TipRanks Smart Growth Portfolio #20: Fresh Perspective
Dear Investors,
Welcome to the 20th edition of the Smart Growth Portfolio and Newsletter.
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Portfolio News
❖ Enova International (ENVA) will open the Smart Growth Portfolio’s earnings season. The fintech company is scheduled to report on Friday, July 24. ENVA has surpassed analyst EPS consensus in the six preceding quarters, which, along with its strong earnings growth potential, has driven analyst enthusiasm. Over the past two weeks, TD Cowen, Jefferies, and BTIG have lifted Enova’s price target by a significant amount, reiterating their “Buy” ratings. The stock is up over 55% in the past 12 months.
❖ Micron (MU) saw its stock drop following renewed speculation that the Trump administration will impose tariffs on semiconductors as soon as the end of July. After returning from an AI summit in Pittsburgh, President Trump told reporters that pharmaceutical tariffs – expected to start low by month’s end and escalate steeply over the next year – would come first, with chip tariffs following a similar timeline and described as less complicated to implement. The prospect of new levies on imported semiconductors – even without details on scope or rates – weighed on chipmakers broadly. Adding to the pressure, ASML – the world’s largest chipmaking equipment maker – said it could not confirm growth in 2026 due to macroeconomic uncertainty.
In more positive news, at the summit Trump announced over $80 billion in public-private investments to turn Pennsylvania into a hub for artificial intelligence and energy infrastructure. Google, Blackstone, CoreWeave, and others pledged billions to build AI data centers and expand power capacity. For Micron, this signals strong domestic demand for high-bandwidth memory and DRAM – as cloud providers and AI platforms scale up. While near-term tariff uncertainty weighed on the stock, the Pennsylvania investments underscore a longer-term opportunity as Micron ramps U.S. production to support AI-driven growth and align with reshoring incentives.
❖ Goldman Sachs initiated coverage of Nutanix (NTNX) with a “Buy” rating and $95 price target – implying an upside of nearly 27% from current levels – calling it a key player in enterprise infrastructure modernization. The firm highlighted Nutanix’s HCI platform, which integrates computing, storage, and networking into a software-defined stack, delivering cloud-like agility on-premises and cutting total ownership costs by over 40%.
Goldman expects Nutanix to capture $300-600 million in ARR over fiscal years 2025-2029, driven by VMware customer migration following Broadcom’s acquisition. Analysts also noted Nutanix’s strengthening ecosystem with Dell, Cisco, and Pure Storage, and its evolution toward hybrid multi-cloud orchestration, addressing enterprise needs for cloud migration, automation, and AI-ready infrastructure. The report positions Nutanix as well-placed to benefit from the shift to hybrid and multi-cloud environments.
❖ Itron (ITRI) has seen its stock surge this year, significantly outpacing broad indexes. The stock has risen by 20% since its inclusion in our Growth Portfolio on May 30, versus Nasdaq Composite’s ~9.5% gain over the same period. As a result, analysts are scrambling to raise price targets, trying to keep up with ITRI’s outperformance. Since entering the Portfolio, Itron has seen PT upgrades from TD Cowen, TD Securities, Oppenheimer, and Guggenheim, with all of them confirming the stock’s “Buy” rating. Guggenheim lifted its price target on ITRI by the largest amount – from $133 to $155, a Street-high target. However, as the stock is now trading near its consensus target (unless it raises following additional PT upgrades), the firm removed Itron from its “Best Idea” bracket.
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Under Review
❖ We are keeping Cellebrite DI (CLBT) under review due to a widening rift between Wall Street appraisals and market sentiment.
Cellebrite DI provides digital intelligence solutions that assist law enforcement, enterprises, and government agencies in investigating and managing digital evidence. Leveraging advanced AI and forensic tools, the company enhances data accessibility and compliance while streamlining investigations.
Wall Street rates CLBT a “Strong Buy,” with an average price target implying an upside of over 60% from current levels. All seven of eight analysts covering the stock rate it a “Buy,” with Craig-Hallum and Needham reaffirming their rating on July 9.
