TipRanks Smart Growth Portfolio #10: Laser the Way
1
Dear Investors,
Welcome to the 10th edition of the Smart Growth Portfolio and Newsletter.
1
1
Note to Investors
The last three weeks’ rally has given stock indexes a solid boost, sparking optimism. But let’s not forget – the underlying issues haven’t disappeared. Uncertainty around trade, policy shifts, and the broader economic outlook still cast a shadow, especially as we move through earnings season. Rather than react to every twist in the headlines, we’re staying focused on what really drives long-term performance: strong fundamentals, quality businesses, and smart diversification across resilient sectors. In a choppy market and a weakening economy, it’s the companies with staying power – those that can adapt, grow, and deliver – that offer the best opportunities.
1
1
Portfolio News and Updates
❖ Backblaze (BLZE) reported robust first-quarter 2025 results, delivering revenue of $34.6 million, a 15% increase year-over-year, exceeding the top end of its prior guidance and coming in above the consensus estimate of $34.24 million. This performance was driven primarily by a 23% YoY growth in B2 Cloud Storage revenue, which reached $18.0 million, demonstrating strong traction with enterprise and AI-driven workloads. B2 now comprises over half of the company’s Annual Recurring Revenue (ARR), which rose to $140.8 million overall – with B2 contributing $73.8 million, up 24% YoY.
BLZE’s Net Revenue Retention (NRR) remained healthy at 113% overall, supported by a 117% NRR for B2 and 108% for Computer Backup, reflecting strong upsell activity and account growth. Gross customer retention held steady at 90%, underscoring strong user loyalty.
Adjusted EBITDA jumped to $6.4 million from $1.9 million a year earlier, lifting the margin to 18% from 6%. GAAP net loss narrowed to $9.3 million, down from $11.1 million. Meanwhile, non-GAAP EPS improved to –$0.03 from –$0.14, significantly beating analyst projections of –$0.06.
Backblaze made meaningful progress toward profitability during the quarter. Adjusted free cash flow (FCF) improved to –$2.1 million, up from –$5.1 million in Q1 2024, with plans to hit positive FCF by Q4 2025. Gross margin expanded to 56%, and adjusted gross margin reached 79%, signaling operational efficiency gains.
In Q1, BLZE launched its B2 Overdrive offering, enabling terabit-per-second throughput tailored for high-performance workloads like AI/ML and HPC. AI-related customer data grew 25x YoY, and AI customer count rose 66% YoY.
The company is actively moving up-market, as evidenced by more than doubling bookings YoY and signing its largest total contract value (TCV) deal to date – a multi-million-dollar, multi-year agreement with an existing customer that significantly expanded its commitment. This underscores high satisfaction and growing confidence in Backblaze’s services and strategic direction.
The customer reportedly displaced Amazon AWS, choosing Backblaze due to better pricing visibility, ease of use, and high-throughput performance. Beyond the immediate revenue boost, the deal validates BLZE’s ability to compete directly with hyperscalers in high-value, data-intensive enterprise use cases.
For Q2 2025, Backblaze guided revenue to $35.2-35.6 million, with an adjusted EBITDA margin of 14-16%. Full-year 2025 revenue is projected at $144-146 million, and the company raised its adjusted EBITDA margin guidance to 17-19%, up from its prior range of 16-18%.
Addressing Short-Seller Allegations
Last week, we placed Backblaze under review following the release of a highly critical report by Morpheus Research. The short seller accused BLZE’s management of inflating projections, manipulating financials, and concealing internal investigations. The company’s shares fell on the news, with concerns over the reliability of its data backup services weighing on sentiment.
Backblaze responded swiftly, rejecting the claims as “baseless, inaccurate, and misleading,” and accused short sellers of attempting to manipulate the stock. The company cited reviews by an independent third-party law firm and forensic accounting firm, which found no wrongdoing or issues with Backblaze’s public financials.
Backblaze also reiterated its strategic focus on AI/ML and HPC markets, along with recent innovations like B2 Overdrive, which are expected to accelerate growth. BLZE’s Q1 2025 performance appears to confirm the positive financial trajectory, casting doubt on several of Morpheus’ assertions. Additionally, the new enterprise win highlights continued customer satisfaction and trust in Backblaze’s platform.
Despite these positives, we are maintaining BLZE in our “Under Review” bracket, at least for now, as we monitor developments related to investigations launched on behalf of shareholders by three law firms following the release of the Morpheus report.
