Funds of Function
In this edition of the Smart Investor newsletter, we spotlight a fintech infrastructure leader quietly compounding scale, automation, and profitability across global finance. But first, let’s review the latest portfolio news and developments.
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Portfolio News and Updates
❖ International Business Machines (IBM) initially saw a sharply negative reaction to its earnings release – which was quickly wiped out the next day – as some of the results disappointed due to increasingly elevated expectations following its pivot to AI. The tech behemoth has slightly surpassed revenue expectations, with its usual narrow beat again perceived as a weakness – despite its 7% year-over-year increase (in constant currency) being its fastest in several years. Meanwhile, Adjusted EPS surged past expectations, increasing more than 15% to $2.65, versus the consensus of $2.45.
All business segments showed acceleration, highlighting the strength of IBM’s business model and portfolio: software grew 9% in constant currency, while automation rose by 22%. Infrastructure grew by 15%, driven by a 61% surge in IBM Z mainframe sales, and the previously lagging consulting segment returned to growth, reflecting strong demand for AI services. AI continued driving IBM’s growth, with over $9.5 billion in AI-related book of business to date.
The main reason for a knee-jerk sell-off was a specific data point from IBM’s software segment. The company’s hybrid-cloud unit – built around its Red Hat business – decelerated from 14% to 12%. This business is a major focus point for investors and one of the software segment’s key reacceleration drivers – but Q3 may be less telling regarding the trend, as it is a seasonally weak quarter.
Year-to-date, IBM generated $7.2 billion of free cash flow, the highest nine-month free cash flow margin in reported history. The company reported that its productivity initiatives are ahead of schedule with an expected annual run rate savings of $4.5 billion exiting 2025. Additionally, Q3 marked the ninth consecutive quarter of operating pre-tax margin expansion, with segment profit margins expanding across infrastructure, software, and consulting.
Following the strong results, IBM raised its full-year 2025 outlook, guiding for revenue growth of more than 5%, adjusted EBITDA growth in the mid-teens, and free cash flow of about $14 billion for the year. Software revenue is expected to approach double digits, automation to remain in double digits, and Red Hat to grow in the mid-teens.
On Friday, dip buyers quickly stepped back in, as it became clear that the post-earnings sell-off was way overdone. IBM’s rebound was strengthened by news on IBM’s progress in quantum computing – amid reports on possible government prioritizing the sphere – after it announced it has the ability to run a key quantum computing error correction algorithm in real time on AMD’s ($AMD) processors. IBM has a multi-year plan to build a practical quantum computer by 2029, placing the company at the forefront of the next-tech innovation.
In a more immediate revenue-enhancing development, last week IBM announced a strategic technology and go‑to‑market partnership with Groq, an independent AI hardware company. The collaboration is aimed at accelerating enterprise deployment of agentic AI by combining IBM’s watsonx Orchestrate platform with Groq’s ultra‑fast inference technology. The alliance strengthens IBM’s broader enterprise AI portfolio and advances IBM’s move toward enterprise-scale agentic AI systems. Seen as a direct revenue catalyst for IBM’s software and AI segments, the partnership could expand IBM’s AI-related revenue mix by 8-10% over the next 12 months by helping drive the watsonx adoption among incremental high-margin enterprise clients.
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❖ Amphenol (APH) saw about a dozen price-target upgrades following its spectacular “beat and raise” earnings release, including BofA’s increase from $150 to a Street-high of $163 along the addition of APH to the bank’s “U.S. 1 List” of best investment ideas.
Amphenol reported record Q3 revenue of $6.19 billion, up 53% year-over-year, driven by contributions from acquisitions and double-digit organic sales increases in all but one end market – IT Datacom, which soared 128% on the back of the surging demand for products used in AI applications. The company achieved a record operating margin of 27.5%, up 560 basis points year-over-year, driven by improved profitability in acquired businesses and margin expansion across all segments. Order book surged by 38% to a record $6.11 billion, with management noting shorter lead times in IT Datacom and strong book-to-bill in defense, with visibility improving across most end markets. Adjusted EPS reached a record $0.93, as it skyrocketed 86% year-over-year.
Following a substantial double beat on earnings and sales, APH raised its Q4 and full-year 2025 projections. Moreover, APH’s board approved 52% increase in the company’s quarterly dividend effective January 2026.
The ongoing quarter is now expected to see revenue in the range of $6.0-6.1 billion, implying ~40% growth, while EPS is expected to come in at $0.89-0.91, representing a 62-65% increase year-over-year.
For the full year 2025, Amphenol expects about 50% year-over-year growth in revenue and ~73% growth in adjusted earnings per share, excluding yet-to-close acquisitions. Acquisitions continue to be a key growth strategy with recent closure of Rochester Sensors and Trexan expected by year-end. APH’s growth focus remains on AI, defense, commercial aerospace, and other high-growth verticals.
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❖ Vertiv Holdings (VRT) posted record quarterly results, outstripping already-high market expectations across all key metrics. Organic net revenue increased by 28% year-over-year to $2.68 billion, and the adjusted operating profit jumped 43% to $596 million, driven by organic net sales increase with additional benefit from lower income taxes. Adjusted EPS came in at $1.24% – versus the consensus of $0.98 – reflecting an increase of more than 63% year-over-year.
