TipRanks Smart Growth Portfolio #18: Primary Cache
Dear Investors,
Welcome to the 18th edition of the Smart Growth Portfolio and Newsletter.
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Portfolio Changes
❖ ❖ ❖ We are happy to announce the addition of Micron Technology (MU) to the Smart Growth Portfolio.
We are making an exception by initiating the position at the time of recommendation rather than waiting, as we believe the stock is poised for a potential re-rating in the near term. Details of the thesis and supporting data follow below.
Micron is a mission-critical supplier of advanced memory and storage solutions – DRAM, NAND, DDR5, and HBM – that underpin the AI, cloud, and next-generation computing ecosystem. Its products power flagship GPUs, custom accelerators, and hyperscaler infrastructure, making it a key enabler of generative AI workloads and the broader data economy.
With surging demand for high-bandwidth memory and leadership in premium, energy-efficient designs, Micron sits at the center of a secular AI-driven infrastructure buildout. Record HBM orders, multi-year contracts with top-tier customers, and a U.S.-backed capacity expansion program reinforce both visibility and resilience.
As the largest-cap name in the portfolio – and our first dedicated chipmaker – MU provides both exposure to foundational AI infrastructure and the potential for outsized gains as the market catches up to its strategic role and improving fundamentals.
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❖ ❖ ❖ After monitoring PowerFleet (AIOT) under review, we have decided to remove it from the Smart Growth Portfolio.
The company has shown some progress – revenue more than doubled in FY2025, SaaS and recurring revenue climbed above 75%, and cost synergies from the Fleet Complete acquisition exceeded targets. Management reaffirmed its 20-25% organic revenue growth outlook, and the Unity platform has gained traction in AI‑powered telematics. Despite these steps, however, AIOT continues to underperform expectations where it matters most: profitability, execution, and stock performance.
The stock is down more than 30% year‑to‑date, significantly underperforming the broader SaaS and IoT peer group. While some of this decline reflects a tough macro backdrop and sector weakness – peers like Samsara (IOT) have also struggled – PowerFleet’s decline has been steeper and more persistent. Delayed financial filings, GAAP net losses, and heavy integration and restructuring costs have all weighed on investor confidence. FY2025’s $76.1 million net loss and negative operating leverage overshadowed even its robust top‑line growth. Adjusted EBITDA margin of ~20.7% was respectable but insufficient to counterbalance $200M+ in debt service and operating expenses.
We had hoped to see stronger evidence of operating leverage, improved customer momentum, and a clearer path to GAAP profitability by now. Instead, we continue to see customer churn, delayed deals, and limited visibility into sustainable earnings. Even with Unity’s promise and the shift to SaaS‑heavy revenue, the underlying business has yet to prove it can scale profitably while managing its debt load and capital constraints.
Meanwhile, analyst coverage remains thin, with no meaningful price target upgrades and little to suggest near‑term catalysts. Management’s recent hires and platform improvements deserve credit, but the market seems unconvinced – and so are we.
Ultimately, we view AIOT’s risks – high leverage, uneven execution, and an uncertain industry backdrop – as outweighing its potential upside in the portfolio at this time. We still believe the company’s technology has merit, and we’ll keep an eye on Unity’s progress and customer adoption. But for now, we prefer to allocate capital to higher‑conviction opportunities. We are selling AIOT and exiting the position effective immediately.
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Portfolio News
❖ On June 28, the China-based operating subsidiary of ACM Research (ACMR) received approval from the China Securities Regulatory Commission to proceed with a private placement of up to 44.1 million ordinary shares. The offering, expected to raise as much as RMB 4.5 billion (approximately $625 million), can be executed over the next 12 months and follows recent employee stock option exercises.
While the raise is being conducted by the China-based subsidiary and does not affect ACMR’s U.S.-listed shares directly, we’re keeping an eye on how the proceeds will be used and whether the structure of the offering has any implications for the parent company. At this point, the move appears consistent with ACM’s broader funding strategy in local markets and doesn’t alter our investment view.