1
❖ EverQuote (EVER) reported blowout Q1 2025 financial results, with revenue hitting $166.6 million, an 83% year-over-year increase, significantly outperforming analyst expectations. This surge was powered primarily by a 97% YoY increase in Auto insurance revenue, as the long-awaited carrier recovery took hold. EVER also posted healthy growth in its Home & Renters vertical, which climbed 10% YoY, while Other insurance segments remained stable.
The company’s powerful rebound translated directly into a notable margin expansion. Adjusted EBITDA rose 197% YoY to $22.5 million, up from $7.6 million in Q1 2024, pushing the adjusted EBITDA margin to 13.5%, up from 8.3% a year earlier. This reflects solid execution in leveraging fixed costs and scaling the platform as topline volumes accelerate.
EVER’s Variable Marketing Dollars (VMD) – a core efficiency metric – jumped 52% YoY to $46.9 million, while its Variable Marketing Margin (VMM) came in at 28.1%, maintaining a healthy range amid aggressive volume scaling.
The quarter’s performance underscores EverQuote’s strategic positioning in a rapidly digitizing P&C insurance marketplace. The company continues to benefit from secular tailwinds such as the shift of insurance distribution spend online and a resurgence in policy acquisition budgets among auto carriers. EVER’s platform, which now includes ~60 carriers and 6,000+ third-party agents, leverages over 4 billion consumer-submitted data points to power personalized shopping experiences and optimized provider matching.
Notably, management reiterated its confidence in sustained margin improvement, backed by its asset-light, high-leverage model. EVER is also aggressively expanding its non-auto verticals and B2B capabilities, while continuing to enhance platform intelligence through AI and machine learning integrations.
EVER provided a robust Q2 2025 outlook, penciling in revenue at $155.0-160.0 million, representing 34% year-over-year growth at the midpoint. VMD are expected to land between $45-47 million, implying 26% YoY growth at the midpoint. Adjusted EBITDA is guided at $20-22 million, reflecting 62% YoY growth at the midpoint.
These results and projections highlight a company regaining momentum in a big way. With adjusted EBITDA margins now at multi-year highs and significant runway left in market share expansion, EVER is reasserting its status as a leading operator in the digital insurance distribution space.
1
❖ ACM Research (ACMR) kicked off 2025 with strong Q1 results, reporting revenue of $172.3 million – a 13% year-over-year increase – slightly ahead of expectations and fueled by solid growth in its core cleaning and etch platforms. The top-line expansion was led by an 18% YoY jump in single-wafer cleaning, Tahoe, and semi-critical cleaning equipment, which now accounts for 75% of total revenue. Sales of electroplating (ECP), furnace, and packaging tools rose 7%, while the advanced packaging and services segment declined 10.5% and now represents 9% of the total mix.
Despite some gross margin pressure from product mix and currency, ACM maintained healthy profitability. Non-GAAP operating income was $35.6 million, reflecting a 20.7% margin (down from 26.2% YoY). Non-GAAP EPS came in at $0.46, slightly below last year’s $0.52 due to increased R&D and stock-based comp. However, GAAP EPS rose to $0.30 from $0.26, supported by tax efficiency and operating leverage.
Operationally, ACM achieved key milestones: qualifying its high-temp single-wafer SPM tool with a major logic customer in China, securing U.S. acceptance for its bevel etch system, and winning the 2025 3D InCites Award for its Ultra ECP ap-p panel-level packaging tool. The company continues to expand production capacity – with its state-of-the-art Lingang facility in China nearing full readiness and its new Oregon site ramping up demo and manufacturing capabilities.
Management reaffirmed ACM’s long-term $3B revenue target, split evenly between China and international markets, citing strong demand from tier-one customers in both regions. The addressable market across ACM’s core verticals now exceeds $30 billion, with growing momentum around new platforms like PECVD, track, and furnace.
Importantly, ACM addressed trade risks directly, stating that U.S.-China tariffs have had minimal operational impact thanks to a diversified supply chain. The company sources components locally in China or from third-party countries and is actively building out U.S.-based manufacturing in Oregon to further reduce exposure. CEO David Wang emphasized that ACM’s “technology-first” model and deep IP protections make it less vulnerable to low-cost competition and geopolitical shocks.
Full-year 2025 guidance was reaffirmed at $850-950 million, with management expecting a sequential rebound in Q2 shipments. As the semiconductor cycle stabilizes, ACMR is executing on its innovation roadmap with a global footprint and growing strategic relevance.
