Blueprint Gains
In this edition of the Smart Investor newsletter, we spotlight the stock of the world’s leading infrastructure consulting firm. But first, let’s dive into the latest portfolio news and updates.
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Portfolio News and Updates
❖ Alphabet’s Google (GOOGL) has signed a cloud computing deal with Meta Platforms valued at over $10 billion, marking a significant partnership between the two tech giants. The six-year agreement will have Meta utilizing Google Cloud’s servers, storage, networking, and other services to support its growing infrastructure needs, signaling a major win for Google in the competitive cloud market. This deal follows a similar recent agreement Google made with OpenAI. Google’s cloud business has seen strong growth, with a 32% jump in second-quarter revenue, benefiting from these large-scale AI partnerships.
Meanwhile, Bloomberg reported another probable win for Alphabet, with Apple planning to use Google’s Gemini AI to power an overhauled Siri voice assistant after struggling to catch up on generative AI developments. Overall, Google’s AI developments seem to be increasingly valued across enterprises and developers, even if in private use volumes OpenAI’s ChatGPT still leads significantly. But that may also change: at its annual hardware event, Google debuted a slate of new gadgets – all infused with AI throughout – including its new line of Pixel 10 smartphones. In the Pixel 10, AI is more than just a feature; it operates as an integral part of the device’s operating experience, deeply embedded into the phone’s functioning in a way that shapes user interaction across apps and tasks. Reviews are raving, with many highlighting Google’s success where Apple has so far decisively failed.
In another development, while some consider ChatGPT to be an existential threat to Google Search – as users increasingly turn to the chatbot rather than Google – it turns out the GenAI leader has been competing with Google with the help of Google itself. According to media reports, Microsoft-backed (MSFT) OpenAI has been using Google Search results in ChatGPT to answer questions about current events like sports scores or stock market updates, accessing them through a web-scraping company called SerpApi. This underscores that despite the rapid development of generative AI models, they still cannot fully replace Google in its own turf, where it has the internet parsed, indexed, and tagged. Google has tried to make it harder for SerpApi to scrape its content, although it hasn’t taken legal action so as to avoid regulatory backlash during its antitrust trial.
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❖ Taiwan Semiconductor Manufacturing (TSM) got a boost recently after the Trump administration dispelled rumors – sparked by Intel developments – that it would seek equity stakes in companies receiving funds under the CHIPS Act. The U.S. government is not planning to take stakes in large, established chipmakers that are investing to increase their U.S. production.
The world’s largest chip foundry’s stock had an additional positive sentiment infusion as Nvidia’s CEO Jensen Huang praised TSMC during a recent visit to Taiwan, calling it “one of the greatest companies in the history of humanity.” The superstar CEO also said that buying TSMC’s stock would be a “very smart” move. This endorsement signals strong confidence and dependency, as Nvidia relies heavily on TSMC’s advanced semiconductor manufacturing, especially for next-generation AI chips like those produced using TSMC’s 3-nanometer process. Huang also highlighted that Nvidia is currently working with TSMC on six new chips, including CPUs and GPUs, which are already in TSMC’s fabs, emphasizing the tight and ongoing collaboration between the two firms.
TSMC’s shares were also supported by the news that the company is phasing out the use of Chinese-made chipmaking equipment in its most advanced plants, such as its new 2-nanometer lines, which will start mass output this year. The move aims to avoid any risk from new U.S. rules that could affect production and global sales.
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❖ Oracle (ORCL) is poised to build several massive data centers to support the growing demand for AI infrastructure from companies like xAI, Nvidia, and OpenAI. The company is expected to spend tens of billions of dollars on these projects, according to a Bloomberg report.
A key example is a “megasite” data center under construction in West Texas, which is expected to cost Oracle around $1 billion per year to operate. This site is notably powered by gas generators instead of the local electric grid because Oracle wants to start operations quickly without waiting for the lengthy process of upgrading regional power infrastructure. The data center will have a massive compute capacity – around 1.4 gigawatts, enough to power millions of homes – making it one of the largest existing sites.
While rapid cloud infrastructure expansion comes with significant costs and challenges, including large upfront investments and high operational expenses, Oracle’s aggressive approach has helped it to compete with established cloud providers like Amazon’s AWS and Microsoft Azure. Today, AI training and deployment account for the lion’s share of Oracle Cloud Infrastructure (OCI) backlog, driving ORCL’s growth surge and stock outperformance.
