Frequency Edge
In this edition of the Smart Investor newsletter, we spotlight a precision signal enabler driving today’s defense and digital infrastructure. But first, let’s dive into the latest portfolio news and updates.
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Portfolio Updates
❖ Arista Networks (ANET) surged after Evercore ISI raised its price target on the stock to $110 from $105, keeping its “Buy” rating and citing conviction in its growth trajectory over the next several years. Evercore’s analysts believe ANET is well-positioned to sustain 20%+ revenue and earnings growth through 2029 – driven by continued strength from hyperscalers and enterprise campus revenue growth of 30%+. Although Cisco Systems (CSCO) is the incumbent enterprise campus networking market leader, Arista is poised to increase its market share from less than 2% in 2024 to about 7% by 2029 – translating to roughly $1.9 billion in incremental revenue.
❖ Taiwan Semiconductor Manufacturing (TSM) stock declined last week following a report by The Wall Street Journal that the U.S. plans to revoke waivers allowing international chipmakers like Samsung, SK Hynix, and TSMC to send American chipmaking equipment to their factories in China without individual licenses.
However, other news seemed to overshadow this potential hindrance. Masayoshi Son, CEO of SoftBank, announced plans to build a $1 trillion AI hub in the U.S., dubbed “Project Crystal Land,” in collaboration with TSMC and with support from the Trump administration. The project is envisioned as a U.S. equivalent to China’s Shenzhen, integrating high-tech manufacturing, research and development labs, advanced semiconductor processing, and smart infrastructure – all designed to make Arizona a global center for next-generation technology, such as AI-powered industrial robots, artificial general intelligence (AGI), and advanced semiconductor processing.
❖ IBM (IBM) just installed its first overseas Quantum System Two in Japan – a pivotal step in globalizing its quantum footprint. Powered by the 156-qubit Heron processor, the system’s placement at RIKEN signals IBM’s willingness to decentralize access – and strengthens its ties to Asia’s tech ecosystem. Backed by Japan’s METI, the project positions IBM as a key player in hybrid quantum–classical computing – and gives it early advantage in sovereign quantum infrastructure partnerships beyond U.S. borders.
In other company news, IBM’s price target was raised to $325 from $300 at Wedbush, which kept its “Buy” rating on the stock. Wedbush analysts named IBM one of the top software stocks to own as AI adoption accelerates, calling it an “AI winner.” Bank of America and Evercore ISI have also recently raised their price targets, citing IBM’s ongoing transformation – which has positioned it at the forefront of the AI revolution and is expected to drive long-term profitable growth.
❖ Bank of New York Mellon (BK) saw its stock dip after reports emerged that it had approached Northern Trust to discuss a potential merger – a move that raised investor concerns over integration risks, regulatory hurdles, and deal costs. While the combination could create a powerhouse with $70 trillion in assets under custody, Northern Trust publicly dismissed the speculation – stating it is “fully committed to remaining independent” and focused on delivering long-term value to stakeholders.
❖ Microsoft (MSFT) has unveiled Mu – a lightweight on-device language model designed to power natural language interactions in Windows. Debuting as the brain behind the Settings agent in Copilot+ PCs, Mu runs entirely on the Neural Processing Unit (NPU), achieving over 100 tokens per second. This marks a strategic shift for Microsoft toward efficient, local AI execution – bypassing the cloud for real-time, privacy-preserving tasks. Mu maps user queries directly to system function calls, setting the groundwork for deeper OS-level AI integration. The move aligns with Microsoft’s broader Copilot+ push and underscores the company’s bet on NPU-accelerated user experiences. By embedding Mu into core Windows functionality, Microsoft is positioning itself at the forefront of on-device AI – with implications for developers, chipmakers, and the evolution of everyday PC interfaces.
