Route to Compute
In this edition of the Smart Investor newsletter, we spotlight the company connecting silicon to scale. But first, let’s review the latest Smart Portfolio developments.
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Portfolio News and Updates
❖❖ Eli Lilly (LLY) gained after delivering a blowout Q2, powered by extraordinary demand for its diabetes and obesity medicines.
Revenue jumped 48% year-over-year to $22.97 billion, roughly $2.3 billion above consensus. Volume increased 60%, more than offsetting a 13% decline in realized prices. Mounjaro sales soared 91% to $9.94 billion, beating expectations of approximately $8.93 billion, while Zepbound grew 46% to $4.93 billion, also exceeding estimates. Together, the two medicines generated nearly 65% of Lilly’s revenue. Foundayo contributed $98 million during its launch quarter.
Reported non-GAAP EPS rose 33% to $8.38 from $6.31, but both periods included acquired-IPR&D charges – $3.03 per share in Q2 2026 and $0.14 a year earlier. Excluding those charges, underlying EPS would have been approximately $11.41 versus $6.45, representing estimated growth of 77%.
Lilly raised its full-year revenue outlook to $85-87 billion from $82-85 billion and lifted its performance-margin guidance by 200 basis points to 49-50.5%. Published EPS guidance changed to $35.50-36.50 from $35.50-37.00 because it now includes the new $3.03 acquired-IPR&D charge. Before that charge, management raised the implied EPS midpoint by $2.78 to approximately $39.03 – about 8% above the previous midpoint.
Retatrutide’s Phase 3 obesity program is now complete, with an FDA submission planned for Q1 2027, while Lilly continues expanding manufacturing capacity to support rapidly growing demand.
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❖❖ ATI (ATI) soared nearly 25% over the past week after a blowout Q2 beat-and-raise demonstrated accelerating demand and profitability across its aerospace and defense portfolio.
Sales rose 11% year-over-year to $1.26 billion, driven by 13% growth in aerospace and defense revenue. Adjusted EPS surged 66% to $1.23, well above the $1.03 consensus, while backlog increased 18% to another record of $4.4 billion.
Adjusted EBITDA jumped 37% to $284.4 million – far above management’s $245-255 million guidance – while margin expanded 440 basis points to 22.6%. The result included a $9.9 million facility-sale gain, equivalent to $0.06 per share. Excluding it, underlying adjusted EBITDA was approximately $274.5 million, up 32%, with a margin of roughly 21.8%. Underlying adjusted EPS was approximately $1.17, representing estimated growth of 58%.
Advanced Alloys & Solutions delivered the strongest gain, with sales up 17%, aerospace and defense revenue up 34%, and adjusted EBITDA margin reaching 23.7%. High Performance Materials & Components margin eased sequentially from 24.9% to 24.1%, reflecting revised qualification requirements at ATI’s new Mexico facility and higher titanium-furnace costs.
ATI sharply raised its full-year outlook. At the midpoints, adjusted EBITDA of $1.16 billion implies approximately 35% year-over-year growth, adjusted EPS of $5.04 points to 56% growth, and adjusted free cash flow of $575 million represents an increase of roughly 51%. Q3 adjusted EBITDA guidance of $305-315 million points to further sequential acceleration.
Wall Street’s reaction matched the strength of the report, with a wave of substantial price-target increases. Susquehanna lifted its target from $215 to $265, BTIG from $180 to $270, Wells Fargo from $175 to $275, and Deutsche Bank from $231 to $262.
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❖❖ Nova (NVMI) delivered another record quarter and stronger-than-expected guidance, but the stock gave back some of its pre-earnings gains as investors focused on the lower gross margin.
Revenue rose 16% year-over-year and 8% sequentially to $255.0 million, slightly above analyst expectations and at the top of management’s guidance. Non-GAAP EPS increased 14% to a record $2.51, beating the consensus and exceeding the guided range of $2.34-2.48.
