Core Construct
In this edition of the Smart Investor newsletter, we spotlight a technology-enabled infrastructure and consulting leader with growing exposure to AI data centers and advanced manufacturing. But first, let’s dive into the latest portfolio news and updates.
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Portfolio News and Updates
❖ White House is preparing new executive actions on quantum technology, with the main goal being to guide federal agencies toward post-quantum cryptography (PQC) – i.e., the adoption of a new class of encryption algorithms designed to be secure against attacks from future quantum computers. The threat to national security is increasingly real, as quantum computing continues to develop at a rapid pace, with a material chance that within several years – if not sooner – these computers will be able to break current encryption standards. Shifting an entire government’s digital infrastructure to new cryptographic standards is a massive undertaking, and the Trump administration’s push to start the process now, rather than waiting for the threat to materialize, is a prudent step.
Alongside supporting national security, the PQC initiative may benefit a wide range of U.S. companies. Among those, International Business Machines (IBM) is one of the most prominent beneficiaries, serving as a foundational player in the field and playing a leading role in developing the PQC standards themselves. IBM is a pioneer in quantum R&D, leading the race to build stable, practical quantum computers. IBM – deeply integrated into government contract frameworks and trusted by agencies across the board – can also offer a complete “quantum-safe” package, including the hardware, software, and services needed for a full PQC transition. Moreover, IBM is already integrating PQC into its offerings, including new mainframe systems, IBM Cloud services, and consulting on PQC migration process.
Cybersecurity firms will also be among the first to benefit. One of the best in the field, CrowdStrike (CRWD), is a leader in endpoint security and threat intelligence with a growing presence in the federal government. CRWD’s solutions are already authorized for use by federal agencies, giving the company preferred status in PQC implementation thanks to pre-existing certifications and trust. CrowdStrike’s platform-based approach and endpoint security expertise will be highly instrumental in deploying new security measures.
Other potential beneficiaries include IT services contractors, assisting with the strategic and technical aspects of PQC migration, along with semiconductor and hardware companies providing “quantum-ready” system components. Cisco Systems (CSCO), for example, is researching quantum-safe networking solutions, and its deep integration with government and enterprise networks makes it an essential migration partner.
Cloud and software infrastructure providers are also expected to take part by offering PQC-ready solutions. Alphabet’s (GOOGL) Google – another quantum pioneer and runner-up to IBM in the race to build practical quantum computers – is a major prospective beneficiary through PQC-compliant services on Google Cloud. Microsoft (MSFT) is another key player in both cloud services and quantum computing – hardware and software – with its Azure cloud platform, widely used by federal agencies, expected to be a critical part of the migration.
Several other Smart Portfolio holdings are front runners. Oracle (ORCL) – with a long-standing relationship with U.S. government agencies, providing databases, enterprise software, and cloud services – is already integrating PQC into its foundational software, particularly the Java Development Kit, which is especially critical as millions of government and enterprise applications run on Java. Broadcom (AVGO) will be a key beneficiary due to its role as a foundational hardware provider, with its chips integral to networking, storage, and other critical infrastructure – and it is already embedding “quantum-resistant” encryption in its storage network interfaces for data centers. Arista Networks (ANET) is also a likely beneficiary due to its leadership in high-performance networking and its strong relationship with the federal government. ANET, a leader in data center networking and cloud solutions, is a strong proponent of the “Zero Trust” security model, making it a natural fit for PQC adoption. In addition, Vertiv Holdings (VRT), which also maintains strong ties with the government, may play a significant role in providing the physical infrastructure to house the new quantum-safe hardware and software, benefiting from the capital expenditures tied to this large-scale upgrade cycle.
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❖ Oracle’s (ORCL) potential takeover of TikTok’s U.S. operations has been confirmed by the White House after President Trump and China’s Xi Jinping agreed on a preliminary framework. The social media app will be controlled by American investors, who will have a majority of the new company’s ownership stake and board seats, led by Oracle and Silver Lake. The board will also include representatives from Andreessen Horowitz, while other names – including Dell’s CEO and founder Michael Dell and Fox Corp’s new CEO Lachlan Murdoch – have also been mentioned. Oracle will manage TikTok’s data privacy and user data in the U.S., while the app’s algorithm, critical for content curation, will remain under American control. The U.S. government is expected to receive a multibillion-dollar fee for facilitating the deal with China.
