Riding The Current
In this edition of the Smart Investor newsletter, we spotlight a core supplier of electrical systems powering industry, utilities, and data centers. But first, let’s review the latest Smart Portfolio developments.
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Portfolio News and Updates
❖❖ Last week’s “SaaSpocalypse” – a sharp sell-off in software stocks, unleashed by the market’s reaction to Anthropic’s new set of AI agents – added another angle of strength to the AI investment case. If a set of automation tools can re-rate an entire market segment, the thinking goes, what else can AI achieve? While not subscribing to the “AI eating software” narrative (after all, Jensen Huang himself called it “illogical”), we at Smart Investor do not believe in trying to catch falling knives; that’s why we haven’t held any enterprise software stocks for months.
At the same time, we do believe that we are at the first innings of AI revolution, where the physical “picks and shovels” are key beneficiaries of the digital gold rush. Infrastructure, networking and connectivity, electronic components, power and cooling solutions – i.e., tangible inputs – are now at the receiving end of hyperscaler capex. Once those hundreds of billions start generating proportionate returns, the top-spending megacaps like Alphabet (GOOGL), Amazon (AMZN), and Microsoft (MSFT) will be the ones that fly high on the markets. We prefer to hold them now despite the jitters caused by their massive spending, as later may be too late.
Meanwhile, the AI supply chain is rebounding in force thanks to the hyperscalers’ capex guidance, with its components – from data-center construction project manager Sterling Infrastructure (STRL) to AI networking specialist Arista (ANET) – poised to benefit from that massive spending spree. Microsoft, Amazon, Alphabet, and Meta Platforms spent nearly $400 billion on capex in 2025, and that’s excluding data-center leases. The money flowed into building out the AI infrastructure and hardware to support their AI ambitions. The trend is poised to accelerate this year: as the four giants (Microsoft, Alphabet, Amazon, and Meta Platforms) announced major increases in capex for 2026, their combined AI investments may exceed $700 billion – and rise even further in 2027.
Monstrous AI investments are shrinking margins and depressing free cash flows, making investors jittery. However, we tend to agree with Nvidia’s CEO that “surging capital expenditures for AI infrastructure are justified, appropriate and sustainable,” provided they are backed by fast-rising revenues, robust balance-sheets, and management teams with a proven record of disciplined capital allocation. Microsoft’s steady expansion and well-targeted investments, Alphabet’s rapid transformation into an AI leader, and Amazon’s capability to create a cloud empire on top of a retail one are testament to that.
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❖❖ Alphabet (GOOGL) flew past analyst consensus on its Q4 2025 top and bottom lines, continuing its multi-quarter trend. Consolidated revenue rose 18% year-over-year to a record of $113.8 billion versus $111.4 expected, while EPS jumped by more than 31% to $2.82, compared to the consensus of $2.63.
Google Services division, which includes Search, YouTube, Google subscriptions, and more, showed solid momentum with revenue rising 14% year-over-year. Search revenues accelerated to $63.1 billion (up 17%), driven by broad strength across verticals, further deflecting earlier investor fears of AI cannibalizing search income. Although YouTube ad revenue came slightly below expectations due to difficult comps (last year’s U.S. election ad spend), the platform delivered solid 9% growth.
Meanwhile, Google Cloud revenue soared by 48% year-over-year – the fastest among the hyperscalers – reaching $17.7 billion versus $16.2 billion consensus. The acceleration was driven by surging enterprise AI infrastructure and solutions demand, as well as larger deal sizes. Cloud operating income more than doubled to $5.3 billion and operating margin expanded to 30.1% from 17.5%, while backlog grew 55% sequentially and more than doubled year-over-year to $240 billion.
The outstanding quarter closed a winning year for GOOGL, which marked the company’s transition from AI laggard to AI frontrunner. The tech giant is leveraging its full-stack dominance and rapid AI user growth to gain even more ground, with many analysts naming it the leader of the race at least in terms of growth.
Alphabet’s 2025 consolidated revenue exceeded $400 billion for the first time, reaching $402.8 billion, up 15% and above expectations. Net income jumped 32% to $132.2 billion, while EPS surged 34% to $10.81, exceeding Wall Street consensus. Operating income reached $129 billion with margin remaining unchanged at 32%, despite heavy AI-related investments. YouTube (ads and subscriptions) revenues exceeded $60 billion for the full year, contributing meaningfully to overall Google Services strength, which grew 15%. Google Cloud ended the year with an annual run rate above $70 billion, fueled by AI infrastructure and solutions demand.
