Drafting the Future
In this edition of the Smart Investor newsletter, we spotlight the stock of the digital architect of the modern world. But first, let’s dive into the latest portfolio news and updates.
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Portfolio News and Updates
❖ Taiwan Semiconductor Manufacturing, aka TSMC (TSM) reported a 39% year-over-year increase in Q2 revenue, driven by strong AI demand. The company’s revenue reached $32 billion, surpassing analyst expectations despite a slowdown in June. For the first half of 2025, TSMC reported a 40% YoY increase in total revenue, underscoring robust momentum across its chipmaking operations. This growth underscores TSMC’s pivotal role in supplying major tech firms like Nvidia, AMD, Qualcomm, and Apple, with a positive outlook for continued AI-driven expansion. TSMC will release full Q2 earnings, including profit figures and forward guidance, on July 17. Wall Street expects the world’s leading foundry to report a 61% YoY EPS increase.
❖ According to media reports, Alphabet’s (GOOGL) Google will offer massive discounts to the U.S. government for its cloud computing services amid the Trump administration’s broader push to cut federal costs, including IT procurement costs. The reports speculate that Google could reach an agreement with the General Services Administration (GSA), which would be similar to that of Oracle (ORCL), announced last week. Oracle agreed to offer a 75% discount on its license-based software and a substantial discount on its cloud services.
In a separate development, the Department of Defense has awarded contracts of up to $200 million each to Google, OpenAI, Anthropic, and xAI under its $800 million “agentic AI workflows” initiative, which seeks to deploy autonomous AI systems for national security. Google, through Google Cloud and DeepMind, will lead efforts to develop scalable AI platforms for automating intelligence analysis, decision-making, and operational planning – enabling the military to process data and respond more effectively. Its expertise in generative AI and large-scale infrastructure positions it as a key partner in building secure, accountable AI systems. OpenAI, Anthropic, and xAI will provide complementary technologies, including safer models, interpretability tools, and autonomous agents.
In yet another news, Google has struck a strategic $2.4 billion agreement to license technology from AI coding startup Windsurf, while hiring its key personnel into its DeepMind team. The deal grants Google a nonexclusive license to Windsurf’s advanced code-generation tech, fueling its Gemini initiative focused on “agentic coding.” Most of Windsurf will remain independent and free to license elsewhere. This move, emerging after OpenAI’s failed $3 billion acquisition attempt, significantly bolsters Google’s position in the competitive AI coding landscape, enabling rapid entry without acquiring the full company.
The buck doesn’t stop here, as the search, media, and AI giant has signed a historic $3 billion, 20-year power purchase agreement (PPA) with Brookfield Asset Management to secure up to 3 gigawatts of U.S. hydropower, making it the largest corporate hydropower deal ever. The agreement includes upgrading Pennsylvania-based hydro plants and provides Google with reliable, carbon-free energy to power its energy-intensive data centers and AI infrastructure, aligning with Google’s broader $25 billion investment in data centers across the PJM grid region over the next two years. The deal locks in power at favorable rates, supporting margin stability and mitigating future energy cost volatility, and provides the hyperscaler with much-needed energy security for AI growth.
❖ Broadcom (AVGO) has repaid its $30.4 billion term loan using proceeds from a $6 billion senior notes offering, extending maturities to 2030-2035. The refinancing replaces short-term, floating rate debt with longer term, fixed rate obligations, reducing near-term refinancing risk and interest rate exposure. This move reflects Broadcom’s disciplined financial management, potentially lowering interest expenses while enhancing flexibility to focus on growth and shareholder returns. Although overall leverage remains high following the VMware deal, the improved debt structure bolsters confidence in Broadcom’s ability to navigate its sizable obligations strategically, a shareholder friendly step that strengthens its balance sheet without altering the broader investment thesis.
In a separate development, media reports indicate that AVGO has abandoned its planned €1 billion microchip plant in Spain after negotiations with the Spanish government broke down. The project aimed to build a unique backend semiconductor facility in Europe, enhancing Broadcom’s capacity in a region seeking to strengthen local supply chains. The company may now redirect the funds earmarked for the project to bolster financial flexibility, invest in core operations, or pursue other overseas initiatives.
In yet more news, Broadcom has revealed a breakthrough Ethernet switch – the Tomahawk Ultra. Broadcom’s new chip is designed as a significant advance in networking for HPC and AI workloads. It aims to compete with Nvidia’s NVLink Switch, which is plausible since the Tomahawk Ultra delivers industry-leading ultra-low latency, massive throughput, and lossless networking.
❖ Citi raised its price target on Arista Networks (ANET) to $123 from $112 and maintained a “Buy” rating. The bank’s analysts initiated a 90-day positive catalyst watch, citing a stronger outlook for the hosting and hyperscale datacenter switching market, and highlighting resilient capex funding and expanding Ethernet switch demand as key drivers supporting potential upside.
