In Good Account
In this edition of the Smart Investor newsletter, we spotlight a bank turning proximity into interest. We are holding off on any Sell moves today as a fresh wave of market turbulence is obscuring near-term visibility. But first, let’s review the latest Smart Portfolio developments.
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Portfolio News and Updates
❖❖ According to the latest report by IDC, NVIDIA (NVDA) climbed to the top of the global data-center Ethernet switching market by revenue. This underscores the company’s strategy of expanding far beyond the chip layer and moving deeper into full-stack AI infrastructure.
The worldwide Ethernet switch market expanded by roughly 40% year-over-year in Q1, reaching $15.4 billion. While the campus and branch networking segment continued to grow steadily, adding about 12%, the AI-driven data-center segment surged 61%, reaching roughly $10 billion. As AI deployments accelerate across hyperscalers and large organizations, data-center networking growth should remain strong. However, competition is becoming more intense alongside the market expansion.
Cisco (CSCO) remains #1 in the total Ethernet switch market with 29.3% global market share and $4.5 billion in Q1 revenues. Its data-center networking revenues grew 43% year-over-year, but the segment represents only part of its diversified business, with the large, stable, and slower-growing enterprise/campus networking market accounting for more than 60% of its revenue. Beyond switching, CSCO also dominates the global router market, with a 35% share.
Meanwhile, NVIDIA’s data-center Ethernet switch revenue soared nearly 193% year-over-year to $2.1 billion, driven by its Spectrum-X platform, an integrated AI networking stack designed for large-scale GPU clusters. This helped NVIDIA reach a 21.5% share in the high-speed networking needed for AI training and inference, edging past Arista (ANET), which holds 20.7% of the market.
In Q1, ANET generated roughly $2.02 billion in data-center Ethernet switch revenue – 92% of its total Ethernet switch revenue or three-quarters of overall quarterly sales. Despite ceding the top spot to NVIDIA, Arista remains firmly entrenched among the networking leaders, riding the same AI buildout currents as the AI chip leader. The company is diversifying beyond pure hyperscalers into enterprise/campus and routing, reducing customer concentration risk. Meanwhile, it remains a leader in 10 GbE+ and ranked #1 or #2 (depending on the research firm) in 800G+ deployments – a category experiencing accelerating momentum in high-speed Ethernet for cloud-scale and AI data centers.
Another critical player in the AI data center Ethernet player is Broadcom (AVGO). The company does not compete as a full systems vendor in the same way as NVIDIA, Cisco, or Arista, but it dominates the merchant silicon layer that powers many high-speed switch ASICs. As a result, many ANET systems – combining high-performance switches with EOS software – are built around AVGO silicon.
Similar collaborations exist between Broadcom and others, including Dell, Celestica, Cisco, and HPE (which also works tightly with NVIDIA). AVGO’s dominance in high-end merchant silicon means that many non-NVIDIA high-speed Ethernet switches in cloud and AI data centers are built on its chips. The sprawling Broadcom ecosystem is therefore competing with NVIDIA at the platform level, while AVGO remains one of the biggest beneficiaries of the AI networking boom – regardless of whether Arista, Dell, white-box vendors, or hyperscalers win individual deployments.
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❖❖ Hewlett Packard Enterprise’s (HPE) annual technology conference, HPE Discover, focused heavily on AI infrastructure, with networking positioned as the critical enabler for the agentic era. The company showed how the Juniper acquisition is now being folded across its portfolio, expanding HPE’s AI data-center networking opportunity and adding a higher-growth, higher-margin tailwind.
The strategic argument running through the keynotes was that the network, not compute alone, determines whether enterprises can run autonomous AI agents at scale – the workload class HPE expects to define the next infrastructure cycle.
On the hardware side, the company unveiled new AI data-center networking and routing products, along with quantum-safe security capabilities, aimed at AI clusters and distributed enterprise environments. By selling more of the switching and routing layer that ties AI servers together, HPE captures more of each cluster buildout instead of leaving that spend to dedicated networking rivals. Running that hardware is HPE’s self-driving network software, extended across campus, edge, and data center. Built on Juniper and Aruba technology, this AI-native layer detects and resolves network issues autonomously. Sold as a subscription, it adds recurring, higher-margin revenue on top of the one-time hardware sale and also deepens customer lock-in.
