Buy the Build
In this edition of the Smart Investor newsletter, we take a closer look at the stock of the infrastructure engine behind America’s grid and data buildout. But first, let’s dive into the latest portfolio news and updates.
1
Portfolio Updates
❖ U.S. Treasury Secretary Scott Bessent said regulators are likely to ease a key bank rule, the Supplementary Leverage Ratio (SLR), this summer. The SLR limits balance-sheet size – including safe assets like U.S. Treasuries – for large, systemically important banks like JPMorgan Chase (JPM). If relaxed, JPM and its peers could hold more Treasuries without needing extra capital, freeing up balance sheet capacity for higher-return assets and potentially boosting profits. It could also improve liquidity in the bond market and reduce Treasury yields slightly. For JPM, this change would be a tailwind for both balance sheet flexibility and trading revenue.
❖ In other news, JPMorgan Chase (JPM) has committed over $7 billion in financing for the construction of a massive AI data center campus in Abilene, Texas. The facility is part of the broader $500 billion Stargate project – a joint venture involving Microsoft (MSFT)-backed OpenAI, Oracle (ORCL), SoftBank, and MGX – aimed at bolstering AI infrastructure. The data center, expected to be one of the largest in the world with 1.2 gigawatt capacity, is slated to be operational by mid-2026. SoftBank and OpenAI have each contributed $18 billion to support the initiative.
❖ Oracle (ORCL) has signed a 15-year lease for the Abilene site and plans to deploy approximately 400,000 of Nvidia’s GB200 (Grace Blackwell) chips to power OpenAI’s workloads. Oracle expects to spend around $40 billion on these chips as part of the rollout.
❖ Simultaneously, a parallel project – Stargate UAE – was announced last week. OpenAI, Nvidia, Oracle, SoftBank, Cisco Systems (CSCO), and UAE-based G42 will collaborate to build a 1-gigawatt AI computing hub in Abu Dhabi, expanding Stargate’s global footprint.
❖ In another finance-tech convergence, the nation’s biggest banks – including JPMorgan (JPM), Bank of America, Citigroup, and Wells Fargo – are in early talks to launch a joint stablecoin. The initiative involves Early Warning Services, which operates Zelle, and The Clearing House, which runs core U.S. payment rails. The goal is to counter crypto-native competitors by modernizing payments with a bank-issued dollar-backed token.
❖ Alphabet’s (GOOGL) Google has published a quantum computing breakthrough showing that RSA-2048 encryption – the standard securing banking systems, emails, government files, and much of the internet – could be broken in under a week using a quantum computer with fewer than 1 million noisy qubits. Previously, experts estimated it would take 20 million qubits, placing the threat decades away. Now, if hardware advances continue at pace, breaking RSA-2048 could become feasible by the early 2030s, pushing quantum computing from theory to monetizable infrastructure.
This is a major turning point for a wide range of companies. The biggest potential winners in a rapid shift to post-quantum cryptography (PQC) and zero-trust architecture are leading cybersecurity firms like CrowdStrike (CRWD), Palo Alto Networks, and Fortinet, where demand could surge as corporations and governments move preemptively. Quantum hardware players such as IBM (IBM), which are far ahead of peers, now have a clear commercial target to build towards.
While Google’s findings may trigger alarm among banks and financial institutions, some – notably JPMorgan (JPM) – have shown early foresight by developing quantum readiness programs and testing quantum-safe systems. These institutions are best positioned to maintain trust and operational continuity when Q-Day arrives.
❖ On May 20, President Donald Trump announced the “Golden Dome” initiative, a proposed $175 billion plan to build a space-based, multi-layered missile defense shield capable of intercepting hypersonic and space-launched threats. An initial $25 billion in funding is included in a reconciliation bill currently under consideration in Congress. The administration aims to achieve full operational capability by January 2029, before the end of Trump’s current term. The White House explicitly named Lockheed Martin (LMT), RTX (RTX), and L3Harris as expected defense partners. Meanwhile, SpaceX, Palantir, and Anduril have been widely reported as likely participants, though not officially confirmed.
❖ Qualcomm (QCOM) was hit last week along with Apple after President Donald Trump threatened a 25% tariff on non-domestically produced iPhones, and then later clarified that these tariffs would also apply to other phone makers, such as Samsung. QCOM supplies chips and modems to both consumer electronics producers. The prospect of tariffs on foreign-assembled smartphones raised concerns about reduced handset demand and supply chain disruptions, both of which would potentially impact Qualcomm’s chip shipments. While the collaboration with Apple is phasing out – with modem supply expected to wind down by 2027 – Samsung remains one of Qualcomm’s largest mobile OEM customers and a far more stable contributor to QCOM’s long-term handset business.