❖ IBM (IBM) introduced new tools to help enterprises manage risks associated with agentic AI systems, reinforcing its focus on responsible and secure AI. The tools aim to address challenges such as autonomous decision-making, data misuse, and compliance with emerging regulations, aligning with IBM’s strategy of serving highly regulated industries. By emphasizing governance and transparency in AI deployments, IBM differentiates itself from competitors and strengthens its position as a trusted enterprise partner, supporting its long-term relevance in the evolving AI market.
❖ Wedbush raised its price target on Microsoft (MSFT) from $515 to $600 and reconfirmed its “Buy” rating. The firm said Microsoft is set to become the next megacap to reach a $4 trillion market value, predicting this milestone “this summer.” According to Wedbush, despite the stock’s all-time high, it still does not fully reflect the continued surge in cloud and AI demand, as well as Microsoft’s competitive strengths in these areas.
❖ Oracle (ORCL) has seen significant analyst activity over the past week, with Jefferies, Bernstein, Piper Sandler, DBS, and Evercore ISI raising their price targets after the stock hit a record high. Analysts cited a bullish capex backdrop for AI infrastructure in the coming months and years, and praised ORCL’s best-in-class revenue acceleration at scale, positioning it as a major player in the global hyperscaler market.
In other news, ORCL announced a $3 billion investment plan to enhance AI and cloud infrastructure in Germany and the Netherlands. This initiative aims to expand the company’s AI and cloud capabilities in Europe. Analysts and company executives describe these actions as positioning Oracle to compete directly with top hyperscalers (Amazon, Microsoft, and Google) on European turf, reflecting Oracle’s ambition to strengthen its cloud and AI presence and align with the continent’s focus on digital sovereignty and local data storage.
❖ Vertiv (VRT) saw its stock drop last week after Amazon’s AWS unveiled a custom inhouse liquid cooling system for Nvidia-powered AI servers – raising concerns about potential inhouse production of cooling components. However, the stock surged back on broad analyst support, as several leading Wall Street firms called the selloff strongly overdone.
JPMorgan said AWS developing its own data center cooling system is not material enough to meaningfully impact Vertiv’s earnings – and that AWS will likely outsource many components. JPM also noted Vertiv was not surprised by Amazon’s move, calling it “somewhat normal course” as hyperscalers increasingly design their own systems. RBC Capital echoed this view – saying the news is not “new” and that hyperscale players designing next-gen liquid cooling systems is common – without disintermediating OEMs like Vertiv.
UBS added that while liquid cooling is only ~10% of Vertiv’s business, it drives a disproportionate share of growth – making the stock’s reaction understandable. Still, UBS believes fears are “misguided,” noting AWS is unlikely to manufacture critical components such as coolant distribution units, heat exchangers, and cooling fluid itself. Several analysts – including Melius Research, Barclays, Goldman Sachs, and Citi – raised their price targets on VRT over the past week.
❖ CrowdStrike (CRWD) saw its stock drop after Morgan Stanley and Piper Sandler downgraded the stock from “Buy” to “Hold,” citing its elevated valuation after the strong run-up this year. However, the stock is still rated a “Buy” by the majority of analysts, with several of them – including Morgan Stanley – having increased their price targets on the stock over the past couple of months.
In more positive news, CrowdStrike announced a new collaboration with AWS and Resilience, a cyberinsurance company, to help enterprises quantify and mitigate cyber risk. The announcement reflects CRWD’s strategic push to expand its ecosystem partnerships and positions CrowdStrike not just as a security software provider, but also as part of an integrated solution combining threat intelligence, risk modeling, and insurance optimization – which aligns with long-term trends toward measurable cyber resilience.
❖ Salesforce’s (CRM) Agentforce – a fully autonomous AI agent powered by Atlas Reasoning Engine and Data Cloud – has crossed 1 million customer conversations, a major milestone for the AI-powered support platform launched in late 2024. The platform now resolves 85% of support requests without human intervention, slashing response times and reducing overall support case volume. This milestone signals that Agentforce is proving effective, scaling quickly, and fulfilling its promise to streamline customer support operations with minimal human labor — making it a potentially meaningful growth driver for CRM.
❖ JPMorgan Chase (JPM) reported Q2 2025 results that topped expectations, driven by strong core banking performance and robust net interest income (NII). Adjusted EPS came in at $4.96 – beating the $4.48 consensus estimate – supported by healthy lending margins, solid trading activity, and resilient deposit trends. Trading revenue rose 15 % year over year to $8.9 billion – benefiting from heightened market activity – while investment banking fees climbed 7 % to $2.5 billion on improved dealmaking.
The bank raised its full fiscal year NII guidance to $95.5 billion, up from its previous forecast of $94.5 billion – reflecting confidence in continued loan demand and favorable deposit costs. The raised NII guidance was the standout element, underscoring management’s conviction in the strength of core banking operations and setting a bullish tone for the rest of the year. Combined with robust trading and investment banking results, the report reinforced JPMorgan’s industry-leading profitability.