A distinct software layer governs the AI agents enterprises build to run their own workflows. As customers deploy fleets of these agents, HPE is targeting the operational gap that follows – cost control, security, and oversight. New releases provide agent registry, policy enforcement, orchestration, and token-consumption monitoring, addressing a failure mode in which agents quietly consume compute budgets without triggering conventional alerts. Positioning HPE as the platform enterprises use to run their AI workloads keeps the broader hardware-and-software relationship sticky.
HPE also deepened its NVDA partnership, adding NVIDIA Confidential Computing to the HPE AI Factory portfolio and introducing a ProLiant server line built on NVIDIA Vera CPUs for agentic workloads. The move targets regulated industries and government buyers, where security requirements support premium pricing.
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❖❖ Alphabet’s (GOOGL) stock dropped on Monday, pressured by both surging bond yields weighing on mega-cap tech and the departure of two prominent researchers to AI labs. Noam Shazeer, a legendary figure in AI and one of the lead authors of the 2017 “Attention Is All You Need” paper that jumpstarted the LLM era, left for OpenAI after less than two years back at Google as a co-lead of Gemini. John Jumper – who won the 2024 Nobel Prize in Chemistry for his work alongside DeepMind CEO Demis Hassabis – left Google DeepMind after nearly nine years to join Anthropic.
The reasons for these high-profile departures remain undisclosed, but the investor read-through is clear: elite AI talent has more leverage than ever, and the leading private labs can offer a combination of research freedom, faster-moving product cultures, and potentially massive pre-IPO equity upside that mature mega-cap platforms struggle to match. For Google, the problem is not just the loss of two individuals. It is the narrative risk that the company’s deepest AI bench is becoming a recruiting pool for its most aggressive competitors.
These departures are significant and may create non-negligible disruption to Google’s AI roadmap cadence and DeepMind’s status as a premier research institution. However, it is premature to count Google out of the AI race. DeepMind still retains one of the deepest and most heavily funded benches of scientific and engineering talent in the world, anchored by figures such as Demis Hassabis, Jeff Dean, and Oriol Vinyals. AI development at this frontier scale is also increasingly a team sport, relying as much on compute infrastructure, product distribution, and data flywheels as on individual brilliance. Google still has vertical integration and distribution advantages that startups cannot replicate overnight. Losing top-tier minds hurts the narrative, but Alphabet’s structural advantages keep it firmly in the AI race.
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❖❖ Amazon (AMZN) stock was hit by a mix of macro, market, and company-specific pressures. Most megacaps and many large-cap tech stocks were pressured by rising Treasury yields, while renewed rate-hike concerns weighed on growth stocks. At the same time, Amazon Prime Day 2026 – running from June 23 to June 26 – is being treated by Wall Street as a real-time test of consumer demand and Amazon’s AI-powered shopping strategy, rather than just a routine sales event. In parallel, according to media reports, the FTC is examining whether Amazon properly disclosed parts of its ad-auction pricing model, including reserve pricing. Adding to the pressure, a U.S. labor board judge ruled that Amazon must bargain with California warehouse workers, a ruling the company plans to appeal.
❖ Separately, AMZN revealed that its data centers consumed approximately 2.5 billion gallons of water in 2025, while achieving a water usage efficiency rate of just 0.12 liters per kilowatt-hour. That is more than seven times better than the industry average of 0.84 liters per kilowatt-hour, suggesting Amazon’s facilities use far less water per unit of compute than most peers. This may reflect an advantage that extends well beyond cloud market share and AI chips. If the retail and cloud giant can keep its AI systems running more efficiently at scale, its competitive position could be meaningfully strengthened. In an industry increasingly constrained by physical resources, data-center water usage is fast becoming the next major infrastructure bottleneck after power.
At the same time, NVIDIA (NVDA) highlighted findings from the Manhattan Institute showing that data centers account for only about 0.2% of daily water usage in the U.S. – far below public perception. The AI chip leader said newer AI facilities are increasingly adopting liquid-cooling systems that can reduce reliance on water-intensive cooling towers. As if to underscore that point, NVIDIA unveiled its new Rubin AI server platform, built around warm-water direct liquid cooling. The most interesting feature is that Rubin systems can run on coolant at 45°C (113°F), warm enough to allow ambient-air cooling in many locations. That could cut cooling energy needs and sharply reduce water usage for large-scale AI infrastructure, with near-zero water use possible in favorable climates and closed-loop designs.