In other, more positive company news, the U.K. Takeover Panel has extended the deadline for Qualcomm to submit a formal takeover bid for British semiconductor company Alphawave IP to June 2, 2025. The extension indicates that negotiations between QCOM and Alphawave are ongoing, with both parties continuing discussions about a potential acquisition. Alphawave makes a crucial serializer-deserializer, or SerDes, technology, which is critical for high-speed data transmission in AI and data center applications. The potential acquisition would strengthen Qualcomm’s position in the semiconductor industry, particularly in the AI and data center markets.
❖ Salesforce (CRM) said it will acquire data-management software firm Informatica for $8 billion, reviving a deal that was in the works but fell through in April 2024. This move is expected bolster CRM’s position in AI-driven cloud solutions, supporting faster and wider adoption of Agentforce. The acquisition is a strategic move by CRM to expand its data management capabilities as it accelerates its focus on AI-powered solutions. Integrating Informatica will give Salesforce greater control over how enterprise data is structured and utilized.
❖ Taiwan Semiconductor Manufacturing Company (TSM) announced plans to open a new chip design center in Germany as early as Q3 2025. According to TSMC, the center will “support European customers in designing high-density, high-performance, and energy-efficient chips with a focus on applications in automotive, industrial, AI, and IoT.”
1
Portfolio Stocks Under Review
❖ We are removing Charles Schwab Corporation (SCHW) from our “under review” bracket. The stock was placed there ahead of the company’s May 22 annual meeting, where an activist shareholder proposal called for declassifying the board – a move the company initially opposed. That proposal has now passed, with shareholders voting in favor of annual board elections, marking a clear win for governance transparency and investor accountability. This outcome removes a key overhang and signals Schwab’s willingness to respond to shareholder concerns constructively. Combined with its strong Q1 earnings and fundamentally solid business model, Schwab is once again positioned as a stable, shareholder-aligned name in our portfolio, and no longer warrants elevated scrutiny on governance grounds.
❖ We are keeping Verizon Communications (VZ) under review, though the recent approval of its $20 billion acquisition of Frontier Communications adds a new, potentially positive variable to the equation. While Verizon’s fundamentals remain stable, and the company continues to deliver strong operational results, the broader market context and competitive landscape are evolving in ways that merit close monitoring.
Verizon reported solid first-quarter results in April, including better-than-expected revenue, record adjusted EBITDA, and robust free cash flow. At that time, equity markets were still weighed down by tariff-related uncertainty, and defensive, dividend-rich names like Verizon attracted capital for their perceived stability. The stock’s 6.2% yield and consistent cash generation provided insulation from macro risk, allowing investors to look past Q1’s loss of 289,000 postpaid phone subscribers – a figure that reflected ongoing wireless price competition and churn pressures.
Since then, however, sentiment has shifted. The sharp rebound in growth and tech stocks – fueled by optimism around easing trade tensions and broader risk appetite – has triggered a rotation away from telecom and other defensive sectors. VZ shares have declined more than 3% since the beginning of May, a trend compounded by insider activity such as the sale of 9,000 shares by CEO Kyle Malady. While not concerning by itself, it has added to near-term investor caution.
At current levels, VZ trades at a forward P/E of 9.3 and a price-to-FCF multiple below its long-term average. However, with no immediate catalyst to re-accelerate subscriber growth or expand margins, valuation alone has not been enough to stabilize the stock in a market repricing toward innovation, infrastructure, and platform-driven growth.
That said, the FCC’s approval of Verizon’s Frontier acquisition could mark a turning point. The deal significantly expands Verizon’s fiber footprint – particularly in underserved and rural markets – and positions the company for long-term growth in bundled wireless and broadband services. Management expects meaningful operating synergies and has emphasized the infrastructure upside. In addition, the deal’s terms include a shift away from costly DEI programs, potentially improving cost structure without sacrificing execution.
We are holding the position under review as we assess how the Frontier acquisition translates into market sentiment and operational momentum. Verizon still offers income stability and financial strength, but we are watching closely to determine whether the company can reassert strategic relevance in a market increasingly focused on scale, innovation, and growth. We expect to revisit our stance once the integration path and investor response become clearer over the next few weeks.
