Capital Power
In this edition of the Smart Investor newsletter, we spotlight the stock of a leading global alternative asset manager with a diversified platform. We are not selling any stocks today as the markets are experiencing wild swings in anticipation of the upcoming crucial Fed meeting. But first, let’s dive into the latest portfolio news and updates.
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Portfolio News and Updates
❖ Broadcom (AVGO) surged post-earnings after it reported better-than-expected sales and earnings results for fiscal Q3 2025, raising revenue guidance notably above consensus estimates. The company highlighted continued rapid growth in AI semiconductor sales and projecting “significantly improved” AI revenue growth in fiscal 2026.
AVGO’s total revenue rose 22% year-over-year to $16 billion, driven by surging AI semiconductor demand and continued VMware growth. Adjusted EBITDA was up 30% YoY to $10.7 billion (67% margin), reflecting strong operating leverage, while free cash flow surged up 47% YoY to a record $7.0 billion, or 44% margin.
Broadcom’s infrastructure software segment reported FQ3 revenue of $6.8 billion, up 17% year-over-year, with total contract value booked at $8.4 billion during the quarter. AI semiconductor revenue was $5.2 billion, up 63% YoY, marking the 10th consecutive quarter of robust growth.
The company’s FQ4 2025 guidance now sees further acceleration, with total revenue expected to reach $17.4 billion – up 24% year-over-year – and adjusted EBITDA margin seen at about 67%. AI semiconductor revenue is slated to continue rapid growth, expanding 66% YoY to $6.2 billion.
On the earnings call, the chipmaker also unveiled a blockbuster $10 billion AI chip order from a new customer, widely believed to be OpenAI. Industry specialists say that Broadcom will produce OpenAI’s inaugural in-house chip intended for internal use. The deal solidifies AVGO’s role as a leading custom chip provider amid tech leaders’ push to diversify beyond Nvidia by developing custom AI chips.
Adding to investor optimism over Broadcom’s stable upward trajectory, CEO Hock Tan – who has led the chipmaker for nearly two decades and steered it to the center of the AI boom – confirmed he will remain in his role for at least five more years.
AVGO’s AI chip business is becoming so significant that it is denting Nvidia’s sales and market share in this key growth segment. Citi recently lowered Nvidia’s 2026 GPU sales estimates by 4%, explicitly citing Broadcom’s accelerating growth in AI chips. Broadcom’s expanding XPU deals are expected to reduce Nvidia’s GPU sales by approximately $12 billion next year, reflecting Broadcom’s increasing competitive pressure on Nvidia in AI accelerators.
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❖ Alphabet (GOOGL) surged last week after a federal judge ruled it would not be forced to sell its Chrome browser business and imposed lighter-than-feared remedies in its high-profile antitrust case. The removal of key business risk prompted at least a dozen price-target increases from leading Wall Street analysts.
Not all is rosy on the regulatory front. The European Commission slapped the company with a €2.95 billion (approximately $3.5 billion) fine for breaching the European Union’s antitrust rules by favoring its own advertising technology services. Google immediately vowed to appeal, calling the fine “unjustified.” The tech giant’s stance received outspoken support from the Oval Office, with President Donald Trump threatening a probe of the EU that could prompt fresh tariffs. The President has long criticized Europe for its fines against U.S. tech leaders, and warned that countries that impose digital taxes, rules, or regulations targeting American companies would face substantial retaliatory tariffs.
A slate of other news also kept investor attention on the stock. According to media reports, Apple is developing a new AI-powered web search feature for Siri, internally called “World Knowledge Answers,” which may be powered by a customized version of Google’s Gemini model. The feature is planned to launch in spring 2026 and, if successful, may be extended beyond Siri, with possible integration into Safari and Spotlight. According to BofA analysis, the potential partnership is seen as a strong endorsement of Google’s AI capabilities and its ability to modularize AI for third-party use cases. Moreover, the potential integration of Gemini into Safari and Spotlight would embed Google’s AI deeper into the iOS ecosystem, strengthening its competitive moat.
Beyond progress in AI, Alphabet’s Google is now pushing deeper into blockchain. Google Cloud is developing a new layer-1 blockchain technology called Google Cloud Universal Ledger (GCUL), aimed at global finance and institutional use. It is designed as a neutral infrastructure layer, unlike blockchains from rivals such as Stripe and Circle, which are tied to their own ecosystems. Google has partnered with CME Group – operator of the world’s largest derivatives exchange – which has completed integration testing with GCUL and plans broader trials in 2025, aiming for full services by 2026. GCUL is intended to open new digital finance revenue streams for Google, strengthening its institutional role in the space.