Beyond the ledger, GOOGL achieved several important operational and business milestones. Gemini App reached over 750 million monthly active users, while the model is processing more than 10 billion tokens per minute via the Gemini API. Moreover, Google Cloud became the first major cloud provider to offer liquid-cooled Blackwell GPU clusters at scale, with the company noting a significant increase in number of $1 billion+ AI infrastructure deals signed in 2025. Google Search underwent the biggest evolution in a decade through AI Mode and AI Overviews, with the latter rolled out to more than 1.5 billion monthly users globally. The diversified tech conglomerate also notched notable achievements across YouTube, Android ecosystem, Pixel devices, and Waymo.
According to GOOGL management, this is just the beginning. Alphabet expects 2026 capex of $175-185 billion, ramping throughout the year. While the company warned back in October that a significant increase in capex is coming this year, the size of the raise came as a shocker: the top end of that forecast would be more than double its 2025 spend. The capex will go toward AI compute capacity, cloud customer demand, custom silicon, strategic investments, and more. According to Alphabet CEO Sundar Pichai, the need to ramp up to meet surging demand amid “power, land, and supply chain constraints” is what is keeping GOOGL executives up at night.
Alphabet has embarked on a borrowing spree to fund its AI spending without reducing its cash balances, while optimizing for taxes and retaining liquidity. In essence, GOOGL is borrowing far and wide not because it has to, but because it is a cheap and effective method of funding. Since the Google parent has one of the strongest credit ratings among global technology firms, debt comes cheap – and investors are eager to lend to the cash-churning business. This week, the company raised $20 billion in its biggest-ever U.S. dollar bond sale, which attracted over $100 billion in orders and depressed spreads well below expected levels. Moreover, Alphabet plans a 100-year bond sale – the first such deal for a tech company since the dot-com bubble – as the market’s appetite for high-quality, long-duration tech paper seems insatiable.
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❖❖ Amazon (AMZN) has seen its shares slide over several days post earnings despite a surge in total and cloud revenues, as the AWS parent revealed plans to outspend its hyperscaler peers in the AI race.
In Q4, AMZN’s consolidated net sales rose 14% year-over-year to $213.4 billion, versus expectations of about $211 billion. Although EPS missed analyst’s expectations slightly, it was still solid at $1.95. Operating income increased to $25.0 billion despite special charges, with operating margin expanding to 11.7%. For the full year, Amazon reported 12% increase in total revenue to $717 billion, led by 20% growth at AWS. 2025 operating income increased 17% to $80 billion, and EPS surged by nearly 30% from 2024 to $7.17, demonstrating strong growth across core businesses while making significant AI investments. Operating cash flow rose to $139.5 billion, up 20% year-over-year. However, free cash flow decreased to $11.2 billion for the trailing twelve months, driven primarily by investments in AI capacity.
AWS Q4 sales accelerated to $35.6 billion (+24% year-over-year, its fastest growth in 13 quarters), implying an annualized run rate of $142 billion entering 2026. AWS operating income was $12.5 billion and operating margin expanded to 35%.
The custom silicon business (Trainium and Graviton) surpassed $10 billion in annual revenue run rate in Q4 2025 with triple-digit year-over-year growth, driving better margins and reducing Nvidia dependency. This makes AWS’s custom chip business one of the fastest-growing multi-billion-dollar product lines at Amazon. Additionally, Bedrock AI service reached multi-billion dollar ARR, growing at ~60% quarter-over-quarter in the second half of 2025. Bedrock is now one of the fastest-scaling generative AI platforms among the major cloud providers thanks to strong enterprise adoption of its multi-model strategy. These three data points – AWS, custom chips, and Bedrock – demonstrated that AWS’s heavy AI investment is finally translating into very large, rapidly growing, high-margin revenue streams.
While initial confirmation for AI ROI has been received, investors weren’t prepared for the announcement of an over 50% hike in Amazon’s capex plans, with about $200 billion – more than at any other hyperscaler – earmarked for 2026 investments. CEO Andy Jassy echoed GOOGL’s Sundar Pichai, explaining the necessity of capacity expansion. This is backed by the numbers: AWS backlog reached $244 billion at end-quarter – slightly more than at Google Cloud – up 40% year-over-year.