In parallel, ORCL has announced top-level management changes, promoting Clay Magouyrk and Mike Sicilia – former heads of Oracle’s two biggest segments – to lead the company as co-CEOs. Safra Catz transitions to Executive Vice Chair of the Board, following more than a decade at the helm. Magouyrk previously served as President of Oracle Cloud Infrastructure and played a critical role in building the second-generation platform that now powers global-scale AI workloads. Sicilia, formerly President of Oracle Industries, was instrumental in modernizing vertical applications – including AI-driven solutions for healthcare, banking, and other sectors. Their domain expertise demonstrates Oracle’s commitment to strategic priorities in cloud and AI, intensifying the company’s focus in these fast-growing areas – while Catz’s move to the board ensures stability and leadership continuity.
In other significant news, Oracle is reportedly in advanced talks with Meta Platforms for a multi-year cloud deal valued at approximately $20 billion. This agreement would give Meta access to Oracle’s compute power to train and run its Llama AI models and expand AI features across its social platforms. The potential deal would also expand Oracle’s hyperscaler client roster and add billions to its already surging backlog. While smaller than Oracle’s recent $300 billion OpenAI contract, the Meta deal underscores Oracle’s rapid momentum in attracting large clients and solidifying its role as a key infrastructure provider in the AI ecosystem.
In a further positive development, Oracle and OpenAI are reportedly about to announce an expansion of their data center in Abilene, Texas. OpenAI is projected to spend hundreds of billions of dollars renting servers from Oracle Cloud’s Texas facilities over the next decade. This expansion is part of the Stargate AI infrastructure platform plan, which includes building additional gigawatts of data center capacity to support advanced AI workloads. The Abilene data center is already partially operational and hosting Nvidia GB200 racks for running early training and inference tasks. This expanded partnership with Oracle will bring total Stargate AI data center capacity under development in the U.S. to over 5 gigawatts, running more than 2 million AI chips, signifying a massive ongoing investment and job creation effort tied to U.S. AI infrastructure.
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❖ Alphabet’s (GOOGL) shares dipped at the start of the week as the company’s Google arm began its antitrust trial with the U.S. government, which is pushing to break up parts of its advertising business. The Department of Justice wants Google to sell its ad exchange, AdX, which it claims gives the company a monopoly in digital ad space. After a federal judge recently rejected a separate attempt to force the company to divest its Chrome browser, this case is the government’s best chance to challenge Google’s market power.
At the same time, China has dropped its own antitrust probe into Google, which centered on the dominance of the company’s Android operating system and its impact on Chinese phone makers that use the software. Chinese authorities have reportedly ordered the probe dismissed to facilitate the ongoing trade talks between Beijing and the Trump administration.
Last week, Alphabet’s market cap crossed the $3 trillion mark, joining Nvidia, Microsoft, and Apple in the highest market echelon. The surge has been supported by an ongoing wave of analyst upgrades, which was ignited by the elimination of the Chrome divestiture overhang and further strengthened by other strongly positive catalysts – from surging Google Cloud revenues to strategic collaborations and notable AI advancements.
Google’s Gemini AI chatbot has recently overtaken ChatGPT in app downloads and popularity, underscoring the company’s extremely fast GenAI progress. Moreover, Google has started rolling out a new AI-powered version of its Chrome browser with agentic capabilities. This is seen as a game changer, as the world’s most used browser provides Google with a massive distribution advantage its competitors lack. Chrome’s new AI-powered address bar now provides another AI entry point, positioning the browser as an indispensable “AI assistant” that streamlines every aspect of browsing – which can drive long-term engagement and reinforce its market dominance. Meanwhile, accelerating revenues from Google Search have quelled worries regarding the challenge posed by AI chatbots to Alphabet’s search revenues. Analysts now see AI expanding the total addressable market for search, rather than cannibalizing it. Google continues to dominate the search market with over 90% share – while AI Overviews are driving a more than 10% increase in queries.