Moreover, Deutsche Bank has recently included Cellebrite DI in its “Fresh Money Quarterly” list, highlighting it as one of its top sector picks for Q3. The bank highlighted CLBT’s underperformance year-to-date, but said it maintains a constructive view on the stock, citing a robust and unchanged long-term opportunity for growth in digital investigations and intelligence software. Deutsche sees Cellebrite’s share price lag as a strategic entry point backed by resilient digital intelligence market growth, recurring revenue expansion, new federal opportunities, and continued product innovation.
Despite these optimistic views, Cellebrite’s stock continues to decline, down more than 35% year-to-date. Notably, CLBT’s trend has diverged from the recent broader recovery in small-cap growth stocks.
Although news coverage of Cellebrite is limited, there appears to be no event warranting extreme negativity. On the contrary, the company recently appointed a new CFO – David Barter, a seasoned and successful executive with a track record of driving growth and improving profitability. Additionally, CLBT expanded its partnership with the National Center for Missing and Exploited Children (NCMEC), reinforcing its strong reputation in combating crime.
Given this growing disconnect between stock performance and the company’s standing with customers, partners, and analysts, we are not rushing to sell. Instead, we prefer to wait and see whether investor sentiment realigns with the fundamentals.
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❖ We are keeping Alkami Technology (ALKT) under review due to softening analyst sentiment and negative market perception of macro-exposed fintech stocks.
Over the past quarter, the average 12-month price target has declined – with Needham, Lake Street, and JPMorgan all lowering their targets in the past two months alone. While no rating downgrades have emerged, there have been no upgrades since March, and the tone from Wall Street has grown more cautious.
However, these comments aren’t company-specific – rather, they reflect near-term headwinds facing fintech firms tied to the economy’s health. That divergence is evident in the group’s performance over the past couple of months: while investing, asset management, and trading-related stocks outperformed, those focused on SMBs, merchants, payments, and community banks have generally lagged.
Alkami’s exposure to regional banks and credit unions leaves it vulnerable to macroeconomic headwinds. Still, despite the macro uncertainty, the company reported solid Q1 2025 results – with revenue up 28.5% YoY and continued improvement in adjusted EBITDA, gross margins, and narrowing GAAP net losses. However, ALKT slightly missed on non-GAAP EPS versus consensus and continues to struggle with cash flow consistency.
Alkami continues to prioritize reinvestment for growth rather than immediate profitability. This strategy supports long-term growth but pressures short-term returns. While small caps and growth strategies have seen some rebound recently, the positive sentiment doesn’t apply across the board at the moment due to continued high volatility and elevated uncertainty. As a result, investors lean toward profitable or cash-generative tech names, causing “growth at all costs” strategies like Alkami’s to fall out of favor.
That said, we are not rushing for the exits. Alkami’s position at the intersection of cloud banking, AI, and client personalization still offers strategic upside. The recent acquisition of MANTL strengthens its onboarding suite, and integration has proven much smoother than previously expected. In fact, Alkami – through MANTL – recently became the first fintech to integrate Plaid Layer for regional banks, enhancing its competitive stance against traditional providers and fintech challengers alike.
While we believe in Alkami’s long-term potential, we are mindful of the sell-off that could make it harder for the stock to regain momentum, even with sound fundamentals. We’ll continue monitoring ALKT’s news and stock performance until we see a catalyst that could shift our view – or until the company’s next earnings report on July 30. 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 ambitious acquisition strategy.
While CWAN has declined roughly 20% year-to-date, this appears to stem more from investor anxiety over integration challenges than from any 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. These 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, resulting in dilution and a more leveraged balance sheet – factors that weigh on near-term sentiment amid elevated interest rates.
However, analysts remain optimistic, overwhelmingly assigning CWAN a “Buy” rating. There have been no downgrades in the past two months; on the contrary, Piper Sandler initiated coverage with a “Buy” in late June. Although Oppenheimer slightly lowered its Street-high price target, it now matches Morgan Stanley’s and implies an upside of ~63% from current levels. Morgan Stanley reaffirmed its “Buy” rating and $36 price target on July 16.