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❖❖ Meanwhile, the power constraint on data centers has not disappeared, and hyperscalers are increasingly looking beyond traditional grid procurement for dedicated electricity supply. Microsoft (MSFT) signed a 20-year power purchase agreement with Chevron, under which the energy giant will develop a natural gas-powered facility in West Texas to supply electricity to MSFT’s massive data-center campus, Project Kilby. The project is expected to deliver approximately 2.67 GW of capacity through a phased, modular buildout, making it one of the largest dedicated AI-power projects in the U.S. The facility will be co-located with the data center and designed to deliver power directly to Microsoft while reducing pressure on the regional grid, meaning it should limit the burden on local infrastructure and reduce the risk of higher costs for consumers. Microsoft has historically leaned heavily on renewable energy purchases to support its data centers. However, as AI power usage grows, the hyperscaler needs dispatchable power sources that can reliably meet round-the-clock demand.
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❖❖ Jabil (JBL) delivered a strong fiscal Q3 2026 report and raised its full-year outlook, with the bigger story being the company’s expanding role in AI infrastructure. Revenue rose 12% year-over-year to $8.8 billion, ahead of consensus, while core EPS increased 24% to $3.16, also beating expectations. Core operating income reached $504 million, with core operating margin at 5.8%, and adjusted free cash flow came in at $359 million.
The strength was led by Intelligent Infrastructure, where revenue rose 21% year-over-year to $4.2 billion and core margin expanded to 6.1%. Networking and communications grew more than 50%, supported by a strong ramp in India, while capital equipment and cloud/data-center infrastructure also delivered double-digit growth. Management now expects FY26 AI-related revenue of about $13.6 billion, up $500 million from its March outlook and roughly 50% above FY25’s $9 billion.
That AI trajectory is what appears to have changed the market discussion. Jabil also won a third hyperscaler customer, with management expecting an initial FY27 revenue contribution in the low hundreds of millions before potential expansion toward $1 billion and beyond in FY28. JBL also highlighted its planned strategic alliance with Adani Enterprises to build a multi-gigawatt AI infrastructure manufacturing platform in India, though meaningful contribution is more likely from FY28.
Jabil raised FY2026 guidance to revenue of about $35 billion, core EPS of $12.70, core operating margin of 5.8%, and adjusted free cash flow above $1.4 billion. Management also expects AI-related revenue to grow at a similar pace in FY27, with core operating margin moving above 6%. Analysts largely responded with price-target hikes, with eight Buy ratings against UBS as the lone Hold. The caveat is expectations: UBS raised its target but warned that market expectations for FY27 EPS may already be approaching $17. Still, the quarter reinforced JBL’s transition from a diversified manufacturing partner into a major AI infrastructure enabler.
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Portfolio Earnings and Dividend Calendar
❖ The Q1 2026 earnings season has ended, and there are no reports scheduled for the Smart Investor Portfolio holdings until the Q2 season begins in mid-July.
❖ The ex-dividend date for Philip Morris (PM) is June 25.
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New Buy: PNC Financial (PNC)
PNC Financial Services Group operates in the strategic middle ground of U.S. banking – large enough to offer national-scale capabilities, focused enough to keep a clear regional and client-driven identity. Its business spans retail banking, corporate and institutional banking, and asset management, connecting households, small businesses, middle-market companies, large corporations, and wealthy clients to credit, deposits, payments, advisory services, and investment solutions. That makes PNC a financial infrastructure provider for the real economy: helping consumers manage liquidity, companies fund expansion, municipalities move money, and investors preserve and grow capital. Its model is built around a broad deposit base, disciplined lending, relationship banking, and steady expansion across attractive U.S. markets. As higher rates, tighter credit, and consumer pressure reshape the banking landscape, PNC sits in a useful position – scaled, diversified, and still close to the commercial heartbeat of regional America.
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Main Street Branch
PNC Financial Services traces its modern shape to Pittsburgh, where predecessor banks built the trust-and-deposit culture that still defines the company. Over decades, PNC expanded from a regional banking franchise into one of the largest diversified financial institutions in the U.S., using a steady mix of disciplined lending, technology investment, and selective acquisitions to move beyond its original Mid-Atlantic roots.