Investments in capacity, and R&D, and services are accelerating, particularly in the Americas, to stay ahead of rapid AI-driven data center demand; restructuring in EMEA is underway to prepare for expected market recovery in H2 2026.
Vertiv generated $462 million of adjusted free cash flow in Q3, up 38% from last year, translating into approximately 95% free cash flow conversion. The strong liquidity allows the company significant operational and investment flexibility, with the announced acceleration in capacity expansion underway to meet surging demand. Over the quarter, VRT’s bookings momentum accelerated further, with organic orders surging by 60% year-over-year and total backlog reaching $9.5 billion (up 30%), providing strong visibility into 2026. Vertiv achieved a 1.4 times book-to-bill ratio, signaling continued strong revenue growth.
Following outstanding results, VRT raised its Q4 and full-year 2025 guidance. The Q4 organic net sales growth is projected at 20% at midpoint, while EPS is expected to come in at $1.23-1.29. For the full year 2025, total organic revenue is expected to grow 27% at midpoint, with adjusted EPS between $4.07 and $4.13 (+44% year-over-year).
The “beat and raise” report has driven multiple analyst price-targe increases, with JP Morgan giving the Street-high target of $230 (up from $206) and citing Vertiv’s strong underlying business momentum driven by accelerating AI adoption in data centers, robust organic sales growth, and expanding market share in key segments like colocation cloud data center solutions. Analysts point out VRT’s ability to outgrow the market through superior technology and execution, evidenced by strong order growth, solid backlog, and improving profitability metrics.
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❖ Blackstone (BX) released its Q3 results, posting total revenues of $3.1 billion, slightly below expectations. Despite the minor top-line miss, the world’s largest alternative asset manager saw its distributable earnings surging to record $1.9 billion, up nearly 50% year-over-year, translating into an EPS of $1.52 (compared to consensus of $1.23). This growth was driven by a 26% growth in fee-related earnings and a more than doubling of net realizations.
Assets under management (AUM) increased 12% from Q3 2024 and reached a new industry record of $1.24 trillion, with inflows reaching $54.2 billion for the quarter – marking the fourth consecutive quarter surpassing $50 billion. Private wealth AUM grew 15% year-over-year to nearly $290 billion, with fundraising doubling year-over-year in the third quarter. Importantly, perpetual capital AUM, which provides BX with a stable, long-duration capital base that supports patient capital deployment and sustainable growth, rose 15% year-over-year, crossing half a trillion mark.
Investment performance remained strong across key sectors. Fee-related earnings increased 26% year-over-year to $1.5 billion, driven by 22% growth in total fee revenues and margin expansion. Management fees rose 14% year-over-year to $2 billion. BX deployed $26.6 billion in the quarter and $137.6 billion over the last twelve months, with the gross realizations rising to $30.6 billion in the quarter and $105.3 billion over the LTM.
Management highlighted total dry powder of $194 billion available for future investments, and signaled continued expansion of its investment platforms into digital and energy infrastructure, private credit, Asia, and the secondaries market, positioning itself favorably for the expected resurgence in capital markets activity.
The firm sees strong secular and cyclical tailwinds, with expectations for accelerating inflows and realizations in 2026, robust IPO and M&A pipelines, and continued growth in private credit, infrastructure, and multi-asset strategies. Moreover, digitization and regulatory changes are making it easier for alternative investments to flow into retirement accounts, which could drive further demand for Blackstone’s products.
BX is well-positioned for continued AUM growth, thanks to its massive deployment-ready available capital, enabling it to capitalize on opportunities amid a positive market environment. The expected rate cut at the Fed’s meeting today (and the increasingly probable one in December) can support continued market liquidity and investment activity, potentially fueling further asset growth.
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❖ General Dynamics (GD) posted a set of stellar results in Q3, with all key metrics far surpassing expectations. Revenue rose 10.6% year-over-year to a record of $12.9 billion, while adjusted EPS jumped nearly 16% to $3.88. Operating earnings were up 12.7%, and net earnings increased by 13.9%. Operating margin of 10.3% was a 20-basis-point expansion from last year’s quarter.
Each of GD’s four business segments grew earnings and backlog in the quarter, reflecting solid execution coupled with growing demand. The Aerospace segment led growth, with revenue up 30.3% and margins expanding by 100 basis points from the same period a year ago, as order activity for business jets remained particularly strong. Defense segments saw robust order activity, record backlog, and strong book-to-bill ratios.
Orders totaled $19.3 billion in the quarter on a companywide basis, 22.5% year-over-year increase, while consolidated book-to-bill ratio reached 1.5-to-1. Total estimated contract value – the sum of all backlog components – was $167.7 billion at the end of Q3.
Although the management noted uncertainty due to the ongoing government shutdown, which could impact cash flow and contract timing if prolonged, the company’s stellar year-to-date performance, continued record backlog, and strong order growth drove guidance upgrade. General Dynamics now expects full-year 2025 revenue to come in at around $52 billion (versus $51.2 billion previously) and adjusted EPS in the range of $15.30-15.35 (up from $15.05-15.15).
Following the “beat and raise” report and a slate of analyst upgrades, GD stock surged to a record high, although it gave back some of the gains later on due to profit taking.