Nova achieved record revenue from advanced logic, driven by Gate-All-Around and leading-edge node transitions, as well as record advanced-packaging revenue. Front-end chemical metrology and Sentronics dimensional-metrology solutions for advanced packaging also reached record levels. Management cited continued market-share gains, broad customer demand, and deeper engagement across leading-edge logic and memory applications.
Margins were the main caveat. GAAP gross margin declined 130 basis points year-over-year to 56.5%, while non-GAAP gross margin fell by approximately 200 basis points to around 58%. The latter remained within Nova’s 57-60% target range, and non-GAAP operating margin remained strong at approximately 33%.
Nova guided Q3 revenue to $277-287 million, with the midpoint exceeding consensus and implying approximately 21% year-over-year growth. Non-GAAP EPS guidance of $2.70-2.85 also came in above expectations. Overall, revenue, EPS, advanced-packaging activity, market-share commentary, and forward guidance all remained strong, despite short-term concerns regarding margins.
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❖❖ Howmet Aerospace (HWM) delivered another exceptional beat-and-raise quarter, supported by accelerating commercial-aerospace and gas-turbine demand.
Revenue surged 24% year-over-year to $2.55 billion, with organic growth of 21%. Adjusted EPS climbed 46% to $1.33, while adjusted EBITDA jumped 39% to $817 million – well above guidance. Adjusted EBITDA margin expanded 340 basis points to 32.1%, and free cash flow rose 39% to $479 million.
Engine Products again led the quarter. Revenue increased 32% to $1.37 billion, adjusted EBITDA rose 51% to $517 million, and margin expanded 470 basis points to 37.7%. Commercial-aerospace revenue grew 28%, gas-turbine revenue surged 38%, and defense aerospace increased 11%. Fastening Systems revenue rose 37%, including contributions from the CAM and Brunner acquisitions, while adjusted EBITDA margin increased to 30.1%.
Howmet sharply raised its full-year outlook. At the midpoints, revenue of $10.05 billion implies approximately 22% year-over-year growth, adjusted EBITDA of $3.23 billion points to 34% growth, adjusted EPS of $5.27 represents 40% growth, and free cash flow of $1.90 billion implies a 33% increase. The company also repurchased $800 million of stock through July and raised its quarterly dividend by 17%.
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❖❖ Parker Hannifin (PH) surged to a record high after closing fiscal 2026 with a blowout quarter and issuing strong fiscal 2027 guidance.
FQ4 sales rose 9.8% year-over-year to a record $5.76 billion, with organic growth of 8%. Adjusted EPS jumped 21% to a record $9.27, well above consensus of approximately $8.30. Adjusted segment operating margin expanded 110 basis points to 28.0%, surpassing Parker’s previous 27% long-term target.
Growth was broad. North American industrial organic sales rose 4.9%, International increased 6.5%, and Aerospace Systems climbed 13.3%. Aerospace sales reached $1.9 billion, adjusted segment margin improved 80 basis points to 29.8%, and Aerospace backlog rose to a record $8.5 billion. Total company backlog reached $12.8 billion, while orders increased 19%, including growth of 16% in North America, 24% internationally, and 18% in Aerospace.
For the full fiscal year, sales reached a record $21.5 billion, organic growth was 6.6%, adjusted EPS rose 18% to $32.31, and operating cash flow reached a record $4.4 billion. Parker returned nearly $2 billion through dividends and share repurchases.
Parker expects fiscal 2027 organic sales growth of 5.5-8.5%. At the midpoints, adjusted segment margin of 27.7% implies approximately 40 basis points of year-over-year expansion, while adjusted EPS of $34.75 represents growth of roughly 8%. The outlook excludes the pending Filtration Group and CIRCOR Aerospace acquisitions.
After surpassing its previous 27% profitability target, Parker raised its fiscal 2031 adjusted segment-margin objective by 300 basis points to 30%.
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Under Review
❖❖ We are placing AppLovin (APP) under review after the stock plunged more than 20% over the past week. The decline was directionally justified because Q2 introduced unexpected uncertainty around the consistency of AppLovin’s model-driven growth, but its magnitude looks excessive relative to the company’s current fundamentals.