Alphabet’s enormous cash pile can finance many AI investments without straining, while its bulletproof balance sheet allows for cheap optional borrowing. Amazon’s position is more nuanced, as it has more cash tied up in operations and carries historical debt used to finance retail business expansion, which makes it more vulnerable to FCF squeezes. This explains the significantly more negative market reaction to its announced capex surge. In Q4, Amazon’s FCF cratered by over 70% year-over-year – and, according to analysts from Citi, Morgan Stanley, BofA, and others, the company is now looking at negative free cash flow of around $20 billion in 2026. This would force borrowing or raising equity, while Alphabet remains in the positive cash zone even after accounting for prospective capex and without raising debt.
Amazon’s story at this point is highly reminiscent of Oracle’s (ORCL): despite massive ROI from cloud and AI expected to arrive in the longer term, both risk short-term financing pressure, with these fears driving negativity. We see no reason to sell AMZN, but are watching closely, at this point concerned more about sentiment swings than fundamentals.
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❖❖ According to media reports, the Trump administration is penciling in targeted exemptions for Amazon (AMZN), Microsoft (MSFT), and Alphabet’s (GOOGL) Google, shielding them from the planned new tariffs on imported semiconductors. The so-called “Big Tech carve-out” would be linked to investment commitments made by the Taiwan Semiconductor Manufacturing, aka TSMC (TSM).
The world’s AI chip foundry has committed $165 billion to build and expand factories in Arizona and other U.S. locations. Under the proposed framework, TSMC would be allowed to import a certain volume of chips tariff-free – in proportion to the production capacity it is building in the U.S. It would then pass those tariff exemptions on to its major U.S. customers – the hyperscalers – effectively shielding their AI data-center buildouts from higher chip costs. This exemption structure increases pressure on foreign chip production while rewarding domestic investment and protecting AI growth.
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❖ Meanwhile, TSMC (TSM) – which produces about 90% of the world’s most advanced chips used in AI – has provided another data point in support of the broad AI narrative. The Taiwanese giant’s January revenue surged 37% year-over-year – its fastest clip in months – hitting $12.7 billion, driven by strong global AI spending. This growth is notably above the 30% rate the company forecast for 2026.
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❖❖ Credo Technology (CRDO) reported preliminary results for the third quarter of fiscal 2026. The data-center connectivity specialist expects to report fiscal Q3 2026 revenue in the range of $404-408 million, well above both the Street consensus and the high end of CRDO’s previously communicated guidance. Looking towards the end of fiscal year 2026 and into fiscal 2027, Credo expects sequential revenue growth in the mid-single digits, leading to more than 200% year-over-year growth in the current fiscal year.
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❖❖ Cisco (CSCO) introduced Silicon One G300 switch chip for AI data centers, built using TSMC 3-nanometer technology. Featuring a 102.4 Tbps switching capacity, the G300 sets a new standard for AI backend networking. This silicon is specifically designed to power massive AI clusters, offering optimal performance, security, and reliability. By offering 33% increased network utilization and 28% reduced job completion time, the G300 enhances the efficiency of GPU hours, thus improving data-center profitability. According to industry insiders, the Silicon One G300 chip poses a serious competition to Nvidia’s Spectrum-X and Broadcom’s Tomahawk in the high-end AI networking silicon market, a key competitive arena in AI infrastructure sphere that draws much of the hyperscalers’ capex.
The networking giant also revealed new high-performance systems, Cisco N9000 and Cisco 8000, running on the G300 chips and featuring liquid cooling technology that enhances bandwidth density and improves energy efficiency by nearly 70%. These systems are designed for the extreme power and thermal demands of AI. In addition, the company upgraded its Nexus One platform to make it easier for enterprises to operate their AI networks – on-premises or in the cloud – removing the complexity that can hold organizations back from scaling AI data centers.
Additionally, Cisco announced “a sweeping evolution of its security portfolio,” introducing its revamped AI Defense suite with new features to better secure agents and the AI supply chain. The AI Defense solutions now bring AI supply chain governance and runtime protections to agentic tool use, reducing the risk of compromise or manipulation. Industry-first, AI-aware security advancements to Cisco’s Secure Access Service Edge (SASE) pair with AI traffic detection and optimization to keep agentic workflows safe, fast, and reliable.
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❖❖ ASE Technology (ASX) beat revenue and earnings estimates in Q4 2025. Consolidated net revenues rose 9.6% year-on-year and net income surged 58%. Operating margin rose to 9.9%, and gross margin improved to 19.5%, reflecting better mix and efficiency in advanced services. Full-year 2025 results also showed solid improvement, with revenue up 8.4% and net income up over 25% from 2024.