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❖ Microsoft (MSFT) and OpenAI disclosed a new partnership agreement, valuing OpenAI at $500 billion and clearing the path for the ChatGPT creator’s restructuring plan to become a for-profit business. Under the deal, which has been in negotiations for almost a year, MSFT will receive a 27% ownership stake in OpenAI – which, at about $135 billion as of today, is slightly larger than the stake that the OpenAI Foundation, the startup’s nonprofit entity that is slated to continue controlling the for-profit part, is set to receive. Under the pact, MSFT will have access to all tech developed by OpenAI, including models achieving AGI benchmarks, until 2032. Microsoft’s total investment in OpenAI up to date is estimated at $13.75 billion, implying that the tech giant’s ROI on this investment is nearly 900%. Morgan Stanley analysts said that the deal with OpenAI removes the largest overhang on MSFT, a sentiment also echoed by Evercore ISI, Goldman Sachs, and others.
Previously, Guggenheim upgraded Microsoft to “Buy” from “Hold,” setting a price target of $586. The firm’s analysts cited strong Azure cloud growth driven by AI, along with MSFT’s near monopoly in productivity software, particularly the Office suite, enabling the tech giant to directly monetize AI offerings such as Copilot within its Office products. Guggenheim also highlighted the Windows operating system as another monopoly, contributing significantly to profits. The firm believes that Microsoft’s stock is inexpensive compared to the company’s wide ecosystem and profitable expansion into GenAI, and that it is seen as relatively low risk due to strong management and its monopoly-like business segments. Guggenheim expects MSFT to post strong fiscal Q1 2026 results and to outperform consensus estimates over the medium term.
Additionally, Microsoft announced that Anthropic’s Claude generative AI models are being integrated into Microsoft 365 Copilot, marking a pivotal step in broadening Copilot’s model catalog beyond OpenAI. The move was positively received, as organizations gain unprecedented flexibility to select the AI model best suited for specific productivity needs, enhancing competition and user choice in cloud platforms.
Microsoft Copilot officially joined a congressional pilot program recently, with U.S. House of Representative offices authorized to use it for constituent services and workflow efficiency. Congress chose Copilot thanks to its deep integration with Microsoft 365 and Azure cloud services, as well as due to its new agentic features, enabling secure, compliant, and productive solutions for enterprise and public sector users. Although the House is also evaluating other AI tools for future use alongside Copilot, MSFT’s system has been chosen for the pilot program is based on its maturity, security, and enterprise integration.
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❖ Alphabet’s (GOOGL) Google has locked in a massive multi-year deal with Anthropic, under which the tech behemoth will provide the Claude AI maker with up to one million of Google’s specialized AI TPUs, in addition to cloud services through Google Cloud. The deal – worth tens of billions of dollars – is a strategic win for Alphabet to accelerate cloud revenue growth and margin potential in AI infrastructure.
From Anthropic’s perspective, it was a logical extension of the collaboration between the two tech companies. Google has invested about $3 billion in Anthropic, which uses both Google Cloud and AWS for training and inference. The new deal immensely increases Anthropic’s compute capacity, allowing it to scale its AI models without increasing its dependence on Nvidia’s scarce and costly GPUs.
As for Google’s, the agreement cements its position at the center of both technology (software and hardware) and investment webs in the AI ecosphere. Moreover, analysts estimate the deal could generate $8-10 billion annually in additional cloud revenue for Alphabet, improving its competitive edge against other cloud providers like Amazon and Microsoft. This infrastructure revenue comes with high operating margins for Cloud, making the deal highly profitable.
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❖ Jabil (JBL) has launched its new J-422G servers, specifically engineered for AI, machine learning (ML), large language models (LLMs), high-performance computing (HPC), and fintech workloads. The J-422Gs emphasize scalability, efficiency, and high performance, with broad market availability scheduled for November 2025. This launch is a crucial step that aligns with Jabil’s ongoing investment in expanding its manufacturing capabilities for cloud and AI infrastructure.
Jabil is investing heavily in manufacturing capacity with a $500 million facility in North Carolina to support AI and data center hardware production. The company’s AI and intelligent infrastructure segment already contributes about 44% of total revenue, with the proportion of this high-margin, high-growth segment expected to increase further, backed by strong AI-driven demand.
Strategically, the J-422G servers position Jabil as a key enabler in the rapidly growing AI infrastructure market, which is projected to reach about $1 trillion by 2030. The launch reinforces Jabil’s foothold in AI data center hardware and strengthens its partnerships with major hyperscalers and cloud companies like AWS.
JBL has been strengthening its focus on advanced technologies, aiming to leverage the rapid growth in AI workloads and hyperscale data center deployments. Earlier this month, JBL announced a collaboration with Axiado to co-develop AI-driven, hardware-anchored cybersecurity solutions for next-generation server platforms, specifically designed for AI and cloud workloads. Jabil’s new J-422G servers already integrate Axiado’s cybersecurity technologies, providing scalable and secure infrastructure for data centers and hyperscalers.
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❖ Nvidia’s stock, unfortunately, remains outside the Smart Portfolio – though we continue to watch for an opportunity to add it at a more compelling entry point. In the meantime, the AI chipmaker’s meteoric ascent toward a $5 trillion valuation continues to buoy Portfolio holdings through sentiment tailwinds and an expanding web of partnerships, including collaborations with several Smart Portfolio companies.