Revenue rose 53% year-over-year to $1.92 billion, missing consensus by less than 1%, while adjusted EBITDA climbed 58% to $1.61 billion at an exceptional 84% margin. Q3 revenue guidance of $2.055-2.085 billion came in slightly below expectations but still implies 46-48% year-over-year growth and 6.8-8.4% sequential growth. The SEC also closed its inquiry without recommending enforcement action, removing a longstanding overhang.
The real concern was not the tiny miss. Gaming remains APP’s largest business, and growth depends heavily on model improvements that raise advertiser returns and unlock higher spending. Management said the normal cadence of those gains faltered during Q2, with a meaningful upgrade arriving only after quarter-end. Meanwhile, installations declined 2% year-over-year in Q2 and 10% in the first half, while net revenue per installation surged 58% and 75%, respectively. Monetization remains extraordinary, but the falling installation base raises a legitimate question about how long AppLovin can compound primarily by extracting more value from existing traffic.
Consumer advertising could become the second growth engine, and advertiser spending in the vertical finished the quarter 28% above the seasonally strong Q4 2025 level. However, AppLovin has not disclosed the business’s actual revenue contribution, while its shift toward mid-market advertisers and attribution partnerships suggests the original self-serve rollout attracted less valuable customers than hoped.
The selloff was also amplified by fragile software sentiment. APP reported during a broad post-earnings rout in high-multiple software stocks, where even strong results were punished heavily. Piper Sandler and Wells Fargo downgraded the shares, BofA followed, and numerous firms slashed price targets despite only modest estimate reductions. APP had been priced for near-perfect execution; the quarter removed that premium, while the sector backdrop turned a warranted reset into an overly brutal one.
We are not selling the stock because current growth, margins, cash generation, and Q3’s expected sequential acceleration remain exceptional. However, the uncertainty strikes directly at the mechanism supporting management’s roughly 30% long-term growth ambition. We need evidence that the post-quarter model upgrade is sustaining stronger gaming momentum and that consumer advertising can scale into a financially meaningful second engine.
No company event is currently scheduled before Q3 earnings. Potential earlier catalysts include favorable third-party data on AppLovin Ads adoption, new mid-market customer or attribution partnerships, product improvements that reduce the creative bottleneck, another material model release, and renewed buybacks after the selloff. AppLovin ended Q2 with $3.05 billion in cash and $1.8 billion remaining under its repurchase authorization, giving management ample capacity to support the shares if it chooses.
We will watch these developments closely and reassess the stock as new evidence emerges.
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Portfolio Earnings and Dividend Calendar
❖ The Q2 2026 earnings season is well past its peak, but some Smart Investor portfolio holdings are scheduled to reveal their quarterly results over the next few days: Fabrinet (FN) will report on August 17, and Keysight Technologies (KEYS) – on August 18.
❖ The ex-dividend date for Jabil (JBL), RTX (RTX), and Eli Lilly & Co (LLY) is August 14, while for Microsoft (MSFT) it is August 20.
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New Buy: TD SYNNEX (SNX)
TD SYNNEX Corporation is one of the world’s largest IT distributors and solutions aggregators, connecting technology vendors with resellers, managed service providers, system integrators, and enterprises. Its traditional role is moving hardware, software, cloud offerings, and services through the global technology channel, but its reach now extends deeper into infrastructure. Through its wholly owned subsidiary Hyve Solutions, the company designs, engineers, integrates, assembles, and deploys large-scale computing systems for hyperscalers, placing it directly inside the AI data-center supply chain. Its scale, financing capabilities, logistics network, engineering expertise, and vendor relationships allow customers to source complex technology through a single global partner. That combination makes SNX both a high-volume backbone of enterprise IT spending and an increasingly important manufacturing layer behind accelerated computing – an unusual technology profile where thin margins are balanced by enormous throughput, operating leverage, and growing strategic relevance.
