The Right Cut
In this edition of the Smart Investor newsletter, we spotlight the Permian’s underground landlord. We are not selling any stocks today, as a broad rout across semiconductors, AI-linked names, and adjacent industrials spreads through the wider market amid surging bond yields and rising oil prices following the expiration of the U.S.-Iran ceasefire. But first, let’s review the latest Smart Portfolio developments.
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Portfolio News and Updates
❖❖ NVIDIA (NVDA) is turning capital access into another layer of its AI infrastructure moat. The company signed memorandums of understanding with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR to establish independent financing platforms capable of mobilizing more than $500 billion of third-party capital for AI factories.
The structure is designed to treat AI compute as a financeable infrastructure asset, allowing sovereigns, neoclouds, and other customers to fund NVIDIA-powered systems without relying entirely on their own balance sheets. Morgan Stanley believes the platforms should alleviate circular-financing concerns, unlock recurring revenue streams, and accelerate deployments, while Bank of America emphasized that most credit exposure would sit with the consortium. Both firms view the initiative positively.
However, NVIDIA is retaining substantial direct exposure in selected projects. The company agreed to provide up to $105 billion of financing support for an OpenAI data-center campus in Ohio, covering an initial 4.25 gigawatts of capacity with an option for another 3.75 gigawatts. SB Energy will build and operate the campus under a 20-year OpenAI lease, with the first phases expected online in 2028 and the facility exclusively hosting NVIDIA compute. NVIDIA will also invest $1.5 billion in SB Energy.
The commitment links future demand more closely to OpenAI’s ability to monetize massive infrastructure investments. The broader $500 billion platform reduces that risk by bringing in outside capital, though it does not disclose who absorbs losses if borrowers default or rapidly depreciating compute collateral loses value. Comparisons with telecom-era vendor financing are overstated because the new platforms use third-party capital, but the underlying leverage still deserves scrutiny. NVIDIA’s August 26 earnings call should clarify whether Ohio is a targeted exception and how much credit risk the company intends to retain.
❖ In other news, Bank of America expects NVIDIA’s fiscal Q2 revenue to reach $94-95 billion, above its $91 billion guidance, and views Vera Rubin as the beginning of a multi-quarter upgrade cycle. The firm projects Vera CPU sales of roughly $20 billion during the second half of fiscal 2027, with an annual run rate exceeding $50 billion in fiscal 2028. NVIDIA is also reportedly developing its Nemotron 4 open-source model family, extending deeper into the software and model layer while potentially creating tension with AI-lab customers. Meanwhile, JPMorgan estimates NVIDIA captures approximately 26% of capital spending by the five largest cloud operators – reinforcing how directly hyperscaler investment converts into its revenue opportunity.
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❖❖ Credo Technology (CRDO) and its U.S. optical peers could benefit from potential restrictions on Chinese transceiver suppliers. Jefferies called a Reuters report that the Federal Communications Commission is drafting a measure to bar imports of new Chinese optical transceiver models “directionally bullish” for Credo, Coherent, and Lumentum. Chinese suppliers, including Innolight and Eoptolink, hold at least 60% of the global market, so restrictions could force hyperscalers to shift product qualifications and purchasing volumes toward Western vendors. The measure remains a draft and could still be modified, delayed, or abandoned.
❖ In other news, Credo announced plans to contribute its OmniConnect lightweight AXI framer specification to the Open Compute Project. The initiative seeks to establish an open ecosystem for memory disaggregation and chip-to-chip communications, helping address the memory bottlenecks constraining AI inference. Together, the developments reinforce Credo’s expanding position across optical, memory, and chip-level AI connectivity.
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❖❖ Microsoft (MSFT) reportedly plans to sharply increase production of its next-generation Maia 300 AI accelerator in 2027, with an unveiling possible as early as September. The company has reportedly discussed manufacturing more than 300,000 units with TSMC and is seeking adoption from major Azure customers, including Anthropic. Microsoft disputed the reported production figures but confirmed that custom silicon remains central to its long-term AI infrastructure strategy, with Maia deployments expected to support demand measured in gigawatts.
The ramp would mark a major step in Microsoft’s effort to control more of Azure’s technology stack and reduce the cost of serving increasingly compute-intensive AI workloads. Its current Maia 200 accelerator reportedly delivers over 30% better performance per dollar than the latest-generation hardware previously deployed in MSFT’s fleet. Successful external adoption would also validate Maia as an Azure product, extending its role beyond internal workloads. Moreover, it could improve Azure’s AI economics, ease dependence on constrained third-party supply, and gradually reduce the number of NVIDIA accelerators needed per dollar of cloud growth.