Meanwhile, CWAN’s business momentum remains positive, tilting our sentiment toward continuing to hold the stock in the Portfolio. Two weeks ago, 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 Clearwater’s strategy and demonstrates its ability to deliver an integrated, cloud-native solution leveraging its recent acquisitions.
Moreover, on July 9, Clearwater announced a strategic partnership with Bloomberg, incorporating CWAN’s accounting platform into Bloomberg’s enterprise investment solutions to create a comprehensive offering for asset owners and managers. This is a major milestone, strengthening Clearwater’s competitive position against larger full-stack providers and enhancing its value proposition as an open, interoperable platform built on best-of-breed partnerships. Through this collaboration with Bloomberg’s global institutional footprint, CWAN gains access to an expanded client base – potentially accelerating client acquisition and driving earnings growth beyond its current trajectory.
To support this momentum, Clearwater has bolstered its leadership team with experienced executives from top-tier firms. Barrie Mellin joins as Head of Insurance and Asset Owners, bringing over 20 years at BlackRock. Dennis Lee, with 30 years in senior roles at EY, PwC, and Deloitte, joins as Head of Insurance Solutions. Raheel Syed becomes Global Head of Professional Services, bringing 25 years of experience including as a Partner at EY and senior roles at Manulife and RBC.
While we remain mindful of potential integration shortfalls, we view Clearwater’s stock underperformance as temporary – though we choose to remain vigilant for now. CWAN is scheduled to release its Q2 earnings on July 30.
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This Week’s Top Growth Pick: Freshworks (FRSH)
Freshworks, Inc. is a provider of people-first AI service software that simplifies how businesses support their customers and employees. Its platform combines customer experience, employee experience, and sales and marketing tools into a unified, intuitive suite. By infusing AI throughout its products, Freshworks helps organizations streamline workflows, resolve issues faster, and deliver more engaging interactions. The company’s approach removes much of the complexity traditionally associated with enterprise software, making powerful capabilities accessible to teams of all sizes. As companies navigate digital transformation and rising service expectations, Freshworks positions itself as a partner that elevates both efficiency and satisfaction – enabling businesses to deliver modern, responsive service at scale without compromising simplicity.
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From Helpdesk to Hyperscale
Freshworks was founded in 2010 in Chennai, India, as a cloud-based alternative to cumbersome, on-premises customer service software. From the outset, the company designed its products for a global audience, offering simple, affordable tools that resonated with small and midsize businesses worldwide. As its customer base grew and it attracted funding from prominent U.S. investors like Accel and Sequoia, Freshworks expanded its operations and presence in North America – eventually relocating its corporate headquarters to San Mateo, California, where it is officially incorporated today.
The past five years have been particularly transformative. Since its 2021 IPO on Nasdaq, Freshworks has accelerated product innovation and expanded into larger enterprise accounts. Central to this evolution has been the development of Freddy AI – which evolved from a simple support chatbot into a comprehensive suite of AI tools, including Copilot, Agent, and Insights – now embedded across the platform to automate workflows, deliver predictions, and elevate customer and employee engagement.
In late 2024, Freshworks acquired Device42 – a leader in hybrid IT asset management and discovery – bringing advanced capabilities for tracking, managing, and visualizing IT infrastructure across on-premises and cloud environments. This enhanced the Freshservice IT operations offering and strengthened its position with enterprises managing complex, distributed systems.
Freshworks has also forged deeper partnerships with hyperscalers including Microsoft Azure and Google Cloud, integrating its software more tightly into hybrid and multi-cloud environments. In 2025, it launched an expanded global partner program to engage resellers and service providers more effectively – broadening its reach through partner-led channels.
Since Dennis Woodside became CEO in 2023, the company has tightened its go-to-market execution, expanded its presence in mid-market and enterprise segments, and aligned its product roadmap more closely with the needs of larger, more complex customers – while maintaining the usability and accessibility that fueled its early growth.