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❖ Uber Technologies’ (UBER) stock neared an all-time high on strong analyst support and praise for its diversified business, strategic initiatives, and financial strength. These factors came into focus again as Uber invested in the self-driving startup Nuro alongside Nvidia and others. Nuro, which develops AI-driven autonomous technology utilizing Nvidia GPUs for large-scale data processing and model training, has partnerships with Uber and Lucid to launch a global robotaxi service.
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❖ Vertiv Holdings (VRT) experienced some downward pressures last week after GLJ Research initiated coverage of Vertiv Holdings stock with a “Sell” rating. GLJ acknowledged Vertiv’s strong revenue growth and solid financial health, but cautioned that the current valuation already reflects peak cycle economics for 2027-2028, suggesting that near-perfect execution is necessary to justify its valuation. On the other hand, most top Wall Street analysts – including Mizuho, Morgan Stanley, TD Cowen, Evercore ISI, and others – remain bullish on VRT, with “Buy” ratings and price targets implying an average potential upside of ~21% from current levels. Vertiv’s fundamentals, including revenue and earnings beats, strong partnerships – particularly with Nvidia – and positioning in AI infrastructure, continue to support optimism.
In other company news, Vertiv announced the acquisition of Waylay, a Belgium-based AI-driven hyper-automation software platform. The deal enhances Vertiv’s monitoring, orchestration, and automation capabilities across its power and cooling systems, broadening its software and services mix and reinforcing its positioning as a key player in AI data center infrastructure.
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❖ IBM (IBM) strengthened its leadership across advanced computing domains by announcing a collaboration with AMD to develop quantum-centric supercomputing architectures. The partnership will combine IBM’s progress in quantum hardware and software with AMD’s high-performance CPUs, GPUs, and AI accelerators to create scalable hybrid systems capable of tackling algorithms beyond the reach of either technology alone. The companies are planning an initial demonstration later this year and will leverage open-source platforms like Qiskit to accelerate adoption, reinforcing IBM’s role at the forefront of quantum, AI, and high-performance computing convergence.
In other news, IBM has won a new $18.7 million contract with the Australian Department of Defense as part of its ongoing project to upgrade its ERP system. When combined with two recent amendments to earlier contracts, worth $13 million and $33 million, IBM’s role in the program has increased significantly. Since 2019, the total value of Australian Defense’s ERP work with IBM has now reached at least $575 million.
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❖ Amphenol (APH) has lined up $4 billion in unsecured delayed draw term loans to fund its acquisition of CommScope’s Connectivity and Cable Solutions (CCS) unit, a deal that significantly expands its role in high-speed connectivity markets. The financing, which remains undrawn at closing, reflects strong lender confidence in Amphenol’s balance sheet while giving the company flexibility as it integrates the business. The CCS acquisition is transformational, bolstering Amphenol’s scale in fiber, copper, and enterprise networking at a time when AI data centers, 5G infrastructure, and cloud demand are surging. The deal consolidates a fragmented market and positions APH as a dominant supplier to hyperscalers, telecom operators, and enterprise clients. The combination underscores both market confidence in Amphenol’s execution and the strategic importance of connectivity infrastructure in the AI-driven capex cycle.
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❖ RTX (RTX), through its Pratt & Whitney division, has been awarded a $2.88 billion contract modification for production and delivery of 141 F135 propulsion systems, with work expected to be completed in February 2028. The F135 propulsion system powers the F-35 fighter jet, which is a cornerstone of U.S. and allied military airpower. This contract supports Lot 18 of F-35 production, reflecting ongoing strong demand. Pratt & Whitney’s F135 engine is the only powerplant for the F-35, giving RTX a near-monopoly position in this critical market segment, further adding to the strategic and financial importance of this contract.
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❖ Blackstone (BX) has agreed to acquire Shermco, an electrical equipment services firm, for $1.6 billion. The deal enhances Blackstone’s portfolio with a company delivering strong growth and operational performance, and expands its presence in mission-critical electrical services for data centers, utilities, and commercial/industrial markets, which are all poised for growth thanks to technological adoption and energy transition trends.
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❖ Visa (V) has shut down its open banking unit in the U.S. because of ongoing regulatory uncertainties regarding access to consumer banking data. This unit previously provided technology that helped fintechs to access customers’ bank data more easily, enabling smoother financial services like sign-ups and money transfers. Visa has said it will instead concentrate its open banking strategy on regions with clearer regulatory support, especially Europe and Latin America, where open banking is growing more definitively.
