TipRanks Smart Growth Portfolio #15: Silicon’s Secret Weapon
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Dear Investors,
Welcome to the 15th edition of the Smart Growth Portfolio and Newsletter.
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Portfolio News
❖ On Wednesday, Cathie Wood’s ARK Innovation ETF (ARKK) and ARK Next Generation Internet ETF (ARKW) purchased additional GitLab (GTLB) shares totaling approximately $11.2 million, seizing the “buy the dip” opportunity as the stock weakened post-earnings (detailed in “Portfolio Updates”). The renowned fund manager appears to have a strong conviction in the DevOps leader, with her funds acquiring GTLB shares in significant amounts on multiple occasions.
❖ Clearwater Analytics (CWAN) saw its shares decline after Oppenheimer reduced its price target on the stock by about 10%. The firm cited broader market valuation adjustments as the primary reason for lowering the price target. Despite the cut, Oppenheimer remains optimistic, maintaining its “Buy” rating on the shares – as do most analysts following CWAN. Analysts highlight robust demand and business activity, successful integration of recent acquisitions with early signs of synergies, and a strategy focused on maintaining industry-leading growth rates. Clearwater continues to be viewed as a potential key player in utility software, with capabilities to innovate across front, middle, and back office functions.
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Portfolio Updates
❖ We are keeping PowerFleet (AIOT) under review ahead of its June 16 earnings report, with a focus on updated guidance.
The stock has recovered slightly from its April lows but continues to underperform broader indexes and peers like Samsara. Importantly, there’s been no negative business news. The weakness appears tied more to stubborn sentiment and technical pressure than any shift in fundamentals.
We’re not exiting based on technicals alone. PowerFleet’s position in fleet IoT, telematics, and asset tracking remains solid, and the MiX Telematics acquisition — which created one of the largest AI-driven IoT SaaS platforms – could unlock significant value if integration targets are met.
Analyst sentiment remains strong. While some price targets have been trimmed due to the weak stock performance, every firm covering AIOT still has a “Strong Buy” rating. Several reiterated bullish views in recent weeks, citing early FY2025 results and guidance pointing to revenue growth that’s in line with or ahead of expectations. We’ll reassess after earnings, but for now, the long-term story still looks intact – and worth the wait.
1❖ We are placing GitLab (GTLB) under review following the strongly negative reaction to its weaker-than-expected revenue guidance – despite an otherwise strongly positive quarterly report.
On Tuesday, GTLB released its fiscal Q1 2026 results, as usual beating analyst estimates on both revenue and earnings. Adjusted FCF nearly tripled year-over-year, operating margins expanded notably, and the company narrowed its GAAP operating loss considerably – while its non-GAAP EPS surged from $0.03 last year to $0.17, an eighth straight quarter of triple- or even quadruple-digit growth. The company maintains impressive gross profit margins of 89% and holds more cash than debt on its balance sheet.
GitLab reported a 27% YoY revenue increase in FQ1, highlighting significant customer wins and strategic partnerships, including an expansion with AWS. Notable customer wins included Highmark Health, the FBI, NatWest, and Volkswagen Digital Solutions. In addition, over half of the company’s ARR now comes from customers using the Ultimate tier, indicating growing enterprise demand for advanced security and AI features. GTLB remains on track to publicly launch Duo Workflow, its agentic AI solution, later this winter.
The company’s FQ1 EPS was 12% higher than the consensus estimate, which supported the raised FQ2 and full fiscal-year EPS guidance, reflecting improved operating leverage and profitability. However, FQ1 revenue was just 0.7% above estimates, the company’s thinnest revenue beat on record. GitLab’s revenue guidance for both FQ2 and the full year was also seen as disappointing by investors.
GTLB reaffirmed its FY26 revenue guidance of $936-942 million, which implies about 24% growth but was only roughly in line with consensus estimates and did not offer the upside some on Wall Street were hoping for. For Q2, GitLab guided for revenue of $226-227 million, largely in line with expectations but not enough to excite investors looking for stronger growth signals.