ASE’s EMS (Electronic Manufacturing Services) segment, focused on legacy contract manufacturing services, saw its sales decline by about 8% year-over-year, affected by consumer and seasonal demand cycle. For the full year, EMS revenues were down about 5%, although gross and operating margins were unchanged from the previous year.
Meanwhile, revenue in the company’s core semiconductor back-end business, ATM (Assembly, Testing & Materials) jumped by 24.2% year-over-year to a quarterly record, with its gross margin expanding to 26.3% and operating margin to 14.7%. Full-year 2025 results were impressive, with revenue up almost 20% from 2024, gross margin rising to 23.5%, and operating margin to 11.3%.
Within the ATM division, the LEAP (Leading-Edge Advanced Packaging) segment – which focuses on advanced packaging technologies that enable high-performance chips for AI, HPC, data centers, and leading-edge logic devices – clocked in 167% revenue growth, rising to 13% of ATM at year-end (up from 6% in 2024). LEAP is ASE’s fastest-growing and highest-margin segment, driven almost entirely by explosive AI-related demand. Majority of the company’s heavy capex increase is invested in LEAP capacity expansion to meet demand that significantly outstrips supply; management expects LEAP revenue to at least double in 2026 from the last year.
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❖❖ Philip Morris (PM) revealed continued strength and transformation-driven growth in its Q4 and full-year 2025 report. In the fourth quarter, net revenues rose by 6.8% year-over-year to $10.4 billion, slightly above expectations. Adjusted EPS was in line with consensus, rising by 9.7% to $1.70.
The strong quarter wrapped up a year that clocked in robust growth and several important milestones. Philip Morris International delivered 14.8% adjusted EPS growth in 2025 (or 14.2% in currency-neutral terms), its strongest since 2011 excluding the 2021 pandemic recovery jump. Net revenues expanded by 7.3% from 2024 (6.5% organically) to $40.6 billion – a significant milestone representing a clear step-up in growth rates, validating the company’s multi-year transformation toward smoke-free products (SFP) like IQOS and ZYN.
Overall growth was driven by SFP, with their volumes up 12.8%, revenues growing 15% (14.1% organically), and gross profit jumping by 20.3%. Smoke-free products now represent 41.5% of total net revenues at approximately $17 billion and 43% of gross profit.
With excellent results in 2024 and 2025, PM delivered its three-year CAGR targets in just two years. The two-year organic CAGR for operating income surpassed the original 8-10% three-year target, while EPS (on currency-neutral basis) exceeded the original 9-11% three-year CAGR target range. Philip Morris renewed its medium-term growth targets for 2026-2028 with projected CAGR of 6-8% for organic net revenues, 8-10% for organic operating income, and 9-11% for adjusted diluted EPS at constant currency.
PMI guided to another year of strong, profitable growth in 2026, forecasting organic net revenue growth of 5-7%, organic operating income growth of 7-9%, and currency-neutral adjusted diluted EPS growth of 7.5-9.5% (11-13% in dollar terms). Operating cash flow is expected to accelerate significantly to approximately $13.5 billion in 2026, supporting deleveraging to close to 2x leverage ratio by year-end and enabling continued strong shareholder returns with dividend payout approaching the 75% target.
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Portfolio Stocks Under Review
❖ We are keeping Oracle (ORCL) in our “Under Review” bracket as we head toward its next earnings report on March 9. Our long-term conviction in Oracle’s strategic positioning remains intact, but the near-term setup is still dominated by execution risk and capital intensity. ORCL’s AI-driven opportunity is real, but so is the strain it places on the balance sheet – making this a good problem to have, and a difficult one to solve.
The company’s announcement that it plans to raise up to $45-50 billion in a mix of debt and equity addressed the market’s biggest concern – how Oracle intends to fund its aggressive OCI buildout without jeopardizing its investment-grade profile. The surging demand for its $25 billion bond issuance – which reportedly drew about $127 billion in orders – coupled with a sizable equity component including mandatory convertibles and an at-the-market (ATM) program, reduces near-term refinancing and liquidity fears. This financing structure prioritizes balance-sheet resilience and rating stability, reassuring creditors while buying time for AI infrastructure investments to scale. As a result, Oracle’s five-year credit default swaps – the risk premium on its debt – have plummeted, arriving closer to historical norms.