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System Upgrade
TD SYNNEX began in 1980 as COMPAC Microelectronics, a small electronics distributor in Silicon Valley. Renamed SYNNEX in 1994 and publicly listed in 2003, the company spent the following decades expanding beyond PC components into data-center hardware, mobility, cloud offerings, business-process services, and electronics manufacturing. It also built an early digital edge, using electronic ordering and e-commerce to make the technology supply chain faster and more scalable. In 2011, SYNNEX pushed deeper into infrastructure by creating Hyve Solutions to design and build purpose-built computing systems for large internet companies – planting the foundations of today’s hyperscaler business.
Two strategic moves shaped the company investors see today. First, SYNNEX developed Concentrix into a major customer-experience business and spun it off in 2020. The separation simplified the group around technology distribution and infrastructure while unlocking a separately focused public company.
The larger transformation arrived in 2021, when SYNNEX acquired Tech Data and became TD SYNNEX. The merger combined complementary geographic footprints, vendor relationships, and customer networks into one of the world’s largest IT distributors. Integration was completed during the first half of fiscal 2024, clearing the way for management to shift from combining platforms toward extracting more growth from the enlarged network.
Patrick Zammit became CEO in September 2024 and accelerated that shift. In 2025, TD SYNNEX acquired Apptium, adding cloud-commerce and subscription-management technology to its StreamOne platform. It also introduced PartnerFirst, a unified digital portal that combines purchasing, cloud services, renewals, training, and AI-driven recommendations, helping turn the company’s scale into a simpler customer experience.
Meanwhile, the Hyve business created more than a decade earlier moved to the center of the strategy. By 2026, TD SYNNEX had secured programs with all five major U.S. hyperscalers and expanded existing engagements. It also granted Amazon a warrant to purchase up to 3.24 million SNX shares, with nearly all vesting only as Amazon’s payments to TD SYNNEX reach specified thresholds – linking potential dilution to the expansion of their commercial relationship. The company also committed to adding more than one million square feet of U.S. manufacturing capacity.
The Distribution business continued moving up the value chain as well. HPE selected TD SYNNEX as one of only two global distributors across its networking, cloud, and AI portfolio, including the assets added through Juniper. Fortinet named TD SYNNEX one of its approved global distributors, allowing it to coordinate complex, multi-region cybersecurity deployments for selected global systems integrators and large international partners while expanding into new markets in Europe and Asia. The company also recently expanded its IBM distribution footprint into 20 additional countries across Europe, Asia-Pacific, and Latin America, extending its global channel advantage across more markets and giving additional partners access to IBM’s AI, data, and automation offerings.
Together, these developments have transformed the company from a broad technology middleman into a global orchestrator spanning distribution, cloud commerce, engineering, supply chains, and accelerated-compute manufacturing.
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Parallel Processing
TD SYNNEX captures technology demand from two directions – distributing the systems enterprises rely on while Hyve helps hyperscalers build the infrastructure powering the AI era.
Distribution is the foundation. The company connects more than 2,500 technology vendors with over 150,000 customers across more than 100 countries, offering everything from PCs and peripherals to servers, storage, networking, cybersecurity, software, cloud services, and financing. Its role becomes more valuable as enterprise technology gets harder to assemble: customers increasingly need several vendors, deployment support, credit, logistics, cloud billing, and technical expertise within the same solution.
Scale provides the first competitive advantage. TD SYNNEX can carry a vast product catalog, finance purchases, invest in regional specialists, and spread digital and logistics costs across massive volumes. Nearly half of fiscal 2025 revenue came from outside the U.S., giving global vendors a single route into fragmented local markets. HPE’s decision to consolidate its worldwide model around only two global distributors shows how channel rationalization can concentrate more business with the largest, most capable partners.
Technology strengthens that advantage. PartnerFirst unifies commerce, cloud, renewals, enablement, and customer insights, while Apptium expands StreamOne’s ability to manage subscription and consumption-based services across multiple clouds. These platforms help TD SYNNEX move beyond product fulfillment toward recurring cloud transactions, services, and earlier involvement in customer decisions. AI also supports the Distribution business itself, from personalized recommendations to demand generation and inventory management.
