Content:

• $600B AI Spending Is Coming
• AI CapEx Hits 54% of Sales
• AppLovin Shows Extreme Profitability
• NVIDIA Approaches $1B Per Day
• Global Uncertainty Hits Record High
• Buffett Sold 77% of Amazon
• Big Tech’s Lowest Level of Buybacks
• Diversification Works Again

$600B AI Spending Is Coming

Major tech companies are planning enormous capital spending on AI infrastructure in 2026. Amazon, Google, Microsoft, and Meta alone are expected to invest well over $600B combined over the next cycle, building data centers, networks, and compute capacity.

The key investment question is not whether AI demand will grow, but which parts of the supply chain capture pricing power. Chips get the most attention, but networking, optical components, and system integration are also critical parts. As capacity expands, margins often concentrate in the layers with limited competition or technical complexity. Infrastructure providers can benefit regardless of which AI model or application wins.

Stocks & ETFs to watch:

NVDA – Nvidia (AI compute GPUs)
ANET – Arista Networks (AI networking switches)
CSCO – Cisco (data center networking)
LITE – Lumentum (optical components)
COHR – Coherent (optical transceivers)
CIEN – Ciena (optical networking systems)
JBL – Jabil (system integration manufacturing)
FN – Fabrinet (precision optical manufacturing)
SMH – VanEck Semiconductor ETF (AI hardware exposure)

Previous Notes:

AI CapEx Hits 54% of Sales

In addition to the previous note, large tech platforms are rapidly increasing capital expenditures as a share of revenue. Meta could spend around 54% of sales on capex by 2026, followed by Alphabet near 40%, Microsoft about 33%, and Amazon around 25%, while Apple remains far lower.

This shows the shift from software companies to infrastructure providers. The goal is not only to sell services but to own the computing layer itself. Once a company controls compute capacity, other developers and businesses build on top of that stack, creating recurring demand.

The strategy resembles a toll road model. Instead of competing only in applications, these companies invest heavily upfront to capture long-term margins from every AI workload running on their platforms.

Stocks & ETFs to watch:

MSFT – cloud and enterprise AI platform
GOOGL – cloud and model infrastructure
META – AI training and inference infrastructure
AMZN – AWS compute backbone
SMH – semiconductor infrastructure exposure
IGV – software layer built on top of compute

AppLovin Shows Extreme Profitability

AppLovin (APP) continues to deliver unusually high profitability for a software company. In 2025, the company is expected to reach about $5.48B in revenue, $3.43B in net income, and $4.51B in adjusted EBITDA. That implies margins of roughly 82% EBITDA and 63% net income, levels rarely seen among large public tech companies.

The business model is focused on monetization and user engagement rather than content creation itself. As AI makes building apps and games easier, supply increases, but user attention remains limited. Platforms that can efficiently match content with users become more valuable, which strengthens AppLovin’s position.

APP Current Valuation vs 5-Year Mean:

Price/Forward Earnings: 27.6x / 30.2x
Price/Forward Sales: 17.0x / 10.2x
PEG: 1.06
EPS Fwd 5Y CAGR: 41.30%

Stocks & ETFs to watch:

APP – AppLovin (mobile app monetization platform)
META – Meta Platforms (digital advertising competitor)
GOOGL – Alphabet (ad ecosystem competitor)
TTD – The Trade Desk (programmatic advertising)
V – Visa (high-margin comparison business)

NVIDIA Approaches $1B Per Day

The chart suggests NVIDIA’s revenue could reach about $417B annually by 2028. That equals more than $1B per day in sales — something almost no company in history has achieved outside the largest consumer platforms.

AI infrastructure is becoming a utility layer. Every model training run, inference request, and enterprise deployment requires massive compute. NVIDIA is currently at the center of that stack, capturing value from hyperscalers, startups, and governments at the same time.

Importantly, this growth is not only cyclical hardware demand. It behaves more like platform adoption. As long as AI usage keeps expanding, compute demand scales with it, and Nvidia monetizes each step.

NVDA Current Valuation vs 5-Year Mean:

Price/Forward Earnings: 26.9x / 39.5x
Price/Forward Sales: 15.3x / 17.9x
PEG: 1.24 / 2.68
EPS Fwd 5Y CAGR: 37.89%

Global Uncertainty Hits Record High

The global uncertainty index has reached its highest level on record, surpassing previous peaks seen during COVID-19, the Global Financial Crisis, and the Dot-Com era. The spike reflects rising geopolitical tensions, trade conflicts, and unclear economic policy direction across major economies.

Historically, sharp increases in uncertainty tend to slow business investment and hiring, as companies delay decisions until visibility improves. Consumers also become more cautious, which can weaken economic growth in the short term.

Periods like this often lead to higher market volatility and stronger demand for defensive assets while risk assets move more unpredictably.

Stocks & ETFs to watch:

GLD – SPDR Gold Shares (safe-haven demand)
TLT – iShares 20+ Year Treasury Bond ETF (flight to safety)
XLP – Consumer Staples Select Sector SPDR Fund (defensive equities)

Buffett Sold 77% of Amazon

Berkshire Hathaway reduced its Amazon position by about 77% during Q4 2025. The move stands out because Buffett has historically held large technology winners for very long periods once they proved durable.