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❖ Microsoft (MSFT) has struck a landmark $17.4 billion GPU infrastructure deal with Nebius, securing dedicated compute capacity from Nebius’ new data center in Vineland, New Jersey, over five years. As AI adoption rapidly advances, tech giants are racing to secure GPU supply, and this agreement gives Microsoft a strategic capacity lock-in aligned with its growing AI investment plans. By leasing GPU resources instead of solely building data centers, Microsoft balances capital efficiency with the agility to meet surging AI compute demand.
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❖ EMCOR Group (EME) was chosen by S&P Dow Jones Indices to be added to the S&P 500 index at its next quarterly rebalancing on September 22, along with Robinhood Markets and AppLovin Corp. The engineering and services firm’s stock has climbed over 77% in the past year, driven by stellar fundamentals, strong and steady earnings growth, and rosy outlook. EMCOR’s past and expected outperformance reflects its alignment with several long-term secular trends, including reindustrialization and reshoring along with energy efficiency and AI-driven power demand.
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❖ As a part of the same quarterly rebalancing, Uber Technologies (UBER) will be added to the S&P 100 – a subset of S&P 500 index that includes stocks of the largest companies by market cap in the benchmark index – reflecting Uber’s growing institutional prominence. The S&P 100 inclusion mandates replication by ETFs and funds tracking the index, expected to add several billion dollars in incremental passive fund holdings – boosting Uber’s liquidity, institutional ownership, and overall float stability.
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❖ Leidos Holdings (LDOS) saw significant analyst action recently. RBC Capital upgraded Leidos to “Buy” from “Hold” and raised the price target to $210 from $180. This upgrade was driven by strong execution in Leidos’ Health Services business, a robust defense portfolio positioning, and increased confidence in the company’s pivot to higher-margin, higher-growth sectors under CEO Tom Bell’s long-term growth strategy. Simultaneously, BofA raised its price target on the firm to $200 from $185 and maintained a “Buy” rating, citing investments aligned with key priority areas and funding in the “One Big Beautiful Bill” legislation, including veteran health, border security, and autonomous maritime, which raise growth and margin prospects.
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❖ GE Aerospace (GE) announced a strategic partnership with BETA Technologies, including a $300 million equity investment, to develop a hybrid-electric turbogenerator for advanced air mobility applications. This collaboration aims to combine BETA’s innovation in electric propulsion with GE’s experience and scale, leveraging existing GE engine families like CT7 and T700. Targeting long-range VTOL and other aircraft, the initiative addresses the limitations of battery-electric planes by extending range and payload. GE will also gain a board seat at BETA, signaling deepened commitment to hybrid-electric aviation technology and positioning GE as a leader in next-gen aerospace propulsion.
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❖ BlackRock (BLK) has been selected by Citi to create a new portfolio offering for its clients – Citi Portfolio Solutions. The banking giant is transferring $80 billion of its global wealth client assets to BLK to build tailored investment strategies for Citi’s clients, spanning equities and fixed income, with plans to expand into private markets over time. The partnership explicitly includes the development of new investment solutions leveraging BlackRock’s Aladdin platform, index expertise, and alternative strategies.
For BlackRock – which has an AUM of over $10 trillion – this agreement isn’t a needle-mover for earnings, but it is highly strategic as it reinforces BLK’s credibility as the “go-to” platform provider for money managers. The deal broadens BLK’s institutional mandates, signaling that major banks like Citi increasingly view BlackRock as an indispensable partner for scalable, tech-enabled portfolio management. Over time, this can compound into larger product distribution, stickier AUM, and a stronger moat in global wealth management.
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❖ JPMorgan (JPM) will launch its digital retail bank, Chase, in Germany in Q2 2026, marking its second European market after the UK. Starting with savings accounts, the bank aims to gradually expand its product offerings. This move supports JPMorgan’s strategy to grow digitally in Europe’s largest economy, targeting tech-savvy consumers with a digital-first, branchless banking model. The move taps into a large and digitally engaged market, and positions JPMorgan to compete with local banks and fintechs, potentially driving long-term growth and market share gains in European retail banking.
