The Power of Cool
In this edition of the Smart Investor newsletter, we spotlight the cooling layer behind modern infrastructure. But first, let’s review the latest news and developments.
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Portfolio News and Updates
❖❖ Taiwan Semiconductor Manufacturing, aka TSMC (TSM), delivered blowout Q1 results, reporting a 58.3% year-over-year surge in net income that translated into earnings per ADR of $3.49 versus $3.30 expected. Net revenue – reported ahead of the full quarterly release – was modestly above guidance at $35.90 billion, up 40.6% in USD.
Sales were held back somewhat by weakness in TSMC’s Smartphone division, which accounts for over a quarter of total revenue. At the same time, the company’s growth driver, High Performance Computing (HPC), soared by more than 45% year-over-year, with its share in the total notching up to 61%. That spurred overall growth and helped expand gross margins to 66.2%, operating margins to 58.1%, and net profit margin to 50.5%. HPC chips are used in AI servers, data centers, networking, and custom silicon for hyperscalers like Alphabet’s (GOOGL) Google.
TSMC provided upbeat Q2 guidance and raised its full-year 2026 forecast, with CEO C.C. Wei citing “insatiable” AI infrastructure demand. Q2 revenues are expected to come in at $39.0-40.2 billion (implying about 32% year-over-year growth at the midpoint), with gross margin at 65.5-67.5% and operating margin at 56.5-58.5%. For the full year, the company sees total sales growing at above 30%, versus the previous guidance that called for “close to 30%” growth.
The modest raise, alongside the confirmation of the capex ramp toward the upper end of TSMC’s guided $52-56 billion range, moderately weighed on sentiment, as investors hoped for more after a 150%+ rally in the stock over the past year. However, the Street consensus is supportive. Analysts cite accelerating profitable growth as the share of advanced technologies, where TSMC is a near-absolute monopoly globally, increasingly accounts for a larger share of the total. The powerful and efficient 7-nanometer and below nodes have reached 74% of total wafer revenue, supporting the company’s pricing power and margin expansion, driving earnings growth above sales expansion. Needham lifted its price target from $375 to $480, reinforcing a Wall Street consensus Buy with an average target near $462, implying an upside of over 25% from current levels.
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❖❖ Alphabet’s (GOOGL) Google is reportedly in talks with Marvell to build two new chips aimed at improving AI model efficiency. According to the media, one of the chips that would be developed by Marvell (and then produced by TSMC) is a memory accelerator for Google’s proprietary chips – tensor processing units, or TPUs – and the other is a new, AI-targeted TPU. If the talks end with an agreement, Marvell will become the third design partner for Google, alongside Broadcom (AVGO) and MediaTek – each serving a distinct role. AVGO handles high-performance TPU development and was locked in through 2031 in a deal announced earlier this month. MediaTek is designing a cost-optimized inference variant. Marvell would add a memory processing unit and an additional inference-focused TPU, rounding out what is shaping up as a deliberately segmented chip supply chain, aimed at reducing dependence on NVIDIA’s (NVDA) GPUs across both training and inference workloads.
TPUs are increasingly powering the growth of Google Cloud, with its strong momentum – catalyzed by AI – as one of the key reasons for the increasingly optimistic Street consensus. Over the past week, KeyBanc raised its price target to $380 and JPMorgan named Alphabet its top pick ahead of the Google Cloud Next event in Las Vegas, with analysts expecting GOOGL to beat estimates when it reports on April 29.
Beyond the potential deal with Marvell, GOOGL sparked a robust amount of headlines. The pending SpaceX IPO is expected to be very beneficial for the company, thanks to a roughly 6% stake it held in Musk’s space business at the end of 2025. Although that stake could have been diluted somewhat following SpaceX’s merger with xAI, notching closer to 5%, it could still translate into a windfall of up to $100 billion for Google.