1
Portfolio Earnings and Dividend Calendar
❖ The Q1 2025 earnings season is drawing to an end, but several Smart Portfolio companies have yet to report their results. Salesforce (CRM) is scheduled to post its results today after hours, while CrowdStrike Holdings (CRWD) is expected to report on June 3.
❖ The ex-dividend date for Interactive Brokers (IBKR) and LPL Financial (LPLA) is May 30, while for Texas Pacific Land (TPL) and Lockheed Martin (LMT) it is June 2.
w
New Buy: MasTec (MTZ)
Qualcomm Incorporated is a global leader in wireless technology and semiconductor innovation, best known for designing and licensing critical intellectual property used across mobile communications, connectivity, and edge computing. The company is the world’s leading supplier of smartphone application processors and cellular modem chipsets, and it holds one of the largest patent portfolios in 5G technology. Qualcomm plays a foundational role in the mobile ecosystem, with its technologies embedded in billions of devices worldwide. Beyond mobile, the company is expanding its footprint into automotive, Internet of Things (IoT), and data center markets, leveraging its expertise in power-efficient, high-performance computing. Qualcomm’s vertically integrated model and leadership in wireless standards position it as a strategic enabler of next-generation digital infrastructure across consumer, industrial, and enterprise applications.
1
Concrete Shifts
MasTec was founded in 1929 as Burnup & Sims, later renamed and restructured into its current form in 1994 under the leadership of the Mas family and CEO Jorge Mas. Originally focused on telecommunications and cable construction, the company steadily expanded its capabilities through both organic growth and acquisitions, eventually emerging as a national infrastructure contractor with a core focus on utility, energy, and communications projects.
For much of its early modern history, MasTec operated as a traditional construction services provider. However, over the past five years, it has undergone a strategic transformation into a diversified infrastructure platform company. This shift has been driven by a series of targeted acquisitions, operational integrations, and a sharpened focus on high-growth end markets.
In 2022, MasTec acquired Infrastructure and Energy Alternatives (IEA) for approximately $1.1 billion – a pivotal move that expanded its footprint in utility-scale renewable energy while accelerating its entry into grid modernization and civil infrastructure. As policy risk increased in the clean energy sector, the company began rebalancing toward more stable growth segments – particularly power delivery, grid services, and telecom infrastructure – without abandoning its long-term optionality in renewables.
Simultaneously, MTZ broadened its telecommunications footprint to support next-generation 5G buildouts and fiber deployments. Strategic partnerships with major U.S. carriers and continued investments in engineering capabilities positioned the company as a key player in digital infrastructure.
On the conventional energy side, MasTec retained its leadership in pipeline and oil & gas infrastructure, while gradually shifting toward power delivery and electrical transmission – markets viewed as more stable and utility-regulated. Its 2023 acquisition of INTREN, a specialized electric utility contractor, furthered this pivot.
Recent years have also seen MTZ modernize its internal systems, adopt advanced project management technologies, and integrate data-driven tools to enhance operational efficiency and project execution. The company now operates with a vertically integrated approach – from engineering and procurement to construction and maintenance – across multiple infrastructure verticals.
This transformation has positioned MasTec to compete as a comprehensive infrastructure solutions provider, capable of executing complex, multi-billion-dollar projects across sectors. Its ability to shift resources across markets, backed by a record-high backlog and diversified customer base, marks a structural evolution from cyclical contractor to long-cycle infrastructure leader.
1
The Core Buildout
MasTec specializes in engineering, building, installing, and maintaining infrastructure for a variety of industries, operating at the intersection of legacy infrastructure and next-generation systems. The company provides a comprehensive range of services, from the deployment of wireless, wireline, and fiber optic networks to the construction of oil and gas pipelines, power generation facilities, and other infrastructure projects. MTZ operates across four primary verticals: Communications, Power Delivery, Clean Energy & Infrastructure, and Pipeline Infrastructure. With this diversified structure, the company is deeply embedded in the long-cycle transformation of America’s digital and energy systems.
In telecommunications, MasTec supports the continued expansion of 5G and fiber networks through its Communications segment, which saw revenue grow nearly 35% year-over-year in Q1 2025. Wireless and wireline project volumes remain elevated, and long-term master service agreements with major U.S. carriers provide recurring business with margin expansion potential.
Power Delivery – now MasTec’s second-largest revenue segment – is critical to the company’s positioning in national grid modernization. This includes transmission, substation, and distribution work, often tied to utility resilience mandates, EV charging buildouts, and broader electrification efforts. With a growing regulatory and commercial push toward grid reinforcement, this segment provides a more stable and policy-resilient growth driver.
