TipRanks Smart Growth Portfolio #56: Hardwired Smarts
Dear Investors,
Welcome to the 56th edition of the Smart Growth Portfolio and Newsletter, where we spotlight a company that brings the AI boom to the factory floor. But first, here are some news and updates.
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Portfolio Updates
We are preparing several Smart Growth Portfolio adjustments, including a potential exit from one position. However, given current market turbulence, we prefer not to sell into a downturn and are holding off for now. At the same time, volatility is starting to create opportunities. Several high-quality names we’ve been watching have pulled back as macro concerns drive broad selling, even where long-term fundamentals remain intact. If this continues, we expect to act selectively and add to the Portfolio at more attractive entry points.
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Portfolio News
❖ Micron (MU) dropped sharply after Google Research unveiled TurboQuant, an AI compression breakthrough that sharply reduces memory requirements for large language models (LLMs), raising fresh questions about the durability of AI-driven demand. The technique – developed by one of the most advanced research teams in the industry – cuts key-value cache memory usage by up to 6x. That has real implications, as memory intensity has been the core pillar behind MU’s recent strength.
Still, this remains early-stage research, not a deployed standard. And history suggests efficiency gains often expand total demand, not shrink it – as lower costs unlock new use cases and higher adoption across AI workloads. That’s the key counterpoint: even if memory per model declines, overall AI compute – and infrastructure spending – continues to scale rapidly. Long-term capex into AI remains massive, and Micron’s position in HBM will not be diminished overnight.
The more immediate impact is sentiment. In a volatile macro backdrop – from geopolitical tensions to macro worries – stocks like MU can react sharply to any narrative shift. Bottom line: the thesis isn’t broken, though near-term pressure appears likely.
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❖ Clear Secure (YOU) rallied after DA Davidson raised its price target to $65 from $54 and reiterated a Buy rating, citing strong Q4 results, FY26 guidance, and renewed momentum in its Amex partnership. The firm also pointed to a surge in demand driven by long TSA lines during the government shutdown, helping accelerate member sign-ups. App downloads jumped to 289,000 since early March, while expansion beyond airports – including healthcare and its Clear1 platform – is adding new growth avenues.
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This Week’s Top Growth Pick: Sanmina (SANM)
Sanmina Corporation operates behind the scenes of modern technology, building the complex hardware systems that power industries ranging from communications networks and cloud & AI infrastructure to defense, medical, industrial, and automotive applications. The company provides comprehensive end-to-end manufacturing solutions – from early design and engineering through production, testing, and full lifecycle management. As electronics systems become more advanced, interconnected, and mission-critical, OEMs increasingly rely on specialized partners for precision manufacturing at scale. Sanmina sits at that execution layer, where engineering expertise meets high-volume production, enabling customers to bring sophisticated, reliable products to market faster and more efficiently across demanding environments.
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Rack ‘n Roll
Sanmina’s roots go back to 1980, when it was founded in Silicon Valley as a printed circuit board manufacturer serving the region’s expanding electronics ecosystem. Over time, the company broadened into full-scale electronics manufacturing services, developing capabilities across design, engineering, and complex system integration. Its 2001 merger with SCI Systems marked a major turning point, scaling the business globally and strengthening its position in aerospace, defense, and communications infrastructure.
The past several years were defined by a deliberate shift up the value chain. SANM has moved away from lower-complexity, price-driven programs toward advanced systems that require tighter engineering integration and higher reliability. This includes optical networking, RF systems, and high-performance compute platforms – areas where manufacturing precision and domain expertise create a stronger competitive position.
That transition accelerated meaningfully in October 2025 with the acquisition of ZT Systems’ data center infrastructure manufacturing business from AMD. The deal repositioned Sanmina much closer to the center of hyperscale cloud and AI infrastructure, adding substantial capabilities in rack-level integration, high-speed networking systems, and large-scale compute deployments. It marked a step-change in the company’s exposure to AI-driven data center buildouts, where demand is driven by rising compute intensity and increasingly complex system architectures.
Alongside that push into cloud and AI, Sanmina has continued to expand its presence in aerospace and defense – a segment where its secure manufacturing footprint, regulatory certifications, and long program lifecycles create higher barriers to entry. These programs complement the faster-moving cloud infrastructure business, balancing growth with durability.
Technology investment and closer collaboration with customers have supported both directions. SANM’s capabilities in precision optics, microelectronics, and system-level assembly, combined with increasing automation and digitalization across its manufacturing footprint, have enabled the company’s shift from traditional build-to-print manufacturing toward a more integrated partner role deeper in customers’ development cycles.
The result is a company that has evolved from a broad-based contract manufacturer into a more specialized platform aligned with structurally growing markets – most notably cloud and AI infrastructure, alongside mission-critical defense systems.
