This story originally appeared in The Technology Letter and is republished here with permission.
Shares of Nvidia on Wednesday hit a new all-time high, $1,223.59, bringing its market capitalization briefly above three trillion dollars for the first time ever. Nvidia is now third in line in market-cap among Mega Tech names, behind Microsoft in first place and Apple in second, and ahead of Alphabet.
There was no particular news Wednesday to lift shares almost 5%, other than musings on the Street that various industrial measures have renewed the hope of a Federal Reserve rate cut this year.
Merrill Lynch’s Vivek Arya met with CFO Colette Kress, he reports, along with the head of IR, Simona Jankowski, and found, the “Overall tone very positive re demand and expanding customer interest, gated only by supply.”
ASML’S RISING ORDER OUTLOOK
Arya was not the only one chumming it up with CFOs this week. Jefferies & Co.’s Janardan Menon, a bull on shares of ASML, had a chat this week with the CFO, Roger Dassen, “in a small group call for German investors” and came away with excitement about potential future orders from Taiwan Semiconductor. Taiwan Semi’s CEO, Che Chia Wei, recently visited ASML, notes Menon. Menon had written back in March that ASML could look forward to a bunch of new orders from Taiwan Semi, and now he sees further evidence of that.
“TSMC has said that it expects N2 to be a very big node ramping from H2-25, but ASML has not received any orders for this node so far,” writes Menon, referring to Taiwan Semi’s most cutting-edge chip process, called N2. “As a result, significant orders are expected in coming quarters.” Menon opines that the orders could be “signed within coming weeks and for initial 2nm orders to be placed in Q2,” which, if true, means “ASML’s average orders over Q2, Q3 and Q4-24 reach 5.7bn euros, enabling 2025 sales to be 40bn. euros.” If so, he sees a good run in the stock. “We expect one-year-forward valuations to remain at least at current levels over the next year, offering >40% potential upside in the share price.”
I’m with Menon, as ASML’s sales this year are projected to be flat, and it makes sense that there will be a meaningful bounce-back in coming years given all the activity of making the most-advanced chips for AI. ASML is one of the TL20 stocks worth considering, and it has been a great performer, up 38% this year, and doubling since being put in the group in the inaugural cohort in 2022.
CROWDSTRIKE DAZZLES WITH AI POTENTIAL
Another TL20 name, CrowdStrike, just keeps on delivering. Shares closed up another 12% on Wednesday, following Tuesday evening’s better-than-expected quarterly report, a repeat of the upbeat presentation back in March. This is the fourth quarter in a row that the shares jumped on the report, and the company raised its outlook for revenue and profit for the year. Among the things the Street especially liked was that it was the best fiscal first quarter the company has ever had for what’s called “Net New ARR,” the amount of recurring revenue added to the total pile of annualized revenue.
Also, the company’s free cash flow hit a record of $322 million, representing a very healthy free cash flow margin of 35%. Perhaps most important to many observers is what appears to be a solid start for the company’s artificial intelligence offering, “Charlotte,” which was introduced a year ago. Analysts have been licking their lips about the incremental revenue that Charlotte might produce from CrowdStrike’s customer base. Jefferies & Co.’s Joseph Gallo on Wednesday writes that he sees some substantial AI payoff from Charlotte. “We continue to see CRWD as well positioned to be one of the AI assistant products actually utilized by CISOs [chief information security officers] given Charlotte can talk to and automate its 28 different modules which is a massive differentiator vs point solutions.”
Gallo thinks there are “many levers for CRWD to derive revenue from the GenAI lifecycle via its data loss protection product, data organization and governance (via Flow), and increase in cloud workloads driving cloud security,” although he concedes it may not all come together until next year.
CrowdStrike has been a terrific performer, up 34% this year, and up a whopping 230% since it was added to the TL20 in January of last year. It has also outperformed much of the cyber-security market for many quarters now.
