signing up for a new credit card or an auto loan.

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NerdWallet was founded by Tim Chen and Jake Gibson back in 2009. Chen has been the CEO of the company since it was founded.

John Lee is the current CFO of NerdWallet. Lee was previously the CFO at Divvy Homes.

As you can see from these Glassdoor ratings, NerdWallet is viewed as decent place to work. Additionally, employees at the company mostly seem to approve of Chen as the CEO.

These aren’t stellar reviews but NerdWallet has a history of layoffs which I think accounts for many of the negative reviews.

I like company founders with skin in the game and the belief their company is bound to succeed. As of the latest proxy filing, Chen only holds roughly 4.5% of the NerdWallet's Class A shares and he hold all the Class B shares. So Chen is certainly invested in NerdWallet and the company’s future.

Let’s discuss that future because AI is certainly changing the way consumers search for information.

Fighting for Eyeballs in the Age of AI

Google and other search engines are increasingly answering financial questions directly on the results page with AI generated summaries. Every question resolved there is a click NerdWallet doesn’t get and a referral fee it doesn’t earn. NerdWallet is a brand consumers recognize and trust, but the company has to evolve to stay relevant in a world where the front door is being closed.

On the company’s Q2 earnings call Chen made it clear the business isn’t sitting idle during this AI movement as he stated:

We're in the middle of an AI transition that is changing how people get their answers to their money questions, making now an important time to check in on our long-term objectives. We're investing in building owned audiences by vertically integrating in some areas and by improving how we register and re-engage with users in others. While the story is still being written, we are confident because of the assets we have in place: a trusted brand, a large audience, healthy financials, and a strong team on an important mission. The success we are seeing in vertical integration plays across our brokering and advisory business lines is giving us conviction to start investing incremental marketing dollars based on internal rate of return, or IRR, targets rather than solely on in-quarter profitability. For the full year 2026, we expect to grow this incremental investment fivefold versus 2025.

That last sentence is the one that matters. Chen is saying the company will spend heavily on marketing to buy customers directly rather than waiting for Google to deliver them, and it will judge that spending on whether it pays back over several years rather than on whether it makes this quarter’s profit look good. IRR is just the annualized return the company expects to earn on each marketing dollar. Fivefold is a lot.

Numerous questions were asked by analysts on the call about this decision. Management stated they felt confident that in the long run these investments would pay off, as being a trusted brand will create a sticky consumer that comes back to NerdWallet for their financial needs. Time will tell if the spending pays off, but I would agree NerdWallet needs to do something, because both revenue and bottom line growth are slowing. Let’s get into those figures now.

Financials

In Q2 2026, the company had revenue of roughly $197 million, an increase of 6% over the prior year. Consumer revenue for the quarter was approximately $175 million, an 8% increase compared to Q2 2025. Meanwhile, the business generated just $22 million from its SMB user group, an 11% decline from the prior year.

NerdWallet relies on plenty of outside factors it doesn’t control, such as policy rates and broader consumer sentiment, since both determine how eager banks are to lend and how eager consumers are to borrow. Even allowing for that, the business is trending in the wrong direction, as revenue growth continues to decelerate and operating margins continue to compress:

Those two lines are the entire debate in one picture. Revenue growth has fallen from 24.1% to 5.6% over five quarters, and the operating margin has gone from 16% last September to 3.5% in June.

The margin drop is not an accident, and it’s not a cost overrun. As you can see below, marketing spend increased sharply compared to the prior year, and that was the big factor behind the drop in both operating and net income:

It’s worth sitting with those numbers for a moment. Sales and marketing rose about $17 million year over year while revenue rose about $10 million. In other words, the company spent more than a dollar of incremental marketing to bring in each incremental dollar of revenue this quarter. That’s the cost of the strategy Chen described, and it’s why operating income fell to $7.0 million from $10.7 million a year ago. Net income landed at $4.3 million, or $0.07 per share, against $8.2 million and $0.11 a year earlier.

One thing shareholders can appreciate is that the company keeps buying back its own stock, repurchasing $23 million worth in the quarter and more than $160 million over the last twelve months. The effect of these buybacks has has been substantial as shares outstanding fell to 63.9 million at June 30 from 71.3 million at the end of 2025.

Management expects Q3 2026 revenue in the range of $244 to $260 million and non-GAAP operating income in the range of $29 to $37 million.

For the full year, NerdWallet guided to non-GAAP operating income of $90 to $105 million, a slight cut from the prior guide of $95 to $110 million. Note that the Q3 revenue guide implies roughly 17% growth at the midpoint, a sharp acceleration from the 5.6% just posted. Management is telling us the back half looks quite different from the June quarter.

The balance sheet, meanwhile, is in wonderful shape. There’s no long-term debt, and current assets comfortably cover all current liabilities:

There's a lot to like on that balance sheet, but this is a business with a genuinely uncertain future, and I want to lay out the risks plainly and cover the three biggest risks I see with NerdWallet.

Risks

AI-assisted search is a monster threat: Consumers are leaning on AI overviews and chatbots more and more, and every answer delivered on the results page is a click NerdWallet doesn't get. Chen and his team are combating this with marketing spend, hoping the returns ultimately justify it. As NerdWallet is a trusted brand with high-quality information, I think consumers within their ecosystem would return after a successful visit. But the company's own filings are candid that traffic declines have already happened and that the fix is unproven, which is not a risk you can wish away.

AI also multiplies the places consumers can get financial answers: While NerdWallet could create a stickier consumer, AI is also leading to more and more places where people find financial information. The positive for NerdWallet is that it's a known entity, so people trust the site and the information provided. Many content creators on sites like Instagram and TikTok are chasing clicks and growing their individual brands, and I'd say much of that content isn't as trustworthy as NerdWallet's. If NerdWallet can keep its brand relevant and get in front of younger audiences, the marketing dollars will be well spent.

Concentration of revenue from financial partners: A significant portion of revenue is derived from a limited number of financial services partners. If key partners reduce their marketing budgets, tighten credit underwriting standards, or terminate affiliate agreements, NerdWallet’s revenue could face immediate and material declines.

Valuation

For this company I think price-to-sales is the most useful valuation metric. The P/S ratio compares the company’s market value to its annual revenue, and it’s the right tool here because NerdWallet’s earnings are being deliberately suppressed by the marketing investment. Profit-based measures make the business look worse than it is right now, while revenue keeps growing and cash flow remains healthy.

On that measure, the stock sits near the cheapest levels of its short public life. NerdWallet’s trailing P/S sits at roughly 0.8x against a five-year average of 1.5x, which puts it firmly in attractive territory:

The bands on that chart are worth reading closely. For the stock to trade back at its own five-year average multiple it would need to be near $19.57, and even the level the chart treats as cheap sits around $15.04. The shares changed hands recently around $10. That’s a wide gap, and it exists because the market has decided the revenue behind those sales is going to stop growing.

From another angle, I built a reverse discounted cash flow model. A normal DCF estimates what a business is worth by projecting its future cash and discounting it back to today. A reverse DCF flips the question and asks what growth rate the current stock price is already assuming. Using the latest free cash flow figure with a discount rate of 10% and a terminal growth rate of 2%, NerdWallet would still look undervalued even if it grew at a mere 1% per year:

Two different approaches, one based on sales and one based on cash flow, land in the same place: today’s price implies almost no growth ever again. That’s the bull case in a single sentence. Most analysts believe NerdWallet can grow at least in the mid single digits over the next few years, and if they’re right, the stock doesn’t need investors to fall back in love with it. It just needs the business to avoid shrinking.

Conclusion

Chen and his team at NerdWallet are betting that heavy marketing spend will buy them a direct relationship with customers that Google can’t take away. I understand the bet as the business needs to stay relevant and invest to combat the threat of AI overviews as it fights for clicks and consumers.

NerdWallet is a recognized brand with no long-term debt, genuine free cash flow, a shrinking share count, and a valuation that assumes the business essentially stops growing forever. If NerdWallet can succeed with this marketing spend plan then the stock is meaningfully undervalued today.

But for me, I’m not willing to allocate capital on that bet because there is no evidence to say that plan will definitely work. Revenue growth has fallen from 24.1% to 5.6% over the past five quarters, operating margin has dropped from 16% to 3.5%, and the company is currently spending more than a dollar of marketing to earn each additional dollar of revenue.

Until I see evidence the plan is working I’m on the sidelines but this is a company I’ll be keeping an eye on.

Thanks for reading and happy investing!

Disclosure: This is not financial advice. Please do your own due diligence before investing.

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I recommend users listen to the podcast but if you don’t I think Slegers had a great quote that basically said, “You can copy someone’s stock pick, but you can’t copy their conviction.”

I completely agree with that statement and so while I’m going to share the three highest conviction stocks I’m buying at the moment I’d always recommend you do your own research as well.

But first let’s review the stocks I picked in Q1 and see how they did.

Q1 2026 Picks - Google, Datadog and Perimeter Solutions

Here are the results and I’m including VOO as a means for comparison:

While I’m happy with these results I’m a long-term investor so I don’t like to think in such short-term duration.

I’m not at all worried about Google as I believe they will continue to be a leader in the AI game for years to come.

Datadog is a top-notch SaaS company, one of the few I actually believe are worth owning. Yet, I think the company is overvalued currently and thus I wouldn’t add at these levels.

Perimeter Solutions, I continue to be a big believer in, especially as we’re in a chaotic, wildfire season. With the Q2 results didn’t meet expectations, management was able to explain the shortcomings and I remain a believer in the long-term vision of this company.

Okay, next let’s jump into what I’m buying currently.

Q2 2026 Picks - Rollins, Dutch Bros, and Remitly

1. Rollins - The Anti-AI Play Finally on Sale

Key Financial Highlights

Q2 revenue reached $1,078.6 million, up 7.9%, marking the 99th consecutive quarter of revenue growth. Organic growth was 5.7%, with acquisitions adding $51.7 million.

Operating income rose just 1.5% to $201.4 million, compressing operating margin to 18.7% from 19.8%. Adjusted EBITDA of $236 million grew 2.2%, with margin down 120 basis points to 21.9%. Net income was $143.9 million (+1.7%), diluted EPS $0.30.

Termite and ancillary grew 8.9% organically and commercial grew 7.2%, but residential managed only 3.6% and franchise revenue fell 7.4%. Clearly the big issue was with residential.

Guidance

Management cut the outlook to at least 6% organic growth (acquisitions adding 2% to 3%) with at least 10% incremental margins, weighted toward Q4. Cash conversion is still expected above 100% for the year but as CFO Will Harkins put it plainly, demand softened while the cost structure stayed the same.

Key Takeaways

Rollins has always been a stock trading a premium valuation but now thanks to some softer than expected demand the market is turning on this compounding machine.

Say what you will but bugs will continue to show up and that makes this is a resilient business. One that has steadily continued to generate more revenues and operating profits (thanks to successful acquisitions) as you can see below:

While demand is soft, this is a business with a massive moat and I am confident Rollins’ management team can turn things around.

2. Remitly (RELY) — The Quiet Profit Inflection

Key Financial Highlights

Q2 revenue was $495.2 million, up 20.2%, with first-half revenue of $948.0 million, up 22.6%. Send volume rose 27% to $23.5 billion, and quarterly active customers crossed 10.2 million for the first time, up 20%.

Q2 operating income swung to $66.7 million from $14.6 million, a 355% increase, lifting operating margin to 13.5% from 3.6%. First-half operating income went from $26.9 million to $120.4 million. Adjusted EBITDA of $114.7 million grew 79%.

One noteworthy item is while the GAAP net income numbers looks great at approximately $206 million, it includes a $141 million tax benefit.

On the balance sheet, Remitly has $676.4 million of cash, up from $542.4 million at year end, with no meaningful debt.