In parallel, Google continues to position itself deeper in the federal networks. Google Distributed Cloud received IL6 authorization last May, on top of its existing Top Secret accreditation. GOOGL has long been one of the vendors – alongside Amazon (AMZN), Microsoft (MSFT), and Oracle (ORCL) – in the Pentagon’s $9 billion Joint Warfighting Cloud Capability (JWCC) contract, a multi-cloud agreement designed to provide enterprise-wide cloud services to the DoD until 2028. Google is currently in talks with the Pentagon to deploy its Gemini models in classified environments, along with the first-time deployment of its TPUs in such settings. These talks are centered on closing the gaps in the ability of the existing infrastructure to run classified workloads at scale.
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❖❖ The dash for financing and compute continues to accelerate. Anthropic has secured an additional $5 billion investment from Amazon (AMZN) immediately, and up to $20 billion more in the future, tied to certain commercial milestones. For its part, the Claude AI maker has committed to spending over $100 billion on AWS over the next decade, securing 5 GW of capacity through multiple generations of the Trainium chips and Graviton CPUs. This is the largest single cloud-spend commitment in history.
AWS has been Anthropic’s primary cloud provider, with its total investments in the startup adding up to $8 billion before the current deal. For AMZN, the new investment marks an acceleration in its custom chip business, representing another win in a subset of the AI market that appears to be the fastest-growing at the moment.
Anthropic named AWS its primary cloud provider in 2023 and its primary training partner in 2024, despite inking parallel deals with competing providers, including Microsoft (MSFT) and Alphabet’s (GOOGL) Google. Last year, MSFT agreed to invest up to $5 billion into Anthropic in return for a commitment to purchase $30 billion of Azure compute capacity. In early April, Anthropic expanded its partnerships with Google and Broadcom (AVGO) for multiple gigawatts of capacity. On the other hand, Amazon is far from being locked into the Claude maker: in February, the e-commerce giant agreed to invest up to $50 billion in OpenAI, Anthropic’s primary competitor. Thus, AMZN is ensuring it captures the infrastructure spend of both primary frontier rivals simultaneously.
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❖❖ Morgan Stanley (MS) staged a strong rally following its Q1 2026 double beat. The company reported record Q1 2026 revenues of $20.6 billion (up 16.4% year-over-year) and record EPS of $3.43 (up 32%). The firm’s Institutional Securities division delivered record revenues of $10.7 billion, up roughly 20% year-over-year, driven by a 25% jump in equities trading income – which rose to a record of $5.15 billion – and a 36% surge in investment banking revenue. Wealth Management delivered record net revenues of $8.5 billion, up over 16% year-over-year, and added $118 billion in net new assets over the quarter. Investment Management reported modestly lower net revenues due to lower accrued carried interest in MS’s private funds. The management stressed that the firm is not at any material risk from the private credit turmoil, as it represents less than 1% of the total AUM of $1.9 trillion.
MS ended the first quarter with a CET1 ratio of 15.1% against a requirement of 11.8%, along with a ROTCE of 27.1% and an efficiency ratio of 65%, demonstrating disciplined execution and strong operating leverage across its integrated business model. Overall, the Q1 results reflect a business firing on all cylinders, benefiting from both market volatility and structural tailwinds in asset gathering.
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❖❖ Bank of New York Mellon, aka BNY (BK), rallied after delivering a standout performance in Q1 2026, driven by record top-line growth and significant margin expansion. The company reported record total revenue of $5.41 billion, up 13% year-over-year, and a record EPS of $2.24, representing a massive 42% jump compared to the prior year. The EPS jump reflects both strong earnings growth – net income applicable to common shareholders rose 36% to $1.56 billion – and continued share count reduction, with diluted shares outstanding down 4% year-over-year. BK finished the quarter with a CET1 ratio of 11.0% and an impressive ROTCE of 29.3%.
The robust headline results were propelled by broad-based growth across its core segments, particularly in Securities Services and Market and Wealth Services, alongside an 18% surge in net interest income to $1.37 billion as the firm benefited from higher yields and balance sheet growth. Assets under custody and/or administration (AUC/A) rose 12% to a record $59.4 trillion, while assets under management (AUM) reached $2.1 trillion, up 6% year-over-year.