Hyve gives TD SYNNEX direct exposure to the physical infrastructure powering the AI buildout. The subsidiary works with hyperscalers and technology partners to design, engineer, integrate, assemble, and deploy large-scale computing platforms. Its role extends far beyond fulfillment: Hyve develops switches and complete systems optimized for AI and machine-learning workloads, works across GPU, CPU, and head-node platforms, and has showcased its accelerated-computing capabilities at NVIDIA GTC.
This places Hyve at the critical point between advanced silicon and an operating AI data center. New chips cannot generate value until thousands of components are assembled, connected, cooled, tested, and deployed reliably at enormous scale. Hyve turns new computing architectures into production-ready infrastructure, giving hyperscalers a partner capable of combining engineering, manufacturing, and global supply-chain execution. This is a more strategic and technically demanding role than traditional distribution – and the central reason TD SYNNEX’s business profile is changing.
TD SYNNEX is adding more than one million square feet of U.S. manufacturing capacity to support Hyve’s expanding pipeline. Competition, customer concentration, and execution risk remain significant, particularly as new programs ramp and AI hardware evolves rapidly. Yet Hyve is the element that transforms the SNX investment case: Distribution captures enterprise demand for AI-related technology, while Hyve participates directly in building the systems hyperscalers need to expand AI capacity.
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Throughput the Roof
TD SYNNEX’s fiscal Q2 2026 results showed how quickly its two growth channels can turn demand into earnings. Revenue rose 31% year-over-year to $19.58 billion, beating consensus by more than 16%, while non-GAAP gross billings – the total customer volume before accounting adjustments for transactions recorded on a net basis – increased 33.4% to a record $28.9 billion.
The strength was broad. Distribution gross billings rose 22% to $23.4 billion, with Advanced Solutions up 31% on infrastructure and security demand and Endpoint Solutions up 13% on higher unit volumes and prices. Distribution non-GAAP operating income increased 36% to $434 million, while operating margin measured against gross billings improved 19 basis points to 1.85%. Some of that improvement came from inventory purchased before component-price increases, so management expects the benefit to fade. Even so, the core business delivered strong growth across geographies and categories – showing that Hyve is accelerating an operation that was already performing well.
In fiscal Q2, Hyve’s gross billings surged 117% to $5.5 billion, revenue jumped 49% to about $3.0 billion, and non-GAAP operating income rose 89% to $181 million, driven by hyperscaler demand tied to AI and data-center buildouts. Its operating margin against gross billings declined 50 basis points to 3.31% as manufacturing mix and new-program ramps weighed on profitability. The margin pressure is worth monitoring, but the near-doubling of operating income shows that surging volume is already more than offsetting the dilution.
And much of Hyve’s growth pipeline is still ahead. The subsidiary has secured at least one program with each of the five largest U.S. hyperscalers and multiple programs with three of them. One newer customer is only beginning to ramp, while two additional hyperscaler programs are expected to start scaling in late fiscal 2026 or early fiscal 2027. Crucially, current guidance assumes no material contribution from those newly onboarded customers – leaving meaningful upside if the programs progress as planned.
At the consolidated level, gross margin slipped 16 basis points to 6.84% as lower-margin Hyve activity became a larger part of the business. That mix shift did little to slow overall profit growth: non-GAAP operating income advanced 48.5% to $615 million, non-GAAP operating margin expanded 37 basis points to 3.14% of revenue, and adjusted EPS jumped 62.2% to $4.85, nearly 20% above consensus. GAAP EPS rose 87.8% to $4.15.
Cash flow is the central weakness. Free cash flow was negative $332 million in Q2 and negative $1.26 billion for the first half as inventory climbed to $13.9 billion and receivables rose alongside rapid growth. Much of that build supports committed Hyve programs, new customer ramps, and strategic component purchases made ahead of price increases, yet it still represents a substantial call on capital. Management says underlying working-capital efficiency remained stable year-over-year and should improve as newer Hyve programs mature, but TD SYNNEX must demonstrate that today’s investment will ultimately convert into stronger cash generation.