Meanwhile, Clean Energy & Infrastructure – long one of MasTec’s fastest-growing verticals – is undergoing a strategic rebalancing. While it continues to deliver strong revenue growth and margin improvement, management has acknowledged policy headwinds under the current federal administration. In response, MasTec is reallocating resources toward transmission and civil infrastructure opportunities while selectively maintaining its renewable capabilities for when demand re-accelerates.
The company’s Pipeline Infrastructure segment, once dominant, now plays a more opportunistic role as MasTec pursues projects tied to natural gas, carbon capture, and pipeline integrity. Recent backlog expansion here reflects some reactivation, though overall exposure is being managed prudently.
The largest current opportunity is MTZ’s push into data center infrastructure – an area where demand is surging thanks to the AI and cloud computing boom. In 2024, the company announced a strategic focus on data centers, revealing that it had completed $150 million in related projects and held an additional $200 million in backlog – with bids totaling close to $1 billion currently in progress.
While specific 2025 data center figures were not disclosed, MasTec’s overall 18-month backlog grew to a record $15.9 billion as of the end of the first quarter of this year. This indicates robust demand across its service lines and suggests that the company’s data center initiatives are scaling alongside broader infrastructure trends.
Leveraging its core strengths in grid connections, fiber, civil construction, and high-load power delivery, MasTec is positioning itself to become a key contractor for hyperscale and regional data center developers. The company’s telecom and power divisions already provide foundational services required to establish these sites at speed – a synergy now being monetized in a meaningful way.
1
Turning the Torque
MasTec’s financial story over the past year is defined by its dramatic turnaround. After posting a loss in early 2024, MTZ delivered a sharp inflection in profitability during the back half of the year. Adjusted EPS surged year-over-year – by 72% in Q3 and 118% in Q4 – driven by improved project execution, cost discipline, and a favorable business mix. This reversal reflects a successful retooling of operations post-IEA acquisition and renewed efficiency across MasTec’s Clean Energy & Infrastructure and Power Delivery segments.
Several factors contributed to this earnings momentum. First, segment-level productivity recovered as previously underperforming projects stabilized, particularly in renewables and civil infrastructure. Second, margin tailwinds from a shift toward higher-value power and telecom work boosted EBITDA conversion. Additionally, depreciation and interest expense declined significantly as capital intensity normalized. With integration of prior acquisitions largely complete, overhead leverage also improved. All together, these dynamics repositioned MTZ as a structurally more profitable business heading into 2025.
That strength has continued into this year. In Q1 2025, revenue rose 6% year-over-year to $2.85 billion, ahead of analyst expectations. Adjusted EPS came in at $0.51, up over 492% from the prior-year quarter and well above consensus. Adjusted EBITDA increased 7% to $164 million, with margin stable at 5.7%. Cash flow remains healthy, with $78 million in operating cash generated in Q1 and leverage holding steady at 1.9x adjusted EBITDA.
The company’s 18-month backlog reached a record $15.9 billion, up 24% year-over-year and 11% sequentially – a crucial signal of sustained demand and execution visibility. Backlog growth was broad-based, with Power Delivery, Communications, and Clean Energy all contributing. Notably, the Clean Energy & Infrastructure backlog rose nearly $1 billion from a year earlier, despite macro and policy headwinds – underlining the resilience of MasTec’s grid and civil business.
Segment trends remain strong. Non-pipeline segment revenue rose over 21% year-over-year, led by a 35% increase in Communications, with every segment delivering double-digit revenue growth. EBITDA outside the Pipeline Infrastructure segment surged by 60%. Meanwhile, revenue at Pipeline Infrastructure declined sharply, as expected, following the completion of a major midstream project in late 2024 – though the backlog more than doubled sequentially, pointing to a potential rebound later in the year.
Following a blockbuster quarter, MTZ raised its full-year 2025 guidance. Revenue is now forecast at $13.65 billion, representing a 10% year-over-year increase. Adjusted EPS was revised upward to $5.90-6.25 – implying a 54% YoY jump at the midpoint and coming in well above Street consensus. Management also reaffirmed its goal of generating approximately $700 million in FCF, supported by solid working capital execution and healthy project margins.
With margin drivers now embedded, MTZ enters the remainder of 2025 as a restructured and operationally lean infrastructure platform – with an improving mix of revenue sources, cash flow strength, and record backlog underpinning a multi-year growth arc.
1
GARP in the Grid
MasTec’s stock has gained nearly 40% over the past year, far outpacing the broad stock-market benchmarks and all of its peers in the industry – including Smart Portfolio holding EMCOR Group and industry titan Quanta Services.