Several analysts have cut their price targets on the stock, citing the valuation shift lower as the primary reason, but there have been no rating downgrades so far. The stock is a “Buy” with an average PT – after the cuts – implying an upside of over 45% in the next 12 months. Analysts praised GTLB’s unique end-to-end platform approach, which increasingly resonates with customers, its improved profitability and operational efficiency, as well as its ability to increase sales in the current environment. UBS analysts said that 27% revenue growth was at the “high end of the software sector,” while RBC Capital expressed continued optimism about GitLab’s company-specific growth drivers, and Canaccord said it expects that operating leverage will naturally emerge as the company scales further into the software deployment market. Several analysts also said they believe that much of the negative sentiment is already reflected in GitLab’s stock price after the post-earnings decline. TD Cowen characterized the sell-off as an “overreaction.”
While we remain very positive on GTLB’s long-term narrative, the near-term trajectory may be far less rosy given current market sentiment, which appears to be punishing not only underachievers, but also those who fail to outpace expectations by a wide margin.
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This Week’s Top Growth Pick: MKS Inc. (MKSI)
MKS Inc. is a technology solutions company enabling the production of advanced semiconductors, electronics, and specialty industrial devices. By integrating photonics, vacuum, power, and chemical process technologies, MKS plays a critical role in scaling the next generation of high-performance chips and complex electronic systems. The company’s reach spans wafer fabrication, advanced packaging, low-orbit satellite assembly, and life sciences – wherever precision and reliability are non-negotiable. Following its strategic acquisition of Atotech, MKS has expanded into specialty chemicals and electroplating systems, creating a broader, vertically integrated platform. In an environment defined by rising AI workloads, shrinking device geometries, and complex global supply chains, MKS is carving out a central role as the enabler behind the enablers – a durable operator in the guts of modern innovation.
Source: MKS Investor Presentation – April 2025
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From Boring to Backbone
Founded in 1961 and long known for its vacuum, measurement, and control tools, MKS Instruments spent decades as a niche supplier to semiconductor fabs and industrial labs – essential but largely overlooked. That began to change in the past five years, as MKS reengineered itself from a components vendor into a high-leverage growth platform serving some of the most critical chokepoints in modern electronics manufacturing.
The inflection point was the 2022 acquisition of Atotech, a global leader in specialty chemicals and electroplating equipment. This $5.1 billion deal redefined the company’s footprint, adding back-end semiconductor and electronics packaging capabilities to its core strengths in front-end processing. MKS now plays across the full manufacturing lifecycle – from wafer etch and deposition to advanced packaging and high-density interconnects – positioning it as a vertically integrated enabler of Moore’s Law’s next act.
Since Atotech, MKS has continued to invest aggressively in internal innovation, doubling down on AI-linked applications. Its Electronics & Packaging segment has seen particular momentum, with product wins in flexible PCB drilling, laser tools for aerospace and satellite applications, and chemical delivery systems for complex substrates. These tools are not off-the-shelf – they’re designed into the workflows of top-tier OEMs and chipmakers, often with multi-year roadmaps and engineering integration.
MKS has also shifted its customer mix. While it doesn’t name specific clients, its technologies are embedded deep within the ecosystems of global hyperscalers, foundries, and advanced electronics manufacturers – the kinds of customers building AI clusters, satellites, and quantum prototypes. As semiconductor complexity grows and packaging becomes performance-critical, MKS’s role in enabling power, signal integrity, and thermal management has become more central – and more strategic.
Its 2024 rebrand to MKS Inc. was more than cosmetic. It signaled a break from the “instruments” label, reflecting a company that now supplies foundational technologies across photonics, vacuum science, power conversion, and specialty chemicals. This isn’t just a supplier anymore – it’s a platform business, riding the same secular curves as AI, EVs, defense, and connectivity.
From a behind-the-scenes lab partner to a front-line growth engine, MKS has spent the last five years quietly expanding its reach and embedding itself into the architecture of modern manufacturing.
Source: MKS Investor Presentation – April 2025
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Process in Progress
MKS makes money by selling the technology that makes modern manufacturing possible. At its core, it provides the subsystems, chemicals, and precision tools required to fabricate semiconductors, package them into finished chips, and integrate those chips into the electronics powering everything from AI servers to defense systems.
Roughly 44% of its revenue comes from the semiconductor space, where MKS supplies vacuum technologies, power delivery systems, and measurement tools used deep inside wafer processing. These aren’t off-the-shelf components – they’re engineered into high-volume production lines at top foundries and chipmakers, underpinning processes like etching, deposition, and ion implantation. It’s one of the few companies with both the depth and reliability to meet the demands of advanced node manufacturing.