At its semi-annual GTC conference, Nvidia announced a landmark partnership with Oracle (ORCL) to build the U.S. Department of Energy’s largest AI supercomputer for scientific research. The system, named Solstice, will comprise 100,000 Nvidia Blackwell GPUs and advance the DOE’s mission to enhance U.S. capabilities in security, science, and energy innovation. A second system, Equinox, featuring 10,000 Blackwell GPUs, is slated for release in the first half of 2026. Together, the two will be linked through Nvidia networking and deliver a combined 2,200 exaflops of AI performance.
The semiconductor leader also unveiled a partnership with Uber Technologies (UBER) to power the global rollout of autonomous vehicles. Uber plans to deploy 100,000 robotaxis beginning in 2027, all running on Nvidia’s DRIVE AGX Hyperion 10 platform. The companies will also co-develop an AI data-training hub using Nvidia’s Cosmos platform to accelerate autonomous-driving intelligence.
Additionally, Nvidia and CrowdStrike (CRWD) expanded their strategic alliance to create autonomous, always-on AI cybersecurity agents for real-time protection across cloud, data-center, and edge environments. The collaboration seeks to build an “agentic ecosystem” – a continuously learning network of AI agents that adapt and coordinate to detect and neutralize cyber threats autonomously.
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❖ Modine Manufacturing (MOD) released a robust set of results for its fiscal Q2 2026. Adjusted EPS came in at $1.06, up 9.3% year-over-year and slightly above the expected $1.01, marking the 16th straight quarter of EPS beats. Net sales of $738.9 million rose 12% from the prior year, significantly exceeding the $698.4 million consensus. Revenue growth was led by the Climate Solutions segment (up 24%), driven by data-center sales (up 42%) and HVAC technologies (up 25%), supported by recent acquisitions and capacity expansions. This strength was partially offset by lower sales in Performance Technologies (down 4%), primarily due to ongoing market weakness and product-line exits, although MOD expects higher volumes and margin improvement in the second half of the fiscal year.
However, several underlying metrics weighed on investor sentiment, sending the stock lower in pre-market trading. Gross margin declined, reflecting higher costs tied to capacity expansion for data-center products in Climate Solutions and a tough comparison with the prior year, which benefited from commercial-pricing settlements. Operating income also decreased year-over-year, mainly because of an impairment charge on real estate held for sale and restructuring expenses, leading to a 3% decline in GAAP net earnings. By contrast, adjusted EBITDA – excluding these charges – rose 4% year-over-year, underscoring operational strength.
The thermal-management technology company continues to invest heavily in data-center product capacity and targeted acquisitions. These initiatives, together with higher working capital, are temporarily pressuring margins and free cash flow but are essential to sustain the accelerating growth momentum. The Data Center subsegment’s revenue is now expected to grow more than 60% year-over-year, reflecting strong demand and solid execution.
On the back of this momentum, Modine reaffirmed full-year 2026 guidance for adjusted EBITDA of $440-470 million, implying 12-20% growth, while raising its revenue outlook to 15-20% (from 10-15% previously). Management noted that ongoing capacity expansion positions MOD to meet accelerating demand for data-center products and keeps the company on track to achieve its target of $2+ billion in Data Center revenue by fiscal 2028.
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❖ Visa (V) delivered a strong fiscal Q4 and full-year 2025 report. In fiscal Q4, the payments giant posted net revenue of $10.7 billion – above the $10.6 billion consensus and a quarterly record – representing a 12% year-over-year increase driven by continued strength in payments volume, cross-border volume, and processed transactions. Non-GAAP EPS rose 10% year-over-year to $2.98, edging past expectations of $2.97. Net margin stood above 52%, reflecting exceptional profitability, while return on equity (ROE) remained very high at roughly 59%.
Full-year results were equally solid. Net revenue reached $40.0 billion, up 11% year-over-year, supported by broad-based growth in payments volume, cross-border volume and processed transactions. Non-GAAP EPS climbed 14% to $11.47.
Looking ahead, Visa expects current-quarter revenue growth to come in at the high end of a low-double-digit range, reflecting healthy spending trends, with adjusted EPS growth projected in the low-teens. For fiscal 2026, the company anticipates net revenue growth in the low double digits. Visa also announced a 13.6% dividend increase, payable on December 1, 2025.
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Portfolio Stocks Under Review
❖ We are placing Keysight Technologies (KEYS) under review, as the stock performance seems to lag the company’s strong fundamentals.
We have added KEYS to the Smart Portfolio on October 1, building our investment case on the company’s pivot to AI infrastructure, 6G research, and quantum computing.
Keysight is the world’s largest provider of electronic design and test solutions, serving as a critical enabler of innovation across communications, aerospace, automotive, AI, and emerging fields like quantum. While commercial deployment of quantum computing remains years away, KEYS’s Ai-enabling tech has already become a meaningful contributor, expanding faster than the company overall as the company’s measurement and validation tools are also deeply embedded in the AI hardware value chain, supporting accelerator, processor, and memory performance in systems designed for training and inference.
As a result, analysts view Keysight as one of the main beneficiaries of surging AI-related investments. Hyperscalers are currently spending a record high 60% of their operating cash flow on capex, with data center and AI infrastructure expansion not likely to slow anytime soon. Goldman Sachs has recently named KEYS a top pick for tech capital expenditure and R&D in 2026, boosting growth outlook.