With a newfound clarity on funding, the question of backlog monetization timelines still remains open, as investors continue to wonder whether ORCL can turn record RPO levels – still heavily skewed toward OpenAI – into sustainable free cash flow over the next 12-24 months. Elevated capital expenditures and negative free cash flow remain central to the debate.
Meanwhile, ORCL saw its stock surge after D.A. Davidson upgraded it from Hold to Buy, citing renewed confidence in OpenAI’s ability to meet its huge cloud infrastructure spending commitments, including the massive Oracle deal. Analysts also said they are positive on the potential from Oracle’s role as a joint-venture operator of TikTok U.S. as the deal locks in a significant client for OCI while also offering upside through the stake in the popular app.
Additionally, the recent capex announcements from the U.S. tech leaders both change the optics on Oracle’s planned investments – making them appear much more modest – and strengthen the company’s monetization setup. Microsoft and Meta have already locked in large OCI deals, and with hyperscalers looking to secure incremental capacity quickly, Oracle’s cloud offerings are likely making it one of the biggest third-party beneficiaries of their massive spend. Bloomberg estimates that hyperscalers’ cumulative AI capex in 2026-2029 will be around $3 trillion. ORCL – one of the “picks and shovels” in the current AI infrastructure cycle – is well-positioned to capitalize on this surge.
Meanwhile, Oracle’s OCI revenue engine is starting to drive meaningful value in the applications layer. The company’s recent introduction of 12 new AI agents embedded within Oracle Fusion Cloud Applications to automate supply chain workflows – an incremental step in monetizing the broader AI opportunity – further reduces the “GPU-reseller” narrative risk, supporting the long-term bull case of higher cloud margins and stickier customers.
Still, for now, investor sentiment remains fragile due to the time gap between future earnings and current investments. Oracle’s reliance on a small number of capital-hungry customers, and the sheer scale of infrastructure spending required to serve them, keeps execution risk high. This is why 2026 is a “show me the money” year, and why the upcoming earnings report will be critical in assessing early progress on RPO monetization and cash flow trajectory.
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Portfolio Earnings and Dividend Calendar
❖ The Q4 2025 earnings season is in full swing, and many of the Smart Portfolio holdings are scheduled to report over the next few days. Cisco (CSCO) and Vertiv (VRT) are reporting today, while Arista (ANET), Check Point (CHKP), Vertex (VRTX), and Howmet Aerospace (HWM) will release their results tomorrow. Leidos (LDOS) and Labcorp Holdings (LH) are expected to publish their quarterly data on February 17, and Jones Lang Lasalle (JLL) on February 18.
❖ The ex-dividend date for Jabil (JBL) is February 17.
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New Buy: : nVent Electric (NVT)
nVent Electric is a global specialist in electrical connection and protection, operating at the intersection of power distribution, control systems, and critical infrastructure. The company designs and manufactures the enclosures, fastening systems, thermal management solutions, and engineered components that protect electrical assets and ensure their reliability in demanding environments. nVent’s products are embedded across industrial automation, data centers, energy, infrastructure, and commercial buildings, where uptime, safety, and compliance are non-negotiable. By combining material science, mechanical engineering, and application-specific design, nVent supports the physical integrity of power and control systems exposed to heat, corrosion, vibration, and electrical stress. Its role is structural rather than visible – enabling complex electrical systems to run safely, consistently, and at industrial scale.
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Plugged In
nVent Electric’s modern history begins inside Pentair, where its electrical businesses were built around a simple but durable idea – critical electrical systems need physical protection as much as they need power. Brands such as ERICO, HOFFMAN, and SCHROFF earned their reputations long before the nVent name existed, supplying enclosures, grounding, fastening, and infrastructure hardware used across industrial and commercial environments worldwide. In 2018, Pentair separated these assets into a standalone public company, creating nVent Electric as a focused pure-play on electrical connection and protection.
Since the early 2020s, nVent has leaned into secular forces reshaping electrical systems – electrification, data-center expansion, grid modernization, and industrial automation. The company pursued targeted acquisitions to extend its reach closer to the point of electrical installation and power distribution. The 2023 acquisition of ECM Industries expanded NVT’s footprint in electrical tools, connectors, and installation hardware, adding well-established brands such as ILSCO and strengthening relationships with contractors, utilities, and industrial customers.
