Chip Stock Investor

2025 Portfolio Underperformance Highlights Tougher Semiconductor Environment

"So 2025, those top picks actually underperformed all three ETFs. First year that our top picks actually did that. And not a surprise, because I think we said. A year ago, this year was going to be harder than the first two years of the bull market. So we're not surprised it underperformed the index. We still beat the NASDAQ with those picks. But just to reiterate, the reason why we left them unchanged for 2024 was that we were trying to preach consistency."

The speaker reviews the 2025 performance of their semiconductor picks, noting that for the first time the portfolio underperformed compared to major semiconductor ETFs. They attribute the weaker performance to a tougher market environment relative to the earlier bullish years, while emphasizing a strategy of consistency by not changing their established picks despite the underperformance.

Google's Strong Performance in Quantum Computing

"It is been a year since we did a video on Google's quantum AI willow chip, and at that time we said that our top pick for quantum computing was Google. So let's see how it's stacked up against the other quantum computing pure play companies out there. And why not Google? They had a pretty epic year in spite of, some moments where it was kind of touch and go. Of course we had the tariff tantrum and they were working on those antitrust cases, both of which resulted in a pretty favorable ruling for Google, for a mega cap company up 60% in the last 12 months."

The segment reviews Google's performance in quantum computing, emphasizing its strong 60% gain over the past year despite market challenges such as tariff issues and antitrust cases. The speaker reiterates Google being their top pick in the quantum space, highlighting the company's solid performance even though critics question its core business focus.

Long-Term Confidence in PSTG Despite Volatility

"But at the very least, this is at least a vote of confidence that management thinks that some of its cash flow coming in and perhaps some balance sheet cash is worth using on buyback of stock. I think we can safely say that we're happy Pure Storage shareholders. It's gonna be a volatile stock, there's no doubt about it, but we're in it for the long haul at this point."

The speaker expresses confidence in Pure Storage's long-term prospects despite acknowledging short-term volatility and margin concerns, highlighting a recent $400 million share repurchase program as a sign of management's commitment to leveraging cash flow effectively.

Cautious Valuation Outlook and Cyclical Slowdown Expectation for Micron

"But I think maybe we should now address valuation, and what kind of expectations we should have for Micron headed into 2026. Because our view still stands that come the end of calendar year 2026, we would expect to see the start of a cyclical slowdown, not a downturn, we're not calling for a downturn, but a cyclical slowdown in AI infrastructure and CapEx. That would be our general baseline expectation. I'm not saying that we're gonna have a down year in 2027, but that's just our baseline cautious assumption right now is to expect a slow down from the 20% to 30% semiconductor end market sales growth rate overall, valuation for Micron. So currently trades around 36 times, trailing 12 month enterprise value to free cash flow, plus the Chips Act rebates, or in our estimate, 22 times next 12 months, which implies a 60% free cash flow plus chips growth in the next year."

The analyst offers a cautious assessment of Micron's valuation going into 2026, highlighting that despite impressive revenue figures, a cyclical slowdown in AI infrastructure and CapEx is expected by the end of calendar year 2026. The commentary also notes that while current multiples appear robust, the near-to-medium term growth may moderate, driven by anticipated lower semiconductor sales growth rates in the next year and into 2027.

Caterpillar's Reverse DCF Suggests Fair Valuation Around $600

"Well, to round this discussion out, let's do a reverse DCF for Caterpillar. This is just one scenario that gets us to the current stock price of around $600. Trailing 12 month GAAP earnings per share of $19 and 48 cents. Earnings per share growth of 14% for the next five years with a terminal growth rate of 5% thereafter and a discount rate of 10% gets us to that fair value of 600. It's worth mentioning here, this is obviously just one scenario based on the stock price. At the time we actually recorded this, it was around 600 bucks. So obviously these assumptions, if you're running a reverse DCF will change all the time based on the stock price."

The speaker presents a reverse DCF analysis for Caterpillar, highlighting that based on current GAAP earnings, a 14% EPS growth forecast over the next five years, and other assumptions, the current stock price near $600 appears fairly valued. Though revenue growth is muted, strong profit expansion and margin improvement, particularly from the company's onsite power segment, underpin the analysis. Investors are advised to monitor valuation metrics closely when considering exposure.