BNY’s fee revenue grew 11% to $3.77 billion, reflecting higher client activity and net new business despite some headwinds from AUM flow mix. Management highlighted that the firm is successfully “reimagining” its operating model through its Eliza AI platform, noting that over 40% of code is now authored by AI and 70% of payment screenings are AI-reviewed, contributing to 833 basis points of positive operating leverage.
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❖❖ Citizens Financial (CFG) kicked off 2026 with a strong first-quarter performance, characterized by significant margin expansion and robust growth in its specialized banking segments. The company reported total revenue of $2.17 billion, up 12% year-over-year, and EPS of $1.13, up 47% year-over-year. The strong earnings growth reflected a surge in net income available to common shareholders, up 42% to $484 million, along with a continued share count reduction, with diluted shares down 3% year-over-year. CFG delivered 7.2% positive operating leverage year-over-year, expanding its efficiency ratio from 67.9% to 63.6%, and ended the quarter with a CET1 ratio of 10.5% and a ROTCE of 12.2%.
The headline results were propelled by Net Interest Income (NII) growth of 12% year-over-year to $1.56 billion, as Net Interest Margin (NIM) expanded 24 basis points to 3.14%. This expansion reflects the successful execution of fixed-rate asset repricing and the reduction of non-core portfolio drags. Fee income also saw double-digit growth, rising 11% to $606 million, fueled by a 34% jump in Capital Markets fees and a 23% increase in Wealth Management revenue. The company’s Private Bank continues to be a key growth engine, contributing $0.11 to Q1 EPS and generating a return on regulatory capital above 25%, with spot deposits reaching $16.6 billion. Management expressed confidence in driving NIM further to 3.30-3.50% by 4Q27, and reiterated a medium-term ROTCE target of 16-18% by the end of 2027.
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❖❖ RTX (RTX) delivered a standout Q1 beat-and-raise, reporting adjusted sales of $22.08 billion – compared to the expectations of $21.46 billion – up 10% organically, with robust growth across all three business segments (Pratt & Whitney, Raytheon, and Collins Aerospace). Adjusted EPS reached $1.78, crushing the $1.51 estimate, up 21% year-over-year. Total company backlog jumped 25% to $271 billion, signaling strong commercial aviation and defense demand, with a book-to-bill of 1.14x. Free cash flow expanded by $500 million year-over-year, reaching $1.3 billion. Management raised full-year 2026 adjusted sales guidance to $92.5-93.5 billion (from $92.0-93.0 billion), and adjusted EPS outlook to $6.70-6.90 (up from $6.60-6.80), while maintaining its previous guidance for free cash flow of $8.25-8.75 billion.
Despite the raise, the sales guidance midpoint landed modestly below analyst expectations – enough to disappoint in a jittery market already contending with crude prices resuming their surge on rekindled Middle East uncertainty. The result was a sell-off far steeper than the numbers warranted (if at all), compounded by profit-taking after RTX’s 55% rally over the past year.
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❖❖ GE Aerospace (GE) reported a blockbuster Q1, surpassing consensus expectations for both revenue and earnings. GAAP revenue rose 25% year-over-year to $12.39 billion, while adjusted revenue jumped 29% to $11.61 billion, well ahead of the $10.71 billion estimate. Adjusted EPS also increased 25% to $1.86 (compared to expectations for $1.60), and operating profit grew 18% to $2.52 billion. Total orders soared 87% year-over-year to $23.0 billion, while free cash flow expanded 14% to $1.66 billion.
Despite the strong results, GE’s stock dropped post earnings as the company kept its full-year guidance rather than raising it, with adjusted EPS seen at $7.10-7.40 and free cash flow at $8.0-8.4 billion (with operating profit of $9.85-10.25 billion and low double-digit revenue growth). Caution was driven by elevated oil prices and geopolitical uncertainty stemming from the ongoing U.S.-Iran conflict. Although GE said that results are trending toward the high end of the range, the market reaction suggests investors were looking for a formal guidance increase after a strong start to the year.
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❖❖ Northrop Grumman (NOC) suffered a similar fate to GE, dropping post-earnings as investors reacted negatively to its decision to hold full-year guidance below Wall Street consensus despite a solid double beat.