That portfolio expansion was followed by a decisive portfolio simplification. In 2024, nVent announced the divestiture of its Thermal Management business – focused on legacy thermal applications such as heat tracing, process heating, fire protection cables, and floor heating – completing the transaction in early 2025. At the same time, the company retained and scaled its data-center liquid cooling infrastructure offerings, which sit alongside enclosures, racks, and power distribution in high-density electrical environments. This repositioning sharpened nVent’s focus on electrical connection and protection, reinforcing its alignment with the current phase of electrification, where power systems are denser, more distributed, and more tightly regulated.
Alongside M&A, NVT invested in engineering capabilities that support faster customization and compliance in regulated markets. Digital configuration tools, advanced materials, and application-specific design became more central, helping customers shorten project timelines while meeting evolving safety and performance standards. Strategic collaborations with OEMs, utilities, and data-center operators further embedded nVent into long-term infrastructure programs.
What ties this evolution together is intent. nVent did not chase growth indiscriminately, rather reshaping itself around electrical systems whose rising complexity makes connection, protection, and compliance increasingly decisive. From a collection of legacy brands spun out of a conglomerate, nVent has become a focused infrastructure partner aligned with the physical realities of modern electrification. That clarity explains how nVent grew into the position it holds today.
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The Power Layer
nVent Electric supplies the physical systems that allow modern electrical infrastructure to function safely and reliably. Its business centers on electrical connection, protection, and data-center infrastructure, providing enclosures, racks, grounding, power distribution, fastening, and liquid cooling systems used across complex electrical environments. These components are specified early in project design, governed by codes and standards, and embedded for the life of an asset, which makes them foundational to system safety and reliability.
Over the past several years, NVT’s business mix has shifted decisively toward long-cycle infrastructure markets. Infrastructure now accounts for roughly 45% of revenue and is expected to exceed 50% in 2026, driven primarily by data centers and electric utilities. Data centers alone generated about $1 billion of revenue in 2025, reflecting a transition from episodic projects to sustained, scaled demand. AI workloads and high-performance computing are pushing power density higher, increasing the amount of electrical content per rack, per row, and per facility – directly expanding nVent’s role.
Within data centers, nVent’s value proposition is increasingly system-level. Alongside its established strength in enclosures and racks, the company has kept and scaled liquid cooling infrastructure offerings such as coolant distribution units, manifolds, rear-door heat exchangers, and hybrid liquid-to-air systems. These products are tightly coupled with electrical and power architectures, designed to support high-density AI deployments. A new liquid cooling facility in Blaine, Minnesota, opened in early 2026, reflects how central this capability has become to nVent’s growth strategy.
Utilities form a second structural growth leg. Grid modernization, rising electricity demand, renewable integration, and resilience investments are driving demand for grounding, surge protection, and connection systems. These projects tend to be regulated, multi-year in nature, and less sensitive to short-term economic cycles. Industrial automation and electrification add further depth, while commercial and residential markets, currently softer, represent optional upside.
NVT combines organic innovation with disciplined acquisitions in a fragmented market, expanding product breadth and customer proximity without diluting focus. Eighty-six new products were launched in 2025 alone, contributing meaningfully to growth and reinforcing its relevance in fast-evolving environments. Meanwhile, long-standing brands carry trust in safety-critical applications, supporting specification-led demand and high switching costs.
End-market trends reinforce this positioning. Hyperscaler AI capital expenditure is increasingly directed toward physical infrastructure – power delivery, electrical protection, racks, and liquid cooling – while U.S. industrial policy around semiconductor manufacturing, reshoring, and digital infrastructure acts as an indirect tailwind. Together, these forces place nVent squarely downstream of some of the largest and most durable capital investment cycles in the global economy, where complexity – not volume – is the primary growth driver.
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Current Affairs
nVent closed 2025 with a decisive acceleration, capping a record year that combined strong organic demand with a sharp improvement in earnings quality. Full-year revenue reached $3.9 billion, up roughly 30% year-over-year on a reported basis, while adjusted EPS climbed about 35%. Operating leverage was evident despite cost headwinds – adjusted operating margin expanded to just over 20%, a record for the company. Free cash flow reached $561 million, up 31% from the prior year, with conversion exceeding 100% of adjusted net income, underscoring the durability of earnings.
Momentum strengthened as the year progressed. In Q4 2025, revenue rose 42% year-over-year to roughly $1.07 billion, including organic growth of about 24%. Adjusted EPS came in at $0.90, up 53% from a year earlier, while free cash flow increased 26% to $189 million. These results marked the fourth consecutive quarter in which nVent exceeded analyst consensus for both top and bottom lines, underscoring consistent execution and well-chosen, well-absorbed acquisitions, which added 17% to revenue growth in the quarter.