In other company news, Trimont LLC – a global commercial real estate loan servicer managing $730 billion in loans – is using JPMorgan’s blockchain platform, Kinexys Digital Payments, to automate and accelerate loan payments. Trimont began using the platform in August and is working with JPM to expand its use over the next year, highlighting the bank’s leadership in applying blockchain to institutional finance. The partnership also underscores growing corporate interest in blockchain-based payment systems for faster and more efficient transactions – usage is expected to accelerate, supported by recent favorable crypto and blockchain regulation.
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❖ Oracle (ORCL) saw its shares soar nearly 30% in after-hours trading – potentially adding nearly $190 billion to Oracle’s market cap – following the release of its fiscal Q1 2026 results. Although the company slightly missed Wall Street expectations for both earnings and revenue, investor focus swiftly shifted to forward-looking indicators that confirmed analyst expectations for exceptional future expansion.
For example, Mizuho recently named Oracle a “Top Pick,” highlighting its strong position to benefit from the AI boom thanks to its cloud business and advanced GPU infrastructure used for training large AI models. Mizuho specifically noted Oracle as the “fourth hyperscaler,” reflecting the rapid growth in demand for its cloud services. Overall, analysts widely view ORCL as structurally well placed to capture a disproportionate share of the enterprise AI market and as a legitimate contender to become the next $1 trillion company.
These bullish views were confirmed on Tuesday, as Oracle’s FQ2 results confirmed the success of its remarkable transformation into a cloud powerhouse. Total revenue rose 12% year-over-year, driven by 28% expansion in Cloud, with Oracle Cloud Infrastructure (OCI) posting a 55% jump. The company’s MultiCloud database revenue from partnerships with Amazon, Google, and Microsoft grew an exceptional 1,529% in FQ1.
Key forward-looking metric that drove investors to flock into the stock was a 359% year-over-year surge in remaining performance obligations (RPO), i.e., backlog of contracted but not yet recognized revenue, which soared to $455 billion. The outstanding growth in this deposit of future revenue was driven by four large, multi-billion-dollar generative AI and cloud infrastructure deals – notably with OpenAI and Nvidia. RPO surge sent a powerful signal about Oracle’s positioning for the AI/cloud cycle and confirmed that the company is now a key beneficiary of AI infrastructure demand.
Looking forward, CEO Safra Catz said that as demand for OCI continues to soar, ORCL expects to close several additional multi-billion-dollar deals in the coming months that should send the RPO significantly above $500 billion. The scale of the RPO growth enabled the company to make a large upward revision to OCI revenue outlook, expecting it to expand 77% in FY 2026, reaching $18 billion. Moreover, Catz also revealed an ambitious five-year plan for OCI, projecting growth to $144 billion in FY 2030. These are not just vague projections – the long-term nature of the cloud infrastructure contracts means that most of the five-year revenue forecast is already booked in Oracle’s reported RPO.
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Portfolio Stocks Under Review
❖ We are keeping Cisco Systems (CSCO) under review due to the stock’s underperformance over the past month amid broad tech-sector jitters and lingering investor caution about AI momentum validation.
Cisco delivered a strong fiscal Q4, with both revenue and EPS above expectations, and TTM AI infrastructure orders topping $2 billion – more than double the company’s 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, forecasting total revenue growth of about 5% and adjusted EPS growth of nearly 6%. While headline numbers look unimpressive compared to some high-growth tech large caps, they represent strong results for a company many had written off as a legacy laggard just two years ago.
The company continues to reinvent itself, gradually transforming its identity from a legacy networking provider into the indispensable architect of enterprise AI infrastructure. Cisco has launched a comprehensive strategy designed to help it become an AI infrastructure leader – similar to its position as a global leader in networking hardware and enterprise solutions in the pre-AI era. Cisco’s leadership in global networking greatly aids its emergence as an AI leader. Its decades of experience, coupled with enormous scale – managing over 35 million devices and 1 billion clients – provide a strong foundation for supporting AI workloads that demand high bandwidth, low latency, and security. Cisco’s unified hardware, software, and cloud portfolio enable integrated AI infrastructure across networks. Innovations like the Deep Network Model, an LLM trained on network data, leverage this expertise to enhance AI-driven management and automation. Partnerships with Nvidia, Microsoft, and sovereign AI players such as Saudi Arabia’s HUMAIN reflect CSCO’s vision to lead the future of scalable, secure AI networks.