JPMorgan also authorized a new $50 billion share buyback program and raised its dividend – signaling confidence in its capital strength and ability to return value to shareholders. CEO Jamie Dimon highlighted the resilience of the U.S. economy, but warned of ongoing risks from trade disputes, geopolitical instability, and fiscal deficits.
❖ Bank of New York Mellon, aka BNY (BK) reported strong fiscal Q2 2025 results, with all major segments delivering solid revenue growth. Non-GAAP EPS came in at $1.94, beating estimates by $0.18. Revenue rose 9.3 % year over year to $5.03 billion, topping consensus by $200 million. Higher-than-expected revenue and earnings growth were driven by BNY’s fast growing net interest income (NII), which surged 17% year over year.
AUM climbed 3 % to $2.11 trillion, coming in above estimates. Assets under custody and administration (AUC/A), representing client assets that BNY holds and administers, reached a record $55.8 trillion – underscoring its scale in serving global institutional clients. BNY raised its full year NII outlook to a high-single digit percentage increase, up from prior guidance of mid-single digit gain. The bank also increased its dividend by 13%.
❖ BlackRock (BLK) reported strong Q2 2025 results, with assets under management (AUM) rising to a record $12.53 trillion – up 18% year over year – driven by equity market strength and robust inflows into ETFs and private markets. Technology services, boosted by the Preqin acquisition, led revenue growth with a 26% surge.
Private markets saw $6.8 billion in inflows, reinforcing the firm’s goal to grow revenue share from private and technology businesses. BlackRock closed its acquisition of HPS Investment Partners on July 1, which immediately added $165 billion of client AUM and expected to contribute $450 million of revenue in Q3. The firm also announced plans to launch a public-private target date fund next year to expand retirement access to alternative allocations – and to grow fee revenues by managing those institutional assets.
Despite these positives, some misses drove the stock lower after the release. Adjusted EPS jumped 16% year over year to $12.05 – beating the $10.82 consensus – but quarterly revenue, up 13%, slightly missed estimates. The main concern was weaker net inflows, at $68 billion versus expectations around $84-85 billion, driven by a $52 billion redemption by a single large Asian institutional client. Net inflows are a key revenue driver for asset managers, and this redemption weighed directly on top‑line results. Still, crypto ETF inflows rose sharply – demonstrating diversification in investor appetite and validating BlackRock’s push into crypto.
Oneoff events like a single – albeit significant – client exit do not imply sustained outflows or change the firm’s long-term outlook. The post-earnings drop likely reflects profit taking after a 36 % rally since April. Looking ahead, BlackRock aims to double operating income and its stock price over five years by raising private markets and technology revenue share from 15% today to 30% by 2030.
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Portfolio Stocks Under Review
❖ We are placing Roper Technologies (ROP) under review following its recent stock underperformance and growing questions about its near-term risk/reward.
ROP remains a high-quality operator in niche, mission critical software and industrial markets, with strong pricing power, sticky customer relationships, and solid free cash flow. The company has delivered consistent EPS growth – beating estimates for the 16th straight quarter in Q1 – and raised guidance for 2025. Roper has cemented its leadership in essential verticals, which allows for steady organic growth, horizontal expansion, and premium pricing. The company also maintains a reliable dividend and a history of accretive acquisitions.
However, the stock has underperformed the S&P 500 over the past two months, declining while the broader market rose. Some of the reasons for this weak stock performance appear technical in nature. Roper trades at a premium multiple to the broader market because of its defensible niche software businesses and sticky customer base. Since May, market sentiment has favored lower multiple, cyclical names as macro fears eased, while high-premium, defensive names like ROP have lagged in this risk-on period. Moreover, ROP is not seen as a high growth AI beneficiary, so it hasn’t participated fully in the AI-driven rally during the recent months.
Additionally, Roper’s Q1 results – though better than consensus on EPS and revenue – revealed a 90 bps decline in EBITDA margin and softer cash flow, suggesting integration of the $1.65 billion CentralReach deal is weighing on profitability. Barclays recently reaffirmed its “Sell” rating with a $562 target, citing a premium valuation it views as unjustified, margin pressures, and acquisition-related risks. This remains a contrarian call among analysts but can influence institutional sentiment because Barclays is the only major bank with an outright bearish view. Their thesis – overpaying for acquisitions while growth slows – resonates with investors concerned about premium valuations.
Conversely, TD Cowen presented a contrasting view on July 11, reaffirming its “Buy” rating with a $650 target – implying nearly 19% upside from current levels. They emphasize ROP’s long-term strengths: leadership in critical, sticky software niches, pricing flexibility, and growth through horizontal and vertical expansion. TD Cowen highlights how ROP’s systems are so integral to customers that switching is difficult, enabling price increases with minimal pushback – an advantage that supports sustained revenue growth. They also point to opportunities for deeper integration across acquired businesses, potential partnerships, and cross selling that can unlock additional value. Their view assumes that management’s disciplined acquisition strategy and operational execution will offset near-term headwinds and justify the premium over time, seeing continued organic growth and M&A as sustainable and worth the valuation.