1
❖ Clear Secure (YOU) delivered solid Q1 2025 results, but sentiment remains mixed due to ongoing controversy and strategic questions.
The company reported revenue of $211.4 million, up 26% year-over-year and ahead of consensus by ~$3 million. Total bookings rose 14.8% YoY to $207 million, while free cash flow grew 17.6% to $91 million. Active CLEAR+ memberships rose to 7.4 million (up 9.1% YoY), and total network members reached 31.2 million, a 42% increase – underscoring traction across both airport and enterprise channels.
Gross dollar retention dipped to 87.1%, but management attributed the decline to prior step-function pricing hikes, which are now cycling through renewal cohorts. GAAP EPS came in at $0.26, beating by $0.05, with adjusted EBITDA of $52 million representing a 24.7% margin. The company reiterated full-year free cash flow guidance of at least $310 million.
Notable product innovations included ePassport (allowing at-home CLEAR enrollment via chip scanning) and EnVe Pods (next-gen biometric checkpoints now deployed across major airports). Management also highlighted a deepening TSA PreCheck footprint with 165 locations and growing enterprise traction through CLEAR1, with a new partnership announced with DocuSign.
For Q2, YOU guided revenue to $214-216 million (15.1% YoY growth at midpoint) and bookings to $215-220 million. The company reaffirmed full-year free cash flow guidance and continued to emphasize automation, AI-driven efficiency, and network expansion.
Concerns and Criticism
Short-seller Spruce Point Capital recently published a critical report on Clear Secure, alleging a weakening value proposition, potential margin compression, and maturing key airline partnerships. The report also flagged elevated macro sensitivity (e.g., to air travel trends) and increasing regulatory risk from TSA’s “Touchless ID” pilot – a program that could marginalize CLEAR’s role if TSA adopts direct biometric authentication internally.
On the Q1 call, Clear management did not directly address the Spruce Point report or the Touchless ID risk. While they emphasized stable air travel volumes and supportive public-private dynamics, the lack of explicit rebuttal may raise questions among institutional investors.
Additional points of investor skepticism:
- Gross dollar retention has declined YoY, even as pricing increases cycle through.
- CLEAR’s blended subscriber ARPU gains may stall without further pricing levers or new monetization paths.
- TSA PreCheck, a major driver of upsell growth, is still <20% penetrated by CLEAR and subject to competitive and regulatory shifts.
- Enterprise CLEAR1 remains early-stage, with high potential but low current revenue visibility.
We are placing YOU under review for potential sale from the Growth portfolio. While the company remains free cash flow positive and operationally sound, the stock’s valuation, lack of clarity around long-term competitive moat, and regulatory overhang necessitate closer monitoring over the coming weeks.
1
1
This Week’s Top Growth Pick: Lumentum (LITE)
Lumentum Holdings Inc. is a global provider of optical and photonic products used in cloud computing, AI infrastructure, telecommunications, and industrial manufacturing. Best known for its lasers and optical components, Lumentum builds the backbone for technologies that power everything from hyperscale data centers to next-gen 3D sensing. The company serves a broad range of end markets, including networking, consumer electronics, and automotive. With a strong focus on innovation, Lumentum is actively positioning itself for growth in data-heavy, high-performance computing environments. As demand for bandwidth and AI infrastructure accelerates, LITE’s products play a key role behind the scenes, enabling faster data transmission, higher computing power, and scalable connectivity.
Source: Lumentum Investor Briefing at OFC, April 1, 2025
1
Optics On Overdrive
Lumentum Holdings was formed in 2015 as a spin-off from JDS Uniphase, inheriting its optical communications and commercial lasers business. From the outset, the company’s focus was on building the photonic technologies behind high-speed networks and precision sensing – critical components in data centers, telecom infrastructure, and 3D sensing.
Over the past five years, Lumentum has shifted aggressively toward higher-growth markets, led by cloud, AI, and industrial automation. A key inflection point came in 2021, when Lumentum acquired the telecommunications module and subsystem business from II-VI Incorporated (which later became Coherent Corp.). This move bolstered LITE’s portfolio in coherent optics and photonic integration, reinforcing its position in metro and long-haul network buildouts.