Guidance

Raised again. Full-year 2026 revenue of $1.978 to $1.988 billion (21% to 22% growth) and adjusted EBITDA of $410 to $415 million. Q3 revenue guided to $505 to $507 million with adjusted EBITDA of $92 to $94 million.

Key Takeaways

Investors will appreciate that stock based compensation is actually dropping. First-half share-based comp dropped to $62.0 million from $73.9 million, down 16%, while revenue grew 23%. SBC is now about 7% of revenue, 28 basis points lower than a year ago. Shares outstanding are 212 million, up only 3%, and the company repurchased roughly 4 million shares year to date. For a company that once diluted holders aggressively, this is a genuine character change.

Lastly, stablecoins continue to a risk worth mentioning. This is a risk Remitly’s management team is certainly aware of though as Remitly joined OpenUSD as a founding member and launched a stablecoin wallet with a debit card in Latin America.

3. Dutch Bros (BROS) — Beat, Raise, and Sell-Off

Key Financial Highlights

Q2 revenue was $550.9 million, up 32.5%, with first-half revenue of $1,015.3 million, up 31.7%. Company-operated shop revenue grew 34.0% to $510.0 million while franchising and other grew 15.6% to $40.8 million.

Operating income rose 28.8% to $70.4 million, adjusted EBITDA grew 27.8% to $113.7 million, and net income attributable to Dutch Bros rose 46% to $37.4 million ($0.28 diluted EPS). SG&A grew 23.3% against 32.5% revenue growth, real leverage. Operating margin slipped modestly to 12.8% from 13.2%.

First-half operating cash flow was $196.9 million, up 55.3%, against $129.3 million of capital expenditure. The company opened 48 shops in the quarter, reaching 1,225 locations (888 company-operated, 337 franchised).

Guidance

Raised across the board: revenue of $2.10 to $2.13 billion, same-shop sales growth of 5% to 6%, adjusted EBITDA of $385 to $390 million, capex of $350 to $370 million, and at least 185 system shop openings. Guidance excludes any Salad and Go contribution.

Key Takeaways

While Company-operated comps rose 8.3% and system-wide comps rose 5.8%, what likely caused sell-off (or at least contributed) were the softer transactions numbers as company-operated transactions were up 3.4% and system-wide transactions were up only 1.7%

Dutch Bros is also buying back its own franchise system. After quarter end, the company acquired 31 Arizona franchise locations for $63.5 million and signed for up to 65 Salad and Go sites across Arizona, Nevada, Oklahoma, and Texas. Buying finished drive-thru real estate rather than building from scratch should compress the time and cost per opening. That is the most interesting strategic development in the filing, and it is why the stock's big selloff looks like an overreaction to transaction growth rather than an assessment of unit economics.

Conclusion

Rollins is a top-notch company finally trading a reasonable valuation. It’s a steal at these levels and if you don’t believe me, just watch this Joseph Carlson video.

Remitly is getting cheaper as it gets more profitable and it remains a growth story I’m excited about.

Dutch Bros had a great quarter outside of the transactions news but I’m confident that this growth play will continue to delight investors. It’s a company I’ve held and bought (during dips like this one) one for years.

For patient investors these could be excellent future business to own for the long haul.

Happy Investing!

This is not financial advice. All analysis is based on publicly available information and reflects the author’s personal views. Always do your own research.

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Cybersecurity is one such industry as it’s a complex market with different providers offering different services with many protecting different aspects of an enterprise. Rather than investing in a single cybersecurity company, I think investing in the industry as a whole might be the best way to go which is why today I’m discussing the the Amplify Cybersecurity ETF (HACK). It is the oldest cybersecurity ETF on the market, it is beating both of its main rivals this year, and it sits directly in the path of one of the few spending categories that grows whether the economy cooperates or not. Let's walk through the fund, the AI demand story, and the scoreboard.

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The Fund: First to Market, Still Leading It

HACK launched in November 2014 as the first cybersecurity ETF, and today it holds about $2.66 billion in net assets across a tight 23-stock portfolio tracking the Nasdaq ISE Cyber Security Select Index. The index rebalances quarterly, uses an adjusted market-cap weighting, and charges a 0.60% expense ratio.

The portfolio is full of names many investors will know like Palo Alto Networks, Crowdstrike, Fortinet and Cloudflare to name a few. Currently, about 62% of the fund sits in systems software, the pure-play security vendors, with the rest spread across internet infrastructure, communications equipment, and semiconductors.

But here’s the underappreciated wrinkle, HACK carries a 9.3% sleeve of aerospace and defense primes, with General Dynamics and Northrop Grumman both in the fund’s top ten holdings. Many similar ETFs are not including such companies which I think is a mistake as there’s cyber warfare countries must deal with these days. America’s cyber budget has been growing at roughly 15% a year even when overall defense spending grows at 3%. Owning the contractors who build for U.S. Cyber Command alongside the vendors who protect the Fortune 500 gives HACK two ways to win from the same threat environment.

The Demand Story: AI Is the Best Thing That Ever Happened to This Industry

Cybersecurity was already a structural growth market. AI took it from structural to unavoidable, and it did so from both directions at once.

On the attack side, the numbers are startling. AI-generated phishing surged roughly 14x through late 2025 and now accounts for about half of all attacks reported by users, per Hoxhunt’s research. Deloitte projects generative-AI-enabled fraud in the U.S. will more than triple, from $12.3 billion to $40 billion by 2027. Security researchers are calling 2026 “the year of AI-assisted attacks,” and in a Cobalt survey, 97% of security professionals said they fear an AI-driven incident at their organization. The Anthropic espionage disclosure turned that fear from theoretical to operational. When a single operator with an AI agent can do the work of a hacking team, the volume of credible attacks scales in a way human-staffed defenses simply cannot match. The only answer is buying more, and better, automated defense.

On the deployment side, every company racing to roll out AI is simultaneously expanding its attack surface. Each autonomous agent is a new identity with credentials and system access that has to be secured and monitored. Gartner flagged identity and access management for AI agents as a top cybersecurity trend for 2026, which is a direct tailwind for HACK holdings like Okta, CrowdStrike, and Palo Alto. One stat from Gartner's research captures the runway better than any other: enterprises currently spend 17 times more on AI tools than on securing AI itself. That gap is not sustainable, and closing it is revenue for almost every name in this portfolio.

If you want a real-time read on the industry's mood, look at what just happened in Las Vegas. At August's Black Hat conference, demand for AI security tools dominated the conversation, and analysts came away saying AI agents have emerged as the foremost attack vector and that the overall security environment is "meaningfully worse." The market heard the same thing: CrowdStrike and Palo Alto Networks jumped 6% and 5% to record closes on August 10 as the conference wrapped, with Fortinet, Cloudflare, and SentinelOne climbing alongside them. There’s a clear takeaway which is that the threat is accelerating.

Put it together and the spending forecasts follow naturally. Gartner projects global information security spending of roughly $240 billion in 2026, up about 13% from 2025, with AI-specific cybersecurity spending nearly doubling from $25.9 billion to $51.3 billion this year alone. Zoom out further and the global cybersecurity market, around $454 billion in 2025, is projected to pass $1 trillion by 2031, a nearly 15% compound annual growth rate. Very few industries offer double-digit growth this durable, because very few industries have customers who face existential consequences for cutting the budget. Nobody ever got fired for spending too much on security after a breach year like 2025.

The Scoreboard: Beating the Competition

If you compare HACK to two other popular cybersecurity ETFs, the Global X Cybersecurity ETF (BUG) and the First Trust Nasdaq Cybersecurity ETF (CIBR), HACK is outperforming both YTD:

HACK does have the highest expense ratio of the three at 0.60% but it’s just higher than CIBR’s 0.58% and BUG’s is 0.50% which is in the ballpark.

If we compare HACK to one of my favorite ETFs - the Vanguard 500 Index Fund (VOO). You can see that HACK’s premium has been well worth it over the last three years:

Valuation and Risks

One negative is certainly that many cybersecurity stocks are trading at insane valuations as you might have guessed seeing the big spike in the above graphic from the 2026 lows to now.

For example, after some stellar Q2 results Cloudfare is now trading at roughly 44x sales (P/S) and Crowdstrike is trading near 45X sales (P/S) which are quite expensive multiples in my opinion.

These companies have to perform nearly flawlessly to justify such premium valuations. That is certainly a risk but one I think that can be fixed over time by dollar cost averaging.

The second risk is concentration. Twenty-three holdings with the top ten around 52% of assets means that single-stock risk is real. One miss from Palo Alto and the fund is hurting. Ultimately, HACK is a technology sector bet no matter how defensive the end market is.

Lastly, the AI paradox cuts both ways. The same AI that multiplies attacks also gets embedded into defense platforms, and there is a bear case that AI-native security tooling commoditizes some legacy vendors. I think the incumbents with the data and the installed base are the most likely winners of that transition, but time will tell who the winners will be.

Conclusion

The core of this thesis does not require heroic assumptions. It requires believing that AI adoption keeps expanding the attack surface, that AI-armed attackers keep raising the cost of being under protected, and that security remains the last budget any CIO cuts. Every data point from 2025 and 2026 so far supports all three. HACK gives you the category’s longest track record, its best recent performance, a portfolio that spans software vendors and defense primes, and a fee that will not eat the return.

The world is deploying millions of AI agents. Every one of them needs a bodyguard. I rate HACK is a great way for investors to get access to cybersecurity but I’d recommend a staged entry to to build the position given it’s valuation.

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Today I want to touch on why I’m still avoiding SpaceX regardless of what the results are when the company reports later today. I’ll share why I’m waiting to serious consider SpaceX for my portfolio.

Don’t Buy IPOs

First off let’s just talk about why before jumping specifically in SpaceX. Savvy investors know, IPOs are very often overpriced and this seems to result in poor performance after debuting. Academic work from Jay Ritter at the University of Florida, who has tracked IPO returns for decades, found that nearly 1,500 U.S. IPOs from 2012 through 2021 trailed comparable companies by roughly 16% to 19% over the three years after listing. His data also shows the underperformance tends to widen in the months right after lockup expirations, when insider supply finally meets public demand.

SpaceX is the largest, most hyped version of this pattern ever brought to market. Insiders chose to sell at the peak of AI enthusiasm, at a price that valued the company near $1.8 trillion. The market has already walked that back by about $350 billion. History suggests the walk is not finished.

The Insider Selling Coming Thursday

On August 6, insiders and early investors become free to sell up to 20% of their restricted holdings, as much as 911.5 million shares, worth about $100 billion at current prices. That single tranche more than doubles the tradable float, and further tranches unlock on a staggered schedule through December. A second early-release trigger, which would have freed another 10% if the stock traded 30% above the IPO price, is academic with SPCX at $108 versus the $175.50 threshold.

Employees and venture holders who watched their paper wealth get marked at $1.8 trillion have every rational incentive to diversify at $1.4 trillion. For comparison stake, when Meta's first lockup freed 271 million shares in August 2012, the stock fell more than 6% that day and kept sliding for months before the business grew into its price.

The market sees this coming. Per S3 Partners, short interest has reached roughly $24.2 billion, about 32% of the float, now larger than Tesla's in dollar terms, with borrow costs quadrupling in five weeks. To be fair, crowded shorts cut both ways, and a blowout quarter could spark a violent squeeze. That is a trading setup, not an investment case.

A Stretched Valuation Without Profits

Then there’s the clear problem I have is that the valuation is insanely stretched for a business not close to turning a profit. In 2025 the company generated $18.67 billion in revenue, up 33%, but total expenses grew 57% to $21.26 billion, producing a net loss of $4.93 billion. At roughly $1.4 trillion market cap, the stock trades near 77 times trailing sales.