Microchip's Book-to-Bill Ratio Signals New Growth Cycle

"Of all of these companies, only one is in our portfolio which is Microchip. We're starting with this one because a lot of the logic chip, microcontrollers in a robotics system, like an automobile are actually microcontrollers. For Microchip in particular, the last two quarters they had mentioned that is above 1.0, which is indicative of lots of orders coming in. It tends to be a leading indicator, and this positive sign signals that we're witnessing the resumption of a new growth cycle."

The speaker highlights Microchip's book-to-bill ratio staying above 1.0 over the last two quarters, suggesting a surge in incoming orders and a restart of its growth cycle within the semiconductor sector. This commentary implies that Microchip could be well-positioned for future growth amid the evolving robotics supply chain.

Nvidia Earnings Outlook and Cyclical Risk Commentary

"Q3 was very good as expected. Q4 is expected to be even better. And, Jensen and CFO Collette Kress both reiterated that outlook for $500 billion in Blackwell and Rubin sales from the start of this year, concluding in fiscal 2027 next fiscal year. So it appears that this growth cycle will continue into next year. So we're not seeing any imminent risk. Of course there's going to be stock price volatility and that is going to create a lot of narrative around that stock price, trying to explain why it fell. And that's just silly – stock prices go up, they go down."

The speaker reviews Nvidia's Q3 earnings performance and emphasizes an optimistic outlook for Q4 and beyond, highlighting impressive revenue and earnings growth, while also acknowledging cyclical risks if the current growth phase were to end.

Nvidia as a Built-in Soft Hedge Amid Depreciation Concerns

"For those of you that have been around for a while, it comes as no surprise, but full disclosure for, or those of you that are just finding us here at Chip Stock Investor, we view owning Nvidia and a basket of the hyperscaler stocks as a sort of built in soft hedge. When the hyperscalers are spending lots of CapEx, that's great for Nvidia, but at some point that CapEx cycle will come to an end that would be bad for Nvidia, but the related free cash flow for the hyperscalers will go up. So great news for the hyperscalers. And of course you should probably own other companies not related to this whole AI data center CapEx cycle."

The speaker highlights Nvidia's role in benefiting from the current capex cycle of hyperscalers, viewing it as a built-in soft hedge in a diversified portfolio. While Nvidia gains from the increased spending on GPU servers, there is a caution that once the capex cycle ends, it could adversely affect Nvidia's outlook. The commentary underlines the importance of understanding the depreciation schedules and related free cash flow impacts for tech and data center stocks in evaluating investment risks and opportunities.

Monitoring Arlo's Shift to Recurring Revenue

"Here's some metrics for judging the new business model. Average revenue per user. The retail long-term value, retail gross margin, 92%. It's a very profitable model. They're migrating to a recurring revenue model and that's where they've turned profitable. I guess this is one that we're kind of interested in keeping tabs on. We're not buying yet."

The speaker highlights Arlo's strategic shift towards a recurring revenue model, emphasizing strong profitability metrics and a 92% retail gross margin. Despite the attractive transition and profitability turnaround, the speaker remains cautious and opts to monitor the stock rather than commit to a purchase immediately.

Cautious DCA Build for Ubiquiti

"So if you've been looking at this take it slow. Don't blow out an entire portfolio position on this in one go. Maybe be a bit patient, maybe you do something like, um, a short-term DCA over the course of the next six months maybe over the course of the next year and build a position a bit more gradually and see what's gonna happen, what's gonna shake out with the company."

The speaker advises a cautious, gradual dollar-cost averaging approach for investing in Ubiquiti (UI) following recent volatility, citing cyclical revenue slowdowns and rising inventories as factors to watch. The recommendation is to build exposure over time rather than taking a large position immediately.

Positive Commentary on Allegro Microsystems After Recent Sell-Off

"We're at the beginning of a growth cycle. This is one that we have in our portfolio and our basket. We're happy to have it, and after the recent sell off this looks interesting to us. Again, if you expect this new wave of growth, to continue into calendar year 2026."

The speaker comments on Allegro Microsystems, emphasizing that the company is already in their portfolio and appears attractive post sell-off. They highlight the growth cycle and potential upside if the new wave of growth continues into calendar year 2026.