Another 27% of revenue stems from electronics and packaging, which has become one of MKS’s most strategic growth vectors. Here, the company provides high-speed laser systems, plating chemistries, and flexible PCB drilling platforms used in everything from AI accelerators to Low Earth Orbit satellites. As chipmakers hit the limits of transistor scaling, the performance frontier is shifting to how chips are packaged together. MKS is increasingly central to that transformation.
The remaining 29% comes from specialty industrial markets – a grab bag of life sciences, aerospace, defense, and research. These are long-cycle, spec-heavy applications where reliability matters more than price, and where MKS’s precision tools give it a defensible edge.
Beyond the mix, what sets the company apart is its vertical reach. Following the Atotech acquisition, MKS became one of the only players with both the physical toolsets and the chemical process technologies required to offer end-to-end solutions. That breadth allows it to integrate deeper with customers and win multi-modal contracts – a competitive advantage in industries racing to cut complexity and supplier count.
Its business model is largely hardware-based, but MKS also benefits from a substantial stream of consumables and services, which now make up around 39% of revenue. These include recurring sales of specialty chemicals and post-installation services – sticky, high-margin offerings that buffer the company’s revenue against capital spending cycles.
MKS operates across several converging markets, each with large and fast-expanding addressable opportunities. Semiconductor equipment alone is forecast to hit $150-160 billion annually by 2030, with packaging and substrate markets outpacing front-end growth. Specialty chemicals for electronics add another ~$25-30 billion in potential TAM. While its share is established in legacy markets, its footprint in packaging and electrochemical systems is still expanding – giving it clear headroom as customers re-architect supply chains and shift to more integrated production models.
In short, MKS isn’t selling equipment. It’s becoming an essential infrastructure layer for the physical world’s most demanding buildouts – AI datacenters, satellites, medical robots, and the ultra-miniaturized electronics behind them.
Source: MKS Investor Presentation – April 2025
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Green is the New Black
MKS is back in the black. After several volatile quarters tied to post-acquisition integration and cyclical downturns in chipmaking equipment, the company returned to consistent GAAP and non-GAAP profitability in 2024 – and is carrying that momentum into 2025. In Q1, MKS posted $936 million in revenue, at the high end of its guidance range. Gross margins held steady at 47.4%, and adjusted EBITDA landed at $236 million, with a 25.2% margin – reinforcing the company’s ability to balance growth and operating discipline.
On a GAAP basis, MKS reported $52 million in net income, or $0.77 per diluted share. This marked its third consecutive profitable quarter under GAAP accounting, a key milestone after earlier years saw results pressured by amortization charges, restructuring costs, and elevated debt service tied to the Atotech acquisition. Free cash flow for the quarter came in at $123 million – strong by any standard, and sufficient to fund both organic investment and balance sheet improvements.
On a non-GAAP basis, EPS has steadily climbed from $1.18 in Q1 2024 to $1.71 in Q1 2025, its fifth straight quarter of double- or triple-digit year-on-year EPS growth – a strong trend that reflects not only revenue recovery but also improving margins and tighter operating discipline across the business. The Q1 non-GAAP EPS came in well above the high end of its own forecast and consensus analyst estimates. In fact, the company has surpassed analyst EPS estimates at least since Q2 2021.
Moreover, the company out-executed on the top line – a tougher feat, as revenue can’t be engineered through cost cuts. Analysts had penciled in a revenue dip and softer margins due to macro uncertainty and trade headwinds. But MKS saw improving demand across semiconductors and packaging, and managed to offset tariff-related cost pressures with better product mix and operating leverage. Notably, its electronics and packaging segment posted 22% YoY growth, while the semiconductor business grew 18%, both outperforming peer benchmarks.
Looking ahead, MKS guided for Q2 revenue of $925 million ±$40 million, non-GAAP EPS of $1.56 ±$0.28, and adjusted EBITDA of $216 million ±$23 million. That’s slightly conservative versus current trends but reflects caution around tariffs and macro crosscurrents. Analysts, for their part, expect Q2 EPS to come in near the top of the range, with several upward revisions following the Q1 beat.
Management has also taken concrete steps to reduce leverage. In Q1, MKS made a voluntary $100 million prepayment on its term loan and successfully repriced its debt, cutting annualized interest expenses. With $655 million in cash and a $675 million untapped revolver, MKS enters the second half of 2025 with real financial flexibility – not just to absorb shocks, but to invest and scale with confidence.