Segment performance highlighted the shift in mix. Systems Protection delivered the fastest growth, driven by data centers and utilities, with organic growth exceeding 30% in Q4 and return on sales around 20%. Electrical Connections grew at a more moderate pace but maintained mid-to-high-20% margins, reinforcing the company’s pricing power and scale advantages. Infrastructure as a whole accounted for roughly 45% of total revenue in 2025, with data centers alone contributing about $1.0 billion, up from roughly $600 million the year before, expanding to 25% of NVT’s portfolio.
Margins did face pressure late in the year. Inflation and tariffs weighed heavily, with total inflation impacts exceeding $160 million for 2025, including about $90 million from tariffs. Q4 alone absorbed roughly $55 million of inflation, while capacity expansions introduced temporary inefficiencies. In 2025, NVT increased its capex by 26% to roughly $93 million to keep up with surging demand. Even so, pricing actions and productivity initiatives limited the drag, allowing margins to remain well above prior-year levels.
The balance sheet strengthened materially. Year-end net leverage declined to about 1.6x adjusted EBITDA, below management’s target range, supported by disciplined capital allocation and strong cash generation. Shareholder returns continued alongside debt reduction, without compromising flexibility.
Looking ahead, management guided to another year of solid growth. For Q1 2026, revenue is expected to rise 34-36% year-over-year, with adjusted EPS of $0.90-0.93. For the full year, guidance calls for reported revenue growth of 15-18%, organic growth of 10-13%, and adjusted EPS of $4.00-4.15, implying 20-24% growth. Tariffs are expected to weigh on results early in the year, but margin expansion is anticipated as productivity improves. Overall, the financial trajectory points to a company converting structural demand into steadily rising earnings and cash flow.
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Measured Voltage
nVent’s valuation is best framed against a narrow set of U.S.-listed infrastructure names that define the spectrum it now occupies – a business positioned between classic electrical infrastructure and AI-driven data-center systems, blending the stability of the former with the growth characteristics of the latter. Within this framework, Hubbell anchors the comparison as the closest operational analogue – a scaled electrical infrastructure supplier with deep exposure to utilities, specification-driven demand, and margin discipline. Atkore provides a purer electrical-hardware baseline, illustrating how traditional raceway and conduit businesses are valued when growth is tied more closely to construction and less to data centers. Vertiv, a Smart Portfolio holding, rounds out the set as the market’s reference point for AI data-center infrastructure, capturing how investors price power, racks, and cooling when exposure to hyperscale buildouts is most direct.
Over the past year, NVT climbed over 67%, reflecting a clear inflection in how the market views the business. The move was driven by direct exposure to the AI data-center power build-out and reinforced by repeated upside surprises – accelerating organic growth, a rapidly expanding backlog, and multiple guidance raises that shifted perception from “electrical industrial” to “AI infrastructure enabler.” Vertiv delivered a similar outcome, rising roughly 61%, as the purest expression of that same data-center theme. Hubbell participated, advancing about 27%, but with a more diversified utility and grid-modernization mix that tempered re-rating potential. At the opposite end, Atkore fell roughly 4%, weighed down by pricing normalization and greater exposure to traditional construction cycles. In that context, nVent’s performance stands out as a re-rating story – not just strong execution, but a reassessment of where the company now sits in the AI infrastructure value chain.
Analyst price targets currently point to over 21% upside for NVT. That figure is best viewed as a baseline, reflecting where estimates stand today rather than a hard ceiling, especially with the data-center growth story still playing out. Valuation adds another layer of support. Despite the strong rally, nVent is not priced like a stretched momentum name. The company pairs very strong gross and net margins with growth rates that trail only Vertiv – and on revenue growth, actually exceed it. Even so, NVT trades roughly in line with the slower-growing and slightly less profitable Hubbell, and still well below Vertiv, across trailing and forward non-GAAP P/E, Price/Sales, EV/Sales, and EV/EBITDA multiples. The most telling metric is its forward PEG of about 1.19 – the lowest in the group and roughly 35% below NVT’s own historical average – reinforcing the idea that the re-rating remains a “work in progress,” with valuation still catching up to the company’s growth profile.
nVent Electric has a balanced capital-return policy – funded by strong free cash flows – that combines growing dividends with active share repurchases, while continuing to invest in organic growth and maintain a healthy balance sheet. 2025 marked NVT’s third consecutive year of dividend increases, and while its 0.85% yield is still low by sector standards, it signals stability and a consistent focus on shareholder returns.