The Q1 report revealed ongoing strength, with sales of $9.9 billion, up 4% year-over-year with organic sales growth of 5%, driven by higher volume on B-21, Sentinel, and restricted programs. NOC’s awards totaled $9.8 billion and backlog reached $96 billion, underscoring strong demand and visibility. Operating income increased to $989 million, while operating margin expanded to 10.0%. EPS came in at $6.14 versus the $6.05 estimate.
However, management reaffirmed its FY2026 EPS guidance of $27.40-27.90, sitting below the $28.01 analyst consensus, and increased capex guidance to $1.85 billion, reflecting an additional $200 million for B-21 production capacity investment. These two points appear to be the primary drivers of selling pressure alongside sector-wide profit-taking after a strong defense run.
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❖❖ Interactive Brokers (IBKR) reported record net revenues of $1.67 billion in Q1 2026, which were still slightly below expectations despite a 17% year-over-year increase. That was driven mainly by a continued drag from non-core revenue items – such as execution, clearing, and distribution-related fees – partly offsetting growth elsewhere.
At the same time, core business was robust, as customer trading volumes increased – with stock, futures, and options volumes all notably higher year-over-year – driving commission revenue up 19% to a new record. The company maintained strong operational metrics, with customer accounts rising 31% to a record 4.75 million and customer equity jumping 38% to $789.4 billion, also a record. Total customer DARTs were up 24% year-over-year, while customer credits and customer margin loans both increased 35% year-over-year.
IBKR has maintained industry-leading profitability, with pretax profit margin expanding to a strong 77%, its sixth consecutive quarter above 70%. Adjusted EPS rose 28% to $0.60, in line with estimates. Net interest income (NII) was up 17% to $904 million, driven by growth in margin lending and segregated cash balances despite lower benchmark interest rates, while NIM-basis net interest income was $953 million, up 20% year-over-year.
The management highlighted balance‑sheet strength, with total assets surging 39% year-over-year to $219 billion and firm equity up 23% to $21.3 billion. Interactive Brokers increased its annual dividend by 9.3% to $0.35 per share as a sign of confidence in its business model and continued profitable growth.
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Portfolio Stocks Under Review
❖ We are keeping Oracle (ORCL) under review despite the ongoing re-rating, as the stock is being driven higher by a steady stream of AI catalysts and improving investor sentiment.
ORCL extended its rally over the past week, bringing its April gain to more than 20%, as Wall Street continues to shift its view of the company from a legacy software name to an emerging AI infrastructure “utility.” The move builds on its earlier sharp rebound and reflects a combination of tangible AI execution, infrastructure expansion, and a broader rotation back into beaten-down enterprise software.
At the core of the story remains growing confidence that Oracle is already monetizing AI demand. The company continues to roll out a broad set of agentic AI applications across finance, supply chain, HR, customer experience, and corporate banking, alongside vertical-specific updates such as utilities and infrastructure software. These tools move beyond assistive AI toward workflow automation and decision execution, reinforcing ORCL’s positioning deeper into enterprise operations. Real-world use cases – including measurable cost savings in utilities – continue to support the narrative that AI adoption is already translating into economic value.
On the infrastructure side, Oracle is moving aggressively to secure the inputs needed to scale. The expanded partnership with Bloom Energy, which includes up to 2.8 GW of fuel-cell power capacity, remains a key development, addressing one of the primary bottlenecks in AI – access to reliable power. Combined with ongoing data center expansion and structured financing models, this supports Oracle’s ability to grow capacity while limiting balance sheet strain.
The most notable new development is the expansion of Oracle’s multicloud strategy through its partnership with Amazon’s (AMZN) AWS. By enabling high-performance, private connectivity between Oracle Cloud Infrastructure and AWS, the company is effectively removing one of the largest friction points for enterprise customers. This is strategically important – it signals a clear shift toward a platform-agnostic model, where ORCL positions itself as the data and infrastructure layer across clouds rather than competing head-on with hyperscalers. In practical terms, this broadens Oracle’s addressable market, strengthens its relevance in AI workloads that span multiple environments, and reinforces its role as a core enabler of enterprise AI rather than a standalone cloud destination.