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❖ JPMorgan Chase (JPM) and Mitsubishi UFJ Financial Group are nearing a deal to underwrite a massive $22 billion loan to fund construction of a major data center campus in Texas, developed by Vantage Data Centers at a total cost of $25 billion, with private equity backers Silver Lake and DigitalBridge contributing the remaining equity funding. The planned “Frontier” campus will consist of 10 hyperscale data centers optimized for ultra-high-density racks and advanced AI/GPU compute, with the first phase slated to go online by mid-2026, and full build-out expected by 2028. This marks one of the largest single-site AI infrastructure financing deals ever announced, reflecting unprecedented market confidence in hyperscale AI demand and compute capacity needs. At the same time, the Vantage Frontier campus project serves as a bellwether for big-bank commitment to future AI infrastructure – highlighting financial institutions’ pivot into infrastructure plays, which helps diversify their income and reinforces their role in next-gen capital markets.
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❖ Interactive Brokers (IBKR) stock jumped after S&P Dow Jones Indices announced the company will join the S&P 500 index, replacing Walgreens Boots Alliance, which is set to be acquired and taken private. The addition takes effect before the market opens on Thursday, August 28. Inclusion in the benchmark index is expected to enhance the IBKR’s visibility and attractiveness to institutional investors, potentially boosting its liquidity through passive fund mandates that track the S&P 500. Shares have already climbed more than 42% year-to-date, far outpacing the broader market, with the S&P 500 member status anticipated to further drive stock performance and market presence.
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Portfolio Stocks Under Review
❖ We are removing MasTec (MTZ) from our “Under Review” bracket. Initially, we placed MTZ under review mainly due to its underperformance versus the S&P 500 over the past month, which followed a strong outperformance year-to-date. Now that the company’s fundamentals and growth drivers are again asserting themselves, we believe it is right to retain MTZ in the Portfolio.
MasTec reported an exceptional second quarter, delivering record revenue of $3.5 billion, up 20% year over year, and a 50% jump in adjusted EPS to $1.49 – both ahead of guidance. The company’s 18-month backlog surged 23% to a record $16.5 billion, with particularly strong momentum in Clean Energy, Communications, and Power Delivery. Federal incentives, grid modernization demand, and MasTec’s expansion across multiple verticals reinforce a multi-year growth runway. MTZ raised its full-year revenue and adjusted EPS guidance, underscoring confidence in continued outperformance.
Yet despite these fundamentals, post-earnings trading saw the stock soften as operating cash flow collapsed 98% to $6 million and free cash flow turned negative – the result of heavy working capital investments tied to project ramps. This short-term cash drain, combined with broader market volatility and some profit-taking, weighed on investor sentiment.
Wall Street, however, has leaned the other way – viewing near-term cash declines as the cost of fueling long-term growth. Since the Q2 release, multiple firms including Goldman Sachs, Truist, KeyBanc, Stifel, DA Davidson, Jefferies, and Baird (which upgraded from “Hold” to “Buy”) have raised price targets, with only Citigroup trimming slightly. The consensus rating remains firmly in “Strong Buy” territory, supported by expectations for double-digit earnings growth in 2026 and sustained margin expansion in non-pipeline businesses.
Texas Capital Securities recently initiated MTZ with a “Buy” and a $250 price target – more than 40% upside – citing MasTec’s scale, diversified end markets, and recurring services that provide revenue stability. The firm highlighted accelerating demand in power transmission, pipeline construction, and telecom, with MTZ particularly well-positioned to benefit from infrastructure tied to AI buildout. JPMorgan echoed this view, pointing to MasTec’s earnings trajectory, record backlog, and operational expertise, naming it its top pick among EPC contractors.
Overall, MasTec’s stock is supported by strong execution and exposure to powerful infrastructure trends. We see MTZ as one of the sector’s biggest beneficiaries of energy and AI-driven demand – with politically backed pipeline projects adding further catalysts. As such, we have made the decision to retain MTZ in the Smart Portfolio.
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❖ We are keeping Cisco Systems (CSCO) under review due to the stock’s underperformance over the past month amid lingering caution about revenue growth sustainability beyond the current AI infrastructure cycle.
Cisco delivered a strong fiscal Q4, with both revenue and EPS above expectations, and trailing‑twelve‑month AI infrastructure product orders topping $2 billion – more than double the company’s own full‑year target. Splunk has now been fully integrated, contributing to renewed strength in the security segment. CSCO’s legacy networking business also posted double‑digit growth, even as capex declined. Guidance for FY26 was solid, with expected revenue of $59-60 billion and EPS of $4.00-4.06 – representing strong results for a company many had written off as a legacy laggard just two years ago.
Still, the stock wobbled, weighed down by broad tech weakness and investor disappointment over narrow beats. In addition, Cisco’s guidance didn’t trigger the kind of upside enthusiasm the market now associates with AI‑adjacent names. The tone on the call was measured rather than euphoric. Management remains focused on execution, but the Street is still unsure how much of the AI demand is sustainable, and whether the security business – now 13% of revenue – can accelerate meaningfully.