The segment detail makes it worse, not better. Connectivity (Starlink) is a real business: $11.4 billion of revenue, $4.4 billion of operating profit, over 10 million subscribers. But it is the only segment that makes money. Space runs at an operating loss as Starship absorbs capital. The AI segment, folded in through xAI, produced $3.17 billion of revenue against a $6.35 billion operating loss, while consuming 61% of 2025 capital expenditures and 76% in early 2026.

Then there is the quality of that AI revenue. Alphabet, which holds roughly a 5% equity stake in SpaceX, agreed to pay up to $30 billion for cloud compute over three years, about $920 million a month. Either party can terminate after December 31, 2026 with 90 days' notice. Anthropic, itself heavily backed by Alphabet, signed its own compute deal. Strip out related-party arrangements and it is fair to ask how much third-party AI demand exists at all.

For Q2, Wall Street expects about $6.9 billion in revenue and EPS anywhere from negative $1.26 to positive $0.33, a spread that tells you analysts are no doubt guessing.

Conclusion

Regardless of the results today, I’m not looking at even consider SpaceX until 2027. By many of the lockout periods will have come to pass and investors will also have three or four quarters of audited public financials instead of one S-1 and a guess.

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Why Gen Z is looking for alternatives, one beverage in particular is seeing a rise in consumption thanks in part to young consumers looking for alternatives. That beverage is coconut water. One company that has a significant advantage in the coconut water market is Vita Coco.

Let’s dig into this mid-cap stock as I share why long-term investors might want to take a look at this intriguing founder-led business.

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The Company

Vita Coco started in 2003 when two friends, Michael Kirban and Ira Liran, got the idea of bringing coconut water to the United States after talking to two Brazilian women in a bar and hearing how much they missed the drink from their homeland. The rest is history. The Vita Coco brand is now the global leader in coconut water, and the company also sells private label coconut water to major retailers, along with coconut milk, coconut oil, and a protein-infused fitness drink under the PWR LIFT name. The company’s vision is to help their consumers “eat a little better, drink a little better, and live a little better.”

Since its 2021 IPO, the stock has soundly outperformed the S&P 500.

Let’s next discuss the company’s TAM and why Vita Coco can likely continue to grow in this niche market category.

TAM and Future Opportunities

As shown in a recent investor presentation, coconut water is now a $1.5 billion category, with consumers continuing to spend more on coconut water, as you can see below:

When I was researching Vita Coco, I honestly did wonder, “Who is buying coconut water?” and “Is this a trend like those Celsius energy drinks, or does coconut water have lasting potential?”

As you can see from the graphic below, Vita Coco has a diverse consumer base and a base that trends younger and with a higher income:

To me, I think this information is great for Vita Coco, because as I noted above, Millennials and Gen Z are consuming less alcohol than prior generations. These generations are looking for healthy, clean options, and coconut water fits the bill. Additionally, coconut water has health benefits and helps with hydration as it has 3.5 times the electrolytes of leading sports drinks. Personally, I love using coconut water in my breakfast smoothies.

In the United States, Vita Coco holds a 42% market share and the brand continues to gain momentum overseas as well:

Vita Coco’s management team also believes the brand can grow significantly international and someday account for more than 40% of total revenue:

In the quarter, Vita Coco almost purchased Copra, Inc. to add to the company’s growing market share. Here’s what Michael Kirban had to say on the Q2 earnings call about this acquisition and about the growing marketplace for coconut water:

As we’ve demonstrated with Vita Coco, investing in and mastering the supply chain in this category is key to being a market leader. Acquiring Copra today gives Vita Coco greater access to this unique coconut water sourcing area and will allow us to compete long term in the super premium cold segment with both private label and branded products. I’m very pleased to welcome Ben and Chai and their team to the Vita Coco family and look forward to helping them achieve their long-term vision. We believe this is an attractively valued asset that will enhance our ability to deliver on our long-term goals.

As we think about our brands and the category’s tremendous growth opportunities, we will continue to scale active hydration efforts across our markets as a key driver of consumer growth, positioning our brands as the natural choice for everyday performance, sport and recovery. With 3.5x the electrolytes of the leading sport drink and clean ingredients, we believe that we are well positioned to continue to recruit new consumers, increase usage frequency and unlock the next phase of sustained growth. We believe that coconut water is in the early stages of gaining mainstream appeal, a belief that is supported by the growth trends we are seeing.

I’d say this certainly sounds like a positive acquistion and Kirban remains bullish on the prospects for coconut water. Speaking of management, my readers will know I’m a big fan of founder-led companies and insider owning. Let’s discuss that next.

Management With Skin in the Game

CEO Martin Roper took over from co-founder Michael Kirban in 2022 after running Boston Beer for over fifteen years, and CFO Corey Baker arrived from PepsiCo, where he was most recently Senior Vice President of Global Finance. Kirban remains Executive Chairman, and I view that continuity as a plus. I like it when founders keep skin in the game, and Vita Coco’s most recent proxy filing shows that co-founders Kirban and Liran maintain significant stakes, as does Roper. Management has every incentive to see this business continue to thrive, and they are putting cash behind it too as the company repurchased roughly $20 million of stock in the first half of 2026.

Financials

Before jumping into the latest quarter, let’s take a look and how this company has performed over time. Vita Coco has done a stellar job growing revenue and improving upon Adjusted EBITDA as shown below:

Now to the fresh numbers, and they are impressive at first glance. Net sales increased 28% to $216 million in the quarter, well ahead of the roughly $209 million Wall Street expected. Vita Coco Coconut Water net sales grew 21% on case volume growth of 15%, and private label net sales grew 83% on volume growth of 78%, driven by distribution gains. The Americas segment grew 21% while International grew 63%. Year-to-date, total net sales are up 32% to $396 million.

Here is where it gets more complicated. Gross margin printed at 48.7% of net sales, up from 36.3% a year ago. That headline number is not the real run rate. Buried in the footnotes is a $15.6 million tariff refund, recognized as a reduction of cost of goods sold, which management quantified as a 700 basis point benefit to the quarter’s gross margin. Strip it out and underlying gross margin was roughly 41.5%. That is still excellent, and it reflects better net pricing plus lower ocean freight and finished goods costs. But the same math applies to the bottom line. Reported diluted EPS was $0.82 against a $0.54 estimate. Excluding the one-time refund benefit, I put underlying EPS at roughly $0.62. A real beat, just a much smaller one than the headline suggests.

Management raised full year guidance for the second time this year: net sales of $790 to $805 million, up from $720 to $750 million, and adjusted EBITDA of $154 to $161 million, up from $132 to $138 million. Worth noting, CEO Roper flagged that “current cost pressures” will “temporarily reduce gross margin for the balance of year,” and the company plans to step up sales and marketing spending in the second half. In other words, management itself is telling you the second quarter margin is not the new normal.

The balance sheet remains rock solid: $279 million in cash, no debt, and $97 million of operating cash flow generated in the first half.

Risks

Vita Coco lists numerous items that might impact the business going forward. I’m going to touch on a few risks noted in the company’s Risk Factors section in their most recent 10K filing:

• Supply Chain Concentration and Agricultural Dependency: The company relies heavily on a single primary ingredient (coconuts obviously). Adverse weather conditions, crop diseases, or geopolitical instability in sourcing regions could disrupt the supply chain, leading to significant cost volatility or product shortages that would directly impact the 81.6% of revenue derived from the Vita Coco brand.

• High Product Concentration: With 81.6% of trailing revenue coming from a single product category, the company is highly vulnerable to shifts in consumer preferences, health trends, or the emergence of competing functional beverages. A decline in the popularity of coconut water would surely impact the business’s top-line growth.

• Intense Competitive Landscape: The beverage industry is highly fragmented and competitive. Larger, well-capitalized incumbents or new entrants could engage in aggressive pricing or marketing campaigns, potentially eroding the company’s gross margins or forcing increased spending on customer acquisition to maintain market share.

Valuation

Start with where the multiple stands. At around $67, Vita Coco carries a market cap of roughly $4.1 billion against $279 million of cash and no debt. On trailing earnings of about $1.81 per share, the stock trades near 37 times earnings, and closer to 41 times if you strip out the one-time tariff refund. On sales, the stock trades at roughly 5.8 times trailing revenue and about 5 times the midpoint of the new guidance, against a five-year average closer to 3 times. Traditional consumer staples names typically fetch 20 to 25 times earnings. Premium branded growth stories earn more than that. The question is how much more.

History explains part of my caution. From fiscal 2021 through fiscal 2025, the market cap grew nearly five-fold while earnings per share grew about 3.4 times, from $0.35 to $1.19. Put plainly, roughly half of the stock’s return over that stretch came from earnings growth, and the other half came from investors agreeing to pay a higher multiple for the same dollar of earnings, with the trailing P/E expanding from about 32 times to about 45 times. Multiple expansion is a wonderful tailwind and an unreliable one. From here, returns have to come mostly from earnings.

The growth math cuts both ways. Earnings more than tripled over those four years, and if they keep compounding at 20% or better, today’s multiple takes care of itself: the P/E compresses into the low 20s within four years even if the share price goes nowhere, and anything the market pays above a staples multiple at that point is your return. That is the bull case in one sentence, and after this quarter it is credible. But if growth decelerates below 15%, the same math turns ugly. Slower-growth staples trade at 20 to 25 times earnings, and multiple compression alone could cost shareholders 30 to 40% even while the business keeps growing. A PEG check says the same thing: at mid-20s earnings growth the current multiple implies a PEG around 1.5, elevated but defensible for a category leader. At low-teens growth it crosses 3, and I cannot defend that.

Putting it together, this is a business that has earned a premium: returns on capital north of 80%, a debt-free balance sheet, category leadership, and real international acceleration. For a business of this quality, I am comfortable paying 25 to 35 times underlying earnings. On roughly $1.63 of trailing earnings excluding the refund, the top of that range sits near $57. Today's price is above it. Investors at $67 are paying for the optimistic scenario, where branded volumes, international, private label, commodity costs, and M&A all deliver at once, rather than for the base case.

Conclusion

Vita Coco is a solid business with exciting growth, both domestically and internationally. I like the company’s recent acquisition and love the insider ownership.

The company’s valuation is a little stretched and this point so why I’m not buying at this point I think it’s any interesting company to keep an eye on and it’s one I would seriously consider if we saw a market decline.

This article is for informational and educational purposes only and does not constitute financial advice. Always do your own due diligence before making investment decisions.

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Lee and his team launched their first ETF the Fundstrat Granny Shots US Large Cap ETF (GRNY) back in November 2024. The Fundstrat Granny Shots US Small & Mid-Cap ETF (GRNJ), and the Fundstrat Granny Shots US Large Cap & Income ETF (GRNI) were launched nearly a year later.

I’m a fan of these ETFs, particularly GRNY and GRNJ because I love Lee’s thematic investing approach. Let’s dive into these ETFs and I’ll share how these ETFs are performing compared to some similar Vanguard ETFs.

Let’s dive in!

Fund Strategy

First, let’s talk about the concept of a granny shot which is the name Lee and his team decided on for these ETFs. Basically a granny shot is an unconventional way of shooting a free throw in basketball. NBA legend, Rick Barry made this underhand way of shooting free throws popular. Barry was one of the best free shooters of all-time and the granny shot approach he used was cited as being an easier and a more consistent way one could have free throws. Lee has created his ETFs to be like a granny shot in that the ETFs have consistent, quality results, yet the funds aren’t flashy.

Every fund in the family runs the same playbook. Lee and his team maintain a set of investing themes. Currently there are three short-term themes with a six-to-twelve-month durations. These themes are style tilt, seasonality, and PMI recovery. There are four long-term themes with a three-to-five-year horizon which are Energy & Cybersecurity, Millennials, Global Labor Supply, and Easing Financial Conditions. To earn a spot in a fund, a stock must fit at least two of these themes.