In another major development, Google announced a sweeping multi-year partnership with PayPal. The strategic alliance is focused on agentic commerce, which refers to a future of AI-powered agents making purchases on behalf of users. The first step in the cooperation involves embedding PayPal’s checkout solutions across Google’s key platforms, making PayPal a core processor within Google’s ecosystem. For Google, integrating PayPal’s trusted global infrastructure and identity services reduces friction and boosts conversion rates, while Google’s AI enhances PayPal’s security and checkout features for billions of users. The alliance also deepens Google’s control over commerce flows across its products, feeding more data into its AI and cloud engines and reinforcing its role as the world’s leading digital platform. Additionally, PayPal is moving a significant portion of its core technology infrastructure to Google Cloud, a major win for Google’s cloud division.
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❖ CrowdStrike’s (CRWD) stock skyrocketed last week after its Fal.Con 2025 investor day fueled optimism around growth and AI security leadership. The company set ambitious targets, including at least 20% net new ARR growth through FY27, $20 billion in ARR by FY36, and profitability goals of an operating margin above 24% and a free cash flow margin above 30%.
CrowdStrike also showcased its Falcon Flex licensing, recent acquisitions such as Pangea, and international expansion potential. Adding to the momentum, CRWD announced new partnerships: with Nvidia, integrating Charlotte AI AgentWorks with Nemotron models to create enterprise-grade AI security agents, and with Salesforce, embedding Falcon Shield and Charlotte AI into its platforms. The announcements underscore how CrowdStrike is weaving AI deeper into its security strategy.
Analysts are racing to catch up with the stock, with several Wall Street firms raising their price targets and praising the company’s financial and business outlook. Wells Fargo analysts highlighted this sentiment, saying, “CrowdStrike is by far the most advanced security platform in the industry, and the plethora of AI-based solutions announced today will further separate CrowdStrike from the competition.”
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❖ Uber Technologies (UBER) seems to have easily shaken off the momentary negativity from the news of Google’s Waymo and Lyft partnership to bring robotaxis to Nashville, which led to heavy selling last week. Investors quickly realized that even with some help from Waymo – which also partners with Uber and other firms – Lyft is no competition for the industry leader. With its global flywheel that pushes demand across mobility and delivery, 180 million monthly active platform consumers, and 3.3 billion trips, Uber continues to dominate the ride-hailing market not only in the U.S. but also globally. The recent addition to the S&P 100 index – which includes the 100 largest and most influential companies in the U.S. – underscores its scale.
Moreover, it continues to strike strategic partnerships that widen its economic moat even more. Beyond its Waymo partnership to deploy robotaxis in cities like Atlanta, Uber is collaborating with Serve Robotics to deploy up to 2,000 delivery robots. Just this week, it announced a partnership with drone company Flytrex – which has FAA approval – to pilot drone delivery services in select U.S. markets for Uber Eats. These collaborations leverage advanced technology to improve operational efficiency, lower costs, and expand the company’s reach.
Additionally, Uber has expanded its Uber Eats platform to include major retail chains like Best Buy, Designer Brands, and Sephora, positioning itself as a broader commerce platform and directly competing with services like Instacart. These deals significantly expand the total addressable market for its delivery segment and increase user engagement.
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❖ Vertiv Holdings (VRT) dropped on Tuesday after Microsoft (MSFT) unveiled a new microfluidic cooling system for data center chips, which could potentially disrupt the thermal management market. MSFT’s new cooling technology reportedly removes heat three times more efficiently than the cold plate systems currently used in data centers. The technology giant plans to work with partners to bring the new systems into production, indicating a strategic move to stay ahead in the AI data center race.
Microsoft’s microfluidic cooling technology is a significant innovation, given the rising heat management challenges in high-performance data centers. Vertiv, a key player in data center cooling infrastructure, faced similar pressure when Amazon unveiled competing in-house cooling systems for AI chips. Despite these competitive moves, Vertiv remains a major supplier and partner in the data center infrastructure space, often working alongside or supplying components to hyperscalers like AWS and Microsoft rather than competing directly.