The broader narrative continues to be anchored by Oracle’s ~$553 billion remaining performance obligations backlog, which provides strong visibility into future demand and supports the case that capacity expansion is tied to contracted workloads rather than speculation.
That said, risks have not disappeared. The pace of investment, ongoing margin pressure from data center buildout, and macro-driven volatility continue to weigh on the near-term outlook. The stock’s sharp move also raises questions around sustainability, given the speed of the recent re-rating.
All in all, the fundamental story is clearly improving, and the case for Oracle as a core AI infrastructure player is strengthening. While we are keeping ORCL under review for now, we are close to moving it back to its regular holding status and would likely have already done so if not for the current elevated market volatility.
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Portfolio Earnings and Dividend Calendar
❖ The Q1 2026 earnings season is in full swing, and many Smart Investor Portfolio holdings are scheduled to reveal their results in the coming week. IBM (IBM), Vertiv Holdings (VRT), Philip Morris (PM), and CACI International (CACI) will report today, while ASE Technology (ASX), Amphenol (APH), EMCOR Group (EME), Alphabet (GOOGL), Amazon (AMZN), Microsoft (MSFT), and Flowserve (FLS) are all scheduled for April 29.
❖ The ex-dividend date for nVent Electric (NVT) is April 24.
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New Buy: SPX Technologies (SPXC)
SPX Technologies sits at the core of thermal management and essential industrial systems, providing engineered solutions that support how buildings and facilities are cooled and controlled. The company’s HVAC platform – spanning cooling towers, air handling, and heat rejection systems – has become increasingly tied to the rapid buildout of data center infrastructure, where reliable, high-performance cooling is mission-critical. Its technologies are embedded across commercial, industrial, and institutional environments, helping customers manage temperature-sensitive operations and maintain stable conditions. Alongside this, SPX’s Detection & Measurement segment provides a range of specialized tools for underground detection, infrastructure inspection, and navigation applications. As demand rises for both digital infrastructure and system reliability, SPX Technologies is evolving from a traditional industrial supplier into a more targeted enabler of next-generation capacity.
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Cooling Into Focus
SPX Technologies traces its roots back more than a century, originating in automotive components before steadily expanding into a broader industrial platform through decades of acquisitions. Over time, the company evolved into a diversified conglomerate, building positions across flow control, infrastructure, and engineered systems. That model began to shift in the late 2010s, as management moved to simplify the business and concentrate on higher-margin, more defensible end markets.
The inflection point came around 2020, when SPX accelerated a multi-year transformation aimed at exiting cyclical, lower-value segments and reallocating capital toward engineered platforms with stronger pricing power and recurring demand. A series of divestitures – including legacy flow and power transmission assets – narrowed the company’s focus, while simultaneously strengthening the balance sheet and creating room for targeted reinvestment.
Having long relied on acquisitions to build scale, SPX began to apply that playbook more selectively. The strategy shifted decisively toward expansion in HVAC and Detection & Measurement, with deals increasingly focused on capability depth and end-market alignment. Earlier additions, such as Cincinnati Fan, expanded the company’s presence in air movement and industrial ventilation, while acquisitions like TAMCO and Ingénia strengthened its position in engineered air handling solutions. More recently, the additions of Crawford United and Sigma & Omega further extended SPX’s reach into specialized components and hydronics, reinforcing its ability to serve complex thermal management systems.
At the same time, SPX aligned itself with emerging demand cycles. Investments in cooling technologies and manufacturing capacity targeted data center infrastructure, where rising compute intensity and power density have made advanced heat rejection systems essential. The company has expanded its production footprint and introduced new product platforms designed to meet the requirements of hyperscale and high-density environments, positioning itself to capture share as the AI-driven buildout accelerates.
Technology integration has advanced in parallel. SPX has incorporated more sophisticated design tools, controls, and system-level engineering into its HVAC offerings, while maintaining a steady innovation cadence within Detection & Measurement.
What emerges from this evolution is a markedly different company. Through a combination of divestitures, more disciplined acquisitions, and alignment with structural demand trends, SPX Technologies has transitioned from a broad industrial holding group into a more focused, higher-quality platform – one increasingly tied to the infrastructure behind digital and physical systems alike.