❖ Leidos Holdings (LDOS) is leading a multinational NATO IT modernization effort involving partners from France, Germany, Italy, and the U.K. – a move that deepens its role as a core trans-Atlantic defense contractor. The initiative enhances NATO’s cybersecurity, scalability, and digital resilience, reinforcing Leidos’ expertise in mission-critical infrastructure. Beyond strategic alignment, the project boosts Leidos’ visibility in European defense procurement, positioning it for future joint ventures and high-margin contracts. As NATO accelerates its digital transformation, Leidos is cementing its status as a key architect of secure, adaptive, and interoperable defense IT across allied networks.
In other company news, Stifel Nicolaus resumed coverage of Leidos with a “Buy” rating and a $178 price target. The firm sees Leidos as a well-diversified government services contractor with substantial exposure to U.S. defense, intelligence, and civilian agencies. While Stifel notes potential risks, including federal budget disruptions and staffing challenges, its overall outlook remains positive – citing Leidos’ strategic positioning and its continued shift toward higher-margin business segments.
❖ Needham named CrowdStrike (CRWD) one of its top cybersecurity picks, citing strong platform adoption and strategic engagement from existing customers. The firm highlighted CrowdStrike’s Falcon Flex pricing model as a key innovation reducing adoption friction – helping drive broader uptake. With C-suites prioritizing cybersecurity and geopolitical risks rising, Needham sees platform vendors like CrowdStrike delivering more durable, long-term growth through tighter integrations, better attack surface awareness, and reduced vendor sprawl.
❖ Uber (UBER) announced a major expansion of its AI data services business, Uber AI Solutions, making its technology platform available to support AI labs and enterprises worldwide. The new offerings include customized data solutions for building smarter AI models and agents, global digital task networks, and tools to help companies build and test AI models more efficiently. Uber is also launching a new data foundry that provides ready-to-use and custom-collected datasets – including audio, video, image, and text – to train large AI models. This expansion positions Uber as a significant player in the AI development landscape, leveraging its decade-long expertise in data collection, labeling, and localization from its global operations. By offering these services, Uber aims to become the human intelligence layer for AI development worldwide.
❖ Uber (UBER) and Alphabet’s (GOOGL) Waymo have launched their joint robotaxi service in Atlanta, expanding their existing partnership. Announced in September 2024, the plan aimed to introduce Waymo One to both Atlanta and Austin. The Atlanta service, operates within a 65-square-mile area encompassing neighborhoods like Downtown, Buckhead, and Capitol View. Customers can hail Waymo’s autonomous, all-electric Jaguar I-PACE vehicles exclusively through the Uber app, with pricing comparable to UberX or Uber Comfort rides. Meanwhile, in Austin, the robotaxi service has been operational since March 2025, ahead of Tesla, which began limited test-driving in the city this week.
❖ In addition, Alphabet’s (GOOGL) Waymo is taking meaningful steps to launch its robotaxi service in New York City, starting as soon as July 2025 – first with human-operated vehicles to support mapping and data collection. Waymo is actively lobbying for changes to New York State law that would permit fully autonomous vehicles to operate without safety drivers. Already running over 1,500 vehicles and delivering approximately 250,000 paid rides weekly across San Francisco, Los Angeles, Phoenix, and Austin, Waymo appears best-positioned to bring autonomous ride-hailing to NYC’s dense and unpredictable streets.
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Portfolio Stocks Under Review
❖ We are placing LPL Financial (LPLA) under review. Despite continued advisor additions, rising AUM, and a fundamentally strong operating model, the stock has declined meaningfully over the past couple of sessions – a sharp contrast to the broader financial sector, which is up over the same period. While no material negative developments have emerged, LPLA’s June 23 monthly activity update included two softer datapoints: a 5% sequential decline in client cash balances and negative organic net new brokerage assets of $1.8 billion. Neither is alarming in isolation, but they may have shaken near-term sentiment.