To me this is a much more detailed and strategic approach to investing compared to say the ARK Innovation ETF (ARKK), where any company can be considered exciting and innovative (I mean who knew John Deere (DE) was rewriting their playbook?)

Let’s take a look at GRNY’s current holdings for example:

You can see that some stocks like Google and AMD hit multiple themes while the majority hit on two themes.

As I’m more of a growth oriented investor, I’m going to focus most of this article on GRNY and GRNJ. The next reason I like GRNY and GRNJ is due to Lee’s long-term investment themes. Particularly, I’m interested in Millennials and Energy/Cyber Security, however I think you make the argument that Global Labor Suppliers also support the AI and data center build out like Energy/Cyber security.

First, let’s discuss Millennials, which I think the “Great Wealth Transfer” is a key aspect. Now the "Great Wealth Transfer," a phenomenon where Millennials are set to inherit significant assets from retiring Baby Boomers and Gen X. This transfer is projected to see over $84 trillion change hands by 2045, with Millennials alone expected to inherit roughly $46 trillion of that total. Stocks like Robinhood will very likely see growth due to this transfer.

Moving on to Energy, Cybersecurity, and Global Suppliers, there is no doubt we’re in an AI arms race and pick and shovel plays will be winners as the large cap tech stocks continue to build out their infrastructure. This race is creating unprecedented energy needs as Global data center electricity demand is forecasted to double by 2030, reaching nearly 1,000 TWh (equivalent to the combined power consumption of Germany and France). This explosion in infrastructure makes power grid modernization and clean energy sources indispensable. Names like Caterpillar and GE Vernova are likely winners in this space.

Now that we’ve discussed why I like these ETFs, let’s jump in to see how they have performed YTD compared to some Vanguard ETFs.

The Scoreboard

Here’s how a hypothetical $5,000 invested in each fund on 12/31/25 would look YTD, separated by comparison.

One reason, I love Vanguard ETFs and have typically invested heavily in them is because of their low fees (0.03% for VOO for example). The Fundstrat ETFs are much higher as GRNI has an expense ratio of 0.99% and GRNY and GRNJ have expense ratios of 0.75%. I’m not to touch on GRNI because I obviously don’t think it’s worth it based on performance but for GRNI and GRNY these funds clearly have a higher hurdle to jump as well to get investors outsized returns that beat the market. So let’s discuss why I think these two funds have been able to succeed thus far in 2026.

Why GRNY and GRNJ Are Winning

Different fishing in different ponds so to speak, these two ETFs have been winning I’d say because they both are nailing the AI build-out. Three of Lee's themes (Energy & Cybersecurity, Global Labor Supply, and PMI Recovery) each capture a different layer of the trade: the power and grid infrastructure, the automation and productivity technology, and the cyclical manufacturing recovery supporting it all. A stock that qualifies under two or more of these tends to sit at the intersection of the strongest secular trend in the market. The result is a pair of funds that behave like AI infrastructure funds.

For GRNJ, the pond itself turned into the best neighborhood in the market. The first half of 2026 was the best first half for small caps since 1991, with the Russell 2000 climbing nearly 22% as AI infrastructure spending finally spread beyond the mega caps into the broader network of suppliers that build, power, and equip data centers. Large-cap investors had to wait for the AI trade to broaden out but GRNJ was already positioned where the money was headed. For example, Nebius provides AI cloud computing, Bloom Energy makes the fuel cells that power data centers, Sterling Infrastructure builds them, and Sanmina, Lumentum, and ON Semiconductor supply the components inside them.

GRNY, meanwhile, has shown the other virtue of the process: willingness to adjust. Earlier this year the fund was heavy into tech, with Broadcom and much of the Mag 7 occupying the top-ten slots. By the end of the first quarter, Lee's team had pivoted hard into energy, with Chevron and Texas Pacific Land carrying real weight. The selective industrials exposure has been fantastic, with names like GE Vernova and Quanta Services performing exceptionally well.

Conclusion

Tom Lee and his team have built an excellent strategy and are executing on it with genuinely impressive thematic stock selection. The growth funds, GRNY and GRNJ, are beating their benchmarks by sitting at the center of the AI supply chain and adjusting when the macro demands it.

The two-theme requirement keeps finding stocks where multiple tailwinds converge, and the quarterly rebalance keeps the whole machine pointed at the puck.

While the the underhanded shot still looks a little funny, it’s results that matter and the results are promising thus far in 2026.

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However, I think much of what’s been stated AI can achieve, especially by Dario Amodei, seems overhyped and not yet realistic. In the meantime, plenty of quality businesses have been marked down on these perceived future AI threats. DoorDash is one of them as the stock is down roughly 16% year-to-date.

I believe DoorDash is a quality business with a genuine moat in a niche corner of the market, and I'll share why long-term investors should view this dip as a buying opportunity.

The Company

DoorDash was founded by four Stanford students, Tony Xu, Andy Fang, Stanley Tang, and Evan Moore back in 2013. The company started with a few partnerships and now is one of the leaders in the delivery space, serving over 56 million in over 40 countries.

The company operates with a simple mission: "To grow and empower local economies." DoorDash pursues this by providing services that reduce friction in local commerce so merchants can better serve their customers.

DoorDash’s marketplaces serve three constituencies: merchants, consumers, and “Dashers” (delivery drivers). The result is a powerful three-sided marketplace. Consumers want selection and convenient delivery, merchants want to reach customers without building their own logistics operations, and Dashers want flexible income. Each side strengthens the others.

While DoorDash started with restaurant delivery, it has evolved into a full logistics platform that now moves groceries, apparel, convenience items, and even auto parts. A recent partnership with Dollar Tree, which brought on-demand delivery to more than 9,000 of its stores, illustrates how far the catalog has expanded beyond food.

The company has also expanded internationally through key acquisitions, most notably Wolt in 2022 and Deliveroo, which closed in October 2025. These deals added new marketplaces and dramatically extended DoorDash’s footprint abroad, particularly in Europe as Deliveroo alone brought relationships with roughly 182,000 restaurants, grocers, and retailers.

Since going public in late 2020, DoorDash has steadily grown into the delivery juggernaut it is today. As shown below, monthly active marketplace users have compounded at over 20% annually while order volume has grown at more than 30% annually:

The growth has put DoorDash in the top spot for delivery as DoorDash holds 56% market share, far above Uber Eats at 23% and Grubhub at 16%. It’s also the most popular delivery app domestically, with a slight edge over Domino’s Pizza.

The business is certainly growing at a wonderful pace and I believe will have future opportunities to continue growing which I’ll discuss next.

Moat and Future Opportunities

I believe DoorDash has a moat that continues to widen. As noted above, the company is the top player in a delivery market with few credible competitors. Membership deepens the lock-in. DashPass gives consumers access to reduced fees across an enormous merchant base, making it easy to stick with a single app. As of December 31, 2025, DoorDash had over 35 million DashPass, Wolt+, and Deliveroo Plus members, and the company reported record DashPass signups again in the first quarter of 2026, driven by both accelerating sign-ups and reduced churn.

One avenue for future growth is M&A. The Wolt and Deliveroo acquisitions took DoorDash overseas, and further deals could open new geographies or entirely new verticals. In June 2025, DoorDash closed its roughly $1.2 billion acquisition of SevenRooms, which helps restaurants manage reservations, tables, and guest relationships. The integration is already bearing fruit as DoorDash reported a significant acceleration in new SevenRooms partner signings in Q1 and expanded its Reservations product to Chicago, its fourth U.S. city. This type of acquisition could eventually make it so DoorDash takes on OpenTable or Resy in the reservation space.

Additionally, as DoorDash is similar to Uber they could make a similar play and partner with hotel venues and expand their catalog even further. When asked about if they might mirror Uber’s move on the company’s recent Q1 earnings call, here’s what CEO Tony Xu had to say:

There’s no one trick. It’s making constant and continuous improvements to the selection quality, the accuracy of the catalogs, making sure that we offer the widest choice in terms of affordability and different price points, offering certainly the best quality of experience in speed, in timeliness, in accuracy, and then obviously, in customer support, which, I think, also is having an agentic revolution in and of itself. And so you will see all of these things play out in the DoorDash product experience. The most important thing, though, is that we have to build the best end-to-end experience.

To me, this illustrates why it's a mistake to think of DoorDash as merely a delivery company. It has the optionality to enter new avenues such as travel, restaurant services, or even ride share (perhaps via a Lyft acquisition). That optionality makes DoorDash a compelling investment.

Another key growth avenue is international expansion. As of 2025, international operations accounted for only about 16% of total annual revenue, leaving an enormous runway abroad.

DoorDash certainly carries meaningful risks, so let’s address those next.

Risks

There are numerous risks for DoorDash which the company outlines in the Risk Factors section of their most recent 10K filing. I’m going to cover a few that I believe would negatively impact the business in the future.

• Dasher worker classification - Dashers are independent contractors, and regulators keep testing that model. California’s Employment Development Department issued an assessment back in January 2023 asserting that Dashers should be classified as employees, and DoorDash has recorded an accrual for the ongoing audit in its most recent 10-Q which is a signal that management views the risk as real and quantifiable. Similar investigations around Dasher pay, unemployment insurance, and workers’ compensation are active across multiple jurisdictions. A forced reclassification would raise labor costs materially and pressure the margin structure that underpins the entire model.

• Goodwill and integration risk - Goodwill and intangibles now make up roughly 39% of total assets following the acquisition spree, and the $1.98 billion of Deliveroo goodwill is not tax-deductible—any future impairment would flow straight through GAAP net income with no offset. The deeper risk to the M&A strategy is what legendary investor Peter Lynch dubbed “diworsification.” DoorDash has mitigated this so far by acquiring adjacent businesses and integrating them well, but it’s worth noting that the company exited certain Deliveroo markets in its very first quarter of ownership, taking $48 million in restructuring charges. Integration execution deserves close monitoring.

• Competition and autonomy - Uber remains the largest rival, and some argue self-driving cars and drones could eventually let merchants handle their own deliveries. However, I’d argue the logistics behind such a system would be too much for the local business. While self-driving cars and drones could be the future of delivery (ultimately hurting the Dashers), as I don’t really see food delivery (or any delivery service) really going away, the logistics and services offered by DoorDash to SMBs and large companies will still be vital.

Management

As previously mentioned, Tony Xu is one of the company’s co-founders and is the current CEO of DoorDash. Xu also serves on Meta’s Board of Directors. He holds a B.S. in Industrial Engineering and Operations Research from Cal Berkeley and earned an MBA at Stanford.

The company’s Chief Financial Officer is Ravi Inukonda. Inukonda has been with DoorDash since 2018 and started his tenure as CFO in March 2023. Inukonda previously worked at Battery Ventures and Goldman Sachs.

I am a big believer that culture can play a factor in the long-term results for a company and research has proven the best companies to work for have beaten the overall market. The Glassdoor reviews for DoorDash and decent I would say considering many of their employees and temporary or gig economy workers. The reviews are comparable to peers such as Uber and Lyft. Most employees state they would recommend DoorDash to a friend and employees appear to approve of Xu as you can see below:

I particularly am fond of companies where founders have skin in the game because the founders care more about the organization, thus they are able to maintain their long-time vision which leads to market-beating returns. As noted in DoorDash’s most recent proxy filing Xu holds a sizable amount of Class B shares and fellow co-founders Stanley Tang and Andy Fang continue to hold some shares as well and are both on the company’s Board of Directors as well. Clearly these co-founders continue to have an on-going interest in the future success of DoorDash.