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The HALO of Cool
SPX Technologies operates as a provider of essential industrial infrastructure – a company positioned deep inside the systems that enable buildings, facilities, and increasingly data centers to function reliably under rising thermal and operational demands. Its products are embedded in environments where uptime, efficiency, and stability are critical – and once installed, they are difficult to replace, creating a durable footprint across long-lived assets. This places SPX among the “heavy assets, low obsolescence,” or “HALO,” businesses – companies whose offerings underpin the physical layer of the economy, including its most advanced digital parts.
The business is organized across two segments. HVAC, which accounts for roughly two-thirds of revenue, has become the strategic core, spanning cooling towers, custom air handling, engineered air movement, and heating systems deployed across commercial, industrial, and institutional environments. Detection & Measurement, contributing the remaining share, provides underground detection, inspection, and navigation technologies tied to utilities, transportation, and infrastructure maintenance. While the latter offers steady, infrastructure-linked demand, the company’s growth profile is increasingly shaped by HVAC.
What defines SPX today is not just what it sells, but where its systems sit. Data center cooling has moved from a secondary exposure to a meaningful growth driver, reaching roughly 9% of revenue in 2025 and expected to expand into the low double digits as demand accelerates. As compute intensity rises and power density increases, thermal management is becoming a constraint on system performance. SPX operates in this layer – supplying the cooling infrastructure that allows high-density data centers to run efficiently and at scale.
This positioning is reinforced by product development. The OlympusMAX platform represents a key product inflection point, reflecting a shift toward more flexible, performance-driven cooling systems capable of operating in both dry and adiabatic modes1 and adapting to evolving customer requirements. Early traction has been tangible, with bookings converting into revenue, multiple large customers secured, and multi-year demand visibility beginning to form.
To support this demand, the company is expanding its manufacturing footprint. Investments across facilities – including a large new site in Alabama and expansions across existing HVAC plants – are designed to increase capacity meaningfully over the next several years, with a ramp that extends through 2028. Capacity investments are directly tied to growth conversion and scaling the business, with management indicating that nearly half of HVAC growth in 2026 will be driven by added production capacity.
Growth is supported by a dual approach. Organically, SPX is expanding within higher-value HVAC niches aligned with data centers, healthcare, power, and institutional infrastructure, while more cyclical industrial markets remain uneven. Inorganically, the company continues to execute targeted, highly complementary acquisitions that deepen capabilities in air handling, electric heating, and hydronics, while improving vertical integration and channel reach.
Across the business, long product lifecycles and installed base dynamics support ongoing replacement and upgrade demand, reinforcing durability. From here, SPX is evolving into a more focused infrastructure platform – one increasingly tied to systems that are essential to both physical operations and digital capacity. Growth is visible, but execution will determine how fully that potential is realized.
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1 – Adiabatic mode uses water-assisted cooling (typically via evaporation) to enhance heat rejection efficiency during higher temperature conditions, while dry mode relies solely on air to dissipate heat without water usage, prioritizing simplicity and lower resource consumption.
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HVAC and Deliver
SPX Technologies closed 2025 with a clear extension of its recent trajectory – steady revenue growth, accelerating earnings, and improving margins driven by mix, scale, and disciplined execution. Full-year revenue reached $2.27 billion, up 14.2% year-over-year, while adjusted EBITDA rose 20.5% to $507 million, expanding margins to roughly 22.4%. Adjusted EPS increased 21.1% to $6.76, landing near the top end of guidance. The pattern was consistent with prior quarters, where SPX has built a strong track record of execution – exceeding adjusted EPS expectations in eight consecutive quarters and beating on revenue in seven of the last eight.
Momentum strengthened into the fourth quarter. Revenue grew 19.4% year-over-year, adjusted EBITDA increased roughly 22%, and adjusted EPS rose 25% to $1.88, reflecting both organic demand and acquisition contributions. The quality of growth was most visible in HVAC, where revenue reached about $1.52 billion for the year and continued to expand on volume, pricing, and capacity additions. Operating leverage and mix shift toward higher-value systems supported margin expansion. Detection & Measurement generated roughly $747 million in revenue, with growth largely acquisition-driven and organic expansion more modest at around 1-2%, highlighting a more project- and timing-sensitive profile.