SNX appears well equipped to fund the Hyve ramp. Debt remains manageable relative to earnings, while $1.1 billion in cash provides additional liquidity. The company’s largely variable cost base also offers some protection if demand weakens, as lower purchasing volumes would free cash currently tied up in inventory and customer receivables. The balance sheet therefore provides adequate flexibility for the planned expansion.
For fiscal Q3, management expects revenue of $18.2-19.0 billion, gross billings of $27.2-28.2 billion, and adjusted EPS of $4.25-4.75. At the midpoints, those figures imply growth of roughly 19%, 22%, and 26%, respectively, with revenue and EPS guidance standing well above consensus. Component availability and PC price elasticity remain risks, but infrastructure demand is solid, prices can generally be passed through under the cost-plus model, and Hyve’s next customer programs have yet to make a meaningful contribution.
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Room in the Rack
TD SYNNEX spans more of the technology channel than any single public peer. Ingram Micro provides the closest overall comparison through its global IT distribution, cloud, logistics, and supply-chain operations. Arrow Electronics and Avnet share SNX’s inventory-intensive economics and exposure to component availability and pricing cycles, although both lean more heavily toward electronic components. CDW represents the higher-margin end of the channel, selling more value-added solutions directly to enterprises. Together, they frame SNX as a global distributor increasingly moving beyond traditional channel economics through Hyve’s direct role in hyperscale infrastructure.
The stock’s performance shows that investors have begun recognizing this evolution. SNX gained roughly 74% over the past year, outperforming Ingram Micro and CDW while landing between Arrow and Avnet. The pattern suggests that markets have favored inventory-heavy distributors benefiting from stronger hardware demand, rising component prices, and AI infrastructure spending, while remaining cautious toward slower-growing enterprise IT resellers. Year-to-date, SNX’s 71% advance trails Arrow and Avnet, whose greater component exposure has provided stronger leverage to the current cycle. Still, SNX has delivered its rally through a broader combination of Distribution growth, Hyve’s hyperscaler expansion, and rapidly accelerating earnings – leaving the thesis less dependent on a single component cycle.
Even after that powerful run, SNX’s absolute valuation remains moderate. At 13.4x forward non-GAAP earnings, its premium reflects a stronger and potentially more durable earnings profile than that of a conventional distributor. The company also leads most traditional distribution peers on return on equity and return on total capital. Arrow and Avnet currently offer cheaper exposure to a faster cyclical rebound, while SNX provides a broader growth engine with less dependence on component pricing alone.
Although the stock now carries the peer group’s highest forward earnings multiple, the premium looks less pronounced on closer inspection. Its forward P/E stands only slightly above that of the slower-growing CDW, whose shares have underperformed, while SNX trades below CDW on forward EV/EBITDA. Consensus estimates call for revenue to increase by about 11%, with EBITDA rising nearly 17% and EPS advancing more than 22% as Hyve scales and operating leverage builds. SNX’s 0.68 forward PEG ratio indicates that expected earnings growth continues to provide support for the rerating.
Cash conversion remains the main limitation. SNX’s free-cash-flow margin stands at just 0.44%, trailing every peer except AVT as Hyve’s expansion absorbs inventory and working capital. The stock also looks considerably more expensive when measured against current cash generation, reinforcing the importance of converting Hyve’s rapid growth into stronger free cash flow. That pressure prevents the stock from earning the richer valuation associated with CDW’s higher-margin solutions model. It also creates a clear path to further upside: as committed hyperscaler programs scale, SNX must show that today’s working-capital investment can produce durable earnings and eventually return to cash.
TD SYNNEX also returns capital through a small but steady quarterly dividend and meaningful share repurchases. The company bought back $112 million of stock in fiscal Q2, while its share count declined roughly 4% over the past year – partially offsetting potential dilution from Amazon’s performance-linked warrant.