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❖❖ Cisco (CSCO) delivered a powerful fiscal Q4, yet the stock sold off as investors focused on gross-margin pressure after a strong run into earnings.
Revenue rose 18% year-over-year to a record $17.3 billion, while non-GAAP EPS climbed 23% to $1.22 – both above expectations. Product orders surged 35%, or 25% excluding hyperscalers, showing that demand extended well beyond a handful of giant AI customers. Networking revenue increased 28%, Security rose 14%, and operating cash flow jumped 27% to $5.4 billion.
AI infrastructure is rapidly becoming a material business. Cisco secured $4 billion of hyperscaler AI orders during Q4, bringing fiscal 2026 orders to $9.3 billion – approximately 4.5x the prior year’s level. Management now expects hyperscaler AI revenue to reach $7.5 billion in fiscal 2027, up from approximately $4 billion. Enterprise AI is adding another growth layer, as companies increasingly deploy GPU clusters on-premise and at the edge, creating demand for Cisco’s integrated networking, security, observability, and automation stack.
Cisco guided fiscal 2027 revenue to $72.2-73.4 billion and non-GAAP EPS to $5.05-5.11, implying growth of approximately 15% and 17% at the respective midpoints. UBS believes the outlook may materially understate second-half growth.
The concern is margins: Non-GAAP gross margin fell 210 basis points to 66.3% and could approach 64% as lower-margin hardware and memory costs weigh on the mix. However, operating margin remained strong at 35.9%, with expense discipline supporting continued earnings leverage.
Analyst reactions were overwhelmingly positive, if measured: 11 of 17 firms remained bullish, seven raised their price targets, and only one downgraded the stock. With CSCO valued below most AI-networking peers, the selloff looks driven by expectations and margin anxiety – not a weakening growth thesis.
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❖❖ Keysight Technologies (KEYS) posted a blowout fiscal Q3, with record orders, broad-based growth, expanding margins, and guidance well above expectations.
Revenue climbed 37% year-over-year to $1.85 billion, surging past consensus estimates, while adjusted EPS soared 78% to $3.07 versus the $2.48 estimate. Orders rose 56% to $2.09 billion – the second consecutive quarter above $2 billion – while core orders increased 52%, confirming that the strength extended well beyond acquisitions. Adjusted operating margin expanded by 820 basis points to 33.2%, and free cash flow reached $403 million.
AI infrastructure was the main growth driver. Communications Solutions revenue jumped 43% to $1.35 billion, led by 56% growth in commercial communications. Wireline orders more than doubled as demand accelerated across 800-gigabit and 1.6-terabit optical transceivers, silicon photonics, high-speed interconnects, and system-level emulation. Electronic Industrial Solutions revenue rose 21% to a record $501 million, supported by advanced semiconductor nodes, high-bandwidth memory, silicon photonics, and growing AI-related testing intensity.
The outlook was equally strong. KEYS raised its fiscal Q4 outlook to revenue of $1.93-1.95 billion and adjusted EPS of $3.34-3.40, implying year-over-year growth of approximately 37% and 76%, respectively, at the midpoint – both substantially above consensus. The stronger quarterly forecast lifted the FY2026 outlook to approximately $7.095 billion in revenue and adjusted EPS of $11.46, representing growth of roughly 32% and 60%, respectively, at the midpoint. Management also highlighted an all-time-high pipeline, accelerating AI demand, expanding margins, and a strong setup for fiscal 2027.
Supply remains the main near-term constraint, with management expecting supply-chain limitations to restrict the conversion of demand into revenue over the next several quarters. Still, the report’s strength prompted a wave of analyst price-target hikes.
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Under Review
❖❖ We are placing Fabrinet (FN) under review after the stock plunged roughly 20% following fiscal Q4 earnings. The decline was directionally understandable because FN entered the report after a strong rally over the previous year and was priced for near-perfect execution. However, the magnitude looks excessive relative to the results and outlook.
Revenue surged 45% year-over-year to a record $1.316 billion, beating consensus, while non-GAAP EPS reached $4.10, also comfortably ahead of expectations. Data center revenue increased 68% to $669 million and became FN’s largest business, while communications infrastructure grew 40% to $413 million. Management guided fiscal Q1 revenue to $1.375-1.425 billion, implying approximately 43% growth at the midpoint, and non-GAAP EPS to $4.10-4.25 – both above Street estimates.