Cash generation remains a defining strength. Adjusted free cash flow reached approximately $294 million in 2025, with conversion near 90% of adjusted net income, supporting both reinvestment and ongoing M&A. The balance sheet remains conservatively positioned, with roughly $366 million in cash against $502 million in debt, translating to net leverage of about 0.3x, or about 1.0x when factoring in recently announced acquisitions.
Looking ahead, guidance points to continued above-market growth, albeit with a more execution-dependent profile. For 2026, SPX expects revenue of $2.54-2.61 billion, implying roughly 13% growth, alongside adjusted EBITDA of $590-620 million, or about 20% growth at the midpoint. Adjusted EPS is guided to $7.60-8.00, reflecting approximately 15% growth. HVAC remains the primary driver, with low double-digit organic revenue growth supplemented by acquisition contributions, resulting in higher reported segment expansion.
Visibility is supported by a strong backlog, with HVAC up roughly 22% year-over-year and Detection & Measurement up about 43%. In Detection & Measurement, backlog is increasingly weighted toward larger, multi-year projects, which improves long-term visibility but slows near-term revenue conversion. This dynamic is reflected in 2026 expectations, where a roughly $20 million project originally expected in 2026 was delivered earlier, in 2025, creating a temporary headwind for year-over-year comparisons.
Margins face a similar near-term dynamic. Start-up costs tied to new facilities are expected to create a temporary ~50 basis point headwind in HVAC during 2026, even as the underlying margin structure continues to benefit from mix improvement and scale. Input cost exposure and tariffs remain manageable, supported by a largely localized sourcing model – with production and supply chains concentrated near end markets, limiting tariff exposure and geopolitical disruption risk, while overall supply chain conditions remain stable.
The broader picture is one of consistent, high-quality growth, albeit with increasing sensitivity to execution. As SPX scales its capacity, integrates acquisitions, and converts backlog into revenue, performance becomes more dependent on timing, ramp efficiency, and project delivery. The underlying fundamentals remain strong, but the next phase of growth will be defined less by demand and more by how effectively that demand is realized.
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The Heat Exchanger
SPX Technologies operates within a focused group of mid-cap U.S. industrial companies tied to engineered thermal systems and building infrastructure. Modine Manufacturing provides the closest operating comparison, reflecting a similar shift toward data center cooling and thermal management. Lennox International serves as the benchmark for HVAC execution and margins, while Watts Water Technologies adds a systems-level perspective across flow control and building infrastructure. Alongside these peers, Vertiv, a core Smart Portfolio holding, acts as a performance north star – not a direct comparable, but a reference point for how the market is valuing critical thermal infrastructure within the data center stack.
The market is no longer valuing these companies as a monolith. Instead, it is separating those tied to high-density data center infrastructure from those exposed to traditional end markets. Companies with a credible path into advanced thermal and power-constrained environments are being re-rated, while the rest remain anchored to legacy industrial multiples, regardless of operational performance.
That split is clearly visible in stock performance. Vertiv and Modine sit at the high end, with triple-digit gains over the past year driven by their reclassification as direct AI infrastructure enablers positioned deep within the data center buildout. Watts Water’s strong, but more measured performance reflects steady infrastructure demand without a dedicated data center catalyst, while Lennox’s underperformance was driven by its exposure to residential HVAC softness. SPX, up roughly 75%, falls in between – with real and growing data center exposure, but still transitioning in both mix and perception – leaving it positioned between execution-driven growth and further potential re-rating. This positioning is reflected in analyst consensus, pointing to additional upside of roughly 20%, even after the recent rally.