By combining investments in AI, strategic M&A, ecosystem partnerships, and disciplined execution, Freshworks has successfully evolved from a disruptive challenger into a credible enterprise software player – proving that simplicity and scale can thrive together.
Source: Freshworks, Inc. Q1 2025 Earnings Presentation
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Workflows That Work
Freshworks’ business revolves around delivering AI-powered software that helps companies manage customer and employee experiences more effectively. At its core, Freshworks is a cloud-native, subscription-based SaaS company, with over 90% of its revenue recurring – a hallmark of predictable, high-margin enterprise software.
The company generates revenue through two complementary streams delivered via its integrated platform. The larger share – about 60% of annual recurring revenue – comes from mid-market and enterprise customers. This segment has grown steadily in recent years, with high-profile wins such as the NHS, Marvel, and Databricks underscoring its appeal to organizations with complex, large-scale needs. The remaining 40% is derived from small and midsize businesses, which remain part of Freshworks’ heritage but contribute less to its growth as the company moves further upmarket.
At the heart of the platform is a suite of interconnected products that span customer experience, employee experience, IT service, and sales and marketing. What began as a simple cloud helpdesk has evolved into a comprehensive offering: Freshdesk powers omnichannel customer support with automation and conversational AI, while Freshservice enables IT service management and internal workflows. The acquisition of Device42 deepened these capabilities, adding hybrid IT asset discovery and management – critical for enterprises juggling cloud and on-premises infrastructure. Rounding out the suite are Freshsales and Freshmarketer, which provide CRM and marketing automation tools that help customers drive revenue and engagement.
Customers pay subscription fees based on usage, with many opting for multi-year contracts that embed Freshworks deeper into their operations. A defining element of its differentiation is the full integration of Freddy AI – now woven into all product lines to automate workflows, generate insights, and enhance customer and employee interactions. This broad AI rollout, combined with its ease of deployment and approachable user experience, gives Freshworks an edge over competitors that either focus narrowly on a single domain or impose high complexity at the enterprise level.
The total addressable market for customer and employee experience software remains substantial and underpenetrated. Freshworks estimates this market in the tens of billions of dollars globally – driven by rising service expectations, AI adoption, and hybrid work trends. Within this growing market, Freshworks still holds a modest share, leaving significant room to expand as it gains traction in mid-market and enterprise accounts. With sticky SaaS economics, an AI-first platform, and expanding partnerships with cloud leaders, Freshworks is well positioned to capture more of this opportunity and strengthen its foothold in a fast-growing space.
Source: Freshworks, Inc. Q1 2025 Earnings Presentation
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Beyond the Rule
Freshworks has maintained solid growth momentum across the past few quarters, consistently exceeding both its own guidance and analyst expectations. In Q1 2025, revenue rose 19% year-over-year to $196.3 million, topping the company’s prior forecast of $190-193 million and coming in well above Wall Street’s consensus of around $192 million. Non-GAAP operating income reached $46.4 million – significantly above the guidance range of $32.5-34.5 million. FRSH’s non-GAAP EPS came in at $0.18 versus the consensus expectations of $0.13.
This quarter extended a streak of improving profitability and cash generation. Freshworks delivered a non-GAAP operating margin of 24% and adjusted free cash flow margin of 28%, with revenue growth and free cash flow margin together reaching 47% – extending its performance above the “Rule of 40” benchmark, which it first achieved in Q3 2024. The company ended the March quarter with over $1 billion in cash, cash equivalents, and marketable securities, providing ample runway despite continued GAAP losses.
Revenue growth has moderated from the 22% pace in Q4 2024 but remains robust. Employee Experience (EX) – driven by Freshservice and boosted by the Device42 acquisition – surpassed $420 million in annual recurring revenue (ARR), growing 33% YoY on a constant-currency basis. The EX segment has shown significant upmarket traction, aligning with the company’s mid-market and enterprise focus.