Wall Street believes SNX still has considerable room to run. TipRanks shows a Strong Buy consensus based on seven Buy ratings and one Hold, with the average price target implying about 32% potential upside. SNX has already earned a rerating, but its valuation still reflects the old distribution model more than the earnings potential of the broader platform now emerging.
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Investing Takeaway
TD SYNNEX is evolving into an unusually broad technology infrastructure platform. Distribution gives it global scale, deep vendor access, recurring channel activity, and exposure to enterprise modernization, while Hyve places it directly inside hyperscaler and accelerated-compute deployments. The next stage depends on converting committed programs and new capacity into durable earnings and stronger cash generation. Working-capital demands, thin margins, supply constraints, and customer concentration remain meaningful risks, yet the company enters this phase with improving operating leverage, manageable debt, a variable cost structure, and several customer ramps still ahead. Following the recent pullback, SNX offers a compelling way to own both sides of the AI infrastructure cycle – the systems built for hyperscalers and the technology distributed to enterprises – before that hybrid model is fully reflected in its valuation.
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New Sell: Teledyne Technologies (TDY)
We are removing Teledyne from the Smart Portfolio. TDY remains a high-quality industrial technology company with strong positions across digital imaging, aerospace and defense electronics, instrumentation, and engineered systems. The issue is that excellent execution has produced too little stock appreciation, while a new acquisition introduces additional uncertainty into an already unconvincing risk-reward setup.
Second-quarter results were outstanding. Teledyne delivered record quarterly orders, sales, and operating profit, with revenue rising 9.8% year-over-year to $1.66 billion and adjusted EPS increasing 20.8% to $6.28. Free cash flow reached $284.7 million, funded backlog ended the quarter at approximately $5 billion, and management raised its full-year earnings guidance.
Yet the stock gained only about 0.6% following the report. Needham and Stifel maintained their Buy ratings and raised their price targets, but the broader analyst reaction remained positive without becoming meaningfully more bullish. This continues a frustrating pattern: TDY has produced strong earnings, rising guidance, healthy defense demand, and other favorable developments, but the shares have generated limited gains.
The valuation picture is equally unconvincing. TDY trades at moderate to somewhat elevated forward earnings and EBITDA multiples, while its forward PEG ratio stands above 3x. That does not mean investors expect the business to deteriorate, but it shows that the valuation is demanding relative to the company’s projected growth. With analysts offering only about 11% average upside, the expected return no longer adequately compensates for the stock’s volatility or opportunity cost.
That trade-off became less attractive following Teledyne’s agreement to acquire Varex Imaging for approximately $1.1 billion in cash. The strategic logic is credible: Varex adds complementary X-ray tubes, high-radiation detectors used in oncology, and photon-counting technology. Teledyne also has the financial capacity to complete the acquisition, with quarter-end leverage of only 1.1x.
However, the announcement adds new variables around financing, integration costs, Varex’s lower profitability, and the transaction’s near-term earnings impact. Detailed synergy and accretion targets have yet to be provided, while completion is expected only in early 2027. This leaves several quarters during which every update will be examined for signs that the acquisition is strengthening TDY’s growth profile or creating another drag on earnings visibility.
Teledyne remains an excellent business, but strong fundamentals alone have not produced sufficient returns. With limited expected upside and the Varex transaction adding execution risk, the Smart Portfolio can deploy this capital more effectively elsewhere. We would reconsider TDY once the acquisition economics become clearer or the stock begins responding more decisively to continued operational strength.
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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.
Last week has been slightly frustrating, but the Club ranks have held up well, still counting 25 stocks: AVGO, GE, ANET, TSM, HWM, EME, APH, IBKR, CRWD, PH, VRT, ASX, PANW, ATI, CSCO, GOOGL, KEYS, BNY, JBL, RTX, MS, STRL, NVT, JPM, and CRDO.
The first runner-up is now LLY with a 22.87% gain since purchase. Will it break into the Winners’ circle, or will another stock outrun it to the finish line?
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