We believe CSCO is quietly working to become a pillar of AI infrastructure – not by chasing headlines, but through deep integrations, strategic partnerships, and robust product development. Its collaborations with NVIDIA, Microsoft, and sovereign AI players like Saudi Arabia’s HUMAIN reflect a long‑term vision to anchor the next wave of scalable, secure AI networks. The company’s efforts to secure open‑architecture environments with solutions such as AI Defense and Hypershield are already gaining validation through enterprise deployments and inclusion in NVIDIA’s Secure AI Factory blueprint. While execution risks remain, Cisco’s $2 billion in AI infrastructure orders, 65.6% gross margin, and rising R&D investment point to a company laying the groundwork for long‑term relevance. If traction continues, the stock could gradually revalue higher as confidence builds.
Though analyst sentiment is measured, it is far from bearish. No firms moved to “Sell” post‑earnings. In fact, most came away incrementally more constructive, raising price targets. The upgrades weren’t just mechanical responses to guidance, but reflected improving fundamentals and growing confidence in Cisco’s positioning – alongside its relative resilience compared to peers exposed to more cyclical hardware.
The two latest PT increases came from Citic Securities (from $70 to $75) and Argus Research (from $70 to $80), with both noting optimism around Cisco’s strong positioning in AI‑enabled enterprise data center networking, including its partnership with NVIDIA for AI‑ready data center architecture. Both view Cisco’s AI‑driven transition and partnerships as clear growth drivers, justifying higher targets.
We are inclined to continue holding the stock. But we want to see sentiment catch up to fundamentals – or fundamentals break out from here – before making a renewed bullish call.
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❖ We are keeping Applied Materials (AMAT) under review following a textbook beat-and-guide-down that has reignited near-term caution across the Street.
AMAT delivered record FQ3 results, topping revenue and EPS expectations, but guidance came in soft. FQ4 calls for a sequential pullback in both top and bottom lines as Chinese demand cools and export license delays cloud visibility. Management flagged digestion in China and uneven leading-edge orders as headwinds – a clear signal the next few quarters may lack the smooth growth story investors had hoped for. Still, fiscal 2025 is expected to mark a sixth consecutive year of top-line growth.
The stock initially slipped back into its June range after earnings as investors balked at the weaker outlook. It has since partly rebounded – with “buy-the-dip” inflows reflecting recognition of AMAT’s durable fundamentals and central role in enabling the next wave of AI semiconductors.
Analyst reaction was cautious though not bearish. Most firms trimmed price targets, citing inventory normalization, softening semi capex, and a lack of near-term catalysts. BofA, Daiwa, and Mizuho downgraded from “Buy” to “Hold,” while TD Cowen, Argus, JPMorgan, Goldman Sachs, Evercore ISI, Nomura, Stifel, and others reaffirmed “Buy” ratings – emphasizing AMAT’s deep exposure to structural AI demand and leadership in high-value tools. After the latest updates, the stock is rated a “Moderate Buy” with an average target implying more than 20% upside.
While the ongoing U.S.-China tariff saga adds uncertainty for the sector, international developments offer potential offsets. Japan and the U.S. are advancing trade and economic security talks, including joint initiatives on rare earth minerals and semiconductors to reduce reliance on China. Japan is also stepping up capital investment in chip manufacturing – including support for TSMC’s U.S. fabs – which should benefit suppliers like AMAT.
Beyond Japan, other trade and policy shifts also support Applied. The U.S.-EU deal exempted chipmaking tools from tariffs, while U.S. tariff proposals include carve-outs for firms investing domestically – both reinforcing AMAT’s advantage. The CHIPS Act continues to drive fresh fab demand, and export controls on China are redirecting capex toward allied markets where AMAT is well-positioned. Meanwhile, the “Anything But China” push is expanding production into Vietnam and Malaysia, opening new growth lanes. Together, these shifts highlight that even with near-term headwinds, AMAT’s structural backdrop is only strengthening.
We continue to view AMAT as a core enabler of AI-era semiconductor scaling, with execution and product roadmap that justify long-term optimism. That said, we’d like to see sentiment stabilize and the stock begin reflecting fundamental momentum before deciding whether to hold the position.
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❖ We are keeping MACOM Technology Solutions (MTSI) under review as we watch whether the stock’s rebound can stabilize into a sustained recovery. While business performance remains fundamentally strong and analyst sentiment is resolutely bullish, recent volatility – a sharp drawdown followed by only a partial snapback – argues for caution before reestablishing conviction.