In 2022, Lumentum closed its $918 million acquisition of NeoPhotonics – a leading designer of optical components for ultra-high-speed networks and cloud interconnects. The deal was a significant growth accelerant – bringing advanced coherent modules, indium phosphide (InP) laser integration, and a stronger presence in hyperscale data centers. The acquisition also expanded Lumentum’s manufacturing and R&D footprint in Japan and California, enabling tighter control over key technologies.
Innovation has remained central to LITE’s growth strategy. The company has invested heavily in photonic integration, high-speed coherent optics, and 3D sensing technologies – many of which are used in smartphones, autonomous vehicles, and industrial robotics. Its development of high-efficiency lasers and optical amplifiers has helped support expanding bandwidth demands in AI and cloud computing. Notably, LITE’s laser tech has also been used in LiDAR systems for ADAS (advanced driver-assistance systems) – opening up new revenue streams in automotive.
In 2023 and 2024, Lumentum increased capital spending to scale production of its indium phosphide–based lasers – a core component in next-gen transceivers. Simultaneously, the company diversified its manufacturing base, reducing its reliance on China by ramping up capacity in Japan and the U.K. and de-risking supply chains amid growing geopolitical tensions.
Strategic partnerships with cloud hyperscalers have helped Lumentum stay aligned with evolving infrastructure demands, while continued investment in AI-driven design automation has supported faster R&D cycles.
Collectively, these moves have positioned Lumentum to benefit from rising global demand for faster data transmission, scalable connectivity, and precision optical components. While not without volatility – especially given telecom exposure – LITE’s trajectory in recent years reflects a disciplined push toward long-term, innovation-led growth.
Source: Lumentum Investor Briefing at OFC, April 1, 2025
1
Beamline Business
At its core, Lumentum is a picks-and-shovels play on cloud, AI, and data infrastructure – building the invisible tech that keeps next-gen systems running. Its lasers, optics, and photonic modules enable everything from cloud connectivity and AI workloads to industrial automation and advanced sensing.
The company operates through two primary business segments: Cloud & Networking and Industrial Tech – both geared toward high-growth, bandwidth-intensive, and precision-driven markets.
Cloud & Networking is the growth engine, accounting for 86% of total revenue. This segment powers hyperscale data centers, telecommunications networks, and AI interconnects. LITE’s components – including coherent transceivers, modulators, and photonic integrated circuits – are embedded deep inside the network hardware of hyperscalers and telecom OEMs. With bandwidth demand and AI compute scaling rapidly, Lumentum is riding tailwinds from cloud infrastructure buildouts, 5G deployments, and ongoing optical upgrades. Its indium phosphide-based lasers and integrated optical engines are built for terabit-scale performance – exactly what modern compute fabrics require.
The Industrial Tech segment includes LITE’s commercial lasers and 3D sensing solutions. These products serve markets like precision manufacturing, semiconductor processing, LiDAR, and displays – with use cases spanning silicon wafer dicing, metal cutting, and advanced sensing in automotive and consumer electronics. While smaller, this segment continues to benefit from the global shift toward automation and smart systems.
Source: Lumentum Investor Briefing at OFC, April 1, 2025
Lumentum supplies optical components and subsystems to leading cloud service providers, including major hyperscalers. In addition, the company provides optical networking products to telecom operators, supporting metro, long-haul, and submarine network infrastructures. Meanwhile, LITE’s commercial lasers are used in precision manufacturing, semiconductor processing, and 3D sensing applications – serving industries such as automotive and consumer electronics.
The company is targeting a total addressable market of over $30 billion in 2025, led by surging demand in optical communications, AI interconnects, and industrial photonics. As hyperscale data centers, telecom networks, and automation sectors expand, Lumentum has meaningful headroom to grow into a market defined by bandwidth, precision, and speed. The company is actively positioning to capture more share by scaling InP laser production, advancing AI-optimized interconnect technologies, and deepening customer penetration.
A major advantage: Lumentum’s geopolitical exposure is relatively low. While it maintains some operations and sales in China, most critical manufacturing – especially for strategic components like InP lasers – has shifted to Japan and the U.K. This shift was deliberate: Lumentum moved early to reduce its reliance on China-based supply chains, minimizing its vulnerability to U.S.-China tariffs and regulatory friction. As a result, recent tariff waves have had minimal direct impact, and the company’s diversified customer base further buffers it against regional shocks.
1
Photons to Profits
Lumentum reported strong fiscal Q3 2025 results, with revenue rising to $425.2 million, up 16% year-over-year and exceeding both internal guidance and Street expectations. Growth was driven by continued strength in cloud and networking demand – especially from hyperscale and AI infrastructure customers – and supported by a ramp in advanced EML chip shipments and high-power laser modules.