In short, ROP’s fundamentals remain robust, but current sentiment is split: Barclays argues the premium is vulnerable if integration falters and margins don’t recover, while TD Cowen believes the quality of ROP’s franchise and customer entrenchment can drive consistent performance. Given these contrasting opinions – and data supporting both – we have chosen to wait for Roper’s Q2 2025 earnings on July 21 to “look under the hood,” specifically to see whether margins stabilize, cash flow improves, and integration of CentralReach progresses cleanly. We will reassess our position after reviewing how these factors play out in the upcoming report.
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❖ We continue to keep LPL Financial (LPLA) under review. Despite strong fundamentals – including continued advisor additions, rising advisory assets, and efficient capital deployment – the stock has underperformed peers over the past month. This pullback follows a more than 35% rally from April lows, suggesting ongoing profit taking.
On July 7, Citi opened a “negative 30day short-term view” on LPL ahead of its Q2 earnings report. Citi expects negative estimate revisions and forecasts Q2 earnings to be ~5% below the consensus estimate. The firm reiterated its “Hold” rating, reflecting caution about near-term performance despite the stock’s strong longer-term prospects. In addition, on July 9, TD Cowen downgraded LPL from “Buy” to “Hold,” citing a reduced earnings outlook and valuation concerns.
However, the consensus among top ranked Wall Street analysts remains positive, with a “Strong Buy” rating and an average target price implying about 15% upside from current levels. Out of recent analyst actions, most have reaffirmed their positive ratings. Moreover, Barclays, Wells Fargo, and J.P. Morgan raised their price targets over the past week, reflecting increased confidence in LPL’s earnings outlook and growth prospects.
J.P. Morgan analysts cited favorable trends in the wealth management industry and the firm’s ability to execute strategic initiatives, expand its advisor base, and integrate technology. Meanwhile, Wells Fargo highlighted strong revenue growth in recent quarters, significantly outpacing peers, along with both higher ROE and ROA – indicating strong management, efficient capital use, and solid operational performance. LPL continues to deliver solid organic net new asset growth, demonstrating its ability to attract and retain clients, while stability in client cash balances supports its financial health and resilience.
On July 10, Barclays maintained its “Buy” rating, lifting its price target from $450 to $460, implying over 23% upside from current levels. The firm noted that heading into Q2 earnings, it sees a robust trading environment likely to benefit LPL given its ability to capitalize on market opportunities.
Given LPL’s recent stock underperformance, which contrasts with positive analyst consensus, we are monitoring whether this reflects a temporary sentiment shift or a more lasting reassessment of near-term growth expectations. We continue to view LPLA as a high quality wealth management platform – but will watch closely before removing it from review.
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❖ We are keeping Texas Pacific Land (TPL) under review.
TPL remains a unique, high quality asset at the heart of the Permian Basin. Its Q1 2025 results underscored the resilience of its model – with record oil & gas royalty production, record water revenues, and double digit free cash flow growth. The company continues to expand its royalty base through acquisitions and strategic acreage swaps, develop innovative water technologies including desalination, and maintain a pristine balance sheet.
The “One Big Beautiful Bill” fiscal package strengthens TPL’s outlook. By increasing incentives for U.S. oil & gas production, streamlining permits, and promoting commingled development, the bill should accelerate Permian activity over the next 6-12 months – directly benefiting TPL through higher royalty and water revenues. Its scale and irreplaceable land position make it uniquely positioned to capitalize on these tailwinds, while its long-term optionality in water and carbon remains underappreciated.
That said, TPL is inherently exposed to oil & gas price volatility, even though its earnings growth is more tied to volumes than price levels. A decline in prices could reduce drilling and hurt royalties. TPL’s water business, though growing rapidly, still accounts for only about a third of its income. While oil and gas prices are expected to remain supported by near-term by geopolitical and demand factors, any pullback would likely weigh down sentiment.
TPL’s analyst coverage is limited, currently confined to a single firm, Texas Capital Securities – unusual for such a profitable large cap. Notably, TCS recently raised its price target – implying nearly 25% upside – and upgraded TPL to “Buy,” citing confidence in its push into data centers, power projects, and water infrastructure in the Permian. These initiatives add multiple growth drivers beyond traditional energy sources.
Texas Pacific Land is making significant progress toward monetizing its vast land holdings through partnerships and infrastructure developments tied to the surging demand for data centers. With the expansion of AI and cloud computing, securing data center sites is becoming crucial, and TPL is well-positioned in terms of power supply and regulatory approvals, with Trump admin’s deregulation drive coming in handy. Texas Capital Securities expects TPL to make tangible progress on at least one data center or power project by the end of 2025, marking a potential inflection point for the stock.