Fiscal Q3 2025 results confirmed robust execution, with revenue and earnings slightly above expectations, supported by broad-based strength across MACOM’s divisions and surging demand for high-speed optics, GaN, and secure RF components. The Data Center and Telecom segments performed well, while Industrial & Defense delivered record revenue. Total revenue reached an all-time high. Guidance for Q4 topped consensus, projecting sequential growth in industrial and data center even as telecom moderates.
MACOM’s strategic positioning remains a key strength. It benefits from accelerating AI infrastructure demand, owns a U.S.-based RF fab (RTP), and is expanding into high-frequency, high-power applications – with long-term EPS guidance above $4 on a $1 billion revenue base. Despite the early ownership transfer of RTP and some one-time capex noise, management expects gross margin to reach 59% as FY2026 concludes.
The market, however, has yet to fully re-price those fundamentals. Shares fell ~14% after earnings before regaining only half the loss. Sell-the-news dynamics, softer broad-sector commentary, and market turbulence contributed to technical weakness and clouded near-term momentum.
Analysts, by contrast, remain overwhelmingly positive. At least 12 major firms – including JPMorgan, BofA, Evercore, and Stifel – raised their price targets post earnings, citing strong financial health and revenue growth. Guidance for continued expansion through CY 2025-2026, along with capacity increases at RTP, underpins those views. The stock carries a “Strong Buy” rating with an average target implying more than 23% upside.
MTSI’s stock is clearly in a sentiment reset phase – but with analyst confidence diverging from market action, we prefer patience. Shares remain below pre-earnings levels, and while the company’s roadmap in RF, data center, and defense supports long-term upside, we want sentiment to stabilize and leadership to reassert itself. If price action confirms renewed strength, we would revisit the position with a bias to maintain exposure.
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Portfolio Earnings and Dividend Calendar
❖ The Q2 2025 earnings season is winding down, but some Smart Portfolio holdings are yet to report. CrowdStrike Holdings (CRWD) is scheduled to release its quarterly results today after market close, while Autodesk (ADSK) is expected to post its earnings tomorrow after hours.
❖ The ex-dividend dates for Interactive Brokers (IBKR) and Parker Hannifin (PH) are coming this week.
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New Buy: AECOM Technology (ACM)
AECOM is a global infrastructure consulting firm that helps clients – from governments to private enterprises – plan, design, engineer and manage complex projects across transportation, water, energy, environmental remediation, and urban development. The company spans the full project lifecycle, delivering advisory, design, program and construction management services that address regulatory, technical and logistical challenges. It is recognized by Engineering News-Record as the world’s top design firm, ranked number one in areas such as general building, transportation and water, and has been named Fortune’s most admired company in its industry for more than a decade. AECOM’s Digital division integrates tools such as AI, digital twins, and connected infrastructure, embedding technology into project delivery to improve efficiency and resilience. This combination of scale, technical expertise and digital integration positions AECOM as a critical partner in meeting long-term global infrastructure needs.
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From Concrete to Code
AECOM traces its roots back to 1990, when a group of design and engineering companies merged to form a unified professional services enterprise. Over the following decades, it expanded aggressively through acquisitions, establishing itself as one of the largest architectural and engineering design firms in the world. Its early years were marked by a broad scope that included construction and at-risk contracting, but this approach also left the company exposed to cyclical downturns and volatile margins.
The pivotal shift came in the late 2010s and early 2020s, when management executed a deliberate transformation to focus on higher-margin professional services. AECOM exited its self-perform construction and risk-heavy businesses, streamlined operations, and concentrated on design, program management and advisory. This move reshaped the company into a leaner, more predictable services leader and freed up capital for reinvestment in growth and shareholder returns.
Over the past five years, ACM has accelerated this transformation with investments in technology, talent and strategic partnerships. The launch and scaling of its Digital AECOM division embedded advanced tools – including AI, digital twins1 and connected infrastructure – directly into client workflows, improving efficiency and expanding its role in project delivery. The company has also secured landmark positions in mass transit, bridges, highways, water and remediation,2 consistently ranking number one in these categories.
Beyond technology, AECOM has strengthened its ecosystem through collaborations with governments, public agencies and private-sector partners worldwide. It has expanded its advisory capabilities, grown its program management portfolio, and leveraged partnerships to secure record-high backlog and win rates. At the same time, it has returned billions of dollars to shareholders, reinforcing the financial discipline behind its growth story.