Financials

Before diving into the most recent quarter, let’s zoom out. DoorDash’s top-line trajectory has been impressive, with revenue climbing steadily since the late-2020 IPO:

Just as important, revenue growth has outpaced total costs and expenses, allowing DoorDash to reach profitability in 2024 and then considerably grow net income and earnings per share in 2025:

One clear negative for investors is ongoing dilution, as the share count has continued to rise over the past several years.

In Q1 2026, DoorDash processed 933 million total orders, up 27% YoY, and generated revenue of roughly $4.0 billion, a 33% increase over Q1 2025. Marketplace gross order volume (GOV) reached $31.6 billion, up 37% year-over-year, and adjusted EBITDA came in at $754 million, a 28% increase. Earnings per share of $0.42 beat consensus expectations, though revenue arrived slightly below forecasts—part of what has kept the stock under pressure.

For Q2 2026, management guided to marketplace GOV of $32.4 to $33.4 billion and adjusted EBITDA of $770 to $870 million.

DoorDash maintains a solid balance sheet, with ample cash and equivalents for opportunistic M&A and current assets exceeding current liabilities. However, as you can see below, the goodwill balance is large, which underscores the impairment risk discussed earlier:

Valuation

On the surface, DoorDash looks expensive: a trailing P/E north of 90x would scare off most value investors. But that multiple is more misleading than informative. 2025 was DoorDash’s first full year of GAAP profitability ($2.13 in diluted EPS), so the earnings base is simply too small and too new to serve as a reliable valuation anchor. What matters is the direction: that same trailing P/E sits well below its two-year average of roughly 175x, and if earnings normalize and grow as expected, the multiple compresses substantially without any decline in the stock price.

For a business at this stage, I think revenue and cash flow multiples tell the more useful story. On price-to-sales, DoorDash trades around 7x trailing revenue which is near the upper end of its five-year range, and has swung from 11x at the post-IPO peak down to 3x at the 2022 trough. That’s above the company’s five-year average of roughly 6x. Yet context matters as relative to revenue growth of 28% or better, the P/S-to-growth ratio works out to about 0.25x. Companies compounding revenue above 25% typically command P/S multiples of 5-10x, which puts DoorDash squarely in the middle of that band. Not cheap but not stretched for the growth being delivered.

The cash flow picture is more compelling. Price-to-free-cash-flow sits around 38x today, below the five-year average of roughly 52x and a fraction of the 92-100x range where it traded in 2021-2022. With about $2.17 billion in annual free cash flow, DoorDash offers a real and growing cash return. EV/EBITDA of roughly 62x looks rich, but it has already compressed from 112x in a single year as EBITDA scales, and a path to 30-35x within two years is plausible if EBITDA doubles from current levels which requires only continued 20%+ revenue growth and modest margin expansion.

Overall, DoorDash surely isn't a bargain-bin stock, but it is trading below its own historical averages. This is a more reasonable price than the market has offered at almost any point since the company proved it could turn a profit.

Conclusion

2026 has been a tough year for many businesses, including DoorDash. Yet, I think this founder-led company is a quality business with an expanding moat and numerous future avenues for continued double-digit growth.

The company’s valuation seems more reasonable compared now so I’d urge any long-term investor looking for a high quality business to serious consider adding DoorDash to their portfolios.

That’s all for this week. Thanks for reading and happy investing!

Disclosure: This is not financial advice. Please do your own due diligence before investing.

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The goal of the Conviction Queue is always to provide readers and investors with thoroughly researched ideas, regardless of whether I personally own the underlying stock. However, I believe in transparency and will always clearly disclose the businesses that have a place in my own portfolio.

What I recently discovered is that the average investor spends a mere six minutes analyzing a stock idea before making a decision. You can see some of these statistics which were wild to me:

Personally, I spend way more time peeling back the layers of a business, and I highly encourage other investors to do the same. If you find yourself short on time, my goal is to provide articles you can read that offer a comprehensive baseline, helping you quickly determine if a company warrants a deeper look on your end.

Ultimately, successful investing requires figuring out exactly which game you are playing. Morgan Housel discusses this concept extensively in his podcast and his book, "The Psychology of Money." The internet is filled with competing philosophies, from short-term options trading to high-yield dividend investing. There are countless ways to navigate the market.

Because of this, it is vital to find your “tribe” or the people who share your core investing philosophy. It is a mistake to compare your returns or process to others, especially if they are playing an entirely different game. If you are a nimble, short-term trader, you gain very little by tracking someone buying dividend stocks. Similarly, an investor approaching retirement will look at the world through a completely different lens than a 20-year-old just starting out.

My personal philosophy centers on identifying high-quality businesses that can compound capital for the long term. When I say long term, I am thinking in terms of years, and if the compounding engine remains intact, decades. As this graphic by Brian Feroldi illustrates, the long-term holding period has gone down dramatically but I think that’s an advantage for patient long-term investors:

That said, I will never marry my stocks blindly. Part of the discipline is consistently checking under the hood to ensure these companies remain worthy of my time and my capital.

If that long-term, high-conviction approach aligns with your goals, please keep following along. If you have any specific companies or industries you would like me to research in the future, please drop them in the comments below!

Also, if you believe a friend or family member would be interested in the Conviction Queue, please share:

Semi-Annual Reporting: A Step Backward for Transparency?

The second topic I want to address today is a significant regulatory shift on the horizon. The SEC has introduced a proposal regarding semi-annual reporting, and I want to share a high-level summary of what this means for individual investors.

For investors unaware, Paul Atkins has taken the reins of the SEC from Gary Gensler. Atkins, who was selected by the Trump administration to lead the agency, is taking a starkly different path than his predecessor. Where Gensler favored a highly prescriptive, rule-oriented approach, stricter environmental regulations, and a skeptical eye toward cryptocurrency, Atkins is shifting the focus entirely. The administration has discarded ESG reporting initiatives, placing its primary focus on a clear mandate: "Make IPOs Great Again."

As part of this effort to lower barriers to entry for public markets and reduce regulatory burdens, the SEC is introducing a major change. Many public companies will soon have the options to file a Form 10-S (a semi-annual report) instead of the standard Form 10-Q (the traditional quarterly report). This effectively cuts their periodic financial reporting obligations in half, requiring just one 10-K and one 10-S per fiscal year (Here is a summary from PwC that goes into more detail about this proposal).

Proponents argue that quarterly earnings releases trap senior leadership and CEOs in a short-term mindset, and that moving to a semi-annual schedule will give management the breathing room to focus on long-term corporate objectives.

Now I don’t buy that argument. Truly elite, long-term companies are already built to ignore the noise from an earnings release. This is especially true for founder-led businesses, which happen to be my preferred hunting ground. Visionary founders do not manage their companies to hit artificial quarterly estimates. Consider someone like Rick Smith at Axon. While he certainly wants the company to perform well every quarter, his real, decades-long mission is eliminating gun violence. When you back founders with that scale of long-term vision, the quarterly reporting schedule is not an impediment to their success.

Furthermore, data compiled by the CFA Institute indicates that retail investors overwhelmingly prefer quarterly reporting:

Additionally, investors don’t support the breaks this proposal would give to smaller companies:

I understand the desire to create reporting efficiencies and reduce the reporting burden for companies as I used to work on external reporting teams for a few public companies and now I work as a consultant in external financial reporting. I've worked in the industry for nearly two decades and I would argue the compliance burden is lower than it has ever been.

In the age of AI and automation, modern tools have streamlined disclosure workflows tremendously. Even a massive enterprise like Apple or Meta can present its quarterly financials in under 100 pages, which is remarkably lean for businesses of that scale. Companies can also easily leverage specialized third-party providers to optimize their reporting without needing to overhaul their internal architecture.

For individual investors, less transparency will not eliminate market uncertainty but it will amplify it. Less frequent data means a higher probability of earning surprises, sharper market reactions, and heightened stock volatility, a combination few long-term investors welcome.

The Motley Fool has been actively encouraging investors to voice their perspectives on this issue. I have already submitted my formal comment to the SEC advocating for the preservation of quarterly data, and I strongly urge my subscribers to do the same if you value having consistent access to timely financial disclosures:

Submit your comments to the SEC - Here

Okay, end of rant. Once again, thank you all for helping this newsletter cross the 100-subscriber milestone. It truly does mean the world to me. I will be back with our regular deep dives next week. If there is a particular business you want me to analyze, let me know in the comments.

Happy investing!

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Despite under-performing the market year-to-date I remain convinced this will be an outperforming stock in the long-term.

Let’s dig into Axon and the company’s recent financial results as I explain why long-term investors should look at this dip as a buying opportunity.

The Company

Axon was founded by Rick Smith back in 1993 after two of Smith’s friends were killed in a road rage incident. Smith believed that through the use of technology, he could help make the world a safer place and thus Axon Enterprise was born. The company’s mission is to protect life. This global leader in public safety has an ambitious goal to reduce all related gun deaths between police and the public in the United States by 50% by 2033.

The company is made of two reportable segments: Software and Sensors and TASER. Products in the Software and Sensors segment include sensors, body cameras, in-car cameras and numerous other sensors and associated software. The TASER segment includes conducted energy devices (“CEDs”) virtual reality training, and so much more.

Axon has built an ecosystem in which they support their customers with training, while in the field (communicate and act) and lastly when it’s time to analyze data and create reports as you can see below:

With a net revenue retention rate of 124%, a net promoter score of greater than 60, and with 95% of revenue tied to subscription plans, it’s clear to see Axon has beloved products which are very sticky. This makes switching from Axon much more difficult and as Axon continues to build out their portfolio, the expanded optionality makes the investment case for this business even more compelling.

Speaking of new opportunities, let’s discuss Axon’s total addressable market and where the business can go from here.

TAM and Future Opportunities

Axon believes they have a total addressable market of $159 billion. As you can see from the graphic below, Axon sees the largest potential in international markets, with enterprises and with domestic state and local governments:

Axon believes they have multiple growth drivers that can continue to drive the business forward. These growth drivers include product upgrades, creating new categories, modernizing old technologies, solving universal problems, and expanding globally.

Also, as you can see below, domestic public safety spending has continued to grow over the last few decades, and it’s tough to believe this trend will reverse any time soon:

I believe international growth can be a significant driver moving forward, as well as revenues from outside of the United States now accounting for 20% of total revenue.

AI To Save The Day?

There is this perception that AI tools such as Claude would streamline many tasks and thus greatly reduce or eliminate the need for many SaaS services.

And I’d say there’s still some perception that a lot of these stocks will be impacted by AI, but I would argue that Axon is in an excellent position to continue to succeed and be a leader because of AI enhancements.

Let’s discuss some of these exciting AI enhancements. The first is Axon Vision, which focuses camera feeds on specific activities (like physical fights and unauthorized access) so there’s a level of privacy by avoiding facial recognition.

Next is Axon Guardian which provides real-time field monitoring to detect situational escalation and officer distress so backup can be triggered if needed.

Axon Assistant operates as a CJIS-compliant AI interface, via chat or voice, across the entire Axon platform so there’s cross-device workflow persistence.

Next, there’s Form One which helps automate the process of filling out forms and paperwork. Brief One acts in a similar fashion as it helps streamline judicial workflows and tasks.

Finally, Axon has Dedrone and Drone as First Responder. This is vital counter-drone technology that helps mitigate threats. Dedrone bookings alone are up 500% as this technology has been used to protect the 2026 Super Bowl, the Kentucky Derby and now the World Cup.

To me, Axon is certainly focused on AI and these enhancements will make Axon’s ecosystem that much more impenetrable. I’d say these AI initiatives are making Axon’s platform even more sticky, in that it’s creating this flywheel where the hardware feeds the data, the data feeds the software, and the AI feeds the efficiency. Ultimately, this is making it so the customers for Axon are locked in for life. Their moat is widening, in my opinion, and it’s in many respects to these improvements in the AI stack.