The defining modern shift came in 2021, when PNC completed the acquisition of BBVA USA. The deal turned PNC into a coast-to-coast bank, deepened its presence across the Sun Belt, and gave it a broader platform in some of the country’s most attractive growth markets. It also changed the company’s strategic posture. PNC was no longer simply a strong regional bank expanding outward – it became a national-scale banking franchise with a still-local operating culture.
Management then spent the next several years sharpening that platform. The 2022 acquisition of Linga added cloud-based point-of-sale and payments technology for restaurant and hospitality clients, fitting PNC’s push to embed more digital tools into commercial relationships. At the same time, the bank continued investing in treasury management, digital banking, payments, automation, and data-driven client service – areas that make a traditional banking relationship more useful and harder to replace.
The next major step was physical expansion. In 2025, PNC accelerated its branch strategy, committing roughly $2 billion to open more than 300 new branches by 2030 and renovate its existing network. That move may look old-school in a digital age, but for PNC it reflects a clear, “know your customer” view of banking: deposits, advice, local presence, and commercial relationships still compound when a bank enters the right markets with enough scale.
FirstBank completed that logic. PNC closed the acquisition in January 2026 and completed the branch conversion in June, strengthening its position in Colorado and Arizona and adding a deeper retail deposit base in two of the country’s faster-growing banking markets. The result is the PNC investors see today – a bank built through measured expansion, selective technology, and balance-sheet discipline, with enough scale to compete nationally and enough regional focus to stay close to where U.S. economic growth is happening.
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Countrywide Neighborhood
PNC operates in a part of U.S. banking where scale and proximity both matter. It is large enough to compete nationally across retail banking, commercial lending, treasury management, capital markets, wealth management, and asset management, while still carrying the relationship-driven economics of a regional bank. That mix is the core of the business case: PNC is building national reach without losing its link to local deposits, commercial clients, and Main Street credit demand.
The bank’s growth strategy is increasingly centered on expansion regions. Management has spent years planting teams, branches, and commercial relationships beyond PNC’s historic base, and that investment is now showing up in the business. Loan growth in newer geographies is running about twice the pace of legacy areas, and expansion-region loan balances now exceed legacy-market balances. The shift is meaningful: PNC is building a broader national banking network with momentum in areas where population growth, business formation, and customer acquisition remain attractive.
FirstBank fits directly into that strategy. The acquisition strengthened PNC’s position in Colorado and Arizona, adding customers, deposits, branches, and local employees in two of the country’s faster-growing banking states. The completed customer conversion now gives former FirstBank clients access to PNC’s digital banking, treasury management, wealth management, capital markets capabilities, and nationwide branch and ATM network. Just as important, PNC retained FirstBank’s frontline employees and added technology talent in Colorado, turning the deal into more than a balance-sheet acquisition. It gives PNC local relationships, retail funding, cross-selling opportunities, and an added technology base.
Commercial banking remains another major growth engine. PNC has a strong commercial and industrial lending franchise, supported by specialty capabilities in asset-based lending, securitization, equipment finance, real estate finance, and treasury management. Management sees corporate banking as fragmented, giving PNC room to win share as companies look for additional banking partners beyond the largest incumbents. Low banker turnover, long sales cycles, and consistent client coverage are part of the model: the bank wins business by showing up repeatedly with products that solve real funding, payment, and risk-management needs. The expanded Treasury Management insurance payments solution strengthens PNC’s position in complex corporate payments workflows, especially with large insurers managing high claim volumes and multi-party payments.
Retail expansion reinforces that commercial strategy. PNC plans to build roughly 300 branches over several years, including about 60 in 2026, with a focus on increasing density in large metropolitan areas where it already operates. Branches remain economically useful because they support household growth, local brand awareness, advice-based banking, and deposit gathering. Management has also said digital account openings rise materially when PNC has enough branch density locally, making physical presence and digital acquisition mutually reinforcing. PNC Multifamily Capital adds another community and commercial relationship layer, supporting affordable housing finance through tax-credit equity, agency lending, and traditional bank lending while broadening the bank’s reach across consumers, municipalities, developers, and local organizations.