In a development that may provide a strong catalyst for the stock, the company launched Cisco Data Fabric – a unified data architecture built on the Splunk platform, enabling organizations to harness, manage, and analyze vast streams of machine data at scale for AI applications while reducing cost and complexity. The Data Fabric platform marks a major evolution in Cisco’s AI and data-management capabilities, strengthening the company’s value proposition in AI-ready infrastructure and positioning it well against leading cloud and data-management competitors. The launch underpins Cisco’s efforts to defend and expand its enterprise footprint amid intensifying AI, cloud, and security competition. In parallel, Cisco unveiled Splunk Federated Search for Snowflake – a distinct integration that allows organizations to connect, query, and blend operational and business data across Splunk and Snowflake environments. Together, these advances underscore Cisco’s commitment to building an open, unified data ecosystem, unlocking enterprise data for AI and analytics. The developments have already led some industry analysts to declare CSCO a “must-hold stock” in the AI era.
Overall, there is little doubt among analysts that longer term, Cisco is slated to become one of the pillars of the global AI buildout. Meanwhile, some execution risks remain in the near term, and the progress shouldn’t be expected to be linear, as much depends on macro conditions, regulatory frameworks, enterprise capex plans, and other external factors. However, the recent earnings results and guidance, coupled with major innovations and initiatives, point to a company laying the groundwork for long-term relevance. As traction continues, we expect the stock to gradually revalue higher as confidence builds.
Analyst sentiment on Cisco remains positive, with no “Sell” ratings post-earnings and most firms raising price targets. These upgrades reflect improving fundamentals and growing confidence in Cisco’s resilient positioning versus more cyclical hardware peers. The latest target increases came from Argus Research ($70 to $80) and JPMorgan ($73 to $80). Argus highlighted optimism about Cisco’s AI-driven enterprise data-center networking and Nvidia partnership. JPMorgan’s raise cited confidence in AI demand and enterprise IT spending. Both see CSCO’s AI transition and partnerships as key growth drivers justifying the higher targets.
Meanwhile, Cisco’s fund flows show a clear split between institutional and retail investor behavior, with institutions increasingly bullish and accumulating shares in large amounts. In contrast, retail investors are slightly reducing their holdings, signaling ongoing caution.
We are inclined to continue holding the stock, but want to see sentiment catch up to fundamentals – or fundamentals break out – before removing our magnifying glass from CSCO.
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❖ We are keeping MACOM Technology Solutions (MTSI) under review as we watch whether the stock’s volatility can evolve into a sustained recovery. While business performance remains fundamentally strong and analyst sentiment is resolutely bullish, recent price action – a sharp drawdown followed by only a partial rebound – 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 delivered solid growth, while Industrial & Defense posted record revenue. Total revenue reached an all-time high. Q4 guidance topped consensus, projecting sequential growth in the Industrial & Defense and Data Center segments even as Telecom moderates.
MACOM’s strategic positioning remains a core 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 transfer of RTP ownership and some one-time capex noise, management expects gross margin to reach 59% as FY2026 concludes.
The market, however, has yet to fully reprice these fundamentals. Shares fell ~14% after earnings before regaining most of the loss. Sell-the-news dynamics, softer sector commentary, and broad 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 price targets post-earnings, citing strong financial health and sustained 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 19% upside.
Evercore ISI has also recently highlighted MACOM as one of its top AI connectivity plays. The firm views connectivity as a key bottleneck in AI infrastructure buildout, presenting a growing investment opportunity. MTSI is entering two product cycles extending well into 2026 – a second wave of demand for Active Copper Cables (ACC) and an early-stage ramp in Long Path Optics (LPO) – with its leadership in low-latency interconnects expected to drive market-share gains and customer wins. Strong demand across MACOM’s core end markets, including U.S. and European defense, data center, and even telecom, is increasingly validated by institutional interest and fund inflows.
MTSI is still in a volatile patch, driven largely by chip-sector sentiment swings rather than company-specific issues. With analyst confidence diverging from market action, patience is warranted. Shares remain below pre-earnings levels, and while the company’s roadmap supports long-term upside, we prefer to wait until sentiment stabilizes and market action better reflects the company’s fundamentals. Should price action confirm 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 over, and there are no reports scheduled until BlackRock (BLK) opens the Q3 season for Smart Portfolio companies on October 10.
❖ The ex-dividend dates for Leidos (LDOS), Vertiv (VRT), Amphenol (APH) and TSMC (TSM) are coming up in the next week.