In other news, Vertiv announced the completion of its $200 million acquisition of Great Lakes Data Racks & Cabinets, a leading manufacturer of innovative data rack enclosures and integrated infrastructure solutions. The acquisition aims to strengthen Vertiv’s position in the high-density, AI-ready integrated infrastructure solutions market, serving enterprise, edge, colocation, and hyperscale computing segments. Vertiv plans to enhance its ability to deliver pre-engineered AI-ready rack solutions, improve scalability for AI and edge computing, and increase operational efficiency through factory integration of power and cooling solutions. Analysts view the acquisition as a timely and technology-forward strategic move that bolsters Vertiv’s product offering and competitive stance in the data center and AI hardware infrastructure market.
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❖ Taiwan Semiconductor Manufacturing (TSM) soared on Tuesday after Nvidia’s announcement of plans to invest up to $100 billion in OpenAI sparked investor enthusiasm for the foundry giant that manufactures the advanced chips Nvidia uses for its AI data centers. The surge in AI data center buildouts, further powered by Nvidia’s partnership with OpenAI, positions TSMC as one of the key beneficiaries.
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Portfolio Stocks Under Review
❖ We are keeping Cisco Systems (CSCO) under review due to the stock’s underperformance since mid-August.
Cisco delivered a fiscal Q4 that beat expectations on both revenue and EPS. AI infrastructure orders far exceeded targets, Splunk integration is boosting security offerings, and its legacy networking business posted double-digit growth even as capex declined. Guidance for FY26 shows total revenue growth of ~5% and adjusted EPS growth of ~6%. While headline growth is modest compared to high-growth peers, these results are impressive for a company many had written off just two years ago.
CSCO is actively reinventing itself – moving from a networking incumbent to a key player in enterprise AI infrastructure. Its scale – 35 million devices and 1 billion clients – and unified hardware, software, and cloud stack create a strong foundation for AI workloads. Innovations such as Cisco Data Fabric and Splunk Federated Search for Snowflake highlight its push toward unified AI-ready data architecture. Partnerships with Nvidia, Microsoft, and sovereign AI players like HUMAIN reinforce Cisco’s role in the global AI buildout. These innovations and partnerships could serve as important catalysts for the stock, and have led some industry analysts to declare CSCO a “must-hold stock” in the AI era.
Still, recent stock behavior shows investors remain cautious. CSCO fell nearly 9% in the week following earnings – even as guidance was solid – and, despite the subsequent strong rebound, remains below its August peak. Analyst sentiment remains constructive, as the consensus rating is “Buy” and the average price target implies an upside of about 14%. However, some firms want clearer disclosure of AI revenues and warn that much of the upside may already be priced in. Institutional flows remain supportive, while retail positioning is more hesitant.
We are inclined to hold CSCO in the Portfolio, but want to see sentiment catch up to fundamentals – or fundamentals break out further – before removing our magnifying glass.
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❖ We are keeping MACOM Technology Solutions (MTSI) under review as we watch whether the stock’s rebound from its post-earnings dip can evolve into a sustained uptrend.
Fiscal Q3 2025 results confirmed robust execution, with revenue and earnings coming in above expectations and Q4 guidance topping consensus. MACOM’s strategic positioning remains a core strength. It benefits from accelerating AI infrastructure demand and is expanding into high-frequency, high-power applications. Moreover, MTSI is well aligned with the industrial and technology reshoring strategy, owning a U.S.-based RF fab (RTP).
The market, however, has yet to fully reprice these fundamentals. Despite a strong rebound from the post-earnings drop, shares remain below their August levels. “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 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 recently highlighted MACOM as one of its top AI connectivity plays – viewing connectivity as a key bottleneck in AI infrastructure buildout and a major investment opportunity. That thesis was reinforced in September, when MACOM launched a new PCIe and CXL optical chipset that extended its reach into data center interconnects and addressed bandwidth and distance limitations in AI workloads. The company is also 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 core end markets, including U.S. and European defense, data center, and telecom, is increasingly validated by institutional interest and fund inflows.