Importantly, this came on the heels of a 30%+ rally from April lows, leaving the stock vulnerable to profit-taking, particularly as Middle East tensions pushed investors toward risk-off positioning. With sentiment already on edge, the modest softness in May metrics may have served as a catalyst for rotation or technical unwinds, confirming investor concerns that the stock may have outrun its near-term growth potential after an aggressive rally. Even as sentiment improved due to the easing Middle East tensions, prompting broad strength across stock markets, LPLA continued to decline, diverging sharply from its peers. Notably, LPLA’s closest comparables are all up over the same stretch, reinforcing the view that this selloff is stock-specific, not sector-driven.
Fundamentals remain intact: LPLA continues to attract advisor teams, grow advisory assets, and deploy capital efficiently. But with valuation elevated and sentiment now reset, we are monitoring whether this pullback reflects a temporary sentiment shift or a more lasting reassessment of near-term growth expectations. We continue to view LPLA as a high-quality wealth management platform, but we will watch closely before lifting it from review.
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❖ We are keeping Leidos Holdings (LDOS) under review. Despite strong Q1 2025 results, a robust $46.3 billion backlog, and strategic momentum, the stock has underperformed both the S&P 500 and industry peers. While long-term fundamentals remain intact – including a 7% YoY revenue gain and ~30% EPS surge – investor sentiment appears weighed down by the recent Kudu Dynamics acquisition, with some awaiting clearer evidence of synergies and earnings impact.
Encouragingly, LDOS continues to expand its strategic reach. It now leads a NATO-wide IT modernization effort – enhancing its role in trans-Atlantic defense and boosting visibility in European procurement. The firm also secured a cutting-edge DIU contract to develop a quantum navigation system, further validating its innovation edge in defense R&D.
Stifel recently resumed coverage with a “Buy” rating and a $178 price target, citing Leidos’ diversified federal exposure and transition toward higher-margin segments. While risks remain – including budget volatility and integration execution – the long-term case remains strong. We continue to believe in LDOS’s potential, but will monitor stock performance closely before lifting it from review.
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Portfolio Earnings and Dividend Calendar
❖ The Q1 2025 earnings season is over, with no Portfolio companies scheduled to post their results in the coming week.
❖ There are no ex-dividend dates for Smart Portfolio companies in the next several days.
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New Buy: MACOM Technology Solutions (MTSI)
MACOM Technology Solutions Holdings, Inc. designs and manufactures high-performance analog semiconductor solutions that power next-generation communications, data infrastructure, and defense systems. The company’s broad portfolio spans RF, microwave, millimeter-wave, and optical technologies – enabling high-speed connectivity and signal integrity from the core to the edge. MACOM serves a wide range of industrial, telecom, and government customers with components that are essential for bandwidth expansion, wireless densification, and secure mission-critical operations. Its products support applications from data centers and 5G networks to radar, avionics, and electronic warfare. With an emphasis on in-house design, vertical integration, and targeted acquisitions, the company continues to expand its capabilities across advanced packaging, compound semiconductors, and high-frequency systems. Positioned at the intersection of connectivity and national security, MACOM is increasingly central to semiconductor supply chain resilience and the rollout of high-speed, high-efficiency electronic systems worldwide.
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Waves of Change
MACOM’s origins date back to the 1950s, but its modern evolution as a focused analog semiconductor leader has taken shape over the past decade – and accelerated dramatically in the last five years. Once a broader microwave component supplier, MACOM has emerged as a strategic enabler of high-frequency communications, defense systems, and data infrastructure through disciplined portfolio management, targeted acquisitions, and sustained internal investment.
A pivotal moment came in 2018 when Stephen Daly rejoined the company – first as chairman, then as CEO – initiating a multi-year operational turnaround and strategic realignment. The emphasis shifted toward profitability, streamlined manufacturing, and a sharpened focus on differentiated products for growth markets. Legacy businesses and underperforming units were gradually wound down or divested to create space for high-value verticals.