The central concern was the composition of data center growth. Data center interconnect revenue jumped 30% sequentially, but Datacom declined 1% as NVIDIA-related sales weakened, while HPC revenue increased only modestly. Needham believes Fabrinet may be losing NVIDIA share to Chinese competitors, although this remains an analyst inference. Management cited component constraints, expects Datacom to reaccelerate, and highlighted new programs with Amazon and merchant-transceiver customers.
The new reporting structure adds uncertainty by combining Datacom, data center interconnect, and HPC within one Data Center category, making NVIDIA and program-level trends harder to track. However, customer diversification reduces the direct risk: Cisco now represents 20% of annual revenue, NVIDIA 16%, and Nokia and Amazon 11% each. FN achieved 36% full-year growth despite NVIDIA revenue declining more than 20%, demonstrating considerable strength elsewhere.
Cash conversion also weakened. Fiscal 2026 free cash flow fell to $4 million from $207 million as capital expenditures more than doubled to $253 million and inventory climbed to $1.02 billion. Still, these increases support capacity and upcoming customer ramps, while net operating working capital grew roughly in line with Q4 revenue. Fabrinet ended June with approximately $875 million in cash and investments and no debt. A subsequent $75 million Thai term loan was taken specifically to support capital expenditures.
Valuation made the stock vulnerable. Before earnings, FN traded at roughly 43x forward non-GAAP earnings and 35x forward EBITDA, reflecting a substantial premiums to most peers. The broader selloff in optical and AI infrastructure stocks, combined with rising yields and oil prices, amplified the reset.
We are not selling because demand, guidance, operating leverage, customer diversification, and new program activity remain strong. Five of seven responding analysts retained Buy ratings, with targets ranging from $598 to $850. We will watch NVIDIA share trends, high-performance-computing ramps, inventory conversion, segment transparency, and stock stabilization before reassessing Fabrinet.
❖❖ We are keeping AppLovin (APP) under review following another week of weak trading and fresh debate over the durability of its gaming-led growth. 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. RBC subsequently attributed the disruption primarily to timing, explaining that the architectural upgrade expands the parameters APP’s model can process and was delayed to preserve its longer-term benefits. Q3 guidance already incorporates the upgrade’s expected contribution without assuming an additional growth inflection. 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. JPMorgan estimates consumer advertising represented roughly 9% of Q2 gross spend and could generate $777 million of net revenue in 2026, rising to $1.4 billion and approximately 14% of total net revenue in 2027. Those projections would make consumer advertising financially meaningful, though still too small today to offset a major gaming slowdown.
Competition also deserves attention. JPMorgan highlighted improving momentum at Unity’s Vector platform and potential competition from Meta, while estimating that AppLovin still controls more than 70% of mobile-gaming mediation through MAX and over 40% of demand through AppLovin Ads. The competitive position remains strong, but investors now require more consistent evidence that APP’s gaming-model improvements can preserve those advantages.
The selloff was also amplified by fragile software and ad-tech sentiment. APP reported during a broad post-earnings rout in high-multiple software stocks, where even strong results were punished heavily. BofA, Piper Sandler, and Wells Fargo downgraded the shares to Hold, while several firms slashed price targets despite only modest estimate reductions. The quarter removed AppLovin’s valuation premium, as continued weakness across independent advertising platforms has kept sentiment depressed.
Still, the valuation reset materially improves the risk-reward. Depending on the earnings horizon and methodology, APP now trades around 15-18x forward earnings and approximately 15x forward EBITDA. Those multiples look unusually low for expected revenue and earnings growth above 30%, an adjusted EBITDA margin near 84%, and free-cash-flow margins above 50%. Fitch expects 2026 free cash flow to exceed $5 billion, while stock-based compensation represents only about 5% of operating cash flow.
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.
Some encouraging third-party evidence has emerged. Triple Whale data indicates that AppLovin Ads is generating strong advertiser returns and revenue lift while accounting for only about 7.7% of measured advertising spend, suggesting considerable room to expand. However, one external dataset is insufficient to confirm that consumer advertising is scaling broadly. No company event is currently scheduled before Q3 earnings. Potential earlier catalysts include new mid-market customer or attribution partnerships, product improvements that reduce the creative bottleneck, another material model release, stronger third-party adoption data, and renewed buybacks after the selloff. AppLovin ended Q2 with $3.05 billion in cash and $1.8 billion remaining under its repurchase authorization.