However, the stock has yet to receive the news, apparently, trading sideways since mid-May. Despite the underperformance versus the S&P 500 this year, the valuations aren’t low compared to the sector medians, even if slightly below peers on most metrics. The relatively high valuation was behind Jefferies’ decision to downgrade KEYS from “Buy” to “Hold.” The firm said that Keysight is a high-quality business, but the current valuation already reflects mid-single-digit organic growth expected in the next couple of quarters, limiting further upside potential for investors.
Keysight Technologies’ next earnings report, scheduled for November 18, may provide a long-awaited catalyst for the stock if it succeeds to awe investors with significantly better-than-expected results. A small earnings beat probably wouldn’t suffice, given the recent trend. KEYS has never underperformed EPS consensus, but latest three quarterly reports – the ones that reflected its return to growth, no less – have been met with muted market reaction.
While we are convinced that Keysight’s long-term potential is strong and is expected to expand further as the company continues to embed itself into AI and next-tech value chains, its stock may continue languishing in the near term. We are weighing waiting for a catalyst against selling and hoping for a better entry point in the future.
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❖ We are keeping Cisco Systems (CSCO) under review despite its recent stock outperformance on the back of a batch of positive news and improved market sentiment.
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 a unified AI-ready data architecture. The Splunk integration is showing growing synergy, contributing significantly to its security business, which has seen spectacular growth.
The company introduced over 20 new AI-centric products recently, focusing on networking and security solutions that integrate AI capabilities. CSCO revealed its new Silicon One P200 chip and the Cisco 8223 router system, designed specifically to address the intense AI workload traffic between data centers. These solutions enable synchronization of geographically separated AI clusters – an essential capability as AI compute demands outgrow single data center capacity. The unified chip architecture combining routing and switching within a single chip meets strong hyperscaler demand, significantly reducing power consumption and simplifying network design. This gives Cisco a competitive edge in the AI data center interconnect market.
On Tuesday, the company unveiled N9100 – the first data-center switch developed by Cisco based on Nvidia’s advanced Spectrum-X Ethernet switch silicon. The N9100 switch delivers immense bandwidth, high scalability, and exceptional performance supporting AI backend and frontend networks for large-scale AI workloads. It supports flexible operating systems and fits neocloud and sovereign cloud architectures. Additionally, CSCO announced the Cisco Secure AI Factory with Nvidia, which addresses key AI security concerns and regulatory compliance needs, as well as the Nvidia Cloud Partner-compliant architecture offering, supporting massive GPU deployments and AI data-center scalability. These advances align with key growth drivers – AI infrastructure, secure cloud deployments, and telecom innovation – which are expected to contribute to Cisco’s top-line acceleration and strengthen its competitive position.
Partnerships with Nvidia, Microsoft, and sovereign AI players like HUMAIN reinforce Cisco’s role in the global AI buildout. UAE Stargate – a part of the massive $500 billion UAE AI data center infrastructure project, where CSCO is a key tech partner alongside Nvidia and Oracle – has nearly completed the first 200 megawatts of the planned multi-year 5-gigawatt capacity project. The recently announced collaboration between NetApp and Cisco, integrating NetApp’s AFX architecture with Cisco Nexus switches, enhances their joint infrastructure solutions with disaggregated storage and advanced networking that efficiently power AI workloads, reinforcing their leadership in AI-ready enterprise data infrastructure.
On October 27, CSCO announced an expanded cooperation with an Emirati AI investment firm, G42, to deliver secure, end-to-end AI infrastructure in the UAE, directly supporting construction of the flagship 1GW Stargate cluster as part of the broader U.S.-UAE AI Acceleration Partnership. Under the extension, Cisco – acting as a technology integrator in the project – will power, connect, and secure a large-scale AI cluster deployed by G42, featuring advanced AMD MI350X GPUs alongside high-performance networking, firewalls, optics, and observability tools.
The extended collaboration embeds Cisco as a trusted partner in high-value, sovereign AI infrastructure roadmaps, and establishes its technology standards as foundational in the region, locking in market share. It accelerates Cisco’s go-to-market initiatives across both public and private sector clients, with cross-selling opportunities for AI-enabled security, automation, observability, and management platforms. Moreover, the partnership reinforces CSCO’s influence in the global AI Infrastructure Partnership (AIP) alongside major industry players, ensuring it benefits from multi-billion dollar investments and the AI infrastructure boom across the Middle East. As such, Cisco is positioned to benefit from significant revenue growth by powering and securing large-scale regional AI clusters, supplying AI-ready servers, networking hardware, and security appliances for data centers. As the lead technology integrator for multi-GW clusters, Cisco secures deep infrastructure contracts, expanding recurring revenue streams for its advanced services and maintenance.
These innovations and partnerships already have and are expected to continue to serve as important catalysts, leading some industry analysts to declare CSCO a “must-hold stock” in the AI era. However, most of the incremental income additions are expected over medium to long term, with the next few quarters’ revenue and earnings seen rising steadily but not spectacularly.
We are inclined to hold CSCO in the Smart Portfolio, but want to observe the reaction to its next earnings report in mid-November to see whether market participants are prepared to wait for the expected longer-term benefits amid moderate near-term growth.