TPL is also scaling an innovative, energy-efficient desalination process for produced water, aiming for agricultural and industrial reuse. It is advancing regulatory approvals, validating technology at pilot scale, and ensuring environmental compliance – critical to enabling commercial rollout. TCS cited progress on desalination as a key reason for its upgrade and increased target.
The main concern remains valuation, with forward GAAP P/E around 52x – elevated even considering its unique model and diverse growth drivers. The steep price appreciation is due to the stock outperformance over most of the Portfolio holding period, until mid-May. Despite the recent declines, TPL is still priced for perfection, making the stock vulnerable to any disappointment in results (expected on August 6). However, data center development and water infrastructure projects may unlock new value for TPL, supporting its stock.
A further supporting factor is insider and stakeholder behavior – particularly director Murray Stahl and Horizon Kinetics – who have steadily increased holdings on dips, signaling long-term confidence. Institutional ownership has also risen to ~60%, with ~$2.4 billion in net inflows over the past year.
In our view, TPL combines defensiveness, policy leverage, and long duration optionality – but its elevated valuation and commodity sensitivity warrant caution. Conversely, its debt-free balance sheet, strong cash position, and significant insider buying support long-term growth prospects as it secures new drivers beyond royalties. We will continue monitoring developments, focusing on risk and reward factors.
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Portfolio Earnings and Dividend Calendar
❖ The Q2 2025 earnings season is in full swing, with a third of the Portfolio companies scheduled to report their quarterly results today and over the next week. These are: Morgan Stanley (MS), GE Aerospace (GE), TSMC (TSM), Interactive Brokers (IBKR), Roper Technologies (ROP), RTX (RTX), Lockheed Martin (LMT), General Dynamics (GD), Amphenol (APH), IBM (IBM), and Vertiv Holdings (VRT).
❖ There are no upcoming ex-dividend dates for the Portfolio companies in the next seven days.
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New Buy: Autodesk (ADSK)
Autodesk occupies a foundational role in the design and engineering software industry, enabling architects, engineers, builders, manufacturers, and creators to bring complex ideas into reality. Its tools power the design of buildings, infrastructure, products, and media – from skyscrapers and bridges to precision parts and blockbuster films. The company integrates cloud technology, automation, and artificial intelligence to help professionals improve productivity and deliver better outcomes across construction, manufacturing, and entertainment. Autodesk’s strength lies in its ability to serve as both a creative platform and a data-driven backbone for industries undergoing digital transformation. With a portfolio spanning design, simulation, and collaboration, it remains a key partner in shaping the built environment, advancing manufacturing innovation, and fueling creativity in media – ensuring it stays indispensable as technology and industry demands continue to evolve.
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Intelligent Design
Founded in 1982, Autodesk began as a pioneer in computer-aided design (CAD) with the launch of AutoCAD, which quickly became the industry standard for digital drafting. Over the decades, the company expanded beyond CAD into 3D design, engineering, and entertainment, laying the groundwork for what has become one of the most influential platforms in the architecture, engineering, construction, manufacturing, and media industries. Its early embrace of subscription licensing, cloud delivery, and industry-specific software collections shaped its resilience and growth through multiple technology shifts.
In the past five years, Autodesk’s transformation has accelerated meaningfully, driven by strategic innovation and deliberate investment. Recognizing the shift toward cloud-first, data-centric workflows, the company expanded its Design and Make platform, embedding AI and automation to deliver predictive insights, process optimization, and real-time collaboration. This move positioned Autodesk at the center of digital transformation across industries increasingly demanding connected and intelligent solutions.
ADSK also bolstered its capabilities through targeted acquisitions. It acquired PlanGrid and BuildingConnected to strengthen its construction collaboration and bid management offerings and later added Innovyze to extend its reach into water infrastructure modeling – a critical segment for sustainable development. The purchase of Upchain and Prodsmart enhanced its cloud-based product lifecycle management and manufacturing execution capabilities, bringing manufacturers closer to fully digital operations. These deals extended Autodesk’s influence deeper into customers’ end-to-end workflows and expanded its served market significantly.
Beyond M&A, the company invested heavily in advancing its core platform. Integrating AI into tools like generative design and automating construction progress tracking have not only improved customer outcomes but also differentiated Autodesk in competitive markets. Collaborations with major cloud and technology providers, alongside strategic partnerships with governments and educational institutions, have reinforced its ecosystem and broadened access to its solutions globally.
Autodesk also sharpened its focus on shareholder returns and operational efficiency. An optimized sales and marketing model, combined with greater capital allocation toward share repurchases and disciplined expense management, helped it maintain growth while increasing profitability.
Together, these developments – from visionary acquisitions to platform-level innovation and strategic partnerships – have cemented Autodesk’s evolution from a software vendor into a key enabler of digital transformation. As industries continue shifting toward cloud-based, AI-powered, and sustainable workflows, Autodesk’s trajectory suggests growing relevance and market share ahead.