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New Buy: KKR & Co. (KKR)
KKR is one of the world’s largest alternative investment managers, operating across private equity, credit, infrastructure, and real estate. It deploys capital on behalf of global institutions, sovereign funds, and individuals, while also managing one of the industry’s most diversified portfolios of fee-based strategies. Its platform spans leveraged buyouts, growth equity, private credit, impact investing, and insurance solutions, combining scale with deep sector expertise. With investments in companies and assets across six continents, KKR links capital providers with opportunities in both traditional and emerging markets. The firm blends long-term stewardship with active value creation, offering integrated capabilities from deal origination to portfolio management. Positioned at the center of private markets and institutional capital flows, KKR has become a defining force in shaping industries, financing growth, and providing differentiated access to global investment opportunities.
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Scalable Equity
KKR’s roots go back to 1976, but its transformation into a modern powerhouse has accelerated over the past five years. The firm has deliberately expanded its platform through large acquisitions, strategic partnerships, and a strong push into technology and infrastructure – all of which have reshaped its growth trajectory.
In 2020-2021, KKR moved decisively into scale assets, acquiring UK recycling leader Viridor, OverDrive in digital distribution, and high-profile stakes in Reliance’s Jio Platforms and retail operations. These deals diversified its portfolio and extended its reach into technology and consumer growth markets. Momentum carried into 2022, when KKR added Barracuda Networks in cybersecurity and Mitsubishi UBS Realty in Japan, strengthening both its technology capabilities and Asian real estate presence. Investments in identity-security firm Semperis underscored its push into digital resilience.
The following years were equally transformative. In 2023, KKR secured a majority stake in communications consultancy FGS Global and completed the $1.6 billion acquisition of Simon & Schuster – moves that positioned the firm at the intersection of media, publishing, and corporate advisory. In 2024, it added VMware’s End-User Computing business, now Omnissa, for $3.8 billion, alongside Healthium MedTech and Superstruct Entertainment, a leading European live events platform.
By 2025, KKR had accelerated its deal pace further. Major transactions included OSTTRA, a $3.1 billion purchase in financial market infrastructure, Fuji Soft in Japan, and Healthcare Global Enterprises in India. The firm also launched a bid for Assura in the UK and explored infrastructure turnaround opportunities such as Thames Water.
Technology and AI have emerged as defining themes. In partnership with Energy Capital Partners, KKR announced a $50 billion program to build data centers and power infrastructure tailored for AI. The appointment of former AWS CEO Adam Selipsky as Senior Advisor for Technology and AI Strategy reinforced its commitment to being a leading investor in digital infrastructure.
Taken together, these moves show how KKR has expanded far beyond its private equity roots – building a platform that blends scale, diversification, and forward-looking technology integration. The result is a stronger, more resilient enterprise positioned at the forefront of global private markets.
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Alternative Routes
KKR operates a diversified platform built around three core pillars – private markets, credit and liquid strategies, and real assets – all reinforced by expanding insurance operations. The company manages about $686 billion in assets, of which $556 billion generate recurring management fees. The balance is capital that will earn performance income when investments are sold at a profit. In simple terms, fee-paying assets provide the steady base of revenues, while performance income adds upside during strong exit cycles.
The business is spread across several engines. Private markets – traditional buyouts, growth equity, and venture capital – represent roughly 31% of total assets and remain the largest source of performance fees. Credit strategies are now the biggest pool, at 43% of assets, supplying reliable fee income as companies turn to private lenders instead of banks. Real assets – infrastructure and real estate combined – account for about 26%, with infrastructure the fastest-growing area.
A defining addition is insurance, built around Global Atlantic, which KKR acquired in 2021. Global Atlantic manages annuities and life insurance products, and it now represents more than 40% of the firm’s assets. Insurance provides a large, predictable stream of fee income that is less sensitive to market swings, giving KKR a stronger and more stable foundation than in the past.
Growth prospects lean heavily on secular themes. One of the most powerful is the surge in demand for computing power. KKR, together with Energy Capital Partners and other participating firms, has pledged up to $50 billion to finance the data center and power infrastructure needed to support the expansion of artificial intelligence. While developers and technology providers will deliver the facilities and hardware, KKR’s role is to provide capital and structure the financing – placing it at the center of a generational buildout in digital capacity.