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Portfolio Earnings and Dividend Calendar
❖ The Q3 2025 earnings season is now in full swing, with Alphabet (GOOGL) and Microsoft (MSFT) reporting today after hours, and the quarterly releases from EMCOR Group (EME), Howmet Aerospace (HWM), MasTec (MTZ), Arista Networks (ANET), Uber Technologies (UBER), Leidos Holdings (LDOS), Pfizer (PFE), and Jones Lang Lasalle (JLL) scheduled for the next week.
❖ The ex-dividend date for Morgan Stanley (MS) is October 31, while for Citigroup (C) and Blackstone Group (BX) it is November 3.
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New Buy: SS&C Technologies (SSNC)
SS&C Technologies, Inc. is a global powerhouse in financial-services software and outsourcing, providing the operational backbone for asset managers, insurers, banks, and retirement plans across more than 100 countries. Its integrated solutions cover fund accounting, transfer agency, trading operations, and regulatory reporting – capabilities that position it among the most comprehensive providers in the industry. SS&C is the largest independent hedge-fund and private-equity administrator and the leading mutual-fund transfer agent, underscoring its scale and strategic importance. Combining software, data management, and domain expertise, the company functions as a central infrastructure layer of the global investment ecosystem.
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System, Scale & Command
SS&C Technologies began in 1986, when Bill Stone founded a small firm in Windsor, Connecticut, to bring precision and automation to the manual world of fund accounting. What started as Security Software & Consulting quickly grew into a pioneer in back-office technology for investment managers. Through the 1990s, SS&C built its reputation one client at a time, serving hedge funds and asset managers that were beginning to rely on software to keep pace with the explosion of global capital markets.
The company went public in 1996, using its new access to capital to expand its software lineup and deepen its expertise in financial data processing. The 2000s were a decade of steady consolidation and technical refinement, but the 2010s marked SS&C’s transformation into a global force. The acquisitions of Advent Software in 2015 and DST Systems in 2018 redefined its scale – bringing entire new layers of wealth-management infrastructure, fund administration, and data analytics under one roof.
Over the past five years, SS&C has shifted from expansion by scale to expansion by intelligence. Its 2022 acquisition of Blue Prism – a leader in robotic process automation – embedded advanced AI and workflow automation into its core systems. Subsequent acquisitions, including Iress’s Managed Funds Administration unit in 2023 and the $1.0 billion purchase of Calastone in 2025, extended that automation strategy into fund networks and transaction connectivity. Calastone’s platform links thousands of financial intermediaries globally, giving SS&C deeper access to cross-border fund flows and strengthening its position as the connective infrastructure of the global investment ecosystem. At the same time, the company streamlined its portfolio, selling non-core assets and refocusing resources on software-enabled services that generate recurring revenue and client stickiness.
AI has become central to SS&C’s evolution. Through Blue Prism’s robotic automation and the SS&C Everywhere platform, the company applies machine learning to data processing, reconciliation, and client service, cutting error rates and accelerating workflows across its operations. These tools turn the complexity of large-scale financial data into an efficiency advantage – lowering costs while improving responsiveness for institutional clients.
Strategic partnerships with major asset managers, insurers, and banks have extended its reach into new regions and regulatory frameworks, while ongoing investments in cloud architectures have improved scalability and resilience. What ties these developments together is a consistent philosophy: build, buy, and integrate technology that simplifies financial operations across the global value chain.
From a modest start in Connecticut to operations in dozens of countries serving over 20,000 clients, SS&C’s rise has been defined by foresight and adaptability. Its evolution reflects the broader shift in finance itself – from spreadsheets to automation, from local to global, and from software to systems that think. That combination of scale, intelligence, and integration is what made SS&C not just a participant in the financial-technology revolution, but one of its chief architects.
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Scaling Interest
SS&C Technologies, one of the world’s largest fintechs, operates as a global financial backbone – a company that builds, runs, and automates the systems through which trillions in assets are managed and accounted for. Its model blends software licensing, cloud subscriptions, and high-value outsourcing into a recurring-revenue engine that now delivers services to clients across asset management, insurance, banking, and healthcare. What began as a software provider has evolved into a full-stack engine for digital fund administration, data management, and workflow automation – an enterprise anchor for much of the investment world.
Roughly 70% of revenue comes from financial services, anchored in three major franchises. Global Investor and Distribution Solutions (GIDS), which contributes about 35% of total revenue, provides fund accounting, transfer agency, and distribution infrastructure for the world’s largest investment firms. GlobeOp, responsible for roughly 25%, serves alternative-asset and private-credit managers whose growth has accelerated amid rising institutional allocations. The remaining share is generated by data, analytics, and software businesses such as Intralinks, which supports M&A and corporate governance workflows.
The other 30% of SS&C’s total revenue comes from healthcare and insurance technology platforms that automate complex claims, pensions, and benefits processes for clients across the U.S., U.K., and Asia-Pacific. Growth in this segment has been steady rather than spectacular, but the use of generative AI to streamline policy workflows and healthcare data reconciliation is beginning to accelerate productivity and margin gains.