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Under Review
❖ We are keeping Alkami Technology (ALKT) under review following a clear cooling in analyst sentiment and elevated uncertainty surrounding its end markets.
Over the past quarter, the average 12-month price target has fallen by ~13% – with multiple firms, including Needham and JPMorgan, lowering their expectations after Q1 results. Barclays downgraded the stock to “Hold” with a notably cautious $30 target. While no major downgrades to “Sell” have emerged, the tone from Wall Street has turned more guarded.
Alkami reported solid top-line growth in Q1 2025, with revenue up 28.5% YoY to $97.8M and adjusted EBITDA improving significantly to $12.1M. However, GAAP losses persist, and the stock has underperformed in 2025 despite positive one-year returns. With regional banks and credit unions facing pressure from high funding costs and deposit outflows, Alkami’s clients have grown more conservative in their tech spending – potentially limiting near-term deal flow.
That said, we are not rushing to exit. While macro headwinds are real, they may ultimately serve as a catalyst for digital modernization. Alkami’s positioning at the intersection of cloud banking, AI, and client personalization leaves room for strategic upside as the industry recalibrates. The recent acquisition of MANTL strengthens its onboarding suite, and management continues to invest in product expansion while maintaining healthy growth.
We acknowledge that the risk/reward has worsened modestly, but we believe a forced exit here would be premature. Execution risk is rising, yes – but the company is not broken. The business is still growing at a respectable clip, improving its unit economics, and may benefit disproportionately when bank IT budgets recover.
We’ll continue monitoring banking sector dynamics, customer retention, and margin trends. Should deal flow meaningfully contract or guidance reset further, we’ll revisit. For now, Alkami remains in the Smart Growth Portfolio – but under active review.
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❖ We are keeping Clearwater Analytics (CWAN) under review as the stock navigates short-term volatility tied to its bold acquisition strategy.
While CWAN has declined roughly 20% year‑to‑date, we believe this weakness reflects investor anxiety around integration, not fundamental deterioration. In 2025, Clearwater announced a transformative wave of M&A, acquiring Enfusion, Beacon, and BISTRO to build a unified front‑to‑back investment operations platform. The deals are ambitious and will reshape the business, but they also introduce complexity: Clearwater must integrate disparate technologies, cultures, and clients. Additionally, the acquisitions were financed with stock and debt, leading to dilution and a more leveraged balance sheet – factors that can weigh down near‑term sentiment, especially with interest rates elevated.
However, our decision to hold stems from our conviction that Clearwater’s core business remains strong. Q1 2025 results showed revenue up 24% YoY with 98% gross retention and 114% net retention – elite SaaS metrics by any standard. Adjusted EBITDA margins remain healthy, and free cash flow nearly tripled YoY. With $494 million in ARR and expanding product breadth, Clearwater is not a company in retreat – it’s executing a calculated leap forward.
Piper Sandler recently assumed coverage with an “Overweight” rating and a $27 target, noting that the acquisitions expand Clearwater’s addressable market and create cross‑sell and upsell opportunities. We agree.
In other positive developments, Clearwater announced that Versicherungskammer Group – Germany’s largest public insurer – selected its platform to modernize middle, back office, and risk operations following a rigorous review. This high‑profile win validates the strategy and showcases the ability to deliver an integrated, cloud‑native solution using recent acquisitions.
The market appears to be punishing Clearwater for being bold. But if management executes on integration, CWAN could emerge as the category leader. Unless we see clear evidence of fundamental weakness or major failure, we intend to hold through this digestion period. Should sentiment rebound – as we believe it can – CWAN may re‑rate higher on operational scale and strategic reach.
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This Week’s Top Growth Pick: Micron (MU)
Micron Technology, Inc. delivers high‑performance memory and storage solutions that power AI, cloud, mobile, automotive, and industrial systems. Its portfolio spans DRAM, NAND, DDR5, and high‑bandwidth memory (HBM), enabling faster data processing, higher efficiency, and scalability for modern workloads. Micron’s products are critical for training large AI models, running data‑intensive applications, and supporting next‑generation devices. With leadership in advanced nodes, energy‑efficient designs, and a growing share in HBM and DDR5, Micron is positioned at the center of the AI and data infrastructure build‑out, providing the memory backbone for an intelligent, connected world.