This strong performance has driven MTZ’s TTM and forward P/E ratios well above the Industrials sector averages – but that premium is justified by the company’s superior earnings growth rate. This is confirmed by MTZ’s low PEG ratio, which trades at nearly a 65% discount to the sector – signaling that the stock is undervalued relative to its growth trajectory. MTZ’s high P/E but low PEG profile is a classic indicator of a GARP (Growth At a Reasonable Price) stock.
MasTec also trades near the midpoint of its peer group on P/E and EV/EBITDA, while standing out sharply on PEG – where it ranks significantly lower than the comparison group. Moreover, based on projected cash flows, MTZ appears undervalued by about 25%, reinforcing the strength of its investment case.
On top of the potential for share-price appreciation, MasTec rewards its shareholders through buybacks, supported by strong cash flow generation. Following its 2024 financial turnaround, the company upped the ante on buybacks – repurchasing $77 million in stock over the first four months of 2025. These buybacks exhausted MTZ’s prior authorization, with the board approving a new $250 million repurchase program in May 2025.
With accelerating earnings, structural margin gains, and disciplined capital returns, MTZ offers investors a rare blend of growth and valuation support. Its outperformance is not a product of sentiment – it’s grounded in fundamentals, with room still left to rise.
1
Investing Takeaway
MasTec is a restructured infrastructure platform at the nexus of power, telecom, clean energy, and data-driven construction. With deep vertical integration, proven execution across long-cycle projects, and rising exposure to next-gen buildouts like grid hardening and data centers, MTZ is no longer just a contractor – it’s a core enabler of U.S. infrastructure renewal. The company’s multi-segment mix, expanding backlog, and embedded margin tailwinds point to durable earnings growth. Despite a standout recovery and rising shareholder returns, the stock remains discounted on growth-adjusted multiples. MTZ’s valuation is misaligned with its fundamentals – particularly in a GARP context – creating a rare opportunity. With strong cash flow, buyback acceleration, and secular demand across regulated and tech-adjacent sectors, MasTec offers a compelling mix of visibility, structural upside, and underrecognized rerating potential.
1
1
New Sell: Kroger Company (KR)
We are selling Kroger despite its reputation as a stable operator in the essential grocery retail space and its strong stock performance year-to-date. Kroger has historically offered defensive exposure during periods of elevated inflation and consumer belt-tightening, but the macro landscape is shifting – and so is Kroger’s position.
As of April 2025 (the latest data), food-at-home inflation has normalized to around 2%, stripping Kroger of one of its biggest tailwinds. In fact, this deceleration reduces Kroger’s ability to pass price increases on to consumers, potentially compressing profit margins as input and labor costs remain sticky.
At the same time, competition is intensifying. Walmart continues to leverage its scale to outprice traditional grocers, and Amazon is pushing deeper into the physical grocery space with aggressive discounting and rapid e-commerce fulfillment. Kroger’s already-thin margins are under pressure from both sides – cost rigidity and pricing erosion – and the company is guiding to just 2-3% identical sales growth (ex-fuel) for the full year, with EPS expected to rise only slightly from 2024.
Strategically, Kroger also faces uncertainties. The termination of its planned merger with Albertsons in late 2024 eliminated anticipated synergies and scale advantages. In addition, while a CEO transition in early 2025 was well-managed, what followed has been less reassuring. With the interim CEO in place and the canceled April investor day still unscheduled, the lack of strategic updates nearly three months later leaves investors with limited visibility into Kroger’s forward direction.
While Kroger remains fundamentally sound and continues to generate cash, we believe its current valuation – trading near the upper end of its historical range – reflects optimism that is simply not matched by its potential growth. In a market environment increasingly rewarding innovation, operating leverage, and margin expansion, Kroger’s low-growth, low-margin model stands out for the wrong reasons. With its short-term defensiveness no longer as relevant and its long-term strategic clarity in question, we believe now is the right time to exit Kroger and reallocate to higher-conviction growth names.
1
1
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 ebbed and flowed, but our Winners list remained unchanged, still holding 12 stocks: GE, AVGO, HWM, ANET, EME, TPL, TSM, APH, ORCL, IBKR, PH, and CRWD.
The first contender for the Club’s entry is now IBM with 25.20% gain since purchase. The second runner-up is now UBER with 24.37% increase. Will they gain this rite of passage, or will another stock outrun them to the finish line?
1
1
|
1
1
Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