The new evidence keeps the review constructive: Q2 increasingly looks like a model-development timing problem, while the valuation now offers a much wider margin of safety. We will watch gaming momentum, consumer-advertising scale, competition, and capital allocation closely before reassessing the stock.
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Portfolio Earnings and Dividend Calendar
❖ The Q2 2026 earnings season is winding down, but several Smart Investor portfolio holdings are yet to report their latest quarter. CrowdStrike (CRWD), NVIDIA (NVDA), and Dycom (DY) are all scheduled to release their quarterly results on August 26.
❖ The ex-dividend date for Microsoft (MSFT) is August 20.
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New Buy: Viper Energy (VNOM)
Viper Energy is one of the largest U.S. pure-play mineral and royalty companies, built around oil-weighted interests in the core Permian Basin. Diamondback Energy created the company to hold mineral and royalty interests across its acreage and remains Viper’s parent and controlling shareholder, although acquisitions have broadened Viper well beyond Diamondback-operated properties. Viper receives a contractual share of revenue from hydrocarbons produced on its acreage, while Diamondback and a broad group of third-party operators fund and execute drilling, completion, infrastructure, and maintenance. This gives Viper direct exposure to production growth and commodity prices through a capital-light, high-margin model. Its expanded portfolio now reaches across the Midland and Delaware basins, while the Diamondback relationship provides unusual visibility into future development. As Permian drilling concentrates on the most economic acreage, Viper’s position allows it to capture activity across the basin without carrying the operating and capital demands of a conventional producer.
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Rights to the Barrel
Diamondback Energy formed Viper in 2013 as a dedicated owner of mineral and royalty interests, then took it public as a limited partnership in 2014. The original structure allowed Diamondback to retain control while giving public shareholders direct exposure to royalty income from its Midland Basin acreage. It continued providing management services, contributing assets, and developing acreage where VNOM owned royalties.
Viper gradually expanded beyond its parent’s footprint through acquisitions targeting high-quality mineral acreage with a credible path toward drilling. From 2014-2025, oil production per share compounded at approximately 17%, excluding commodity-price effects. In 2023, Viper converted from a limited partnership into a corporation, simplifying its public structure as the acquisition platform grew larger.
The decisive expansion arrived in May 2025, when Diamondback transferred to Viper the mineral and royalty interests it had acquired through its purchase of Endeavor Energy Resources. Viper paid with a combination of cash and equity, adding approximately 24,400 net royalty acres – a measure adjusted for the size of Viper’s royalty interest – mostly in the Midland Basin.
Viper then acquired Sitio Royalties in an all-equity transaction valued at approximately $4 billion, adding another 34,300 net royalty acres and greatly increasing its exposure to third-party operators. The combination transformed VNOM into one of the largest U.S.-listed pure-play mineral and royalty companies, although it also brought substantial share issuance and additional debt.
Viper sharpened that larger portfolio in 2026. It sold the non-Permian assets acquired with Sitio for approximately $610 million and used most of the proceeds to repay acquisition-related borrowings. The Riverbend transaction then added approximately 2,800 net royalty acres in the Permian, together with expected oil production of roughly 2,000 barrels per day over the following year. Funded with approximately $339 million in cash and 3.7 million VNOM shares, the acquisition extended the development runway while preserving the company’s basin focus.
Diamondback remains VNOM’s parent and controlling shareholder, with approximately 39% of its voting power. The relationship continues to provide Viper with development visibility, a recurring source of assets, and close alignment with Diamondback – one of the Permian Basin’s most active operators.
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Smooth Operator
Viper Energy earns royalty income whenever operators sell oil, natural gas, or natural gas liquids produced from acreage where it owns mineral interests. It receives that revenue without funding drilling, completion, labor, infrastructure, or well maintenance. Operators carry the capital and execution burden, allowing production growth to reach Viper with unusually little incremental cash expense. The company has no employees of its own, with Diamondback providing executives, personnel, and administrative services under a services agreement.
The quality of the acreage determines how well that model works. Viper has built approximately 90,200 net royalty acres across the Midland and Delaware basins, targeting locations operators are likely to develop early. This concentration gives it more meaningful interests in productive wells than a royalty owner that spreads small positions across large amounts of uncertain acreage. Acquisitions add to that footprint, while lease bonuses provide upfront income before new zones enter production.