I think this quote from CEO Rick Smith on the company’s Q1 earnings call perfectly summarizes Axon’s AI integration and how AI will not hinder but help Axon’s business moving forward:

Everything we do is built on trust. Our customers move faster than anyone else to adopt AI because they trust how we build it. Carefully, deliberately with the hard conversations happening upfront, not after the fact. That’s what makes our technology more durable, more trusted, more widely adopted. And that trust is what earns us the privilege to keep pushing forward. Three decades of building, millions of sensors, millions of users. Trillions of data points flowing through one connected network. Every camera, every device, every line of code, it’s all been leading here to this moment, the AI breakout. And no one in public safety is positioned like we are. Positioned to change the world, positioned to create extraordinary value for our shareholders, our customers and society itself.

Like any investment, there are risks to Axon, which I’ll discuss next.

Risks

I believe that product liability and reputational risks are the biggest threat the company is facing. There could be an injury or death caused by one of Axon’s products or perhaps misuse of body camera footage. Such an issue could result in lawsuits and loss of brand confidence which would ultimately lead to a loss in market share.

Due to Axon’s numerous AI initiatives and the company’s current technology associated with many of Axon’s software solutions, there could be cybersecurity attacks or a breach in security data, which again would negatively damage the company’s reputation.

Lastly, I think you could argue there’s a reliance on government spending, but I would argue that Axon’s products are so sticky that governments wouldn’t want to switch and would need to continue using Axon solutions. Due to these high switching costs, I think it’s unlikely governments would move away from Axon and it’s also why I don’t think Axon faces as much competition in this niche market.

Financials

In Q1 2026, Axon generated revenue of $807 million, which is a 34% increase compared to Q1 2025. This is the company’s ninth consecutive quarter of 30% plus growth, which is quite the achievement.

Software and Services generated revenue of $355 million, which is an increase of 35% compared to the prior year’s first quarter. AI revenue grew by over 700% which is a clear illustration that unlike some other SaaS platforms, Axon is clearly monetizing their AI offerings.

Gross margins did decline due to tariffs as well as high professional services costs and product deployments such as Dedrone. Yet, overall the business was able to increase their net income and EPS compared to Q1 2025 as you can see below:

However, I do think it’s worth noting other income was notably higher and contributed to much of the increase in net income. This income was due to closing some strategic equity interest investments and not from the actual business.

Looking at any of Axon’s forward-looking indications, there’s a lot to like as these metrics show customers continue to adopt more products and services and Axon is a sticky platform with high customer retention:

After this solid quarter, Axon is raising their full-year guidance. The company now expects revenue growth in the range of 30% to 32% (up from 27% to 30%). Axon expects adjusted EBITDA margin to be 25.5%, which was consistent with prior guidance. Lastly, even with their investments, management expects free cash flow to be roughly $450 million for the full fiscal year.

Axon has a very nice balance sheet although cash has come down since December 31, 2025, due to some acquisitions. But the business still has more current assets than current liabilities and a growing retained earnings balance which is a positive:

Management

As previously mentioned, Rick Smith is the founder and current CEO of Axon. Smith is a rare visionary who has dedicated his life to protecting life and improving public safety. In 2019, Smith published, “The End of Killing” in which he argued killing was due to technology problems and he offered a roadmap to solve these unnecessary deaths. Smith has a degree from Harvard and an MBA from the University of Chicago.

The company’s Chief Operating Officer and Chief Financial Officer is Brittany Bagley. Prior to joining Axon, Bagley was the Chief Financial Officer at Sonos (SONO).

I am a big believer that culture can play a factor in the long-term results for a company and research has proven the best companies to work for have beaten the overall market. The Glassdoor reviews for Axon are excellent with the majority of employees stating they would recommend it to a friend and employees certainly approve of Smith as you can see below:

I particularly am fond of companies where founders have skin in the game because the founders care more about the organization, thus they are able to maintain their long-term vision which leads to market-beating returns. As noted in Axon’s most recent proxy file, Smith holds just less than 4% of all shares beneficially owned which is a great sign.

Valuation

However you choose to view Axon, most would still view it as rather expensive. As Axon is still growing the business I think prices to sales or EV/Sales are the better valuation metrics for this company. While Axon's trailing and forward P/S ratios are considerably higher than the sector median, the company's current ratios are still below the company's historic five-year averages, and as you can see below, the company's forward P/S ratio has continued to decline over the past year:

From another perspective, I’ve created a reverse discounted cash flow model for Axon. Considering Axon’s usage of cash this year for some significant acquisitions this year, I continue to believe it’s more appropriate to use the December 31, 2024, free cash flow value of $330 million given the business’s ample growth opportunities. Using that figure with a discount rate of 10% and a terminal growth rate of 4%, the business would need to continue to grow by 28% annually to justify today’s current stock price:

While 28% might sound difficult to obtain, analysts do expect Axon to grow at this rate for at least the next several years. The business has shown it can steadily grow revenue at a rate north of 30%, plus with the continuing international expansion and ongoing investments in AI I think it’s very likely Axon can hit this growth target.

Wall Street also continues to view Axon as a good investment, with most analysts stating the business is a “Strong Buy” or “Buy.” Wall Street’s average price target for Axon’s stock illustrates the strong conviction in future upside:

Conclusion

I continue to be extremely bullish on this founder-led business. Axon is creating an AI stack that is unmatched in the industry, and they will continue to remain the leader in this niche market.

While some may argue Axon is overvalued, I don’t believe it is currently. I think 30% growth is achievable for this business, as it’s had 30% growth for nine consecutive quarters now. With Axon’s impressive AI enhancements coupled with their current products and services being so sticky and retention being so high with their customers, I believe Axon can and will continue to see impressive future growth.

I’ve continued to add to my position during these last few months, and I believe long-term, growth-oriented investors should continue taking a look at Axon.

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Let’s dig into the details of this organization as I discuss new growth initiatives, recent financials, and lastly valuation.

The Business

In 2011, Matt Oppenheimer was living in Kenya when he noticed something that troubled him. Immigrants trying to send money back home to their families were getting crushed by fees, delays, and a system clearly designed for the benefit of the middleman rather than the people who needed it most. He knew technology could fix it. Back in the U.S., he connected with fellow co-founders, Josh Hug and Shivaas Gulati, both of whom had family abroad and had seen the same problem firsthand. Together, the three of them founded Remitly.

Fifteen years later, Remitly (RELY) serves 9.6 million quarterly active customers across more than 170 countries and over 5,500 send/receive corridors. The company's vision is to "transform lives with trusted financial services that transcend borders.”

Remitly operates a digital-first remittance platform that allows customers to send money internationally through its mobile app and website. Revenue is generated primarily through transaction fees and foreign exchange spreads on cross-border payments.

Remitly’s network has best-in-class speed compared to peers as 63% of transfers occur in less than 20 seconds and 94% occur in less than an hour. Of these transfers, 97.5% of them occur with no need for customer support.

What is impressive as well is that Remitly’s customers are staying with them as evidenced by these retention metrics:

Moat and Opportunities

While Remitly is a trusted financial services partner, the company believes they have a $20 trillion TAM with much of that revenue possibly coming from small and mid-size businesses:

The business has primarily focused on low amount senders but is now moving to high amount senders (sending $5,000 or more per transaction, businesses, and receivers:

The company’s new CEO, Sebastian Gunningham, recently discussed Remitly’s new initiatives when describing the business’s four categories: core senders (low amount senders), high amount senders, businesses, and receivers. When talking about these four categories on the company’s Q1 earnings call, here is what Gunningham had to say:

For each of these customers, we are grouping 4 categories of product offerings, broadly defined around sending money, borrowing money, spending money and saving money. At the intersection of the 4 customer and product categories are many unique opportunities to serve our customers with products they need to live their cross-border financial lives. Each customer category and product offering reinforces the others, drawing on shared infrastructure and data to create compounding benefits as we scale.

Low amount senders have been Remitly’s bread and butter customers historically. Regarding this category, the business has recently completed integrations with WhatsApp and ChatGPT to continue to enhance global reach. The company is also launching Send Now, Pay Later. Within this plan, customers get a global debit card to spend, a wallet to save, and a short-term line of credit offered by a bank partner. Currently, the company is rolling out Send Now, Pay Later just in the United States.

Moving on to high value senders (sending $5,000 or more per transaction), the YoY volume has grown by 73%. Remitly is focused on making setup easier for these customers to streamline transaction efficiency.

Business volume grew 30% compared to the prior quarter and in the quarter the company added five more countries to the list of countries that can request and receive payments. Currently, 26 countries across Latin America and Asia can request and receive payments using Remitly.

Clearly, there is a lot to like as Remitly continues to increase their number of customers (including more high value senders), businesses, and receivers.

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Management

Matt Oppenheimer co-founded Remitly and served as CEO since inception, guiding the company from a small startup to a publicly listed fintech with nearly $1.8 billion in annual revenue run rate. He stepped down in early 2026 and was succeeded by Sebastian Gunningham, who brings deep technology and operations experience.

Oppenheimer’s legacy is notable as he built a mission-driven company without losing commercial discipline, and the profitability inflection now underway is a direct result of the operating infrastructure built under his tenure. Investors should monitor Gunningham’s first full year closely for signs of strategic continuity or drift, particularly around geographic expansion priorities and the push into business payments.

As a positive note, Remitly has an active $200M share repurchase program, with $131.9M remaining as of Q1 2026. To me that’s a signal from the board and management that they believe the stock is undervalued relative to intrinsic value. Also, according to the company’s latest proxy statement, Oppenheimer and Josh Hug both hold roughly 2% of all outstanding shares. While I like founders with continued skin in the game, a key management transition always leaves me cautious. I do believe Gunningham seems capable considering his prior experience at Amazon but time will tell.

Risks

No investment is without risk, and Remitly carries several worth taking seriously.

Immigration policy - This is the most significant risk I’d say for Remitly as a meaningful portion of U.S.-originating send volume comes from immigrant communities, including undocumented individuals sending money to families abroad. A sustained or escalating crackdown on the undocumented population could meaningfully impair send volume from the U.S. Remitly is actively diversifying its geographic send base (non-U.S. send revenue is now 34%) but immigration policy remains the single largest watch item for investors.

Regulatory and licensing complexity - Operating across 175+ countries means navigating an ever-evolving patchwork of money transmission laws, AML requirements, and payment regulations. A license suspension in a major corridor or a material compliance failure could be painful and costly.

CEO transition - As I mentioned above, founder Matt Oppenheimer recently stepped down as CEO, replaced by Sebastian Gunningham. Founder departures carry real execution risk as culture, institutional knowledge, and long-term vision are difficult to transfer cleanly. The transition is still early, and investors should monitor whether strategic momentum holds under new leadership.

Competition - I believe competition is intense in this space with numerous competitors like Western Union, MoneyGram, PayPal, Wise, and numerous other players. While Remitly has always been a digital-first company, AI enhancements now make it easier for more of the brick and mortar companies like Western Union, to catch up.

Financials

Before jumping into current quarter results, I want to zoom out to show how Remitly has steadily been growing revenue and revenue less transaction expense over the last few quarters:

In Q1 2026, Remitly generated revenue of roughly $453 million which is an increase of over 25% compared to Q1 2025. Active customers came in at 9.6 million which is an increase of 20% compared to the prior year quarter and send volume increased to $22.1 billion which is up 37% YoY.

Zooming out to look at both send volume and quarterly active customers, both have continued to grow at a double-digit pace over the last several quarters:

While total costs and expenses have increased YoY, Remitly’s revenue growth has far outpaced these costs, resulting in large increases in net income and EPS compared to Q1 2025:

After this solid quarter management is raising their full year guidance. Management is now expecting revenue in the range of $1.96 to $1.975 billion up from the previous guidance of $1.94 to $1.96 billion. Adjusted EBITDA is now expected to be in the range of $370 to $385 million compared to the previous guide of $340 to $360 million.