This combination of strategic focus, technological integration and disciplined execution has turned ACM into a powerhouse of infrastructure consulting. By shedding volatility, embedding digital transformation and aligning with demand drivers such as modernization of transportation networks, water systems and energy reliability, the company has positioned itself not just as a participant, but as a leader shaping the future of the industry.
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1 – Digital twins are virtual replicas of physical assets – such as rail networks, water systems or buildings – that are continuously updated with real-time data. By pairing AI and analytics with these models, AECOM enables clients to simulate scenarios, optimize performance and improve resilience before implementing changes in the real world.
2 – Remediation refers to environmental cleanup services – assessing, treating and restoring contaminated soil, water or sites so they can be safely reused or returned to their natural state.
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Engineered Intelligence
AECOM has repositioned itself as a pure-play professional services firm, focused on design, engineering, advisory and program management. Having exited at-risk construction, the company now operates with a clearer profile: a consulting-led model that brings scale and technical depth without the volatility of contracting. The Americas account for about 60% of service revenue and international operations around 40%, but the real story is in the balance across end markets. Transportation represents roughly 39%, water about 24%, facilities such as healthcare and education 17%, and environment and energy-related work the remaining 20%. This diversification ensures that growth in one area often offsets cyclicality in another, providing a steady base from which AECOM can build.
The most significant evolution has been the rise of Digital AECOM. Embedded across all service lines rather than carved out as a standalone unit, Digital AECOM is both a differentiator and a multiplier. It applies artificial intelligence, digital twins and data-driven platforms directly into projects, whether in transit networks, water treatment, or complex building systems. By linking design models to real-time operating data, ACM helps clients anticipate maintenance, reduce delays, and extend the useful life of critical assets. Management has invested heavily in this area, devoting a meaningful share of EBITDA each year to digital capabilities, and the payoff is visible in higher win rates and stronger margins. In 2025, nearly 90% of the company’s largest program management bids were successful, a performance driven as much by its digital advantage as by its scale and brand.
End-market prospects remain supportive. In the U.S., federal infrastructure programs have years of runway left, with less than half of committed funding spent in AECOM’s core sectors. Water systems are entering a replacement cycle, supported by regulatory initiatives in North America and Europe, while energy and environmental services benefit from a growing need to modernize grids and secure reliable supply.
The recently approved One Big Beautiful Bill (OBBB) fiscal package provides an additional tailwind. Its provisions for research credits and tax incentives apply directly to design and engineering services, meaning AECOM stands to capture incremental benefit in cash flow and earnings from work it is already delivering. Meanwhile, the company’s limited reliance on agencies prone to budget freezes reduces political risk. In sum, ACM appears to have the best of both worlds – benefiting from incentives, while being insulated from budget pull-back headwinds.
Combined with a record backlog and a digital edge that is already reshaping how projects are delivered, the company has positioned itself for consistent growth across geographies and sectors.
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Infrastructure of Returns
AECOM delivered a standout fiscal Q3 2025, setting new records across revenue quality, margins, EPS, EBITDA, backlog and pipeline. Net service revenue rose 6% year over year to $1.94 billion, slightly ahead of the ~$1.93 billion analyst consensus, with growth strongest in the Americas at 8% and International up 3%. Total reported revenue of $4.18 billion was essentially flat, reflecting the deliberate shift away from pass-through contracting work and toward higher-margin consulting services. Adjusted EPS came in at $1.34, up 16% from a year ago and comfortably ahead of the ~$1.25-1.26 consensus. GAAP EPS was $1.31, a 38% improvement from the prior year. Adjusted EBITDA increased 10% to $313 million, driving a segment operating margin of 17.1% – a 90-basis-point gain that moved the company past its long-term 17% target more than a year early.
Cash generation remained strong. Free cash flow of $262 million was down 4% in the quarter, but year-to-date free cash flow reached $551 million, a 27% increase and the highest on record for the first three quarters of a fiscal year. Backlog climbed to $24.6 billion, up 5% year over year, while the pipeline also reached an all-time high. The book-to-burn3 ratio remained above 1.0 for the 19th consecutive quarter, and win rates stayed exceptional, with over 80% success on the largest bids and nearly 90% on program management contracts. This consistency underscores management’s claim that multi-year growth visibility is the strongest in the company’s history.
The mix of business is also shifting in favor of higher-value activities. Advisory services grew at a double-digit pace in FQ3, with a target of doubling to $400 million of net service revenue within three years. Program management is also rising as a share of the whole and continues to deliver high win rates. Together, management expects these businesses to represent at least half of company revenue over time, further supporting margin expansion. AI and automation are already contributing to operational efficiency and are expected to add materially to margins over the next two to three years.