PNC is also much more than a spread-dependent bank. Treasury management, card and cash management, asset management, brokerage, capital markets, advisory, and wealth management broaden the revenue base, while technology adds another layer to the story. PNC is building an internal AI factory using NVIDIA systems, with about 200 identified use cases across coding, customer care, retail operations, fraud, anti-money-laundering, and commercial servicing. The opportunity is practical and operational: higher productivity, faster development, lower dependence on external AI costs, and more efficient service delivery across a large banking platform.
PNC’s super-regional “sweet spot” is not risk-free: commercial real estate (CRE) exposure, selected technology/private-credit-related lending, integration execution, and credit normalization all need monitoring. Still, PNC’s business is increasingly positioned around the right growth channels for today’s environment: expansion-market scale, commercial lending momentum, deposit gathering, treasury management, and technology-led operating leverage.
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Higher for Longer
PNC’s financial profile increasingly reflects a bank benefiting from the exact conditions that many investors spent the past two years worrying about. Higher interest rates, disciplined deposit pricing, strong commercial loan demand, and the successful integration of FirstBank are now supporting faster earnings growth.
That was evident in Q1 2026. Revenue rose 13% year-over-year to $6.17 billion, extending a streak of at least eight consecutive revenue beats, while adjusted diluted EPS climbed 23% to $4.32, marking the ninth straight quarter of surpassing earnings expectations. Net interest income (NII) increased 14% to $3.96 billion, supported by loan growth, lower funding costs, and continued repricing of fixed-rate assets. The quarter also showed broad-based strength beyond lending alone. Noninterest income rose 12%, driven by higher capital markets activity – with capital markets and advisory income up 51% year-over-year – as well as higher asset management and brokerage fees, treasury management revenue, and card-related services.
The main earnings engine remains NII, and the setup continues to improve. Net interest margin (NIM) expanded to 2.95%, up 17 basis points year-over-year, as the average rate paid on interest-bearing deposits fell to 1.96% from 2.23% a year earlier. At the same time, average loans grew 11% to $350.9 billion and average deposits increased 9% to $458.4 billion. Management also highlighted one of the strongest periods of retail household growth in recent years, while commercial noninterest-bearing deposits continued trending higher. The result is a balance sheet generating more income without relying on aggressive deposit pricing.
The FirstBank acquisition amplified those trends. Total loans reached $360.9 billion at quarter-end, while assets climbed to $603 billion. More importantly, the completed customer conversion removes a key integration milestone risk and allows PNC to focus on extracting the deposit, lending, and cross-selling opportunities that supported the deal rationale in the first place.
Management’s outlook remains constructive. For Q2, PNC expects average loans to rise 2-3% from Q1, net interest income to grow about 3%, fee income to increase roughly 2.5%, and total revenue to advance about 3.5%. PNC also raised its full-year guidance, now calling for approximately 11% average loan growth, 14.5% NII growth, 6% noninterest income growth, and roughly 11% revenue growth. At the Morgan Stanley Financials Conference in June, management said Q2 results were already tracking toward the high end of those guidance ranges, particularly for revenue, NII, and fees.
Credit quality remains supportive. Nonperforming loans represented 0.62% of total loans, net charge-offs were 0.29% of average loans, and management said both consumer and commercial customers remain healthy despite ongoing macroeconomic concerns. Reserve levels increased primarily because of loan growth and the addition of FirstBank balances, while nonperforming assets remained stable despite a significantly larger balance sheet.
Capital strength provides another layer of flexibility. PNC ended the quarter with a CET1 ratio of 10.1%, continues to target roughly that level, and believes proposed Basel III revisions could modestly reduce risk-weighted assets and create additional capital capacity. The company also redeemed $1.25 billion of senior notes in May, reflecting active liability management alongside continued investment in technology and franchise expansion.
Several areas continue to merit close attention, particularly CRE exposure, selected technology- and private-credit-related lending, mortgage servicing volatility, and the normal progression of credit cycles. A faster-than-expected Fed easing cycle could also reduce some of the current margin tailwind. Still, PNC enters the second half of 2026 with expanding margins, strong loan growth, healthy credit metrics, improving deposit economics, and guidance that points to continued earnings momentum.