What distinguishes SS&C is its method of scaling. Each acquisition or lift-out1 adds both clients and data, reinforcing a self-perpetuating network effect. The 2025 purchase of Calastone for $1.03 billion extended its reach into cross-border fund distribution, integrating a network of 4,500 institutions across 57 markets and expected to cut transaction costs by 25% and processing time by 30%. The acquisition of Curo Fund Services in South Africa deepened relationships with major pension clients and expanded its foothold on the African continent. Strategic lift-outs in Australia and the U.S. life and pensions sector, together with a new outsourcing partnership with Insignia Financial, are broadening SS&C’s regional reach and service depth. Simultaneously, the company’s push into the Middle East and private-market administration continues to diversify revenue sources in areas of structural growth.
Technology remains SS&C’s defining competitive edge. Its Blue Prism automation platform and AI-driven agents have reduced credit-agreement processing times by 95% and returned more than 880,000 productivity hours so far in 2025. This intelligent-automation layer not only improves efficiency but embeds SS&C’s software deeper into client operations, reinforcing retention rates that exceed 96%. The company’s Black Diamond wealth platform continues to win share, with over 400 firms migrating from Morningstar Office this year, alongside new mandates from The Trust Company of Tennessee and Axcelus Financial.
Analysts increasingly characterize SS&C as a “structural profitability story” – a fintech infrastructure leader combining scale, automation, and high switching costs to sustain margin expansion. With deep client integration, recurring revenue, and global momentum, SS&C enters 2026 as both an operator and architect of modern finance – a company whose software quietly runs the world’s investment plumbing while its automation reshapes how that world performs.
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1 – Lift-out refers to SS&C taking over a client’s operations team and systems, running them as part of its own service platform.
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Funds and Functions
SS&C delivered another clean quarter – steady growth, firmer margins, and upgraded guidance, with a robust performance that reinforced both operational discipline and margin resilience. Adjusted revenue reached 1.57 billion dollars, up 7% year over year, while GAAP revenue was essentially identical, indicating transparency and consistency. Adjusted diluted EPS rose 17.2% to $1.57, exceeding consensus expectations, and GAAP EPS increased 27.7% to $0.83. Adjusted consolidated EBITDA climbed 9.3% to a record $619 million, translating to a margin of 39.5%, up 90 basis points from the prior year. Operating income margin improved to 23.3%, confirming the company’s ability to expand profitability through mix and efficiency rather than pure volume growth.
It was the eighth consecutive quarter of revenue and adjusted EPS beats. Organic growth accelerated to 5.2%, from 3.5% in Q2, led by strong momentum in GlobeOp (up 9.6%) and Global Investor and Distribution Solutions (up 9%). Financial Services recurring revenue advanced 6.7%, while retention rates held near 97%. Cash generation remained robust – operating cash flow rose 22.1% year to date to $1.1 billion – and free cash flow again outpaced net income, underscoring the firm’s high conversion efficiency.
Management lifted its outlook following these results. Fourth-quarter revenue is projected between $1.59 billion and $1.63 billion, implying about 4.5% organic growth at the midpoint. Full-year 2025 guidance now calls for adjusted revenue of $6.21-6.25 billion, up from $6.12-6.20 billion previously, and adjusted diluted EPS of $6.02-6.08, compared with the earlier range of $5.91-5.97. Both revenue and EPS targets sit modestly above consensus forecasts, set to extend the moderate-beat trend seen over recent quarters. Management maintained its tax-rate assumption of roughly 23% and capex at about 4.5% of revenue, reflecting continued investment in automation and the integration of recent acquisitions.
Beneath the headline numbers, margin composition tells the story. The alternatives-focused GlobeOp unit remains the strongest engine, benefiting from expanding private-credit inflows and fund-administration demand. Automation gains from the Blue Prism platform and AI deployment across processing workflows lifted efficiency and kept personnel costs contained. The healthcare and insurance segment held steady, supported by the rollout of generative-AI tools to reconcile claims and policy data. Intralinks, exposed to global M&A activity, showed only tentative improvement, but the pipeline is visibly broadening.
The year’s progression shows quiet but consistent momentum – organic growth of 5.1% in Q1, 3.5% in Q2, and 5.2% in Q3 – paired with EBITDA margins expanding from 39.0% mid-year to 39.5% in the latest quarter. Looking beyond 2025, management expects mid-single-digit annual organic growth and incremental margin expansion driven by automation, cross-border fund-processing scale, and continued share gains in wealth and alternatives. Consensus forecasts are similar, envisioning revenue growth of around 4–5% per year and EBITDA margins approaching 42% within three years – a trajectory that positions SS&C to sustain durable profitability through the next cycle.
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The Float Effect
SS&C’s peer group represents the core infrastructure of modern finance. Fidelity National Information Services sets the scale benchmark, providing global fintech systems across banking and asset management. Fiserv mirrors SS&C’s evolution toward automation and digital operations at larger scale. Broadridge Financial Solutions aligns most closely in fund administration and securities processing, while SEI Investments offers a leaner, software-driven model focused on recurring investment operations. Together, they frame a competitive field in which SS&C’s blend of automation, scale, and profitability continues to advance.
The broad fintech industry has faced pressure over the past year, partly due to the “AI eating software” narrative, which has introduced uncertainty about how AI may disrupt traditional enterprise software models. Caution around the pace and scale of institutional technology spending – compounded by economic and regulatory crosscurrents – has added volatility to the group. Even so, several companies have managed to outperform, reflecting selective strength and investor interest despite wider sector hesitation.