Full-year fiscal 2025 guidance was raised for the third consecutive quarter. Adjusted EPS is now expected at $5.20-5.30, representing mid-teens growth from fiscal 2024 and ahead of the ~$5.16 analyst consensus at the time of the release. Adjusted EBITDA is projected at $1.19-1.21 billion, about 10% growth at the midpoint. Segment adjusted operating margin is expected to reach 16.5% for the year, up 70 basis points, with adjusted EBITDA margin at 16.7% and free cash flow conversion above 100%. Management also maintained guidance for 5-8% organic net service revenue (NSR)4 growth, reinforcing expectations of both top-line expansion and sustained profitability. Analysts generally view these targets as achievable, highlighting AECOM’s consistent track record of conservative guidance and repeated upward revisions.
After two years of steady margin expansion and backlog growth, FQ3 reinforced the effectiveness of ACM’s professional services model. By beating expectations on both revenue quality and earnings, while again lifting guidance, the company demonstrated that its strategy of focusing on consulting services and digital integration is delivering durable results.
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3 – The book-to-burn ratio compares the value of new contract awards to revenue recognized during the period. A ratio above 1.0 indicates backlog is expanding, as new work exceeds work performed.
4 – Net Service Revenue (NSR) is an industry measure that excludes pass-through subcontractor costs to reflect only the revenue generated by a firm’s own services. While widely used across engineering and consulting peers, AECOM emphasizes NSR as its primary growth and margin metric.
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Framework of Wealth
With inflation expectations declining and the prospect of Fed rate cuts rising, infrastructure demand has come to the forefront, supporting investor sentiment toward construction and engineering firms. U.S. government-backed programs – such as the $550 billion Bipartisan Infrastructure Law and $50 billion grid modernization plan – have created a durable tailwind for the industry, with investors tilting toward firms with stronger fundamentals. AECOM’s stock has scored a double win through its exposure to infrastructure demand without bearing the costs and risks associated with at-risk construction.
As a result, while AECOM’s shares have broadly tracked market sentiment this year, they have outpaced both the S&P 500 and most peers, climbing nearly 19% year-to-date to reach an all-time high. ACM’s peer group ranges from full-service engineering and construction firms such as Fluor and Stantec, to consulting- and design-focused rivals like Jacobs Solutions and Tetra Tech, all of which compete in overlapping infrastructure, water, transportation and environmental markets, though with varying degrees of exposure to contracting risk.
With macroeconomic uncertainty weighing on demand, firms with less exposure – notably Stantec and AECOM – have delivered stronger performance, while Fluor has lagged. Tetra Tech, the least exposed to contracting, has underperformed as well, reflecting broader investor caution toward environmental consulting amid political headwinds.
AECOM’s robust fundamentals, strong execution and visible growth outlook supported by high-profile contract wins have pushed its stock forward, with analysts chasing the rally. Following the August 4 earnings release, six of nine analysts covering the company – all with “Buy” ratings – raised their price targets, with more expected as the stock continues to gain ground.
Despite the share price surge, ACM still trades at attractive levels. Its forward and trailing twelve-month P/E ratios sit near the middle of the peer range – despite one of the highest past and expected EPS growth rates – while its forward and trailing EV/EBITDA multiples are toward the bottom. AECOM’s trailing Price/Cash Flow ratio is the lowest in the group, and its forward non-GAAP PEG of 1.68 is meaningfully below the sector median and its only other directly disclosed peer, Jacobs.
Capital returns further support the story. Management has emphasized a commitment to returning substantially all free cash flow to shareholders, balancing regular dividends with aggressive buybacks. AECOM introduced a quarterly dividend in 2021 and has modestly increased it since, with the yield now around 0.8%.
Buybacks remain the centerpiece, with the current authorization lifted to $1 billion in November 2024 alongside an 18% dividend increase. Since the inception of the repurchase program in September 2020, AECOM has retired about $2.2 billion of stock – cutting diluted shares outstanding by roughly 21%, from 161 million in fiscal 2020 to an expected 134 million in fiscal 2025. In fiscal 2024 alone, $560 million of stock was repurchased, and through the first three quarters of fiscal 2025, activity has continued, albeit unevenly with cash flow timing. The cumulative effect has been substantial, underscoring a disciplined, shareholder-focused approach.
Together, steady earnings growth, attractive relative valuation and consistent capital returns leave AECOM well-positioned to continue rewarding investors, even if broader markets remain volatile.