Remitly still has an excellent balance sheet as you can see below with more than enough current assets to cover all of the company’s liabilities and no long term debt:

Valuation

Despite recently becoming profitable, since Remitly is a high growth business, I maintain that price to sales is likely the best valuation metric for this company.

As you can see below, while the company’s P/S ratio has increased over the last few months, it’s still well below both the sector median and the highs reached in late 2024, early 2025:

From another viewpoint, in using a reverse discounted cash flow model with a discount rate of 10% and a terminal rate of 3%, Remitly would need assumed growth of roughly 6% to justify the current share price:

Wall Street analysts seem to think Remitly can continue to grow by double digits over the next several years, and I would concur given the numerous growth opportunities for the business.

Furthermore, from a ratings perspective, Wall Street analysts are bullish on the stock, predicting continued upside for the stock as you can see below:

Conclusion

I’m bullish on Remitly considering the ongoing initiatives to acquire and retain more customers, especially high value senders. Also, I think the business category could be a huge driver for future growth as Remitly continues to expand into more countries.

The biggest risk to me is the new CEO as a change in senior management always gives me pause. For that reason, I’m keeping a watchful eye on this business but I believe there is certainly much to like with this business.

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Before you roll your eyes at an actor making a finance documentary, it's worth noting that McKenzie has an economics degree from the University of Virginia. That said, he's still an actor, and you can tell from the direction that he came in with an agenda. I'm not convinced he was ever truly open-minded about Bitcoin, and I think that's important context for anyone watching this film. Take it with a grain of salt.

How an Actor Falls Down the Crypto Rabbit Hole

The film opens with McKenzie telling a story about a friend who, back in his early acting days, recommended a stock that completely tanked. After that, McKenzie didn't exactly trust this friend's financial advice. So when the same friend comes back during COVID telling him to buy Bitcoin, red flags start going off. Instead of buying, McKenzie takes it upon himself to do some digging and figure out what Bitcoin is really all about. That digging leads to some fascinating conversations with big players in the crypto space like Alex Mashinsky, founder of Celsius (which later went under), and Sam Bankman-Fried, the man behind FTX who's now behind bars.

McKenzie does a great job playing the dumb actor in his sit-down with Mashinsky, and Mashinsky shows his hand. The man is sleazy. I just watched Matilda with my elementary school kids, and Mashinsky reminds me of the dad played by Danny DeVito's. His character is the sleaziest used car salesman you can imagine. That's exactly who Mashinsky is as he pitches what Celsius does. It's telling, and it's unfortunate, because a lot of real people lost real money. You can clearly see this man was in it entirely for himself, with no genuine concern for what he was doing to his customers.

The Sam Bankman-Fried interview is fascinating for a different reason. My take is that SBF walked in thinking this would a puff piece with a B-list celebrity. He plays it like he's not worried at all but once the interview gets going, you can tell he's rattled. He may be twitchy by nature, but he was clearly uncomfortable with the questions McKenzie kept throwing at him. Eventually it gets to the point where SBF's aide steps and ends the interview.

Towards the end of the film, McKenzie ends up testifying before Congress, sharing his impressions of the industry and what he thinks the country should do to safeguard against it against Bitcoin and cryptocurrency fraud. Seated opposite McKenzie was Mr. Wonderful himself, Kevin O'Leary who as many know, took a big chunk of money from Sam Bankman-Fried as an FTX spokesperson and was apparently oblivious to what was going on. Take that for what you will.

The Saddest Part

The part that stuck with me most was McKenzie's interviews with people who lost everything in the Celsius collapse. These were good people just trying to build a better life for themselves and their families. You could see they'd gotten out over their skis, hoping this moonshot was the lottery ticket to a good life.

It didn't work out that way obviously. What was telling though is that when McKenzie asked them how they feel about cryptocurrency now, they remained optimistic. Still pro-crypto, despite everything Celsius did to them.

The film also debunks some popular crypto narratives along the way like the claim that it's widely used to transfer money (the research show it isn't), or that it's "digital gold." That one has aged especially poorly as during the last year gold was near all-time highs while crypto has been tanking.

McKenzie ends the film a confirmed skeptic. He's since taken his findings to numerous media outlets and wrote a book about it, Easy Money, covering not just crypto but the broader financial markets.

My Takeaways and What I’m Doing

So where do I land on all this?

First, I think cryptocurrency mostly lifts up the heavy holders. Look at the Trump coin, not a lot of regular people got rich off that. A few insiders pumped and dumped, and that pattern repeats across the industry. Probably 90 to 95% of crypto is garbage. As a CPA, I've had the same trouble McKenzie has getting behind Bitcoin. With a stock, you can see how the business is doing. You've got financial reports audited by an independent auditor, conference calls where you can ask questions, required disclosures. Bitcoin has none of that. Most people still don't understand Bitcoin or crypto and they just hope to jump on the bandwagon and ride it to financial freedom.

But to be perfectly honestly, that's exactly why I don't see Bitcoin going away. This isn't just a U.S. phenomenon, it's global. The "perfect life," the American dream of the white picket fence, 2.5 kids, and a house of your own, has become more and more unrealistic for a lot of people. And when the traditional path feels closed off, people cling to any semblance of hope. For a lot of people, that hope is crypto. As long as people are clinging to that hope, they'll cling to cryptocurrency, and you'll keep seeing these violent swings. You can't rely on fundamentals here as it's greater fool theory. It’s a speculative gamble. But it's not an asset that's going away.

As the most prominent and most profitable cryptocurrency, I think Bitcoin will be around for years, if not decades.

You might be wondering where that leaves me. I do hold a Bitcoin position, and I plan to keep it for the long term. That being said, I consider it a very speculative bet. If you're buying Bitcoin, you should be comfortable losing the entire amount. That's essentially the mindset I've taken, and I'd recommend the same to you. With Bitcoin, never put in more than you can afford to lose.

Thanks for reading, and happy investing.

This article is for informational purposes only and does not constitute financial advice. All investments carry risk. Please do your own due diligence before making any investment decisions.

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Now let’s dive in!

1. Alphabet (GOOGL) — In the AI Driver’s Seat

Key Financial Highlights

Q1 2026 was a statement quarter for Alphabet. Consolidated revenue hit $109.9 billion (+22% YoY), operating income $39.7 billion (+30%), net income $62.6 billion (+81%), and EPS of $5.11 (+82%).

The real headline was Google Cloud: $20 billion in revenue (+63% YoY), operating margin at 32.9% (up 15 points YoY), and a backlog that nearly doubled sequentially to $462 billion. Search held firm at $60.4 billion (+19%) with query volumes at all-time highs which is a direct repudiation of the “ChatGPT will kill Search” thesis.

Guidance

Full-year CapEx guidance raised to $180–$190 billion (up from $175–185B). Management was explicit: Cloud revenue would have been higher if supply could meet demand. 2027 CapEx guided to increase further. The Wiz acquisition creates a low single-digit margin headwind to Cloud through year-end — a minor trade for its agentic security capabilities.

Key Takeaways

Search isn’t dying — it’s accelerating. AI Overviews and AI Mode drive more queries, not fewer. The bears have been wrong for three straight years.

Cloud is the new growth engine. GenAI models within GCP grew revenue nearly 800% YoY. New customer acquisition doubled. The number of $100M–$1B deals doubled, with multiple $1B+ deals signed.

Subscriptions at scale. 350 million paid subscribers across YouTube, Google One, and Gemini so the consumer AI flywheel is definitely real.

Other Insights

The AI compute war is shifting from training to inference and Google is playing a different game than most realize.

Training is episodic. Inference is perpetual. By 2030, McKinsey estimates inference will account for 60% of data center AI demand. Google’s new TPU v8 which is split into an 8t (training) and 8i (inference) variant is purpose-built for this moment.

The 8i’s key advantage: 331.8 TB of coherent shared memory across a 1,152-chip pod. Nvidia’s NVL72 offers just 20.7 TB of true coherent memory which scales to 1,152 Nvidia GPUs spans 16 racks with no unified pool. Google also introduced Boardfly, a topology reducing networking hops from 16 to 7 — a 50% latency improvement. Result: the 8i delivers an 80% performance-per-dollar improvement over Ironwood.

The proof is in the pricing. Gemini 3.1 Pro costs ~$1.74 per million tokens which is 58% cheaper than Claude Opus 4.7 and 60% cheaper than GPT-5.5. Anthropic’s vote of confidence speaks volumes: the company agreed to a 5 GW TPU deployment over five years with Google, dwarfing its comparable Nvidia and Azure commitments.

Nvidia isn’t standing still as its Groq LPX rack and disaggregation strategy are compelling. But reported delays in the Rubin ramp (with Q1 2027 looking like the real volume quarter) hand Google a window.

Lastly, the equity offering rattled some investors. It shouldn't. Against a ~$4.2 trillion market cap, $85 billion is less than 2% dilution and the offering was oversubscribed, with Berkshire Hathaway committing $10 billion (12% of the raise). The structure: ~$45B already raised, with $40B more via an at-the-market program starting Q3.

2. Datadog (DDOG) — A SaaS Survivor and Key Player in AI Infrastructure

Key Financial Highlights

Datadog crossed $1 billion in quarterly revenue for the first time in Q1 2026 — $1.01 billion, up 32% YoY, beating Wall Street’s $960M estimate by six points. This isn’t a one-time beat; it’s an acceleration from 29% in Q4.

Key metrics: 80.2% gross margin, 22% operating margin, $289M free cash flow (29% FCF margin), and $3.48 billion in RPO, up 51% YoY. This outpaced revenue growth and signals no deceleration ahead. Total ARR exceeded $4 billion. The $100K+ ARR customer cohort reached 4,550, contributing 90% of total ARR. Billings hit $1.03 billion (+37%).

Guidance

Q2 revenue guided to $1.07–1.08 billion (29–31% growth). Full-year 2026 guidance raised to $4.30–4.34 billion (25–27% growth) which is up sharply from prior guidance of 18–20%. Non-GAAP operating income guided to $940M–$980M for the full year. Datadog consistently sets conservative guidance; given Q1 came in at 32%, further beat-and-raise quarters are likely.

Key Takeaways

The SaaSpocalypse narrative has been prominent in the SaaS world, but Datadog is proving (for now at least) that AI won’t make this observability platform obsolete. Datadog is one of the rare software companies growing revenue above 30% at $4B+ ARR scale with no signs of deceleration.

AI native + non-AI acceleration. AI-native customers are expanding in both count and scale, including new eight-figure deals with the AI research divisions of two top-5 tech companies. More importantly, non-AI customers accelerated to mid-20s% growth which is up from 23% last quarter and 19% a year ago.

Consumption beats seats. While per-seat SaaS faces existential pressure from AI-driven headcount reductions, Datadog’s consumption-based model means more AI compute = more infrastructure to monitor = more Datadog revenue. The model is structurally aligned with AI growth.

Platform depth driving lock-in. 20% of customers now use 8+ products (up from 13% a year ago). RPO growing 51% versus 32% revenue growth signals customers are not only staying — they’re committing longer. Five products have crossed $100M in ARR.

New vectors of growth. FedRAMP High certification opens the federal market. A new UK data center targets regulated financial services. “Bring Your Own Cloud” unlocks enterprise workloads with strict data sovereignty requirements. The LLM Observability and GPU Monitoring products are already winning eight-figure deals.

At ~18x EV/FY26 revenue, Datadog is expensive relative to software peers trading at single-digit multiples. But with a Rule of 50 score (32% growth + 22% margin), 80% gross margins, and one of the clearest AI tailwinds in software, the premium is earned.