A WEEK OF DOG & PONY FOR TECH CEOS AND CFOS
This is a big week for what are called “analyst days,” an annual event for most companies in which they hold a sort of dog and pony show of what they’ve got coming down the line in terms of technology, and make various financial promises for years out in time. One of those companies was Cisco Systems, which held its first analyst day since 2021 on the sidelines of its user conference in Las Vegas on Tuesday. The event was disappointing, the shares selling off by about 3% Wednesday. The proximate cause was the outlook for the company to see revenue growth in 2026 and 2027 of just 5%, lower than people would have liked. Cisco actually missed the 5% target it set back in 2021, turning in actual growth of only 4%, so investors are a bit chary now.
William Blair’s Sebastien Naji, who has a Market Perform rating on the stock, writes that the “lack of growth acceleration given the number of building tailwinds”—the acquisition of Splunk, the growing number of artificial intelligence product orders—“highlights that not much has fundamentally changed at Cisco.” Cisco’s CFO, Scott Herren, told the analysts at the event he takes a “conservative” approach to forecasting, but, writes Naji, “the countervailing impacts of increased competition across its business as well as continued desire from customers to look at alternatives push us to see a fairly balanced risk/reward equation for the stock.”
I’m in Naji’s camp. I have been writing for some time now that growth is elusive for the company over many quarters, and I recently pointed out that the growth profile for Arista Networks looks a lot better. So, why should we care about Cisco when the growth name, Arista, is a lot more attractive in most respects?
WAITING FOR THE AI PAYOFF FOR SNOWFLAKE
Another one holding a dog and pony show Tuesday was Snowflake, alongside its own user conference in San Francisco, and it was also a disappointment, the shares dropping 2% Wednesday. The setup going into the presentation was not a good one. The company had offered financial targets a year ago, but CFO Mike Scarpelli subsequently rescinded those targets in February. And in an interview I had with him a week ago, he said he couldn’t say when the company would achieve a target of 10 billion dollars in annual revenue, previously pegged at 2029. Hence, in Tuesday’s presentation, there were no long-term targets to discuss, only a projection of what may happen this fiscal year ending in January:
Moreover, Scarpelli was careful to spell out that investments in AI are going to eat into profitability. Here’s the slide he offered on that:
Without any fun financial promises, the most substantive thing at the talk was CEO Sridhar Ramamsawmy saying that the company is going to get products out the door faster. Analysts liked that, but more important was what he said about when those new products impact revenue. There won’t be “significant material contribution” to new offerings such as “Cortex,” the AI feature, until fiscal 2026, ending in January of that year, writes William Blair’s Jason Ader. And Mizuho Securities’s Gregg Moskowitz, while he is generally bullish on Snowflake, cuts his price target from $205 to $180, writing that “the onus is on SNOW to prove that these new offerings can in fact deliver meaningful incremental revenue.”
Snowflake has really become a “show me” story, with AI having become a kind of massive curveball in the last year versus what was a straight database story previously. The stock is also a TL20 stock, and is down 32% this year.
HARD TO CALL THE UPTURN IN PROCORE’S GROWTH
Software maker Procore Technologies, which sells tools to the construction trade to streamline the work of contractors, is one I’ve written about of late, noting in my interview with CFO Howard Fu that the growth outlook for next year is rather uncertain given the caution by those contractors in the face of macroeconomic uncertainty.
With that in mind, Macquarie Research analyst Robert Trout on Wednesday initiates coverage of Procore with a Neutral rating. He’s torn between the opportunity and the uncertainty. “Of the various forms of construction management software solutions, only one is equipped as a platform to be both a single source of truth and a complete one: Procore,” he writes. On the other hand, there’s the uncertainty: “As U.S. commercial construction backlogs have slowed in the past two quarters, Procore’s near-term ability to sharp growth acceleration is muted. As such, we feel valuation is fair at current levels over the next 12 months, reflecting an 8.7x 2024E EV/Revenue, in line with the peer average of 8.1x.”
Trout’s is the right view, I think. CFO Fu makes clear that if and when the construction industry loosens its belt on software spending, it will lag an uptick in spending in other industries. That makes calling the turn in Procore very hard. Procore shares are down 4% this year.
This story originally appeared in The Technology Letter and is republished here with permission.