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Designing the World
Autodesk enables the design and creation of the built, manufactured, and virtual worlds – providing the digital tools and cloud platform that underpin construction, manufacturing, infrastructure, and media workflows globally. As one of the largest providers of design and engineering software, Autodesk sits at the center of a $60–70 billion total addressable market (TAM) that continues to expand as industries digitize, automate, and adopt AI-driven processes.
Its business spans four primary product families. Architecture, Engineering, Construction, and Operations (AECO) is the largest, generating roughly 50% of revenue, driven by tools like Revit, BIM Collaborate Pro, and cloud-based construction management solutions. AECO continues to benefit from the growing adoption of Building Information Modeling (BIM) standards, sustainable design mandates, and infrastructure investment globally. AutoCAD and AutoCAD LT – iconic drafting and design tools – contribute about 25%, remaining a cornerstone of design workflows in both construction and manufacturing despite their maturity. Manufacturing (MFG), at approximately 19%, is fueled by demand for cloud-based product lifecycle management, generative design, and factory automation, serving industries ranging from aerospace to consumer goods. The smallest segment, Media & Entertainment (M&E), represents about 5%, powering visual effects and 3D content creation for film, television, and gaming.
Cloud and AI-enabled products are increasingly central to Autodesk’s offering, growing meaningfully within AECO and MFG. The company’s Make business – including Autodesk Build, BIM Collaborate, Fusion, and Flow Production Tracking – combines cloud collaboration and AI-powered analytics to drive efficiency and reduce errors in construction and manufacturing projects. Management has emphasized that these offerings are helping win new customers while deepening relationships with existing ones, particularly in construction where digitization is still in its early stages.
ADSK’s customer base spans more than 200 million users in over 180 countries, with a broad mix of small-to-medium businesses, large enterprises, and public sector clients. Its software is used on some of the world’s largest infrastructure and entertainment projects, though specific disclosed agreements with marquee clients are rare. The company does maintain partnerships with major cloud providers and collaborates with governments on advancing digital infrastructure and workforce upskilling initiatives, which support adoption in regulated and emerging markets.
With industries pushing toward automation and data-driven decision-making, Autodesk is well-positioned to capture share across its end markets – providing the creative and operational backbone for industries undergoing transformative change.
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Blueprint for Growth
Autodesk delivered a strong fiscal Q1 2026, reinforcing its leadership in design and engineering software and showing clear signs of reacceleration after a subdued back half of fiscal 2025. Revenue rose 15% YoY (16% in constant currency) to $1.63 billion, slightly ahead of the ~$1.62 billion analyst consensus. Growth was broad-based across product lines and geographies, supported by steady demand for cloud-based and AI-enhanced workflows.
Non-GAAP EPS came in at $2.29, up 22% YoY and comfortably ahead of the ~$2.20 consensus. GAAP EPS was $0.70, down from $1.16 in the prior-year quarter due to a one-time $54 million stock-based compensation adjustment and $105 million in restructuring charges. Non-GAAP operating margin expanded 3 points YoY to 37%, reflecting improved sales productivity and operating leverage, despite ongoing investment in cloud and AI capabilities. Free cash flow increased 14% YoY to $556 million, underscoring the business’s high cash conversion and capital-light model.
Growth was led by AECO (+20% YoY), followed by Manufacturing (+15%), AutoCAD (+9%), and Media & Entertainment (+7%). Regionally, the Americas and EMEA both grew 17%, while APAC lagged at 6%, constrained by macroeconomic headwinds in China and Japan.
After two quarters of weaker earnings growth (FQ3 and FQ4 2025), weighed by cautious customer spending and FX headwinds, Q1 marked a return to double-digit EPS and free cash flow growth – a trajectory management expects to sustain through FY26.
For Q2 FY26, Autodesk guided revenue to $1.72-1.73 billion and non-GAAP EPS to $2.44-2.48, roughly in line with Street expectations. Full-year FY26 guidance calls for revenue of $6.93-6.99 billion (up ~13.5% at midpoint), non-GAAP EPS of $9.50-9.73 (up ~20.5%), and free cash flow of $2.1-2.2 billion (up ~12.6%), which analysts view as appropriately cautious given the macro backdrop but with upside potential as infrastructure and AI adoption tailwinds strengthen.
Management noted that net revenue retention remains slightly above 110%, indicating durable customer loyalty and upsell opportunities. The solid start to FY26 supports their confidence in achieving high-single-digit to low-double-digit growth through the year, with margin improvement from cost discipline and rising cloud/AI adoption.
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Priced to Build
Smart Portfolio Note: We previously held ADSK in the portfolio but sold in early April 2025, as its weak FQ3 and FQ4 growth, coupled with a broader market sell-off, outweighed our earlier thesis of an AI-driven rebound. That call proved to be reasonable, as the stock slightly underperformed the S&P 500 in the interim. Now, with FQ1 showing renewed double-digit EPS growth, robust guidance, and clear momentum in its AI and cloud businesses, we believe it is time to reinitiate the position at a more favorable point.