Customer metrics remain healthy. Freshworks added over 1,000 net new customers in Q1, ending with more than 73,300 globally, while maintaining a net dollar retention rate of 105% (constant currency) – a stable result in line with recent quarters. Notably, Freddy AI has become a real driver of engagement and upselling: over 2,700 customers now use its Copilot features, underscoring how AI is translating into productivity gains and operational efficiencies at customer sites.
On cash flow, the company generated $58 million in operating cash flow in Q1 – up from $41 million in Q4 – and $55.4 million in adjusted free cash flow, reflecting disciplined expense management. Margins have expanded across the board, with non-GAAP gross margin reaching 86.2%.
For Q2 2025, FRSH guided revenue to $197-200 million, reflecting 13-15% YoY growth – modestly ahead of analyst expectations – and non-GAAP EPS of $0.10-0.12. For the full year, it expects revenue of $815-824 million, up 13-14% year-over-year, with continued profitability improvement.
While the company has not yet achieved GAAP profitability, net losses have narrowed markedly, from -$138 million in FY2024 to just -$1.3 million in Q1 2025. Freshworks’ strong balance sheet and free cash flow generation suggest it has plenty of runway to reach sustained GAAP profitability within the next few quarters.
Source: Freshworks, Inc. Q1 2025 Earnings Presentation
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Priced to Surprise
Over the past year, FRSH has followed the trend in the broad universe of stocks of companies working in IT Service Management, employee workflows, and automation software space. While all peers have dropped year-to-date – with declines ranging from about 10% to 22% – Freshworks’ stock has fared better than most at around -12%, despite its much smaller size and earlier growth and profitability stage than peers like HubSpot or Atlassian.
Moreover, as momentum appears to have shifted recently – with sentiment starting to favor growth stocks – FRSH looks to be on an uptrend. Although this momentum will be tested on July 29, when the company is scheduled to report its Q2 earnings, investors seem to be betting on another positive surprise, following a track record of 13 straight quarterly EPS beats. Wall Street appears to agree, rating Freshworks a “Strong Buy” with an average price target implying an upside of nearly 50% from current levels.
This upside looks compellingly undervalued right now, especially when compared to its peers. Although FRSH’s comps are much larger and more established, the company is competing with or even exceeding some peers on gross and free cash flow margins, as well as past and expected revenue growth. Meanwhile, Freshworks’ expected EBITDA and EPS growth leave all of its peers far behind.
This high expected profit growth isn’t fully reflected in Freshworks’ multiples. Its Non-GAAP FWD PEG ratio of 0.81 is lower than that of its peers – and low in absolute terms – which, based on the company’s track record, suggests undervaluation rather than investor skepticism about its growth sustainability.
This notion of undervaluation, which may present a great entry opportunity, is also evident in other valuation metrics. FRSH’s Non-GAAP P/E – both trailing twelve month and forward – as well as the TTM Price/Cash Flow and forward EV/EBITDA, are in the bottom of the peer valuation scale. Meanwhile, its TTM Price/Sales and TTM and forward EV/Sales are the lowest in the peer group.
In a market where true growth at a reasonable price is hard to find, Freshworks offers both. If the company can sustain its trajectory and deliver yet another earnings beat, the stock’s current undervaluation could quickly turn into a breakout opportunity.
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To Sum It All Up
Freshworks delivers AI-powered software that transforms customer and employee experiences through a simple, intuitive SaaS platform. Its integrated suite spans customer support, IT service, and sales and marketing, helping organizations automate workflows, improve engagement, and operate more efficiently. Positioned between legacy enterprise software and smaller point solutions, Freshworks appeals to both mid-market and growing enterprise customers with its accessible, AI-driven approach. Strong momentum in employee experience, rising adoption of its Freddy AI products, and expanding partnerships with cloud leaders reinforce its competitive edge. For growth investors looking to capitalize on the convergence of AI, service automation, and hybrid work trends, Freshworks presents a compelling case – blending operational discipline, accelerating upmarket traction, and considerable opportunity in a large, dynamic market.
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Smart Growth Portfolio
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Disclaimer
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