Beyond technology, KKR continues to expand in high-growth regions. Its Asia platform, now managing more than $75 billion, has become one of the strongest franchises in the region, giving the firm scale in markets such as Japan and India. In parallel, KKR has deepened its reach in life sciences with the acquisition of HealthCare Royalty Partners, adding $3 billion in assets and positioning the firm in a sector with durable long-term demand.
Policy tailwinds add to the picture. The One Big Beautiful Bill (OBBB) fiscal package reinstates full expensing of R&D, a benefit for KKR’s investments in technology and digital infrastructure. Federal support for reshoring and infrastructure spending aligns with its logistics and renewable energy platforms. And President Trump’s order opening 401(k) retirement plans to alternatives could channel a share of the $12 trillion defined-contribution market toward private equity and credit funds – a major new source of fundraising potential.
Taken together, KKR’s four growth engines – private markets, credit, real assets, and insurance – balance stable recurring revenues with exposure to high-growth sectors. With government incentives aligned and demand for AI-driven infrastructure rising, the firm has a clear runway for multi-year expansion.
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Capital Currents
KKR reported one of its strongest quarters as a public company in Q2 2025, with results exceeding analyst expectations on most key metrics. Fee-related earnings rose 17% year-over-year to $887 million, or $0.98 per share, a quarterly record. Total operating earnings reached $1.2 billion, up 14% from a year earlier, equal to $1.33 per share. Adjusted net income came in at $1.1 billion, or $1.18 per share, comfortably ahead of consensus estimates near $1.14. Management fees continued their steady climb, increasing 18% year-over-year to $996 million, supported by the ramp-up of Americas XIV and other large funds.
Assets under management expanded to $686 billion, with fee-paying AUM at $556 billion, both up 14% from the prior year. Perpetual capital1 rose to $289 billion and now accounts for roughly half of all fee-paying assets. Dry powder remained high at $115 billion, giving the firm flexibility to deploy into new opportunities. Gross unrealized carry2 also reached a record $9.2 billion, up about 30% year-over-year, underscoring a strong backlog of future monetization.
Performance across asset classes was broadly supportive. The private equity portfolio rose 5% in the quarter and 13% over the past year, while infrastructure advanced 3% in the quarter and 14% year-over-year. Opportunistic real estate gained 3% in the quarter and 7% for the year, and credit composites added 2% in the quarter and 7% year-over-year, reflecting steady momentum across lending and structured credit. Fee income also benefited from capital markets activity, which generated $200 million in the quarter, alongside $234 million in transaction and monitoring fees. Insurance continued to serve as a stabilizer, with Global Atlantic contributing $278 million of operating earnings, supported by higher portfolio yields and continued inflows.
Fundraising remained active, with $28 billion raised in the quarter and $109 billion over the last twelve months. Asset-based finance stood out, with commitments more than tripling to $6.5 billion and assets rising over 20% year-over-year to $75 billion. Deployment totaled $37 billion year-to-date, including $18 billion in credit, while realized performance and investment income of $2.6 billion over the last twelve months was more than 20% above last year’s level.
Analysts expect 2025 adjusted EPS of roughly $5.20-5.30, implying about an 8-9% year-over-year increase from 2024’s $4.84. For 2026, consensus rises to just under $7.00, a gain of more than 30% year-over-year from the 2025 midpoint, reflecting expectations of stronger monetization from KKR’s record $9.2 billion unrealized carry and continued expansion of fee-paying assets through fundraising and insurance inflows. These drivers align closely with management’s reiterated 2026 guidance, reinforcing confidence that earnings momentum will accelerate as capital markets normalize. Management cited management fee growth, $17.1 billion in embedded gains3, and expanding third-party insurance capital4 as key supports for those targets. Longer term, management has guided to the potential for $15 or more per share in earnings, more than three times the latest annual level, with management fees and the capital markets franchise as the principal drivers.
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1 – Perpetual capital refers to investment vehicles without a fixed end date, such as insurance portfolios and listed funds, which generate ongoing management fees and provide stable, long-term capital under management.
2 – Gross unrealized carry represents the potential performance fees KKR could earn on current investments if they were liquidated at their reported fair values. It is not realized income, but an indicator of future monetization capacity.
3 – Embedded gains refer to the unrealized appreciation already built into KKR’s portfolio — the increase in estimated fair value above original investment cost. These gains can be converted into realized performance income once assets are sold.
4 – Third-party insurance capital refers to assets managed for external investors through KKR’s insurance platform, Global Atlantic. Unlike KKR’s own balance sheet capital, these funds come from outside institutions and generate recurring management fees.