SPX’s forward P/E of ~27x and ~18x EV/EBITDA position it above traditional industrial peers like Lennox, but well below re-rated thermal and data center names such as Modine and Vertiv. That discount reflects its still-mixed revenue profile, with data center exposure growing but not yet dominant. At the same time, the underlying growth profile is more aligned with higher-multiple peers. SPX is delivering mid-teens revenue and EBITDA growth, with forward EBITDA growth expected to accelerate from the mid-teens toward the high-teens range, supported by capacity expansion and a rising data center mix. Its ~1.6x forward PEG – broadly in line with Vertiv – also suggests valuation is supported by growth rather than purely narrative-driven. On this basis, SPX’s multiples sit in the middle of the peer range, reflecting solid execution, but still leaving room for further re-rating as the business mix shifts and the data center story becomes more central.
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Investing Takeaway
SPX Technologies is moving beyond its legacy identity as a diversified industrial supplier into a more focused platform tied to essential thermal and infrastructure systems. Its strength lies in providing the physical layer that enables modern capacity – from buildings to increasingly demanding data center environments. As the business mix shifts toward higher-growth HVAC niches and new capacity comes online, the company is becoming more aligned with structural demand rather than cyclical swings. The data center opportunity adds a meaningful growth vector, while disciplined acquisitions continue to deepen capabilities and expand reach. With execution improving and the story still in transition, SPX is positioning itself as a higher-quality compounder with room for further recognition as its role within critical infrastructure becomes clearer.
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New Sell: General Dynamics (GD)
We are exiting General Dynamics at this stage, even as the underlying business remains strong. GD continues to execute well, with a record backlog and deep alignment with U.S. and allied defense priorities. The business continues to win contracts and stands to benefit from long-term spending tailwinds, including the recently proposed $1.5 trillion U.S. defense framework. The long-term story remains intact.
The issue is positioning and near-term dynamics. Despite its strengths, GD has consistently lagged both the S&P 500 and its peer group in recent months. This underperformance points to a growing disconnect between fundamental quality and market preference.
A key factor is its mixed business model. Unlike peers such as Lockheed Martin, Northrop Grumman, and RTX, GD carries meaningful exposure to commercial aerospace through Gulfstream. That segment is currently facing cyclical pressure and execution challenges, particularly around the G700 ramp. While the long-term demand picture remains solid, the near-term impact is acting as a drag on sentiment and performance.
At the same time, concerns have emerged around backlog conversion. GD’s record backlog provides visibility, but not all of it translates into near-term earnings growth. Constraints in shipbuilding timelines and jet deliveries are limiting the pace at which backlog converts into revenue and cash flow, particularly in the Marine and Aerospace segments. In a market focused on acceleration, that matters.
Relative positioning within the defense sector is also working against the stock. Investors are currently favoring companies with more direct exposure to missiles, munitions, and tactical systems – areas that are seeing immediate demand from geopolitical developments. GD is less levered to these segments, and market reactions have reflected that. During recent defense rallies tied to the Iran war, GD has consistently underperformed more directly exposed peers.
This is now being reinforced by analyst sentiment. Several firms have trimmed price targets and lowered expectations ahead of the upcoming earnings release. Forecasts for near-term revenue and earnings growth are coming in below consensus, raising the risk of a miss when results are reported. With the stock not responding to implied upside in target prices, the market is signaling limited conviction in the near-term story.
This is a disciplined portfolio decision. We maintain exposure to the defense theme through RTX as a high-conviction holding, while Northrop Grumman is a more recent addition that still needs to prove its place in the portfolio. Both, however, offer clearer alignment with current spending priorities and stronger near-term momentum. With GD facing a mix of cyclical drag, execution timing issues, and softer growth expectations, we see better risk-reward elsewhere at this stage. Importantly, valuation is not stretched – GD remains moderately valued relative to peers, which leaves the door open for a re-entry if execution improves, the company surprises to the upside, or sentiment shifts.
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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.
Markets have been in a rally mode, and although the tides turned again on Tuesday, the Club ranks expanded again, now holding 24 stocks:
AVGO, GE, ANET, EME, TSM, HWM, APH, VRT, IBKR, PH, MTZ, ORCL, GOOGL, KEYS, ASX, BK, ATI, CSCO, MS, STRL, RTX, JBL, CRWD, and C.
The first runner-up is still JPM with a 27.95% gain since purchase. Will it return to the ranks, or will another stock outrun it to the finish line?
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