The European Microwave Week (EuMW 2025) on September 21-26 and the upcoming European Conference on Optical Communication (ECOC 2025) on September 29 to October 1 offer significant platforms to elevate MACOM’s technology profile in Europe – a major semiconductor and telecom hub – by showcasing strengths in advanced connectivity solutions. The company’s announcements at these conferences could act as a meaningful catalyst for the stock, particularly if they translate into new collaborations or backlog growth.
MTSI remains in a volatile patch, driven more by chip-sector sentiment than company-specific factors. With analyst confidence diverging from market action, patience is warranted. Shares are still below pre-earnings levels, and while the roadmap supports long-term upside, we prefer to wait until sentiment stabilizes and price action better reflects fundamentals. Should renewed strength confirm, we would revisit the position with a bias toward maintaining 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 date for GE Aerospace (GE) is September 29, while for AECOM Technology (ACM) it is October 1.
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New Buy: Jacobs Solutions (J)
Jacobs Solutions is a global leader in engineering and consulting, delivering end-to-end solutions across design, program management, and technology-enabled infrastructure. The company’s breadth covers water, transportation, energy transition, and life sciences – but its edge is increasingly clear in two areas of economic realignment: data centers, where AI-driven demand requires new standards for power and cooling, and advanced manufacturing, where reshoring and industrial policy are redefining supply chains. Jacobs connects governments, hyperscalers, and industry leaders on projects that merge physical infrastructure with digital innovation. By combining consulting strength with execution scale, it has evolved from a traditional engineering provider into a strategic partner in the systems underpinning artificial intelligence, reindustrialization, and the next phase of global infrastructure investment.
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Armature of Power
Founded in 1947, Jacobs Solutions built its reputation as one of the largest global engineering and construction firms, executing projects in energy, transportation, and industrial infrastructure. Over time, this foundation of technical delivery and long-standing client relationships allowed the company to evolve beyond commodity contracting toward higher-value services. The deliberate transformation began in earnest in the early 2020s, as Jacobs recognized that margin pressure and cyclical exposure in traditional engineering, procurement, and construction (EPC) markets would limit long-term growth.
A pivotal move came in 2021 with the acquisition of PA Consulting, a U.K.-based advisory firm specializing in digital transformation and innovation. This investment expanded Jacobs’ reach into higher-margin consulting and embedded new capabilities in advanced analytics, industrial IoT, and connected enterprise solutions. The same period also saw Jacobs launch its Connected Enterprise framework and integrate the ION software platform, enabling digital twins, cloud analytics, and AI-enhanced project delivery.
In September 2024, Jacobs divested its Critical Mission Solutions and Cyber & Intelligence businesses – which were primarily focused on defense and intelligence contracting – shedding roughly $3 billion of lower-margin government services revenue. The spin-off generated $1 billion in cash and left Jacobs more tightly aligned with infrastructure, advanced facilities, and technology-driven consulting.
Strategic partnerships have since defined the company’s trajectory. In early 2025, Jacobs announced a landmark collaboration with Nvidia to design AI-ready data centers using digital twin technology. This deal positioned Jacobs as a preferred integrator for hyperscalers building next-generation AI infrastructure. Beyond data centers, the company has deepened its role in advanced manufacturing, particularly semiconductor and pharmaceutical facilities, where reshoring and government incentives are reshaping global supply chains.
Jacobs has also aligned itself with large-scale government programs in the U.S. and abroad. Domestically, the company is positioned to capture funding from the Infrastructure Investment and Jobs Act, the CHIPS and Science Act, and manufacturing initiatives embedded in the Opportunity for Better Business and Budget (OBBB) fiscal package. Analysts also highlight its alignment with the “American Manufacturing Renaissance” framework tied to foreign capital inflows, including the proposed $550 billion Japan-led investment pool. In Europe, Jacobs is active in programs supporting semiconductor expansion and digital infrastructure upgrades.
Together, these steps – targeted acquisitions, portfolio reshaping, advanced partnerships, and alignment with industrial and technological policies – have turned Jacobs from a broad-based contractor into a technology-enabled infrastructure powerhouse. The result is a company now central to AI infrastructure buildout and reindustrialization, positioned for growth and market share gains in the years ahead.