The company uses buybacks to manage share dilution and return excess cash when M&A opportunities are not immediate. In May 2024, the board approved a $500 million, three-year share repurchase program, which formally began in July. During 2025, NVT repurchased about $253 million of its own shares, equal to roughly 1.6% of the share count at the time, supporting earnings per share growth and adding to total shareholder returns alongside operating performance.
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Investing Takeaway
nVent has moved into a stronger position than the market once gave it credit for. What began as a focused electrical hardware business has evolved into a critical enabler of modern power-dense infrastructure, sitting squarely where electrification, data centers, and grid upgrades intersect. The company’s strength lies not just in exposure to those trends, but in how it participates – through engineered, code-driven systems that are specified early, embedded for the long term, and hard to displace. With execution proving consistent, capital allocation disciplined, and growth increasingly tied to structural rather than cyclical demand, nVent looks positioned to keep compounding rather than chasing headlines. For investors looking for infrastructure exposure with real operating leverage and staying power, this is a business riding a durable current, not a passing surge.
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New Sell: Boston Scientific (BSX)
We are exiting our position in Boston Scientific at this stage. This is not a judgment on the quality of the business, which remains among the strongest in large-cap MedTech, but a recognition that the stock’s valuation framework has shifted in a way that meaningfully worsens the near-term risk-reward.
Boston Scientific delivered an outstanding 2025. Revenue grew nearly 20% on a reported basis, margins expanded, and core franchises such as Electrophysiology and Watchman continued to gain share. Management is confident in its innovation engine, its commercial scale, and the long-term potential of platforms like Farapulse. Operational execution has not broken, and from a business perspective BSX is still doing many things right.
The issue is timing – and how the market is now choosing to price growth.
The Smart Investor has held BSX on a specific premise: while the stock looked expensive versus the broader Healthcare sector, it was reasonably valued relative to high-quality peers when adjusted for its growth profile. That adjustment is now under pressure. Management’s 2026 guidance implies a clear deceleration from the exceptional growth of 2025, with organic sales growth stepping down to 10-11% and adjusted EPS landing roughly in line or slightly below consensus at the midpoint. In a market that has become acutely sensitive to valuation, even temporary growth normalization is no longer being waved through.
This sensitivity is most visible in Electrophysiology. Farapulse remains a real innovation, and management emphasized that fourth-quarter results met internal expectations. But the market had its own expectations – and they were higher. EP revenue missed consensus, U.S. PFA penetration appears to be moving into a more mature phase, and competition is intensifying. The initial conversion cycle that powered outsized growth is largely behind us, leaving a less obvious path to near-term acceleration. That uncertainty has become the focal point.
As a result, BSX has been re-rated aggressively. The stock suffered its worst single-day decline in decades, not because fundamentals collapsed, but because the market is no longer willing to underwrite premium multiples without visible upside surprises. Analyst behavior reinforces this tension. Buy ratings largely remain intact, but price targets have been cut sharply, and near-term performance is increasingly framed around a single catalyst – the CHAMPION-AF readout. That is not a setup we are comfortable owning through.
It is entirely possible that current weakness proves temporary. Boston Scientific has a strong track record of problem-solving, a deep pipeline, and credible long-term growth drivers. But SIN is not in the business of catching falling knives or waiting for sentiment to repair itself while capital is tied up. Right now, sentiment is in control, and perception has turned cautious.
We are selling to preserve discipline and flexibility. We would be open to revisiting BSX once growth visibility improves, valuation resets more decisively, or the market demonstrates that it is ready to re-engage with the story. Until then, stepping aside is the prudent move.
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Smart Investor’s Winners Club
The Winners Club represents stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
Stocks plummeted and then surged, and our Club has expanded by three new members – ASX, ATI, and KEYS – as well as a returning one, JPM (although it’s hanging on by a thread with a 30.11% gain).
The Winners’ ranks now count 23 stocks: GE, AVGO, TSM, ANET, EME, HWM, APH, IBKR, PH, ORCL, GOOGL, VRT, MTZ, BK, RTX, CSCO, ASX, IBM, MS, ATI, KEYS, and JPM.
The first contender for the Club’s entry is now STRL, which has gained 28.11% since we bought it just two months ago. Will it join the ranks, or will another stock outrun it to the finish line?
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