Strong Q3 Performance and Reassuring Valuation Metrics for AppLovin

"Now since App has been such a hot stock in recent months, we decided we'd do a update on our reverse DCF. Now of course it's not the value it was a few months ago, but let's go ahead and take a look and see what's baked into the current valuation. Trailing 12 month free cash flow per share of $9 and 77 cents compared to $9 and 14 cents last quarter. Free cash flow per share growth of 30% for five years, a terminal growth rate of 6% with a discount rate of, 10% gets us to a fair value of around $680, which was the pre-market share price when we recorded this video on November 6th, 2025."

The speaker provides detailed Q3 metrics and a reverse DCF valuation for AppLovin, noting significant free cash flow growth and a fair value estimate that closely matches its pre-market share price. This commentary underscores the company's strong operational performance and evolving valuation, offering reassurance to investors regarding its current price level.

Buy the Dip on AppLovin with Caution Amid Regulatory Risk

-12.76%current return

"if you own AppLovin, or this is one you're interested in buying the dip on, these are items that you should most definitely watch and make sure the company is not going to actually run afoul of regulators."

The speaker advises investors who already hold or are considering buying AppLovin to monitor regulatory developments closely, suggesting that buying the dip could be a viable strategy provided that the company steers clear of severe regulatory penalties.

Ouster: A Small Bet Buy the Dip Candidate

+2.37%current return

"Just pretend that they have the ability to get there. This is why we call these types of small bets in our portfolio, a prove it stock. You keep the position small. As the company checks off the list of things they need to accomplish, you can maybe add to the position a little bit over time, but overall, it still needs to remain small, a very small part of your portfolio for the average investor. I like Ouster. It's a small position for us, so I'm comfortable with that at this point."

The speaker outlines that despite current challenges such as elevated operating expenses and negative free cash flow, Ouster's recent earnings improvements and revenue acceleration make it a viable buy the dip candidate. However, due to inherent risks and dilution from its ATM program, the position should remain small until clearer profitability emerges.

Valuation Insight via Reverse DCF Analysis

"Here's an updated reverse DCF. This is just one scenario that we ran to try to gauge what the market has baked into expectations right now for AMD stock. And based on these recent deal announcements, we did decide to tighten the near term growth range down to three years. Free cash flow per share, starting at $3 and 34 cents after the Q3 report. 50% free cash flow per share growth rate for three years, and then a 6% terminal growth rate thereafter. 10% discount rate gets an AMD fair value of about $240 per share, which is what the stock was trading for in after hours following the Q3 update."

The speaker provides a detailed valuation perspective on AMD using a reverse DCF model. By incorporating a tightened three-year near-term growth range and specific metrics such as a 50% growth rate and a 10% discount rate, the analysis suggests that AMD is fairly valued at approximately $240 per share based on the current market conditions and recent strategic announcements.

Endorsing AMD as a Big Beneficiary of AI Deals

-9.53%current return

"If you've been here a while, you know, late in 2024, we weren't so hot on AMD stock, but, the stock fell precipitously through first and second quarters of 2025. We warmed up to it again. If you've been here all along and not cherry-picking our comments, you know that we own AMD. And we think this is one that could definitely be a big beneficiary from all of that hyperscaler CapEx that is coming down the pike currently, and over the course of the next year or two, during this period of elevated capital expenditure from the big data center operators."

The speaker explains that despite earlier reservations, AMD has recovered in performance and is now positioned to benefit substantially from upcoming AI-driven deals and increased hyperscaler CapEx. The endorsement is supported by the fact that the team holds AMD in their portfolio, signifying strong conviction in its growth potential.

Netflix Stock Split Facilitates Equity Management

"Netflix announced a 10 for one stock split to be completed in November. Netflix already posted Q3 earnings. It'll be complete after market close on Friday the 14th. Netflix stock over a thousand bucks a share, 10 for one split is gonna reduce that down to just over a hundred bucks a share, assuming the stock price doesn't change between now and the 14th, probably helps Netflix manage that employee SBC program."

The discussion outlines Netflix's decision to execute a 10-for-1 stock split, aimed primarily at streamlining its employee stock-based compensation. The analyst notes that, similar to ServiceNow, reducing the per share price can help in managing equity awards while underpinning expectations of continued revenue growth.

ServiceNow Stock Split Eases Employee Compensation

"Actually, in practical terms, this is oftentimes why a company splits its stock when your stock price is somewhere in the ballpark of a thousand dollars per share, it may get tricky trying to award employees with stock awards. Maybe the employee hasn't earned a thousand dollars worth of stock, so do you issue partial shares? Or options on partial shares? Well, it might be easier if you just had a smaller stock price, so post split ServiceNow will be less than 200 bucks a share, making the employee stock-based compensation much easier to manage."