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Intelligent Construct
Jacobs has deliberately positioned itself at the crossroads of infrastructure and technology. The company operates through two divisions: Infrastructure & Advanced Facilities, which generates about 85% of revenue, and PA Consulting, a higher-margin advisory arm that brings digital, analytics, and strategic insight to the engineering work. This combination allows Jacobs to do more than design and build projects – it enables the company to embed itself early in client planning, carry through execution, and remain involved in long-term operations.
Critical Infrastructure is Jacobs’ largest end market, representing about 40-45% of total revenue. This includes airports, transit, energy grids, and increasingly data centers – the fastest-growing segment. Demand for AI-scale facilities has transformed data centers from a niche into a global buildout, with hyperscalers like Amazon, Microsoft, Google, and Nvidia all tapping Jacobs’ design and delivery expertise. Few firms can handle the sheer scale of power distribution and thermal management these projects require, and Jacobs has built entire programs around delivering such campuses across multiple continents. The company is executing over 20 cloud and AI campuses in 15 countries through long-term engagements, and the potential for growth here is vast, with the global data center market projected to expand from roughly $300-350 billion today to $600-1,000+ billion by the early 2030s.
The second pillar of Jacobs’ business is Advanced Manufacturing and Life Sciences, accounting for nearly a quarter of total revenue. Here, Jacobs designs and delivers facilities where precision and compliance are paramount: semiconductor fabs, pharmaceutical plants, and biopharma labs. Pharma reshoring has become a global priority after the pandemic exposed supply chain vulnerabilities. Jacobs’ depth in cleanroom design, regulatory integration, and process engineering makes it a preferred partner in projects where downtime or defects can cost billions.
Water and environmental work make up most of the remaining revenue. This segment grows more steadily, anchored in the replacement of aging infrastructure in North America and regulatory programs in Europe. While less dynamic than data centers or semiconductors, these projects provide a recurring foundation and a steady backlog.
Policy support magnifies all of these opportunities. Jacobs is aligned with the Infrastructure Investment and Jobs Act, which provides significant funding for infrastructure projects, as well as with the CHIPS and Science Act, which has accelerated demand for U.S. semiconductor capacity. Moreover, the OBBB fiscal package passed in July 2025 restores 100% bonus depreciation and immediate R&D expensing, directly improving project economics. Combined with allied programs for semiconductor and digital infrastructure expansion, these initiatives create a global demand cycle that Jacobs is uniquely equipped to capture.
What emerges is a company that does not simply chase projects but shapes them – blending engineering scale, consulting sophistication, and technology partnerships to capture the most powerful growth themes of the decade: AI infrastructure, advanced manufacturing, and the reshoring of critical supply chains.
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Factory Settings
Jacobs’ fiscal third quarter of 2025 highlighted further progress in profitability and backlog expansion. Adjusted net revenue grew 7.0% year-over-year to $2.23 billion (gross revenue up 5.1%), while adjusted EPS rose nearly 25% to $1.62, above analyst expectations of about $1.53-1.55. Adjusted EBITDA increased 13-14% to $314 million, with margins expanding by 80 basis points to 14.1%. Free cash flow reached $271 million, continuing a pattern of healthy cash generation.
Backlog climbed to a record $22.7 billion, up 14% year-over-year, with a trailing 12-month book-to-bill ratio of 1.2 – evidence that new orders are consistently exceeding completed work. That pipeline has been reinforced by major wins across markets, including program management for the Los Angeles Community College District’s $15.1 billion bond program, water infrastructure upgrades in Puerto Rico, and a decade-long engagement on Denmark’s Marselis Tunnel. These long-duration contracts add visibility and reinforce Jacobs’ reputation as a trusted partner for large public and private projects alike.
The quarter marked the third in a row of earnings beats, even as revenue fell short of consensus estimates in both fiscal Q2 and Q3. Management attributed part of this to volatility in the Environmental segment, where shifting U.S. policy and budget dynamics have slowed activity. FQ3 results were also affected by a legal reserve in the Infrastructure & Advanced Facilities division – a one-time provision for a longstanding matter that management said is now largely complete.