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Interest Level
PNC occupies the upper tier of U.S. regional banking, making its most relevant valuation peers other large super-regionals with sizable deposit franchises, commercial lending platforms, fee-generating businesses, and domestic growth ambitions. U.S. Bancorp is the closest direct comparison, sharing a similar scale, diversified banking model, and long-standing reputation for disciplined execution. Truist Financial provides a useful benchmark for franchise expansion, deposit gathering, and operating leverage following a transformational merger, while Fifth Third offers a comparison to a high-quality regional lender with strong commercial banking exposure and a history of profitable growth. This peer group gives PNC a clean comparison set for judging scale, profitability, credit quality, and valuation.
All stocks in this peer group performed well over the past year, moving largely in tandem until June, when Truist diverged downward amid management-transition concerns. That left TFC trailing the rest of the group, while PNC, USB, and FITB each held annual gains above 30%.
Despite the strong run, valuations across the group remain moderate – and PNC offers one of the cleaner value-for-quality setups. Its forward non-GAAP P/E of 12.4x is above U.S. Bancorp and Truist but below Fifth Third, while its sub-1.0 forward PEG suggests that the multiple remains reasonable relative to expected growth. PNC also carries the strongest net income margin in the group, stronger year-over-year EPS growth than U.S. Bancorp and Fifth Third, and a better balance of profitability, credit quality, and earnings momentum than Truist. Its price-to-book multiple sits slightly above U.S. Bancorp and Fifth Third and well above Truist’s depressed level, but that premium reflects cleaner execution, improving NIM, strong loan growth, and a FirstBank-related recovery path.
The result is a balanced valuation case: U.S. Bancorp offers the cleanest efficiency profile, Fifth Third has the strongest margin expansion but more merger-related noise, Truist trades at the deepest discount with weaker operating momentum, and PNC sits in the middle with one of the best combinations of growth, profitability, credit quality, and visibility.
Capital returns strengthen that picture. Like many of its peers, PNC follows a straightforward capital-allocation framework, funding organic balance-sheet growth while returning excess capital through dividends and share repurchases. The bank has maintained or increased its dividend for 56 consecutive years, one of the longest records in U.S. banking. and given PNC’s long-running pattern of Q3 increases, strong capital position, and management’s comment that shareholders should continue to expect healthy dividends, another increase in Q3 2026 looks probable.
Buybacks remain the more flexible return lever. PNC operates under a board-approved authorization covering up to 100 million common shares, with roughly 35% of that capacity still available at the end of last quarter. During Q1, the bank repurchased approximately $700 million of stock, more than double the average quarterly pace seen during 2025, and management guided to an additional $600-700 million during Q2. If capital generation continues improving as FirstBank synergies are realized and risk-weighted assets benefit from proposed Basel III revisions, repurchase activity could accelerate further.
The capital returns add another layer to PNC’s investment case. The bank is delivering double-digit earnings growth, expanding margins, and one of the clearer earnings-momentum stories among large U.S. super-regionals, yet still trades at a valuation that remains moderate relative to that profile.
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Investing Takeaway
PNC is becoming a stronger version of what makes super-regional banks valuable: close enough to local customers, large enough to compete nationally, and disciplined enough to turn scale into earnings power. FirstBank expands its reach in faster-growing banking markets, while branch density, commercial lending, treasury management, and wealth opportunities give the bank multiple ways to deepen relationships. The macro setup is also trending in its favor, with higher-for-longer rates supporting margin expansion and net interest income growth. Risks remain around commercial real estate, selected specialty lending exposures, integration execution, and credit normalization. till, PNC now offers a rare mix of commercial lending momentum, expansion-market growth, national-scale capabilities, healthy capital returns, and clear earnings momentum – making it a useful addition to the Smart Investor Portfolio alongside JPMorgan and Citi.
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Smart Investor’s Winners Club
The Winners Club represents stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
The markets were extremely volatile, but the Club member count remained steady with 28: GE, AVGO, TSM, ANET, HWM, EME, APH, IBKR, VRT, STRL, ASX, MTZ, PH, CRWD, CSCO, GOOGL, ORCL, ATI, KEYS, PANW, JBL, BNY, MS, CRDO, NVT, C, RTX, and JPM.
The first runner-up is now SNPS with a 15.98% gain since purchase. Will it break into the winners’ circle, or will another stock outrun it to the finish line?
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