Source: Yole Group, Next-Gen DRAM 2025 – Focus on HBM and 3D DRAM, March 2025
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Memory in the Making
Founded in 1978, Micron has evolved into one of the most critical players in the semiconductor ecosystem – providing memory and storage technologies that power AI, cloud, and connected-device infrastructure. Long known for its DRAM and NAND expertise, the company has aggressively repositioned itself over the past five years to capture outsized growth opportunities from AI and high-performance computing.
In this period, Micron has made transformative investments in both technology and capacity. It introduced advanced 1-beta and 1-gamma DRAM nodes and G9 NAND – achieving industry-leading power efficiency and density. Its entrance into high-bandwidth memory (HBM) has been particularly pivotal: Micron’s HBM3E and forthcoming HBM4 now supply multiple leading GPU and ASIC platforms, including AMD’s MI355X, with record-breaking bandwidth and power savings. This push has expanded its role from a general memory supplier to a strategic enabler of AI workloads in hyperscale data centers.
Massive U.S. manufacturing commitments have reinforced this strategy. Over the past two years, Micron announced a $200 billion investment plan – supported by U.S. federal and state incentives – to expand its domestic DRAM, HBM, and advanced packaging footprint. Construction is underway on new fabs in Idaho and New York to meet surging AI and server demand, enhancing both capacity and geopolitical resilience.
MU has also deepened collaborations with hyperscalers and key industry partners – relationships that have translated into meaningful share gains in the data center market. Through these partnerships, Micron has become the #2 brand in SSDs and the sole supplier of LP server DRAM at scale, strengthening its role as a trusted enabler of next-generation AI and cloud workloads. SSDs are critical to high-performance data center storage, delivering fast, reliable, energy-efficient capacity. LP server DRAM reduces power consumption and heat while maintaining performance – attributes hyperscalers value as they scale massive, energy-intensive AI infrastructure.
On the business side, Micron reorganized its operations around market segments such as AI – aligning resources directly to the highest-growth opportunities. Coupled with rising R&D investments, it has positioned itself not just to ride the AI wave, but to help define the memory and storage backbone of next-generation computing.
Source: Yole Group, Status of the Memory Industry Report, June 2025
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Stacks and Channels
Micron makes money by designing, manufacturing, and selling advanced memory and storage products – the essential components that power AI, cloud, mobile, automotive, and industrial systems. Its fully integrated model – owning R&D, design, and manufacturing – allows Micron to control quality, cost, and innovation cycles more tightly than competitors and to deliver technologies at a scale others struggle to match.
The company’s revenue comes from four primary end markets. Compute and Networking is Micron’s largest business segment, accounting for about 55% of total revenue. It includes DRAM, HBM, LP server DRAM, and SSDs, supplied to hyperscaler and enterprise data centers. The Mobile segment contributes around 17% of revenue, driven by DRAM and NAND in high‑end smartphones that increasingly rely on memory‑intensive AI and imaging. The Storage segment makes up approximately 16%, through client and enterprise SSDs and NAND‑based storage for PCs and servers. The Embedded segment – serving automotive, industrial, aerospace, and IoT systems – represents roughly 12%. This diversification enables Micron to capitalize on multiple growth engines while buffering against single‑market swings.
Micron’s strength lies in delivering critical innovations at the right time and at scale. Its leadership in HBM3E – and the forthcoming HBM4 – has made MU a trusted supplier for flagship AI GPUs and custom accelerators, including Nvidia’s Blackwell GB200 GPUs and AMD’s MI355X. These products meet the extreme bandwidth and power requirements of generative AI workloads. It is also the sole supplier of low‑power DRAM for servers – a niche that hyperscalers value as they work to reduce energy costs in sprawling data centers. In SSDs, Micron has climbed to the #2 market position globally, thanks to performance and energy‑efficiency advantages that are increasingly vital as storage becomes a bottleneck for AI‑intensive operations.