VNOM is also more diversified than its “Diamondback subsidiary” description suggests. The parent company is expected to operate approximately 46% of Viper’s 2026 Permian oil production, leaving the balance to other operators across the basin. During Q2, operators brought the equivalent of 691 standard-length wells online on VNOM acreage, including 545 operated by third parties. That breadth lets Viper participate in activity and technical improvements across the Permian without depending on a single drilling program.
The Diamondback relationship still provides a genuine advantage. Its approximately 39% ownership aligns it with VNOM’s per-share growth, while its development program regularly reaches Viper’s concentrated royalty acreage. VNOM expects to participate in approximately 79% of the parent’s 2026 gross completions, receiving an average share of approximately 6.8% of each well’s revenue. This creates stronger development visibility than most non-operating mineral owners receive, even if Diamondback ultimately allocates its drilling capital according to its own priorities.
Visible well activity supports further growth. Viper has fractional royalty interests in 1,798 gross wells under active development. Added together, those interests equal 39.1 complete well-revenue equivalents, with production generally expected to begin within six to eight months. Another 1,589 gross wells, representing 32.9 well-revenue equivalents, are visible over approximately 15-18 months.
Deeper rock formations provide another potential source of growth. Since early 2025, operators have paid VNOM $25-30 million in upfront fees for the right to explore and potentially drill its deeper Woodford and Barnett formations. The agreements generally give operators three years to begin drilling; if successful wells enter production, Viper would receive royalties in addition to the upfront payments. Early results from Diamondback’s Barnett wells at Spanish Trail could encourage faster development in an area where VNOM owns particularly valuable royalty interests.
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Well Covered
Q2 showed how quickly VNOM’s expanded asset base can convert production and pricing into cash. Total operating income rose 128% year-over-year to $677 million as oil production increased 56% to 65,077 barrels per day. Consolidated adjusted earnings before interest, taxes, depreciation, and amortization reached $642 million, while consolidated net income was $331 million.
Because Viper consolidates its operating subsidiary, that figure includes income belonging to holders of operating-company units paired with Class B shares – principally Diamondback. After subtracting that portion, net income attributable to holders of VNOM’s publicly traded Class A shares was $142 million, or $0.73 per share. Adjusted earnings, which exclude certain noncash and nonrecurring items, were $0.76 per share, up more than 85% year-over-year.
Those headline growth rates combine organic gains with the mineral interests transferred by Diamondback following its Endeavor acquisition, as well as the Sitio acquisition, so they do not represent the underlying run rate alone. Q2 also benefited from an unusually strong realized oil price of $98.28 per barrel. The EIA expects West Texas Intermediate crude to average $81.13 in Q3 and $74 in Q4. If that forecast proves accurate, rising production is unlikely to prevent a sequential decline in earnings and cash available for distribution. The sensitivity still remains attractive: at $80 WTI and flat production, VNOM estimates annual distributable cash flow of approximately $4.45 per Class A share.
Production is slated to continue moving higher even if pricing moderates. Q3 oil guidance of 67,500-68,500 bpd implies approximately 4.5% sequential growth at the midpoint. Riverbend supplies about 2,000 bpd, while legacy assets contribute roughly another 1,000 barrels of organic growth. Full-year guidance now calls for 66,000-67,250 barrels of oil per day and total production of 132,500-135,000 barrels of oil equivalent per day. Management expects high-single-digit organic growth during 2026, further gains in Q4, and modest growth from the year-end production rate into 2027.
The balance sheet can support that expansion. After accounting for the Riverbend acquisition, VNOM’s net debt was approximately $1.93 billion, equal to just 0.7x annualized Q2 adjusted earnings before interest, taxes, depreciation, and amortization. VNOM has investment-grade credit ratings, approximately $1.67 billion of liquidity, and no senior-note maturity before 2030. This leaves considerable capacity for smaller acreage purchases, debt reduction, and shareholder returns, although larger acquisitions still carry integration, financing, and dilution risk.
Viper’s revised dividend framework changes how its cash generation reaches shareholders. For Q2, VNOM declared a $0.38 base dividend and a $0.29 variable dividend, producing a combined payout of $0.67 per share. Beginning in Q3, the company is raising its annual base dividend by 32% to $2 per share, equivalent to $0.50 quarterly, while setting aside its previous commitment to return at least 75% of quarterly cash available for distribution. The new base payout represents approximately half of distributable cash flow at $70 oil and is expected to remain covered down to roughly $30. VNOM also purchases put options to protect cash flow against severe oil-price declines. The tradeoff is a smaller guaranteed share of excess quarterly cash for shareholders, offset by a more durable base dividend and greater financial flexibility when commodity prices or acquisition opportunities change.