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Investing Takeaway
AECOM offers investors a balanced mix of growth, resilience and disciplined capital deployment. Having reshaped itself into a pure-play professional services firm, it combines market leadership in transportation, water, and environmental infrastructure with a growing edge in digital delivery. Its scale, technical depth and integration of AI and data-driven tools differentiate it in winning and executing complex, multi-year projects. The company’s steady backlog expansion and high win rates provide multi-year visibility, while its shareholder returns framework pairs consistent dividends with substantial buybacks. Trading at valuations that remain reasonable relative to its growth profile, AECOM stands out as a well-positioned infrastructure play. For investors seeking exposure to long-cycle demand drivers and a management team focused on sustained earnings power and returns, AECOM represents a quality holding with clear potential for continued outperformance.
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New Sell 1: ServiceNow (NOW)
We are removing ServiceNow from the Portfolio following its post-earnings pullback and the sector’s continued volatility. While the company remains a premier enterprise software provider with exceptional execution and a credible long-term AI strategy, we see too many near-term headwinds to justify holding through this phase of uncertainty.
ServiceNow delivered another strong quarter, with revenue up 22.5% year-over-year to $3.22 billion, non-GAAP operating margin expanding to 29.5%, and EPS beating expectations by 15%. Customer retention held at 98%, large ACV deals continued to grow, and management reiterated 20% subscription growth for the year. These fundamentals underscore ServiceNow’s leadership in workflow automation and enterprise AI orchestration.
Yet despite operational strength, the stock has slipped ~12% since earnings. Guidance flagged a cRPO drag in Q3 tied to renewal timing, while federal budget constraints and softer cash conversion metrics have added to market caution. More broadly, the software sector is under pressure as investors rotate toward companies perceived to be on the offensive in AI – such as Microsoft and Oracle – while names like ServiceNow, Salesforce, and Adobe face questions over valuation and competitive positioning. Insider selling by top executives and institutional stake reductions have only reinforced those doubts.
Valuation remains demanding, with P/E multiples well above peers, though the stock does look attractive on one measure – its forward non-GAAP PEG of 1.54 compares favorably to the tech sector median of 1.84. That suggests the market may not be fully crediting ServiceNow’s growth story. However, our discipline avoids “catching falling knives,” and with sentiment fragile, sector flows negative, and company-specific risks in play, we believe it is prudent to step aside.
In our view, ServiceNow is a high-quality business with durable growth potential – but this is likely the wrong time to hold it. We prefer to exit now, monitor how sector dynamics and sentiment evolve, and be ready to revisit the name if the setup improves.
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New Sell 2: Roper Technologies (ROP)
We are removing Roper Technologies from the Portfolio after its recent stretch of uneven performance and lack of clear near-term catalysts. While the company remains one of the strongest industrial-software hybrids in the market – with durable recurring revenue, disciplined capital allocation, and a proven M&A playbook – its trading profile has not delivered the stability we look for in this holding.
Roper’s fundamentals are not in question. The company reported 13% year-over-year revenue growth in Q2 2025, raised its full-year EPS guidance, and continues to generate more than 60% of sales from recurring revenue. The $800 million acquisition of Subsplash, along with $5 billion in remaining M&A capacity, supports further bolt-on growth, while cash flow guidance remains in the mid-teens. These attributes reinforce why Roper is considered one of the best-run compounders in its space.
Even so, the stock has lagged the broader market and displayed high volatility despite its steady business profile. Trading has remained rangebound, and technical indicators remain weak – a combination that has seen ROP underperform in rising markets while offering limited, if any, downside protection in recent sell-offs. Valuation is also a sticking point: with P/E multiples near 30x and a low dividend yield, the shares provide limited cushion if sentiment stays cautious. Risks tied to government contracting exposure and integration of acquisitions add further uncertainty to the near-term picture.
Analyst sentiment reflects this mixed setup. While most analysts remain supportive – with 11 “Buy” ratings versus two “Hold” and one “Sell” – price targets range widely, highlighting a lack of conviction in the stock’s prospects over the next several months. Institutions have maintained moderate optimism, but retail flows and technical signals suggest a market still undecided.
Roper remains a high-quality operator with a long record of compounding growth, but this is not the setup we seek today. We prefer to exit now and monitor from the sidelines, ready to revisit if market dynamics shift and the stock resumes showing the defensive and compounding qualities that led us to purchase it for the Portfolio earlier this year.
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Smart Investor’s Winners Club
The 30% Winners Club includes stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
Markets have been volatile, but our Winners ranks have remained unchanged, still listing 11 stocks: GE, AVGO, ANET, EME, ORCL, HWM, TSM, APH, IBKR, PH, and UBER.
The first contender for the Club’s entry is still CRWD with a 28.48% gain since purchase. Will it return to the ranks of the Winners, or will another stock outrun it to the finish line?
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