Micron maintains tight, multi‑year supply agreements with the world’s largest cloud and enterprise customers, including Nvidia, AMD, and several hyperscalers like Amazon, Microsoft, and Google. These contracts, while not formally disclosed in exact dollar terms, are believed to underpin a substantial portion of compute and networking revenue, helping to stabilize demand and improve visibility despite the inherent cyclicality of the semiconductor industry. Such agreements allow Micron to lock in preferred supplier status, secure long‑term volume commitments, and deepen customer trust – a key competitive advantage in winning design slots for next‑generation AI hardware.
Source: Yole Group, Next-Gen DRAM 2025 – Focus on HBM and 3D DRAM, March 2025
The total addressable market for Micron’s technologies is enormous and growing. The DRAM and NAND markets are expected to expand at a mid‑teens CAGR through the end of the decade, driven by AI, cloud services, and edge computing. Within this, HBM demand is projected to grow at more than 50% annually in the near term, fueled by the accelerating memory needs of AI models. Micron currently holds a mid‑teens share in DRAM and a smaller share in NAND but aims to expand its HBM share from roughly 5-10% today to 15-20% or more over the next 18 months as its capacity ramps.
Micron’s $200 billion U.S. manufacturing expansion – supported by CHIPS Act funding and the recently enhanced 35% tax credits – bolsters its competitive position by securing subsidized, resilient domestic capacity. Meanwhile, the July 2025 easing of U.S.‑China trade tensions, such as lifting EDA software export restrictions, provides a more constructive global backdrop.
By combining technological leadership, scale, and deep customer partnerships anchored by long‑term contracts, Micron is expanding its share of one of the most consequential and fastest‑growing markets in technology – and cementing its role as the memory backbone of the AI‑driven world.
Source: Yole Group, Status of the Memory Industry Report, June 2025
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Silicon Windfall
Micron is growing at an impressive clip, combining surging AI demand with improving profitability, cash generation, and clearer visibility into future growth. In FQ3 2025, the company reported $9.3 billion in revenue, up 37% year‑over‑year and 15% sequentially, beating both its own high‑end guidance and analyst estimates. This quarter also marked Micron’s return to GAAP profitability after seven quarters in the red, with GAAP net income of $793 million and EPS of $0.71, compared to a loss of $1.43 billion a year earlier. On a non‑GAAP basis, net income was $2.18 billion and EPS reached $1.91 – comfortably above consensus.
Growth was broad‑based but led decisively by the Compute and Networking segment, where data center revenue more than doubled year‑over‑year to a record high on the back of AI demand. DRAM revenue alone climbed to $7.1 billion, up 51% from a year ago, powered by a nearly 50% sequential surge in HBM revenue – much of it tied to ramp‑ups in Nvidia’s Blackwell GB200 GPUs, custom AI accelerators from Google and Amazon, and AMD’s MI355X.
Margins strengthened meaningfully. Non‑GAAP gross margin expanded to 41.6%, up from just 17% a year earlier, while operating margin improved to 29.7%. Management attributed these gains to higher ASPs (average selling prices) for HBM and DDR5, improved product mix, and stronger utilization. Free cash flow came in at $1.95 billion, the highest in over two years, while operating cash flow reached $3.06 billion. Micron closed the quarter with $12.2 billion in cash and investments, providing ample liquidity to fund its massive U.S. expansion without near‑term financing risk.
Looking ahead, guidance for FQ4 was bullish: revenue of $10.7 billion ± $300 million – which would mark an all‑time quarterly record – non‑GAAP gross margin of 42%, and EPS of about $2.50, all ahead of analyst consensus. Management highlighted that ongoing HBM and DDR5 ramp‑ups – particularly into Nvidia’s Blackwell platform and hyperscaler‑designed AI chips – should sustain double‑digit growth into fiscal 2026, supported by multi‑year contracts and additional design wins. While the company hasn’t issued formal full‑year guidance, analysts project FY2025 revenue to rise nearly 46% from last year, reaching $36.6 billion, with non‑GAAP EPS surging almost 370% to $6.08 – reflecting strong momentum in HBM and DRAM for AI data centers.