In addition, the OBBBA fiscal package, passed on July 4, restores full deductibility of R&D expenses and maintains the current corporate tax rate, providing immediate cash flow relief for Autodesk starting in H2 FY26. This change improves free cash flow, supports continued investment in AI and cloud innovation, and removes tax-related overhang. In the longer term, the bill’s increased infrastructure and housing funding, along with mandated BIM standards, strengthen Autodesk’s competitive position in public and private projects, expanding its addressable market and deepening customer reliance on its platform.
Autodesk’s stock has tracked the broader trend in the Application Software industry over the past year, leading gains in recent months but ending with an average return for the period after PTC acquisition rumors triggered a sharp drop last week. Despite a partial rebound after the company moved to dispel the rumors, that drop has increased the potential upside – now at nearly 19% according to the analyst average – and reduced valuations, providing an attractive entry point.
Though ADSK trades at a premium to the broad technology sector, it appears attractively valued relative to peers in the industry like PTC, ANSYS, Bentley Systems, and several indirect comps – despite having the largest market cap and moat, as well as better-than-most-peers revenue growth and net income 3-year CAGR.
The stock trades at the lowest trailing twelve months and forward non-GAAP P/E ratios among its peers, while its forward PEG ratio is the second lowest in the group. ADSK’s TTM and forward EV/Sales multiples, as well as forward EV/EBITDA, are also the lowest among peers, although TTM EV/EBITDA and Price/Cash Flow are closer to peer averages.
Autodesk’s total return potential continues to be supported by its shareholder-focused capital deployment strategy, notably share buybacks. Over the past three years, the company has reduced its share count by approximately 5.5 million shares, helping mitigate dilution and supporting medium-term EPS growth. In November 2024, Autodesk expanded its active share repurchase program by an additional $5 billion, bringing total authorization to $10 billion. During fiscal 2025, it repurchased $444 million worth of shares. In Q1 fiscal 2026 alone, Autodesk bought back an additional $353 million worth of shares, underscoring its commitment to returning capital to shareholders while preserving flexibility for strategic investments.
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Investing Takeaway
Autodesk is a foundational player in the digital transformation of design, construction, and manufacturing, delivering the software that shapes the built and virtual worlds. With deep roots in architecture, engineering, and product design, it stands at the intersection of cloud, AI, and data-driven workflows. Its platform underpins critical trends like BIM adoption, sustainable infrastructure, and automated manufacturing – expanding its reach and relevance across industries. Strategic focus on innovation, customer retention, and operational efficiency supports growth and resilience through market cycles. For investors seeking exposure to technology driving smarter, more efficient creation, Autodesk combines industry leadership, a growing addressable market, and disciplined execution with an attractive entry point.
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New Sell 1: Berkshire Hathaway (BRK.B)
We purchased BRK.B for the Smart Investor Portfolio in early August 2024, when the market was on a volatile downtrend due to technicals, high valuations amid over-positioning in growth sectors, and heightened economic concerns and uncertainty. Against that backdrop, Berkshire was expected to provide stability and downside protection. The stock performed solidly for a while and then, in early 2025, outperformed the S&P 500 by a wide margin, delivering gains while most stocks were in the red. BRK.B reached an all-time high in early May, just as the broad market was beginning to recover from the “tariff tantrum,” with its elevated valuation making it vulnerable to any negative – or even perceived negative – news.
Indeed, the upward trend in Berkshire stock abruptly broke after Warren Buffett announced his intention to resign as CEO of Berkshire Hathaway on May 3, 2025. Speaking at the company’s annual shareholders meeting in Omaha, Buffett said that Vice Chairman Greg Abel would take over as CEO at the end of the year. Concerns over Warren Buffett’s retirement, coupled with investor rotation back into tech and growth stocks since the April 2025 lows, have led BRK.B to underperform the broad index over the past three months. Although Abel has a long tenure at Berkshire and was chosen and supported by the “Oracle of Omaha” himself – who plans to help him steer the company for a while from his chairman’s office – this has not reassured investors who have watched Buffett at the helm for nearly six decades.
Berkshire Hathaway retains its long-term fundamental excellence, but it is facing short-term market headwinds. The company remains the gold standard of high-quality conglomerates, with unmatched financial strength, a diversified portfolio, and a massive store of dry powder for future investments. These attributes suggest that the core investment thesis remains intact – nothing is fundamentally “wrong” with the company. In fact, the pullback and fading “Buffett premium” have made the stock more reasonably valued, which could support long-term returns if incoming CEO Greg Abel executes smoothly.