Guidance was raised again. Management now projects full-year adjusted EPS of $6.00-6.10, compared with a prior range of $5.85-6.20. At the midpoint, this implies year-over-year growth of roughly 20-21% over FY2024. Net revenue is expected to increase about 5.5%, with adjusted EBITDA margins around 13.9%. Analysts generally see these targets as achievable, even somewhat conservative, given Jacobs’ strong backlog, growing demand, and efficiency initiatives.
Looking ahead, the company anticipates fiscal 2026 will outpace 2025 in both revenue growth and margin expansion, supported by robust demand in data centers, life sciences, and advanced manufacturing, as well as the benefits of backlog conversion and efficiency programs. Margins are expected to improve further as higher-value consulting work, particularly from PA Consulting and technology-enabled solutions, makes up a larger share of the portfolio.
Jacobs’ collaboration with Nvidia on AI-factory digital twins for hyperscale data centers is expected to be transformational. The positive impacts extend well beyond financials – although the project’s revenues, while undisclosed, are expected to be significant over time. Jacobs’ digital twin blueprints will serve as a foundation for data centers built around Nvidia’s AI platforms, opening the door to repeatable projects across hyperscale and enterprise clients. Analysts view this as a potential source of recurring, higher-margin work that could become material over the next several years.
Overall, FQ3 reinforced a pattern: consistent earnings strength, margin improvement, and record backlog, offsetting revenue softness in selected areas. With guidance raised and demand drivers intact, Jacobs heads into the final quarter of FY2025 with a stronger earnings profile and greater visibility into sustained growth.
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Premium Under Construction
Jacobs’ peer group spans a diverse set of companies – including global infrastructure and program management leader AECOM (a Smart Portfolio holding), energy and grid specialist Quanta Services, government-focused technology consultant KBR, and environmental and water services provider Tetra Tech. While their business mixes differ, these firms share similarities in scale, core end markets, and exposure to structural growth drivers. Jacobs stands out within this group through its breadth across data centers, advanced manufacturing, and consulting, creating a distinctive mix of recurring advisory revenue and large-scale project delivery.
Stock performance has diverged sharply within the peer set in 2025, even as all broadly tracked the S&P 500’s direction. Fundamentals, exposure to shifting government priorities, and alignment with digital infrastructure trends have shaped the gap. Jacobs has underperformed the AI-infrastructure “picks-and-shovels” leaders AECOM and Quanta but comfortably outpaced peers with narrower moats and limited tech exposure. With the Fed’s monetary easing now lifting industrial shares and the Nvidia partnership enhancing earnings prospects, Jacobs is positioned for a potential re-rating.
A modest ~13% year-to-date gain, roughly in line with the S&P 500, leaves its valuation undemanding. Despite leading the peer set in trailing revenue, EBITDA, and adjusted EPS growth, Jacobs trades at peer-average TTM P/E, Price/Sales, EV/Sales, and EV/EBITDA multiples. Forward metrics, including the PEG ratio, also sit at or just below the peer mean. Yet Jacobs’ profitability profile – with gross profit and EBITDA margins at the top of the group – supports a premium valuation. Sustained margin expansion signals not only improved earnings power but also resilience, and with the market still pricing Jacobs as an average performer, its growth story remains underappreciated. That disconnect offers a compelling entry point.
Capital returns further support the story. Jacobs has been paying dividends since the early 1980s, increasing them at the Board’s discretion when financial results permit. Although the dividend yield remains modest at 0.83%, the payout has grown by over 65% in the past five years, while strong cash flows and a low payout ratio support the outlook for further increases.
Beyond that, Jacobs also supports shareholder value through share repurchases. In February 2025, the company’s board approved a new share repurchase program for up to $1.5 billion of common stock to be bought over a three-year period – in addition to an existing 2023 program that was nearly depleted at the time. Management has emphasized that the intent is to retire a portion of shares each year while maintaining balance sheet flexibility – and this year, the goal is returning “record amounts of capital” while still investing for growth. Under this policy, Jacobs repurchased $653 million worth of stock over the first three quarters of fiscal 2025, retiring about 4% of the company’s shares outstanding.