Over the past five years, MACOM has scaled this transformation through a combination of organic innovation and selective M&A. Its acquisition of AppliedMicro’s 25G/100G optical assets positioned the company as a critical player in high-speed data center interconnects. This was followed by the 2021 purchase of Linearizer Communications Group, which strengthened MACOM’s foothold in advanced microwave systems for aerospace and defense. In 2022, the company acquired ENGIN-IC, a high-performance mixed-signal IC specialist, expanding its design capabilities across broadband and phased-array applications.
Perhaps most transformative was the 2023 acquisition of Wolfspeed’s RF business, including a GaN-on-SiC fab in Research Triangle Park, North Carolina. This deal brought in-house control over a strategic supply chain node, enhanced MACOM’s vertical integration, and positioned it as one of the few U.S. players with full-stack RF and millimeter-wave capabilities – a critical differentiator in both 5G infrastructure and defense modernization.
Simultaneously, MACOM has invested in geographic and operational expansion. Its new European Semiconductor Center is designed to support sovereign supply chain initiatives, deepen public-private partnerships, and enable closer collaboration with aerospace and telecom customers in NATO-aligned markets. The company has also advanced its presence in U.S. government supply chains, with growing participation in radar, electronic warfare, and secure communications programs.
These developments have redefined MACOM’s strategic profile. No longer just a component supplier, the company has repositioned itself as an indispensable technology partner to customers operating at the frontier of bandwidth, security, and high-frequency performance. With integration efforts largely complete and key assets now in place, MACOM is well-aligned with the next wave of semiconductor demand – across both commercial and defense ecosystems.
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Bandwidth Builders
MACOM is strategically positioned at the convergence of multiple secular growth trends – including hyperscale connectivity, edge computing, defense modernization, and industrial digitization. Its portfolio of analog and photonic semiconductors enables high-frequency, low-latency signal transmission across a wide range of applications – from optical interconnects and 5G infrastructure to electronic warfare and precision instrumentation. As bandwidth demand intensifies and global supply chains prioritize resilience, MACOM’s role as a U.S.-based, vertically integrated supplier becomes increasingly central.
The company addresses a diverse set of end markets: Industrial & Automotive (~40% of revenue), Data Center & Telecom (~35%), and Aerospace & Defense (~25%). This balance shields it from dependency on any single vertical or hype cycle. Unlike many digital chipmakers exposed to short-lived architectural bets, MACOM’s focus on analog signal chains, RF components, and photonics gives it multi-year design visibility and durable relevance across technology generations.
In telecom and hyperscale networks, MACOM supports backbone upgrades, 5G densification, and the expansion of fiber interconnects – all essential to scaling generative AI infrastructure. Its components help move and manage massive data volumes between switches, accelerators, and storage systems in next-gen data centers. While not a direct GPU vendor, MACOM is seeing rising demand for its optical and RF solutions as AI workloads drive a re-architecture of compute fabrics.
Industrial markets are similarly robust. MACOM’s chips support test and measurement, EV power systems, factory automation, and advanced sensors – areas that continue to benefit from electrification, smart manufacturing, and global reindustrialization. The company also plays a growing role in U.S. and allied defense programs, where its high-frequency semiconductors are embedded in radar, electronic warfare, and satellite comms platforms. With secure onshore manufacturing and trusted supplier status, MACOM is a clear beneficiary of rising defense budgets and long-term platform ramps.
Although MACOM maintains significant commercial activity in China, this has not raised national security concerns. Its growing presence in U.S. and NATO-aligned defense programs – along with its ownership of a domestic RF fab and the establishment of its European Semiconductor Center – underscores that government stakeholders view the company as a trusted supplier within Western-aligned ecosystems.
MACOM does not publicly disclose customer names or long-term contracts, but its repeat design wins across Tier 1 defense, telecom, and industrial OEMs point to durable, multi-cycle demand. The company’s technology mix, geographic footprint, and diversified end markets position it as a resilient compound growth platform in the global shift toward faster, smarter, and more secure electronic systems.