Source: Sanmina Corporation, FQ1 2026 Earnings Presentation
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Server and Protect
Sanmina’s business sits at the physical layer of the AI economy, building the systems that allow advanced computing to operate at scale. It functions as an integrated manufacturing platform, combining design support, component production, system assembly, and lifecycle services into a unified workflow. Customers rely on SANM to take complex products from concept to deployment – delivering fully built, tested, and production-ready systems ranging from circuit boards to complete AI server racks.
Historically, this model served a broad mix of industries. Today, it is being fundamentally reshaped. Following the ZT Systems acquisition, Sanmina has shifted even more decisively toward cloud and AI infrastructure, which now accounts for over 60% of revenue. The company has evolved into a high-complexity manufacturing and system integration partner for data center infrastructure, with capabilities spanning from component-level production to rack-level integration, advanced cooling, and deployment-ready systems.
This evolution reflects a clear move up the value chain, further embedding SANM as a “picks-and-shovels” enabler of AI infrastructure. Through ZT, Sanmina expanded its capabilities in AI networking, rack integration, and high-density system builds, enabling it to participate in the most demanding layers of modern data center infrastructure. Its role centers on assembling and integrating the hardware platforms that support increasingly compute-intensive workloads.
A key advantage lies in vertical integration. SANM produces many of the critical components used within its own systems – including PCBs, backplanes, cables, and mechanical parts. This integrated approach strengthens cost control, enhances supply chain reliability, and embeds the company more deeply within customer programs. In environments where performance and delivery timelines are critical, that level of control becomes a competitive differentiator.
Growth is tightly linked to hyperscaler demand. As cloud providers expand capacity to support AI workloads, Sanmina participates directly in data center build cycles and large-scale infrastructure deployments. Its partnership with AMD further reinforces this position, with SANM serving as a preferred New Product Introduction manufacturing partner, helping bring next-generation AI systems into production. That role provides early visibility into new architectures and supports participation as programs scale.
The broader market backdrop remains supportive. Global investment in AI infrastructure and data centers continues to expand at a double-digit pace, with annual spending measured in the hundreds of billions. Even at its current size, Sanmina holds a relatively modest share of this market, leaving significant room for expansion as it deepens hyperscaler relationships and advances system-level builds. As the AI buildout accelerates, SANM’s potential end markets continue to expand.
While AI, cloud, and communications markets are now the primary growth engines, Sanmina’s diversified businesses provide program visibility and help cushion performance across cycles. Defense and aerospace continue to show strength, medical is in early recovery, and automotive and industrial demand is stabilizing. Incremental opportunities also exist in energy infrastructure buildout and regionalized supply chains.
All in all, Sanmina is increasingly aligned with the infrastructure layer of AI deployment, where complexity, scale, and execution drive value. Continued growth depends on maintaining strong execution, scaling operations efficiently, and capitalizing on sustained demand for advanced computing systems.
Source: Sanmina Corporation, FQ1 2026 Earnings Presentation
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Action Stack
Sanmina’s financial profile has shifted sharply over the past few quarters, reflecting a company moving from steady, cyclical growth into a much faster AI-driven expansion phase. Q1 FY2026 marked a clear inflection point. Revenue reached $3.19 billion, up 59% year-over-year and at the high end of the company’s outlook, extending a streak of six consecutive revenue beats. Adjusted EPS came in at $2.38, up 66% year-over-year and well above consensus, continuing a run of consistent outperformance with three straight quarters of double-digit earnings growth and a visible acceleration in the latest period.
The step-up is largely tied to the ZT Systems acquisition, which has already begun contributing at scale and reshaping the company’s revenue mix and growth profile. ZT is expected to add approximately $5-6 billion in annual run rate, forming the bulk of near-term expansion.
Integrated Manufacturing Solutions – the core segment where most AI infrastructure activity sits – surged roughly 72% year-over-year in the latest quarter, while the smaller Components, Products and Services segment grew modestly at around 4%, underscoring SANM’s accelerating shift toward higher-growth programs. That mix is now driving the overall trajectory, with management guiding for continued strength into Q2, where revenue is expected in the $3.1-3.4 billion range, implying roughly 60%+ year-over-year growth at the midpoint, and adjusted EPS of $2.25-2.55, up about 67% year-over-year.
Profitability has held up well through this transition. Non-GAAP operating margin remained around 6.0%, slightly above prior levels, with gross margin improving modestly to about 9.3%. While GAAP operating margin was lower at roughly 2.3%, this largely reflects acquisition-related costs, inventory adjustments, and integration expenses rather than underlying deterioration. Management continues to target longer-term operating margins in the 6-7%+ range as scale builds and mix improves. Importantly, the ZT acquisition is margin-neutral to slightly accretive, limiting dilution risk despite the rapid scale-up.
Cash generation remains solid despite elevated investment. Operating cash flow reached $179 million in the quarter, with free cash flow of $92 million. SANM ended the period with approximately $1.42 billion in cash and about $3.6 billion in total liquidity, while net leverage remained low at ~0.8x even after the acquisition. Management expects leverage to move toward a 1.0-2.0x range as the balance sheet supports further growth.