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Royalty Run
Texas Pacific Land (TPL), Black Stone Minerals, Kimbell Royalty Partners, and Dorchester Minerals provide the most useful frame for Viper because each offers capital-light exposure to hydrocarbon production without carrying conventional drilling costs. Kimbell, Black Stone, and Dorchester are considerably smaller and structured as limited partnerships, with greater emphasis on current distributions and broader geographic diversification. Texas Pacific Land is larger and valued as a premium land and resource franchise, although its water, surface-access, and land-related revenues make it more diversified than a pure royalty company. Still, this group helps distinguish the value of VNOM’s scale, oil-weighted growth, and Permian concentration.
VNOM has gained about 16% over the past year, placing it slightly ahead of Dorchester and well ahead of Kimbell, but behind TPL and Black Stone. Its roughly 17% year-to-date advance has also trailed most of the group. The relative restraint reflects the market’s continuing digestion of the shares issued for Sitio, uncertainty over whether recent acquisitions will deliver sufficient per-share accretion, and the transition away from its previous fixed quarterly cash-return commitment. Those concerns have persisted even as production reached new highs and cash generation remained strong, creating room for stronger performance if Riverbend proves accretive and organic growth continues into 2027.
At approximately 7x forward enterprise value to adjusted EBITDA, Viper trades close to Kimbell and below Black Stone, while its trailing multiple is broadly in line with Dorchester. TPL commands a multiple several times higher, reflecting its broader revenue mix, exceptional returns on capital, and scarcity value as a large Permian landowner. VNOM’s forward adjusted earnings multiple of approximately 17x is broadly comparable with Kimbell and modestly above Black Stone, so the stock is not uniformly cheaper across every measure. However, revenue and adjusted EBITDA are both expected to expand by close to 40%, far ahead of the peer group. Acquisitions account for much of that growth, but double-digit production-per-share gains show that the expansion is reaching shareholders.
The revised capital-return policy adds another potential catalyst. Viper Energy repurchased approximately $160 million of shares during Q2 and July, largely around the current trading range, and still has nearly $1 billion remaining under its authorization. Management can continue buying shares when their implied return exceeds available acquisition opportunities, while the new $2 annual base dividend provides a yield of roughly 4.6%. The market may need evidence that this discretion produces stronger per-share compounding, but sustained repurchases at a moderate valuation could accelerate that process.
Wall Street already sees a meaningful gap between the current price and Viper’s earnings potential. All covering analysts rate the stock a Buy, producing a Strong Buy consensus, while the average price target implies more than 27% upside. VNOM’s parent, Diamondback, also carries a Strong Buy consensus, but its average target offers just above 10% upside after the shares gained nearly 50% over the past year. With Energy Transfer covering midstream infrastructure and Baker Hughes providing energy technology and services, Viper adds the cleaner missing exposure to the Smart Portfolio – capital-light ownership of production economics. Diamondback remains an excellent operator, but it brings drilling expenditure and operating execution into the portfolio, while Viper offers the more complementary combination of income, growth visibility, cash-margin resilience, and prospective stock upside.
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Investing Takeaway
Viper offers a clean way to participate in Permian production growth: operators fund and execute wells, while VNOM collects royalty income as volumes rise. Its concentrated acreage, visible development inventory, and Riverbend assets support further growth, while low leverage and a durable base dividend strengthen its financial resilience. Oil prices remain the central risk, and management must show that the enlarged portfolio can compound cash flow per share after substantial acquisition-related issuance. However, the stock’s moderate valuation, active repurchases, and restrained performance leave ample room for both earnings delivery and a rerating, while its capital-light model complements the Smart Portfolio’s existing midstream and energy-technology exposure.
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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 went down and then some more, but the Club ranks have held up well, still counting 25 stocks: GE, AVGO, ANET, HWM, TSM, EME, APH, IBKR, CRWD, PH, VRT, PANW, ASX, ATI, GOOGL, BNY, KEYS, CSCO, RTX, STRL, MS, JBL, JPM, NVT, and CRDO.
The first runner-up is still LLY with a 23.95% gain since purchase. Will it break into the Winners’ circle, or will another stock outrun it to the finish line?
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