The commentary explains that ServiceNow's high stock price complicates employee stock awards, and by splitting the stock to below $200 per share, the company simplifies its compensation process. The segment highlights the rationale behind the split amid steady revenue growth and operational partnerships.

Nvidia's $1B Investment Signals Future Catalyst for Nokia's 6G Ambitions

"Press release from just yesterday. Nvidia is going to invest 1 billion in Nokia to accelerate this AI ran, radio access network. And that's going to be important as there's this transition from 5G, which we're currently on, to six G, which is targeted for initial rollout in 2030."

The commentary highlights Nvidia's recent $1B investment in Nokia as a strategic move to secure supply chain control and to boost Nokia's development of six G technology and AI-driven radio access networks. Despite Nokia's recent challenges, this move is seen as a potential long-term catalyst for reversing declining trends and capturing future telecom infrastructure growth.

Caution Against Additional Buying After 40% Run Up

"We're no longer buying Lam.. We thought it was cheap in 2023, obviously with all the other fab equipment providers. we thought it was still cheap in 2024 and through most of 2025, but then, 40% ish run up in the last couple of months. We're now saying be patient with LAM Research. We're not selling, we still have our position in Lam. It's part of our Fab five basket and the larger basket we have in the wafer fab equipment companies. But maybe just after the runup, as of late exercise, a bit of patience. But the upshot here is, and we'll, we'll monitor this, but it does seem that maybe, some of these forward valuations are implying not as good earnings growth in calendar year 2026 as Lam might actually be gearing up for."

The speaker advises investors to exercise patience with Lam Research after a significant 40% run up, suggesting that while their current position is maintained, the elevated valuation implies caution on further buying until clearer earnings growth materializes in 2026.

GE Vernova: Reasonable Long-Term Buy on Profit Margin Expansion

+14.49%current return

"So it's not nearly as cheap as it was. Uh, yeah, to say the least. When we did the initial deep dive last June or July and called it out as a top energy grid, data center power idea. It was obviously mispriced after getting spun off of leftover GE Aerospace. So that cheapness is gone, but thanks to the profit margin expansion, the use of the net cash balance to make some key acquisitions and integrations in that electrification business, this still could be a reasonable buy for the long term. This is one we still like, especially for those of you that are still looking for big industrialist companies to incorporate into your portfolio. Looking for some way to invest in the power grid data center, power, all that good stuff. We still like GEV here."

The speaker outlines GE Vernova's evolving growth strategy driven by profit margin expansion through key acquisitions and integration efforts in its electrification business. Despite a higher valuation compared to its earlier mispricing, the company is positioned as a reasonable long-term buy due to its strategic use of net cash and margin improvements, making it an attractive play for investors interested in industrial and energy grid opportunities.

Caution on Astera Labs Due to High Valuation and Cyclical Risk

"For Astera specifically, it's just a high valuation. Sometimes the coin lands on tails, not just heads day in and day out. So any reason to panic? I don't know if you zoom out. I think you have a lot of reason to be happy with your investment even in spite of recent turbulence in the last couple of weeks."

The speaker comments on Astera Labs' currently high valuation, exemplified by its roughly 30x forward price-to-sales ratio derived from a previous 60x multiple. Despite strong revenue growth and profitability improvements, the cyclical nature of hardware sales and potential moderation in margins raise concerns that could lead to a valuation correction. The overall tone encourages long-term investors not to panic over short-term volatility.

Netskope IPO: Small Bet Opportunity in a Rapidly Growing SASE Market

"We haven\'t bought any of the stock yet, but why are we continuing to follow it? It\'s a fast growing industry. Cybersecurity is a secular growth trend. Netskope is a small company, but laser focused on one of the fastest growing portions of that fast growing industry, SASE."

The hosts discuss Netskope, a recent IPO in the cybersecurity space, highlighting its focus on SASE, which combines network security with cloud service delivery. They note the company\'s strong revenue growth (over 30% sequentially) alongside ongoing challenges including GAAP net losses, negative free cash flow, legal disputes with competitors like Fortinet, and a complex dual-class share structure. While not recommending an immediate purchase, they indicate that Netskope could serve as a small, strategic bet in a secular growth market if the company converts to free cash flow positivity.