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Compound Advantage
KKR’s peer group spans diverse alternative asset managers – including Blackstone, the global leader (and a Smart Portfolio holding), Apollo, the credit-and-insurance powerhouse, Ares, the private credit specialist, and Carlyle, the more traditional private equity firm.
The past year has seen these stocks broadly follow the S&P 500’s trajectory, but with sharper swings. The group was hit hard during the “tariff tantrum” in early 2025, as fears over escalating trade tensions pressured capital-intensive, globally exposed business models. KKR and its peers sold off more steeply than the market, erasing early-year gains and leaving most underperforming the index year-to-date. The rebound from April lows, however, has been powerful, with double-digit gains across the group as rate-cut expectations firmed and fundraising pipelines strengthened.
Although some weakness re-emerged since July, driven by sector rotation and elevated macro uncertainty, KKR and its peers are showing renewed strength – and there is good reason to expect further outperformance. With capital markets activity improving and policy support underpinning infrastructure and credit, these firms are well positioned to compound earnings faster than the broader market. KKR and Blackstone stand out, backed by record unrealized carry, durable perpetual capital, and expanding insurance platforms that generate fee growth even when deal activity slows.
Despite surging nearly 50% from April lows, KKR’s stock remains below its January peak, and so do its valuations, which are still moderate relative to the firm’s earnings growth outlook. Analysts expect KKR’s adjusted EPS and EBITDA to rise about 25% and 30%, respectively, over the next 12 months – the strongest pace among peers – yet its forward non-GAAP P/E of roughly 27 sits only in the middle of the group. The trailing twelve-month non-GAAP P/E multiple is also near the sector average, underscoring that the stock is not priced at a premium. The clearest disconnect between market appraisal and earnings potential shows up in KKR’s forward non-GAAP PEG ratio of 1.25, the lowest among major peers except Carlyle, highlighting the firm’s growth as attractively valued.
After Q2 earnings, analysts rushed to raise their price targets on the stock to account for the upgraded earnings-growth expectations. KKR is rated a “Strong Buy” with an average target implying a potential upside of about 18% from the current price level.
In addition to the stock price appreciation potential, the company rewards its shareholders through dividends and buybacks. However, it must be noted that KKR’s capital return strategy is deliberately conservative compared to some peers. It pays a regular quarterly dividend, but the payout – with a current dividend yield of just 0.52% – is modest relative to the sector average, as management prioritizes reinvestment and balance sheet strength.
KKR also repurchases its shares – but on an opportunistic, not systematic, basis, conducted mostly when the stock trades at a material discount to intrinsic value. In recent quarters, repurchase activity has been limited, partly because the stock has rallied and because KKR is channeling more cash toward growth initiatives and insurance capital. The firm emphasizes reinvesting retained earnings into fee-generating businesses, and cites compounding book value and fee-related earnings as the primary form of shareholder return.
Taken together, the combination of resilient stock recovery, moderate valuation, and a reinvestment-driven return policy leaves KKR positioned not only to catch up with peers, but to compound value at a pace that markets have yet to fully price in.
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Investing Takeaway
KKR offers investors a combination of resilience and secular growth, underpinned by a platform that spans private markets, credit, infrastructure, and insurance. Its balance of fee-based stability and performance-driven upside positions it to navigate economic cycles while capturing opportunities in fast-growing areas such as digital infrastructure and private credit. The firm’s expanding insurance base and deep capital pools add durability, while its record of scaling across geographies reinforces its global reach. With reinvestment prioritized over short-term payouts, KKR continues to build long-term earnings power that markets have yet to fully reflect. Trading at valuations that remain moderate relative to its growth profile, KKR stands out as a leading alternative manager with the structural advantages to deliver durable upside for patient investors.
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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 many of our Portfolio holdings have logged strong gains. GOOGL has soared over the past week, placing it right in the midst of the Winners. Meanwhile, both UBER and CRWD returned to the ranks – although the latter is barely above the threshold.
Still, our Club membership has expanded and now includes 13 stocks: AVGO, GE, ANET, EME, ORCL, HWM, TSM, APH, IBKR, PH, GOOGL, UBER, and CRWD.
The first contender for the Club’s entry is now BK with a 26.78% gain since its purchase six months ago. Will it gain the rite of passage, or will another stock outrun it to the finish line?
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