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Current Yield
MACOM continued its steady execution in fiscal Q2 2025, extending a year-long stretch of double-digit earnings growth and consistent margin performance. Revenue rose to $235.9 million, up 30.2% YoY and 8.1% sequentially, driven by broad-based strength across all major end markets. Adjusted EPS came in at $0.85, growing 28.8% YoY and slightly above consensus estimates. This marks the fourth consecutive quarter of double-digit EPS expansion, underscoring strong operating leverage.
Gross margin held firm at 57.5%, up 40 basis points from the prior year, while non-GAAP operating income rose to $61.3 million, a 41% YoY increase. Operating margin improved to 26.0%, reflecting both solid product mix and disciplined execution. Free cash flow for the quarter was $46.7 million, representing a 20% FCF margin, and the balance sheet remains clean with over $600 million in cash and no significant near-term maturities.
Over the trailing twelve months, MACOM has grown revenue by more than 20%, expanded profitability, and consistently converted earnings to cash. Its capital-light model and high-value component portfolio enable sustained earnings quality – even as sector-specific headwinds, like soft industrial demand, persist.
In its outlook for Q3 2025, management guided revenue to $246-254 million, with adjusted EPS in the range of $0.87-0.91 and gross margin between 56.5% and 58.5%. Sequential growth is expected across all end markets – including defense, data center, telecom, and industrial – though the latter remains the most subdued. Analysts are largely aligned with this trajectory, viewing the company’s consistent execution as a signal of expanding share in key verticals.
The integration of Wolfspeed’s RF business remains a meaningful swing factor. While the acquired GaN-on-SiC fab in North Carolina still faces yield and throughput ramp-up challenges, MACOM reiterated its long-term confidence in the platform. Ownership of this strategic U.S. fab enhances MACOM’s domestic manufacturing footprint, improves control over key RF processes, and positions it to capture high-value defense and telecom content over time. The company expects to reach key qualification milestones during 2025, with higher utilization likely to follow in fiscal 2026.
In short, MACOM combines high-margin growth, capital discipline, and strategic control of critical RF supply to drive durable earnings power. Despite manageable operational hurdles, its financial profile remains resilient – and increasingly aligned with the infrastructure buildout and defense modernization cycles driving demand across the analog and photonics landscape.
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Trading on Frequency
MACOM’s stock – ticker MTSI – has risen by over 30% in the past year, outpacing broader benchmarks while still tracking the sector’s directional trend. When compared to industry peers, MTSI’s performance lands mid-pack – neither lagging nor leading its closest comparables.
The same applies to valuation. At first glance, the stock appears expensive, given that its forward and trailing P/E ratios trade at a noticeable premium to the sector median. However, a more granular peer comparison puts MACOM in a different light. The company’s non-GAAP P/E multiples fall near the midpoint of the peer group, while its forward EV/EBITDA and TTM Price/Cash Flow ratios are considerably lower than those of similarly positioned analog and photonic semi firms. On a forward EV/Sales basis, MACOM appears outright discounted.
From a PEG perspective, MACOM does look richly valued – trading slightly above the sector median and at a premium to most direct peers. That premium, however, reflects MACOM’s rare combination of structural earnings durability, capital discipline, and embedded positioning in mission-critical signal infrastructure. With a steadier earnings base than most small- and mid-cap semis, a higher PEG multiple is not only justifiable but expected. Additionally, with Wolfspeed RF still ramping and industrial demand only beginning to recover, the company’s PEG doesn’t yet capture its full margin expansion potential over the next 12-18 months.
The 60%+ rebound since its April 8 trough – more than double the gain in the PHLX Semiconductor Sector Index (SOX), in which MTSI is a component – has outpaced analyst revisions, with price target hikes struggling to keep up. For example, Bank of America raised its price target twice in the past month, citing MACOM’s “unique growth engines in data center and defense” and projecting 45% YoY growth in fiscal 2025. Reports from Benchmark and Needham echoed this view, pointing to strength in both segments as core drivers behind the company’s re-rating.