Segment performance was led by Cloud & Networking, which generated $365.2 million in revenue (up 16% YoY), while Industrial Tech contributed $60.0 million, up 14% YoY despite a seasonal pullback in 3D sensing.
Profitability continued to improve: non-GAAP operating income reached $46.1 million, representing a 10.8% operating margin, up from just 0.2% in the prior-year quarter. Non-GAAP EPS more than quadrupled year-over-year to $0.57, driven by margin expansion and disciplined cost control. Meanwhile, non-GAAP gross margin was 35.2%, up 290 basis points sequentially, thanks to better manufacturing utilization and favorable product mix.
LITE’s balance sheet remains strong, with $866.7 million in cash and short-term investments, and net property, plant, and equipment rising to $693.3 million, reflecting ongoing investment in manufacturing and R&D capacity.
Looking ahead, the company expects continued momentum into Q4 FY25. Revenue is projected to land between $440 million and $470 million, with the midpoint implying 19.5% YoY growth. Operating margins are expected to expand further to 13-14%, and non-GAAP EPS is guided to a range of $0.70 to $0.80 – marking another significant jump quarter over quarter and reflecting a 188% year-over-year increase.
Growth in fiscal Q4 is expected to come from the Cloud & Networking segment – which continues to see robust demand from hyperscale cloud customers – while Industrial Tech is forecast to decline sequentially due to macroeconomic pressures and seasonal trends. In the FQ3 earnings call, CEO Michael Hurlston confirmed that the company remains on track to achieve its target of $500 million quarterly revenue run rate by the end of calendar 2025.
Taken together, Lumentum’s financial trajectory is clearly stabilizing and scaling. With expanding margins, a deep pipeline of design wins, and exposure to multi-year secular growth themes in AI, cloud, and industrial automation, LITE appears to be executing a methodical climb from the recovery phase into expansion mode.
Source: Lumentum Investor Briefing at OFC, April 1, 2025
1
Charging the Beam
Like many technology stocks, LITE staged a strong rally over the 12 months leading into early 2025, before tariff uncertainty and rising macroeconomic risks triggered a wave of risk-off sentiment. Lumentum’s stock was no exception – it fell nearly 50% from its late-January peak to an April trough. However, as markets rebounded from the sell-off and LITE reported stellar earnings, the stock surged more than 35% in the past month. It is now up nearly 60% over the past year, outperforming all of its closest industry peers.
Despite that strong run, LITE still looks attractively valued. While some peers trade at lower trailing P/E multiples, Lumentum’s sharply improving earnings trajectory justifies its forward premium. The stock appears expensive on a near-term P/E basis – reflecting its rebound from compressed EPS – but valuation compresses quickly over the next two years, signaling a recovery cycle the market is beginning to price in.
Moreover, Lumentum’s forward PEG ratio of 0.51 is particularly compelling, suggesting the stock remains undervalued relative to its expected earnings growth – especially if AI and cloud infrastructure demand continue to accelerate. Among U.S.-listed photonics and optical names, LITE offers one of the strongest setups for multiple expansion. Based on projected free cash flows, the stock also appears undervalued by roughly 30%, presenting a compelling entry point for long-term growth investors.
Analysts are optimistic, rating LITE a “Buy” with an average price target that implies more than 27% upside over the next 12 months. However, several top Wall Street firms – including Susquehanna, Craig-Hallum, and Rosenblatt Securities – forecast potential upside of 40% or more over the same period.
1
To Sum It All Up
Lumentum is a photonics and optical components provider powering AI infrastructure, cloud networks, and precision manufacturing through high-performance lasers and transceivers. With the lion’s share of revenue coming from its Cloud & Networking segment and minimal exposure to China, LITE is well positioned for growth without major geopolitical or supply chain risk. Strategic M&A, scaled indium phosphide laser production, and deep design wins with hyperscalers have expanded its TAM and reinforced competitive advantage. Despite a sharp earnings recovery and margin expansion, LITE still trades at a compelling forward PEG and appears undervalued on projected cash flows. Combining innovation tailwinds with financial momentum, Lumentum offers investors rare exposure to foundational AI infrastructure with room for multiple expansion.
1
1
Smart Growth Portfolio
|
1
1
Click here for more stock analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
1
Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