On the other hand, until the CEO transition is complete and Greg Abel establishes his own track record, the stock may remain under a cloud of uncertainty. The “Buffett premium” could erode further in the coming year, capping upside as investors wait to see how Berkshire performs under new leadership. And it is safe to say that Greg Abel has not yet earned a premium in his own name – moreover, the stock could carry an “Abel discount” closer to the time of the transition as uncertainty rises further.
Equally important, Berkshire tends to outperform in weak markets, preserving capital better than peers. The company remains fundamentally sound, with relatively low downside risk thanks to its defensive mix of holdings – insurance, utilities, consumer staples – and massive liquidity, positioning it well for a downturn or value resurgence. However, the same holdings mix and cash position are currently limiting its upside, a situation expected to continue if a recession does not materialize soon. Since we, along with most economists and analysts, do not expect the economy to worsen to the point of a recession – which usually depresses stock performance – we see no material justification for locking capital in BRK.B stock.
This view is reinforced by the absence of clear catalysts that could jolt the stock upward. Given its sheer size, even strong operating results rarely move the needle. Without a major development – such as a transformative acquisition or significant capital allocation move – Berkshire could drift sideways. Expected earnings growth in 2025 is modest, which, although unsurprising given its cash-heavy balance sheet, could weigh on sentiment if the current growth stock leadership persists.
Finally, despite a ~10% decline over the past three months, the stock still trades at a notable premium to the broader Finance sector and comparable peers. With no dividend and only modest share buybacks, investors lack a meaningful capital return as a cushion. This raises the risk that the stock remains range‑bound – tying up capital that could potentially earn higher returns elsewhere. That said, we will keep BRK.B in focus, ready to re‑enter if its valuation becomes more attractive or if the macroeconomic situation worsens. Meanwhile, we are exiting with gains.
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New Sell 2: Lockheed Martin (LMT)
After keeping Lockheed Martin under review for a while, we believe it is time to sell the stock.
LMT remains a cornerstone of the U.S. and allied defense industrial base, with unmatched scale, a backlog covering over two years of sales, and exposure to enduring programs like the F35, THAAD, and advanced missile systems. Its Q1 2025 results reaffirmed this stability, though growth lags behind Portfolio holdings such as General Dynamics – which delivered double-digit top and bottom-line gains – and RTX, with leading positions in missiles, sensors, and commercial aerospace. Both have tailwinds and diversification that Lockheed currently lacks.
The recently enacted “One Big Beautiful Bill” (OBBBA) fiscal package provides a tailwind for defense contractors, though its emphasis on naval shipbuilding and submarines favors other contractors more than LMT. Still, Lockheed is positioned to benefit from the bill’s $25 billion allocation to missile defense, munitions, and emerging technologies. While these funds reinforce LMT’s core businesses, many of its programs were already well funded before OBBBA, limiting immediate upside compared to peers expanding into new platforms.
Compounding the headwinds, Lockheed recently lost the high-profile Air Force F47 fighter contract to Boeing, and the Navy’s F/AXX program – another potential growth driver – has been shelved in favor of the F47. This removes near-term opportunities to anchor a next generation air combat platform, though it continues to dominate the current generation fighter market through the F35.
The flagship F35 program, accounting for ~25-30% of LMT’s sales and earnings, has been an overhang on sentiment, which drove a rating and price target downgrade from TD Cowen. The F35’s critical TR3 software has been delayed until at least mid-2026, slowing deliveries, delaying cash flows, and creating risk of customer frustration – particularly as international buyers have been counting on updated jets.
Moreover, the FY 2026 U.S. defense budget reduces Air Force F35 purchases, with no clear sign yet that volumes will bounce back. LMT hopes to mitigate this budget softness by leaning more heavily on foreign sales and integrating NGAD features into the F35, but the timeline and funding for that remain vague. These overhangs – along with execution problems elsewhere and lack of significant near-term catalysts – led TD Cowen to downgrade LMT from “Buy” to “Hold,” cutting the price target from $500 to $480.
TD Cowen’s downgrade is not isolated: Truist lowered its price target while maintaining a “Buy” rating, and both Bernstein and Deutsche Bank maintained their “Hold” ratings but also cut targets. Even bulls concede that the stock’s upside is capped until F‑35 overhangs clear, which may take 12-18 months. As a result, LMT’s moderate valuation no longer looks as attractive, reflecting slower growth than previously expected.
With other Aerospace & Defense holdings in the Portfolio providing diversified growth and benefiting from positive exposure to OBBBA naval and missile spending, we believe LMT’s investment proposition is now muted, and we are better off deploying capital elsewhere.
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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, and our exclusive club has lost its newest member as UBER fell back down below the threshold. Now, the Winners are 13 holdings: GE, AVGO, ORCL, ANET, HWM, EME, TSM, APH, IBKR, PH, TPL, CRWD, and IBM.
The first contender for the Club’s entry is now UBER with a 28.86% gain since purchase – followed by VRT – which we added just a month ago – with 17.42%. Will one of them gain the rite of passage, or will another stock outrun them to the finish line?
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