Notably, the rally wasn’t fueled by buybacks – unlike many peers – but by underlying financial and operational performance. While MACOM does repurchase shares, its approach is opportunistic. Over the 12 months through April 4, it bought back approximately $3.35 million in stock – more than double the prior year’s figure but modest relative to the float. This restraint aligns with its strategic focus on reinvestment, particularly in capacity expansion and fab modernization.
Taken together, MACOM’s recent revaluation reflects the market’s recognition of its earnings consistency, cross-cycle relevance, and operational credibility – not momentum alone.
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Investing Takeaway
MACOM is a specialized semiconductor platform positioned at the intersection of connectivity, defense, and next-generation infrastructure. Its diversified exposure across data centers, telecom, aerospace, and industrials allows it to tap into secular growth drivers without overreliance on any single cycle. The company’s portfolio of analog and photonic solutions supports mission-critical signal processing across high-frequency and high-reliability applications. With an expanding role in defense modernization, optical interconnects, and edge computing, MACOM benefits from both long-term investment tailwinds and rising technology complexity. Its strategic control of RF manufacturing, disciplined capital allocation, and proven margin execution underpin a resilient earnings model. Despite recent equity gains, MACOM’s valuation remains grounded in forward potential. For investors seeking durable exposure to the signal layer of digital and physical infrastructure, MACOM offers a compelling blend of defensibility, relevance, and embedded growth.
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New Sell: Charles Schwab (SCHW)
Charles Schwab is one of the most established names in U.S. brokerage and wealth management, stewarding over $10 trillion in client assets and operating with the scale, trust, and infrastructure of a systemically important financial institution. Its business model, anchored in net interest income from client cash, asset-based fees, and a growing advisory footprint, has long delivered strong profitability, efficient growth, and consistent returns.
The company’s underlying fundamentals remain solid. Schwab weathered the 2022-2023 cash-sorting crisis with agility, stabilizing deposit outflows, restoring its liquidity position, and guiding toward margin recovery. Governance has also improved: following shareholder pressure, Schwab supported board declassification – a clear signal of responsiveness and alignment. New account growth continues, client assets are trending higher, and normalized earnings are expected to resume later in 2025.
But in a portfolio that already holds Morgan Stanley, LPL Financial, and Interactive Brokers – all with differentiated long-term catalysts – Schwab now stands out less for what it can deliver going forward. Despite a strong rebound, its near-term growth potential is moderate, with earnings likely to recover rather than inflect. It also remains highly sensitive to rate shifts: if rates remain elevated, funding costs stay high; if rates fall, margins may recover but client yield-seeking could reverse only gradually. And while Schwab’s brand is an asset, its exposure to regulatory scrutiny as a bank-like institution adds structural friction compared to lighter-footed peers.
Importantly, Schwab has outperformed all three of its peer group year-to-date, yet it now has the smallest analyst-upside projection among them. That re-rating, while deserved, leaves little valuation headroom at a time when the opportunity cost of capital is high and rotation matters. This sale is not a rejection of Schwab’s business or long-term value, but rather a portfolio optimization decision, reallocating capital where the risk/reward profile is more favorable.
In short, Schwab is leaving the portfolio not because it’s underperforming, but because it has already done much of the work – and with better forward prospects elsewhere, it’s time to lock in gains and move on to greener pastures.
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Smart Investor’s Winners Club
The 30% Winners Club includes stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
Markets have ebbed and flowed, but our Winners list has remained unchanged, still holding 13 stocks: GE, AVGO, HWM, ORCL, ANET, EME, TSM, APH, TPL, IBKR, PH, CRWD, and IBM.
The first contender for the Club’s entry is still UBER – but now, with a 28.07% gain since purchase, it is much closer to the threshold. Will it gain the rite of passage, or will another stock outrun it to the finish line?
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Disclaimer
The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.