Source: MKS Inc. Q1 2025 Presentation
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Rerating in Progress
MKS’s stock – ticker MKSI – has posted notable declines over the past 12 months, in line with its sector peers. Like much of the semiconductor equipment group, it followed the broader Technology sector trend in early 2025: a tariff-driven drop through early April, followed by a sharp rebound. But the selloff that began back in July 2024 stemmed from deeper concerns. The previous administration’s push for tighter chip trade restrictions with China, combined with cyclical slowdowns in the chip supply chain and broader macroeconomic uncertainty, triggered a shift in investor sentiment and a sharp reset in valuation multiples across the industry.
Importantly, while MKSI remains down roughly 31% year-over-year, it has materially outperformed most of its peers. Since the April 8 trough triggered by renewed tariff concerns, the stock has rallied nearly 60% – a recovery that has outpaced both broad market benchmarks and all but one of its direct peers.
Despite its recent surge, MKSI remains very attractively valued, trading at multiples suggesting the market hasn’t fully caught on. On forward EV/EBITDA, it’s the cheapest among its direct U.S. peers, and even its trailing P/E – often distorted by acquisition amortization – sits well below the group average.
EV/Sales paints a more neutral picture, placing MKS mid-pack and suggesting the market is pricing in top-line recovery – but not yet recognizing full margin normalization or cash conversion. That’s a disconnect. This is a company running at over 25% adjusted EBITDA margins and delivering double-digit YoY EPS growth. And according to consensus, that growth is far from over. Analysts expect MKS’s EPS to expand materially faster than its peers over the next 12 months, with revenue growth also near the top of the range.
Price-to-cash-flow and price-to-book multiples echo the theme: the market is still valuing MKS as a traditional hardware vendor, not as the vertically integrated platform it has become. Leverage and macro overhangs may persist, but they’re already baked into the stock – arguably more than justified.
Interestingly, MKS’s PEG ratio sits at just 0.82 – signaling a “growth at a reasonable price” (GARP) setup – yet it’s actually higher than its peers with slower growth trajectories. In other words, the market is assigning MKS a conservative PEG despite stronger earnings momentum and improving capital efficiency. That makes little sense in a normalized macro environment.
Even the PEG ratio tells a nuanced story. At 0.82, it signals a clear “growth at a reasonable price” setup – yet it’s still higher than several slower-growing peers. In other words, the market is assigning MKS a cautious multiple despite its stronger earnings momentum and improving capital efficiency. That disconnect is hard to justify in a more stable macro environment.
MKS has also returned capital to shareholders with a mix of prudence and consistency. While buybacks have been occasional and opportunistic – including a $45 million repurchase in Q1 2025 – the company has paid a quarterly dividend without interruption for over 14 years. That steady $0.22 per share payout – a respectable 0.93% yield, as of today – reflects not just financial strength, but a deliberate commitment to shareholder return, even during industry downturns and major acquisitions.
The takeaway? MKS isn’t priced like a breakout – but the numbers are already moving like one. With exposure to advanced packaging, AI-driven infrastructure buildouts, and a clear path to margin recovery, the stock looks more like a re-rating candidate than a value trap.
Wall Street agrees. Analysts currently rate MKS a “Strong Buy,” with an average 12-month price target implying more than 33% upside from current levels. The company’s blowout Q1 triggered a wave of upward revisions, with analysts chasing the stock’s accelerating trajectory as the market reprices in real time. As demand for AI infrastructure and next-gen semiconductor manufacturing continues to rise, MKS’s diversified portfolio and critical process technologies make it one of the few names in the space positioned to benefit across the full stack.
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To Sum It All Up
MKS is a vertically integrated technology platform enabling the most advanced manufacturing processes in semiconductors, electronics, and specialty industries. Operating at the intersection of hardware, photonics, and chemical process technologies, the company plays a critical role in powering next-gen infrastructure – from AI datacenters to aerospace systems. Its unique blend of precision tools, specialty chemistries, and system-level integration allows it to embed deeply within customer roadmaps and capitalize on secular growth trends. With recurring revenue streams, strong operating leverage, and expanding exposure to AI and packaging demand, MKS is transitioning from an industrial supplier to a strategic enabler. For growth-oriented investors, it offers a rare mix of profitability, strategic relevance, and undervalued execution in one of the world’s most complex value chains.
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Smart Growth Portfolio
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Click here for more stock analysis from TipRanks Macro & Markets research analyst Yulia Vaiman
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Disclaimer
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