The main pressure point is working capital. Inventory has increased to roughly $2.2 billion, up more than 70% year-over-year, with inventory turns declining to about 5.3x. This reflects the scaling of AI-related programs and the integration of ZT, but it also raises the importance of execution as demand ramps. Capex is also rising, running at roughly $80-95 million per quarter with the majority directed toward capacity buildout for fiscal 2027-2028 demand, positioning the company to support the next phase of expansion.
That investment underpins an increasingly compelling trajectory. Management is targeting approximately $14 billion in revenue for FY2026, with a path toward at least $16 billion by 2027, supported by AI infrastructure demand. Analysts broadly expect earnings to continue expanding at a healthy double-digit pace beyond the initial post-acquisition surge.
Sanmina is scaling into a larger, more complex business where execution, working capital discipline, and hyperscaler demand cycles will shape results. For now, accelerating growth, stable margins, and solid cash generation point to a company entering a higher-growth phase with momentum on its side.
Source: Sanmina Corporation, FQ1 2026 Earnings Presentation
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System Loading
Sanmina operates within the EMS industry, where a select group of companies is seeing rising exposure to AI-driven data center and infrastructure demand. Its closest growth peer is Celestica, which has already executed a similar strategic shift toward high-complexity cloud and data center systems. Jabil serves as the large-cap industry benchmark, illustrating how the market values scaled, diversified EMS platforms with infrastructure exposure. Plexus provides a useful contrast as a high-complexity manufacturer delivering slower, steadier growth without the same degree of AI acceleration. Together, these peers help frame SANM’s current positioning: transitioning from a traditional, diversified EMS into a more specialized AI-driven infrastructure player.
Over the past year, the divergence in stock performance across Sanmina’s peer group has been driven less by core business quality and more by timing, visibility, and market conviction around AI exposure. SANM’s gain of roughly 75% reflects a clear inflection following the ZT Systems acquisition – but the market is still early in recognizing the scale and durability of that shift. By contrast, Celestica’s surge reflects a fully established position within hyperscale AI infrastructure, where strong visibility has already translated into both earnings growth and multiple expansion. Jabil’s strong rally has been supported by scale and consistent execution, while Plexus has tracked a more traditional, fundamentals-driven path without a major AI catalyst, though also performing well. The setup is clear – SANM has entered the AI-driven growth cycle, but its valuation has yet to fully catch up to its new earnings trajectory, leaving room for further re-rating as execution continues.
Sanmina’s valuation metrics reinforce that positioning. Its revenue and EBITDA growth over the past year has been second only to Celestica’s, with momentum expected to carry into the next 12 months. Yet despite that acceleration, SANM continues to trade at a clear discount across nearly every major metric. Both trailing and forward non-GAAP P/E, EV/EBITDA, EV/Sales, and Price-to-Cash-Flow remain below peers – including the slower-growing Plexus – and sit at a discount to broader technology sector averages. The gap is most visible in its forward PEG ratio of roughly 0.55x, a level that stands out as unusually low given the company’s current growth trajectory. That disconnect points to meaningful re-rating potential as the market gains confidence in the durability of its AI-driven expansion. Wall Street appears to be leaning in that direction, with consensus price targets implying close to 50% upside from current levels.
Sanmina also maintains a disciplined and opportunistic approach to capital returns through share repurchases. The program is structured as a flexible, long-term authorization, used both to offset dilution from stock-based compensation and to return excess capital when conditions allow. In late January 2025, the board approved an additional $300 million in buybacks with no expiration date, supplementing roughly $37 million remaining from prior authorizations and signaling a continued commitment to shareholder returns alongside ongoing investment in data center and regional capacity. The company repurchased approximately $79 million of stock in fiscal Q1 2026, following about $114 million in fiscal 2025. While the pace may moderate in the near term following the ZT acquisition, Sanmina still retains around $160 million in remaining authorization, preserving flexibility to resume more active buybacks as integration progresses.
Sanmina is now operating from a fundamentally different base than just a year ago. With AI-driven growth accelerating, margins holding steady, and capital allocation remaining disciplined, the company is transitioning into a higher-quality earnings profile. As AI-driven revenue scales and execution continues, the remaining valuation gap versus peers looks less like a reflection of risk and more like an opportunity for re-rating.
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To Sum It All Up
Sanmina sits at the physical backbone of the AI infrastructure buildout, where the real bottleneck is no longer compute alone, but the ability to manufacture, integrate, and deploy complex systems at scale. Its evolution toward higher-value data center and cloud platforms reflects a broader shift in the industry toward system-level solutions, where execution, speed, and reliability carry increasing weight. With deeper hyperscaler alignment, expanding capabilities, and a more integrated operating model, SANM is positioning itself closer to where value is being created in the AI ecosystem. The transformation is already visible, but still early in recognition. If integration continues to execute and demand for AI infrastructure remains durable, Sanmina has the potential to transition from a traditional manufacturer into a scaled enabler of next-generation computing infrastructure.
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Smart Growth Portfolio
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Disclaimer
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