One of those outperformers is SS&C itself. Trading under the ticker SSNC, the stock has risen about 22% over the past twelve months – modestly ahead of the S&P 500 but well above all peers. Despite this outperformance, analysts still see more than 20% potential upside for the “Strong Buy”-rated stock – a meaningful one, given its understated profile and measured growth pace compared with the flashier AI-linked names.
Valuation remains firmly on SS&C’s side. Despite operating as a blend of technology and finance, many fintechs – including SS&C – are traditionally grouped under the Industrials sector, which typically trades at a discount to pure technology but at a premium to financials. That classification helps explain the valuation gap: SSNC trades below the sector median across both GAAP and adjusted P/E (trailing and forward), as well as on EV/EBITDA and Price/Cash Flow metrics, even though its fundamentals align more closely with high-margin fintech peers.
Peer comparisons tell a similar story. SSNC trades beneath the group average on all P/E metrics, Price/Sales, EV/Sales, EV/EBITDA, and Price/Cash Flow. Its forward PEG ratio of 0.92 underscores undervalued growth potential, while various discounted-cash-flow models suggest the shares trade roughly 40% below intrinsic value.
Beyond robust stock price appreciation potential, SS&C continues to return capital consistently. The company has paid and raised dividends for nearly a decade, with a current yield of about 1.2% and a conservative payout ratio that leaves room for further increases. It is also an active buyer of its own stock. On May 21 2025, the Board authorized a 50% expansion of the repurchase program to 1.5 billion dollars within one year of approval. Through the first three quarters of 2025, SS&C repurchased approximately 715 million dollars in shares, following 593 million dollars in 2024 – together retiring more than 6% of shares outstanding during this period.
The combination of disciplined capital returns, consistent execution, and operational scale defines SS&C’s investment case. It isn’t a momentum story, but a compounding one – grounded in recurring revenue, high cash conversion, and balance-sheet flexibility – offering a growth path that is less about surprise and more about steady, compounding execution, the kind that tends to outperform over full cycles.
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Investing Takeaway
SS&C Technologies offers investors a distinctive blend of scale, automation, and compounding efficiency. The company has evolved from a back-office software vendor into a global fintech infrastructure provider powering asset management, insurance, and fund operations across markets. Its integration of AI, intelligent automation, and cloud-based processing drives both margin expansion and structural stickiness, creating a model built for endurance rather than speed. Ongoing consolidation in fund administration and private markets adds long-cycle visibility, while disciplined acquisitions and buybacks enhance shareholder value without stretching the balance sheet. SS&C represents a steady compounder in an often-volatile sector – a company that grows by making global finance run faster, cleaner, and smarter.
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New Sell: Teledyne Technologies (TDY)
We are selling Teledyne Technologies from the portfolio after a solid operational run that has not translated into meaningful stock performance. Despite record results and raised guidance, the market has largely priced in Teledyne’s recovery, leaving limited near-term upside relative to stronger opportunities elsewhere.
The company remains exceptionally well managed. In Q3 2025, Teledyne delivered all-time highs in sales, adjusted EPS, and free cash flow – the latter up 42% year over year to $314 million. Year-to-date free cash flow reached $1 billion, marking the company’s strongest financial position since the FLIR acquisition. Its aerospace and defense electronics division surged 38% in revenue, offsetting modest growth in instrumentation and digital imaging. The balance sheet is healthy, leverage low, and cash generation robust – all the traits of a structurally sound industrial innovator.
However, none of this has proven catalytic. Teledyne’s stock fell after earnings and has drifted since, suggesting investors had already priced in the good news after a 30%-plus rally from April lows. The small decline in operating margins and widening GAAP to non-GAAP gap also temper enthusiasm, reflecting cost inflation and ongoing integration spending. Meanwhile, growth remains uneven across segments, with continued contraction in engineered systems and limited rebound potential in imaging amid cautious government funding trends.
Analyst reaction was mixed despite strong results. While several firms raised price targets into the $600s, consensus views TDY as fairly valued – a mature compounder rather than an imminent outperformer. With shares having largely moved in line with the S&P 500 this year and limited catalysts before 2026, the risk/reward balance now looks neutral.
This sale is not a reflection of weak fundamentals but of opportunity cost. Teledyne is a high-quality operator in a consolidating sector, but the absence of near-term triggers, mild margin compression, and fully valued multiples make it unlikely to outperform in the coming quarters. Reallocating this capital toward names with clearer inflection potential and stronger sentiment alignment is the more efficient move. We will revisit TDY when valuation resets or when new program wins signal renewed acceleration.
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Smart Investor’s Winners Club
The 30% Winners Club represents stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
Markets have been volatile, but the Club has regained BK, which broke back up through the threshold. Now the Winners are back to 18 stocks: AVGO, GE, ANET, EME, ORCL, TSM, APH, HWM, IBKR, PH, VRT, CRWD, GOOGL, IBM, RTX, MTZ, UBER, and BK.
The first contender for the Club’s entry is now MS with a 28.39% gain since we purchased it on June 4. Will it enter to the ranks of the Winners, or will another stock outrun it to the finish line?
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