HBM3E and forthcoming HBM4 shipments are already sold out into late 2025, and Micron expects these technologies to continue driving revenue and margin tailwinds as it gains share in the premium AI‑focused memory market. In short, Micron’s FQ3 results validated its AI‑driven strategy, re‑established GAAP profitability, and underscored its central role as a supplier to Nvidia, Google, Amazon, and others at the forefront of the AI arms race.
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Underclocked Growth
Micron’s stock has tracked the semiconductor industry closely, climbing to an all‑time high in June 2024 before tumbling on trade headwinds, a China risk premium, memory cyclicality, and cautious guidance. In FY2024, the company was hit hard by China’s restrictions, amplifying investor fears over geopolitical risk. As a memory supplier, it also faced skepticism about sustaining peak pricing in a notoriously cyclical market. Adding to the pressure, its FQ4 2024 guidance – while solid – fell short of lofty expectations. However, in the following quarters, MU demonstrated a robust rebound, helped by easing macro and trade headwinds and surging AI demand, which drove record HBM and data center growth. The stock soared nearly 90% from its April 4, 2025 trough, bringing its year‑to‑date gain to over 45% – beating almost all its peers.
Despite this rally, MU still trades at attractive valuations, with trailing and forward P/E ratios at a notable discount to the Technology sector median. Comparing it to peers is tricky, as Micron is uniquely positioned as a direct AI enabler through its HBM and DRAM products. Yet the market appears to underprice MU’s growing AI exposure, while overemphasizing the risk that triple‑digit earnings growth is unsustainable – a common misread in cyclical memory markets. This skepticism shows in MU’s relatively high PEG ratio, which fails to capture the earnings lumpiness typical of semis.
While we agree that triple‑digit EPS growth beyond the near term is unrealistic, we expect it to normalize toward sustainable double‑digit gains after a sharp rebound from the cycle bottom. Meanwhile, MU scores lowest in its peer group on forward EV/EBITDA, Price/Book, and Price/Cash Flow – underscoring undervaluation. Its EV/Revenue is positioned in the middle of the peer range – above storage‑centric names but below analog leaders – reflecting a premium over commodity players without yet earning the valuation of stable‑margin peers. Similarly, MU’s Price/Sales and EV/Sales trade mid‑scale – highlighting stronger growth and AI leverage than storage rivals while still discounted for cyclical risk versus analog and power semiconductor names.
Unlike stock‑market sentiment, Wall Street analysts increasingly recognize MU’s AI relevance and growth prospects. Even after a three‑month rally, the stock remains a “Strong Buy,” with the average price target implying nearly 30% upside. MU has seen over a dozen price‑target hikes in the past month, with some forecasting 60%+ upside in 12 months. With memory up‑cycle, easing trade tensions, larger CHIPS tax breaks, and MU’s growing AI role, we believe its near‑term potential is closer to the high end of analyst targets.
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To Sum It All Up
Micron is a semiconductor manufacturer supplying advanced memory and storage technologies critical to AI, cloud, and next‑generation computing. With a fully integrated model, Micron designs and produces high‑performance DRAM, HBM, and NAND products used in data centers, smartphones, and embedded systems. Its premium positioning in AI infrastructure – supplying flagship GPUs, custom accelerators, and hyperscaler platforms – is strengthening as AI workloads demand ever more bandwidth and efficiency. Multi‑year customer contracts, record demand for high‑bandwidth products, and expanding U.S. capacity reinforce its growth potential. For growth investors looking to capture the upside of AI‑driven infrastructure and a cyclical recovery in memory markets, Micron offers a high‑volatility, high‑reward opportunity at the heart of the data economy.
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Smart Growth Portfolio
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Disclaimer
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