Taken together, record backlog, disciplined capital returns, and resilient profitability show a company with both near-term earnings momentum and multi-year visibility – a combination that justifies more than peer-average treatment.
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Investing Takeaway
Jacobs offers investors a mix of structural growth, resilient profitability, and a valuation that has yet to reflect its strengths. The company has deliberately shifted away from lower-margin contracting toward technology-enabled infrastructure and consulting, anchored by surging demand in data centers and advanced manufacturing. Long-term partnerships with hyperscalers, governments, and industrial leaders have broadened its relevance while reinforcing visibility across cycles. At the same time, Jacobs pursues disciplined capital allocation, combining reinvestment in digital capabilities with consistent dividends and meaningful buybacks. The result is a platform that not only participates in some of the most powerful themes of the decade but also converts that opportunity into higher-quality earnings. For investors seeking exposure to AI infrastructure and reindustrialization, Jacobs is a timely Buy.
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New Sell: Boston Scientific (BSX)
Boston Scientific was added back in August as a step in portfolio diversification through the initiation of exposure to the healthcare sector without taking on the risks of changing pharma regulations and pricing pressures. However, initial outperformance versus the S&P 500 turned south in September, as the stock was pressured by broad sector headwinds, negative headlines on medtech demand, and company-specific factors.
BSX’s newly announced $850 million acquisition of Relievant Medsystems, a spine surgery firm, was welcomed by some analysts as a strategic fit with the company’s growth goals. However, concerns about regulatory risks and operational execution prevailed, with investors taking profits after the stock’s strong gains over the past few months amid concerns over elevated valuation. BSX’s volatility has risen, with its short-term jolts defying its long-term beta of 0.66, which was one of the reasons behind our “Buy” decision earlier.
The latest news has tipped the needle for us. While Boston Scientific remains one of the highest-quality companies in its industry, best positioned for long-term growth – which is reflected in its average price target, implying a potential upside of over 30% – short-term risks to stock performance have risen notably.
The FDA has issued a Class I recall – the most serious type of recall – for Boston Scientific’s Endotak Reliance defibrillation leads, indicating that use of the device may cause serious injury or death. The recall was prompted by 386 serious injuries and 16 deaths linked to calcification on the defibrillator lead’s insulation, which can impede the device’s ability to restore normal heart rhythm.
The recall affects about 600,000 devices globally that were manufactured and implanted between 2002 and 2021, and involves enhanced patient monitoring and selective lead replacement rather than blanket removal. Since these devices are no longer made or distributed, the direct financial impact – including increased customer care and product replacement costs – is likely to be contained. However, at this point, it is difficult to foresee potential litigation costs, which can quickly climb.
Besides, there could be other strongly negative effects, such as damage to BSX’s brand reputation and loss of trust, which could potentially lead to a loss of market share. Studies have shown that a single recall can cost a manufacturer millions of dollars, and the indirect costs, such as brand damage and lost sales, can be far more substantial. Moreover, a Class I recall can lead to increased regulatory scrutiny from the FDA, which could result in more stringent requirements, fines, and delays in the approval of new products, hampering the company’s innovation pipeline and growth trajectory.
Boston Scientific, along with other medical device manufacturers, has seen its fair share of recalls, litigation, and regulatory scrutiny over the past decades. In most cases, the negative effects on these companies’ businesses and stock performance have been felt only over a short period of time. This recall may also be just a temporary setback, but it comes at a time when BSX’s stock is already under some pressure, amplifying volatility. While we don’t see any substantial long-term fundamental threats to the company, the elevated risks to its stock performance over the near term demand, in our view, a risk-management step of selling BSX from the Smart Portfolio.
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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 staged a strong rally last week, and our Club’s ranks have expanded to 16 stocks: GE, AVGO, ORCL, ANET, EME, TSM, HWM, APH, IBKR, PH, CRWD, GOOGL, UBER, MTZ, BK, and VRT (although the latter is hanging on the edge after Tuesday’s drop).
The first contender for the Club’s entry is now IBM with a 29.48% gain since purchase. Will it gain the rite of passage, or will another stock outrun it to the finish line?
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