3. Perimeter Solutions (PRM) — Wildfire Season Just Got Serious

Key Financial Highlights

Q1 results were strong despite tough YoY comps. Net sales reached $125.1 million (+74%), Adjusted EBITDA more than doubled to $41.2 million (from $18.1M), and net income was $72.9 million ($0.44/share).

Fire Safety revenue grew 22% to $45.4 million, with EBITDA nearly doubling to $18.7 million which is impressive given softer North American retardant demand. Specialty Products surged 128% to $79.6 million, EBITDA up to $22.5 million from $8 million. Balance sheet: ~$92M cash, $200M undrawn revolver, ~3.2x net leverage.

Guidance

Long-term financial assumptions unchanged: ~$75M annual interest expense, $60–65M in tax-deductible D&A, ~20% cash tax rate, and CapEx of $30–40M/year (trending toward the high end as suppressant capacity expands and MMT productivity investments accelerate). Working capital investment projected at 10–15% of revenue growth.

Key Takeaways

The DLA contract is a franchise win. Perimeter secured a five-year, $500M maximum-value agreement with the Defense Logistics Agency for foams, with roughly $300M expected to be incremental revenue for Perimeter. Financial impact begins late 2026, ramps through 2027 (~$50M incremental), and reaches steady state in 2028+. This wasn’t luck as it required years of R&D, capital investment in the Green Bay facility, and the development of customized vendor-managed inventory services.

CAL FIRE renewal + structural pricing uplift. The CAL FIRE contract was renewed for a new five-year term at pricing now aligned with other large customers. Both contracts include annual escalators. Service revenue (largely contractually fixed) has grown from ~$30M to over $100M in run rate, creating a durable earnings baseline that reduces exposure to fire season variability.

Flexsys is a known risk. The Sauget facility experienced its worst operational quarter on record. Perimeter is pursuing legal remedies and expects to assume control. The PDI team still grew revenue and EBITDA slightly YoY through the disruption.

MMT is outperforming. Integration is ahead of schedule; product launches step up from 2 in 2025 to 9 in 2026.

Other Insights

The U.S. wildfire season is off to one of its worst starts on record. Nearly 30,000 fires since January 1, the most in almost two decades, with 2 million+ acres burned, double the 10-year average. Georgia saw eight times its normal burned acreage. Nebraska’s Morrill Fire consumed 642,000 acres in under a day. California is bracing for an above-average summer with below-normal snowpack and historic drought.

A developing Super El Niño threatens more dry lightning this summer, and prescribed burn backlogs have left more unburned fuel heading into fall.

For Perimeter, this backdrop turns contractual structure into earnings. The aggressive initial attack strategy drives consistent retardant use even in lower-acreage years. The DLA contract, CAL FIRE renewal, and growing international retardant business also help insulate results from any single season.

Conclusion

Google remains soundly in the AI driver’s seat. It’s a position I’ve held for years. This is a larger position in my portfolio so while I remain extremely bullish on the business I’ll likely only add during a more pronounced market drop.

Datadog has far exceeded my expectations this year and has come out as one of the true survivors from the SaaSpocalypse. However, the valuation for Datadog is very stretched currently so this is position I’m not planning to add to until the stock price pulls back.

Perimeter Solutions is a newer position and is a smaller one in my portfolio. It’s riskier in my opinion compared to the more established Google and Datadog. The accounting is messy as well with the Founders fees. Yet, the data is pointing to a summer with drought like conditions and higher temperatures which makes me believe a more severe wildfire season is coming. This is the position I’ve recently added to in my long-term portfolio.

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This is not financial advice. All analysis is based on publicly available information and reflects the author’s personal views. Always do your own research.

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Let’s dive into Procore as I discuss tailwinds as well as challenges for this business.

The Company

Procore Technologies (PCOR) was founded back in 2002 by Craig “Tooey” Courtemanche. At the time Courtemanche was working in Silicon Valley but had a house being built in Santa Barbara. Courtemanche was having various issues surrounding the communication of the job with the numerous parties involved and so Courtemanche created a way in which all these parties could communicate with one another more effectively and thus Procore was born.

The company’s mission is simple, “To connect everyone in construction on a global platform.” Procore is the leader in providing cloud-based construction management software. The construction industry is a complex one with many key players depending on the job or task at hand. Procore’s technology helps connect those involved in a construction job such as owners, general and specialty contractors, architects, and engineers so tasks can be completed in a timely and efficient fashion.

In today’s SaaS market, I think it’s worth mentioning that Procore is not a seat-based SaaS company. Most construction software charges per user. Procore does not. Their pricing is based on Annual Construction Volume, or ACV, which is the annualized dollar value of projects a customer manages on the platform. Subscriptions are fixed-fee and renew annually or on multi-year terms.

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AI Is the Story, but the Rollout Is Deliberate

One big recent development is the January 2026 acquisition of Toric Labs, Inc., better known as Datagrid, for $168 million in cash. Datagrid specializes in agentic AI solutions purpose-built for the construction industry, and the deal is a clear signal that Procore is serious about embedding AI across its platform.

One early example of AI worth highlighting is that an enterprise customer called Crest Operations used Procore AI to compress a manual, multi-week bidding process down to twenty minutes. That kind of operational change is exactly what construction firms need, and it illustrates the genuine productivity upside AI can deliver in this space.

CEO Ajei Gopal framed the opportunity this way on the Q1 call:

“When you talk to customers, many of them don’t really have the time or the inclination to become experts in AI and construction. They look to us as being their technology partner. They’ve worked with us for years. They trust us. And their objective is they just want to be able to build better projects.”

That customer dependency is a structural advantage. Construction firms tend to outsource technology decisions rather than build capabilities in-house, which means Procore has an embedded, trusted position that is difficult for a competitor to displace. If the AI tools prove genuinely useful, adoption should follow naturally.

That said, the rollout has been intentionally slow. Procore currently operates with a small dedicated AI team working alongside the broader sales force. Management made this choice deliberately to learn directly from customers before scaling. A larger rollout is expected in Q3 2026. The measured pace is strategically sound, but it means margin compression from AI-related costs will show up before meaningful AI revenue arrives.

Procore also announced a partnership with Nvidia in Q1 to accelerate the building of AI data centers and infrastructure. As hyperscaler construction spending remains robust, this is a useful strategic tie-in.

Risks

Management Turnover - One factor that does not always get enough attention is the composition of the leadership team. Procore founder Craig “Tooey” Courtemanche Jr. remains Chairman of the Board and still holds approximately 4% of outstanding shares, which is a genuine positive. Founders with meaningful ownership tend to keep the long-term in view.

But the day-to-day team has changed significantly. Ajei Gopal is now CEO, and while his background is strong, it is simply too early to assess his track record in this role. Procore has also brought in a new CFO, Rachel Pyles, and a new Chief Revenue Officer, Walt Hearn, who joined in April. Three key seats turning over in a relatively short window introduces execution risk, not because any of these individuals are unqualified, but because organizational alignment and investor trust take time to build. The next few quarters will matter a great deal in answering the question of how this team performs under pressure.

Macro and Cyclicality - Procore's revenues rise and fall with construction activity. Interest rates affect housing starts and commercial development, tariffs affect the cost of building materials, and geopolitical uncertainty can pause capital allocation decisions across the industry. Management noted a relatively stable macro environment in Q1, with optimism around data center construction in particular. But the underlying sensitivity to construction cycles is structural, not temporary, and the current environment remains uncertain.

AI Adoption - The construction industry has historically been slow to adopt new technology. Management acknowledged this directly on the Q1 call, noting that the dedicated AI team is small and the broader rollout is still months away. If customers prove reluctant to adopt AI agents at scale, the AI-related costs hit the income statement before any offsetting revenue arrives. Management has explicitly flagged near-term AI cost headwinds to margins. If adoption lags, the path to profitability extends.

Financials

In Q1 2026, Procore reported sales of $359 million, which is an increase of 16% compared to Q1 2025. Gross margins remained strong, coming in at 80% for the quarter (GAAP). However, the business remains unprofitable as total operating expenses continue to rise, led by an increase in sales and marketing expenses:

The company’s net loss this quarter did shrink compared to Q1 2025, but shareholders continue to see stock dilution as total weighted-average shares outstanding increased year-over-year.

Moving on to important company metrics, Procore now has 2,795 customers contributing more than $100,000 in annual recurring revenue, which is a 16% increase year-over-year. The company continues to maintain its impressive gross revenue retention rate of 95% for the quarter. Free cash flow was $56 million, an increase of 20% compared to Q1 2025. Lastly, current RPO and current deferred revenue grew by 21% and 17%, respectively, compared to the prior year’s first quarter.

In Q2 2026, Procore is predicting revenue in the range of $364 to $366 million, which represents YoY growth of 12% to 13%. For the full fiscal year, Procore raised their guidance and are now expecting revenue in the range of $1,499 million to $1,503 million, which is more than a 13% increase compared to fiscal year 2025. Free cash flow margin is expected to be 19%.

Procore continues to have a solid balance sheet, as the company has more than enough current assets to cover all the company’s current liabilities. Procore’s current cash balance is $386 million, which is down compared to the $480 million as of December 31, 2025, but the company has been using cash for M&A as well as share buybacks. In Q1 2026, Procore repurchased roughly 1.8 million shares for approximately $100 million.

Valuation

Shares recently traded near $49, putting the market cap at approximately $7.5 billion. That prices Procore at roughly 5.0x forward revenue on the FY2026 guidance midpoint of $1.5 billion, and about 5.4x trailing twelve-month revenue. For a software business with 80% gross margins, 16% revenue growth, and a 95% gross retention rate, that is a historically modest multiple. At peak valuations in 2021, this stock traded above $140 and commanded multiples above 30x revenue. The market has clearly recalibrated its expectations, and the question now is whether the current price reflects fair skepticism or overdone pessimism.

A few lenses help frame the answer.

On a free cash flow basis, the picture is more nuanced. Management guided for a 19% FCF margin in FY2026, which would imply roughly $285 million in free cash flow for the year. At the current market cap, that works out to approximately 26x forward free cash flow. That is not cheap in absolute terms, but it is reasonable for a business with Procore’s retention profile and contracted revenue backlog, particularly as FCF margins continue to expand.

A reverse discounted cash flow model offers another angle. Using the latest trailing free cash flow figure, a 10% discount rate, and a 3% terminal growth rate, the stock is pricing in roughly 10% annual growth:

Management is guiding for 13% this year, and Wall Street consensus sits at 12% to 13% over the next several years. In other words, the current stock price demands less growth than the company itself is projecting, which builds in a small margin of safety. If the AI rollout lifts growth back toward the mid-teens or beyond, the valuation case strengthens considerably.

Lastly, it is also worth considering what the stock scores on the Rule of 40, a widely used SaaS health benchmark that adds revenue growth rate to free cash flow margin. At roughly 14.5% growth plus 19% guided FCF margin, Procore scores around 34, just below the 40 threshold that typically signals a high-quality software business. Crossing that line cleanly, which is achievable with modest acceleration, would likely attract a broader set of institutional buyers and support multiple expansion.

Conclusion

Procore is making strides to enhance their AI offerings, and their acquisition of Datagrid illustrates the company’s commitment to this long-term strategy. While monetization is occurring, the Procore AI rollout has been slow as the company works with customers to find the best ways to create AI efficiencies. Until more monetization occurs, margin compression will likely continue to cut into bottom-line profits.

There is also the question of how this new management team will perform and if they’ll be able to execute.

While I think Procore is fairly valued, if not undervalued, I’ll hold tight for now as I’d like to see how this management team performs for a few quarters and hopefully see more customers adopt the company’s AI solutions.

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This article is for informational purposes only and does not constitute investment advice. Always do your own due diligence before making investment decisions.

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