Warren Buffett has not retired and remains Chairman of Berkshire Hathaway. However, portfolio decisions today are often influenced by multiple managers inside Berkshire, so trades do not always reflect Buffett’s personal conviction alone.

Large reductions like this are usually portfolio management decisions rather than a direct negative view on the business. Berkshire often trims positions after strong performance, reallocating capital into new opportunities or increasing liquidity.

AMZN Current Valuation vs 5-Year Mean:

Price/Forward Earnings: 26.6x / 53.2x
Price/Forward Sales: 2.7x / 2.8x
PEG: 1.54 / 2.52
EPS Fwd 5Y CAGR: 17.30%

Stocks & ETFs to watch:

AMZN – Amazon (cloud and retail platform)
BRK.B – Berkshire Hathaway (capital allocation exposure)
AAPL – Apple (largest long-term Berkshire holding)
QQQ – Invesco QQQ Trust (mega-cap tech exposure)

Big Tech’s Lowest Level of Buybacks

Combined share buybacks by Amazon, Alphabet, Microsoft, Meta, and Oracle dropped to about $12.6B in Q4 2025, the lowest level in seven years and roughly 70% below the 2021 peak.

When companies reduce repurchases, a major support for equity prices weakens. The shift appears linked to rising capital spending, as large tech firms redirect cash toward AI infrastructure, data centers, and chips.

Diversification Works Again

After years of US dominance, global markets have started to outperform. From 2025 to early 2026, emerging market stocks gained about 48.9% and European stocks rose roughly 43.5%, while US equities returned only around 17.9%.

At the end of 2024, many investors questioned the need for international diversification because the S&P 500 had consistently led performance. The recent period shows how leadership can change quickly once valuations, currencies, and economic cycles shift.

Market cycles rarely favor the same region forever. When capital rotates internationally, portfolios concentrated only in US equities can lag broader global exposure.

Stocks & ETFs to watch:

SPY – S&P 500 exposure
VXUS – total international stocks ex. US
VEA – developed markets
EEM – emerging markets
VGK – Europe equities

This is not a financial or investing recommendation. It is solely for educational purposes.

Content:

• Company Overview
• Market Overview
• Economic Moat
• Business Strategy
• Capital Allocation
• Advantages
• Disadvantages
• Competitors
• Past
• Future
• Current Valuation
• Fair Price
• Due Diligence
• Investment Thesis

Company Overview

IPO Date: May 23, 2002
Market Cap: ~$324.56B
Sector: Communication Services
Industry: Entertainment
Type: Large Growth
Total Number of Employees: ~16,000
Next earnings report: Apr 17, 2026 (estimated, after-market)
Total Debt: $16.98B
Cash & Investments: $9.06B
Beta: 1.71
Website: www.netflix.com

Netflix is a global subscription-based entertainment platform focused on streaming video content. In 2025, the company generated USD 45.2 billion in revenue, representing 16% year-over-year growth. This growth exists because NFLX continues to monetize its scale through pricing actions, advertising, and content expansion rather than relying only on new subscriber additions. The business can grow even as user penetration rises in mature markets.

By the end of 2025, NFLX exceeded 325 million paid memberships worldwide. This scale is economically important because it allows Netflix to spread content costs across a very large audience, lowering the average cost per viewer. The company now has an audience approaching one billion people globally when shared accounts and household viewing are considered. This supports long-term engagement stability and improves monetization efficiency.

Leadership is shared between Co-Chief Executive Officers Ted Sarandos and Greg Peters. Sarandos is responsible for content strategy, creative partnerships, and global programming decisions, while Peters controls product development, monetization, partnerships, and long-term growth initiatives. This structure reflects that Netflix operates at the intersection of entertainment and technology, separating creative risk from commercial execution.

The company produces content through a hybrid model that combines internally commissioned originals with externally produced and licensed titles. NFLX finances and commissions series and films from independent production studios, global creators, and established showrunners, often retaining long-term distribution rights. In addition, Netflix licenses second-run and pay-one window films from major studios to broaden its catalog. This model allows Netflix to control intellectual property in key franchises while maintaining flexibility through partnerships. The approach supports geographic diversification of content and reduces dependence on a single creative channel.

Netflix works with a broad set of third-party partners. For instance, in advertising, the company integrates with Amazon’s platform globally and AJA’s platform in Japan, allowing advertisers to access the company’s inventory through established systems. On the content side, NFLX maintains licensing relationships with Sony Pictures Entertainment, Universal, Paramount, and other studios to complement its original content slate. These partnerships expand content breadth while keeping Netflix independent from owning legacy media assets.

To Read: Japanese anime studio MAPPA announced a strategic partnership with Netflix

Market Overview

The streaming industry is now in a mature expansion phase rather than an early adoption phase. According to PwC’s Global Entertainment & Media Outlook 2025–2029, the broader entertainment and media sector is expected to grow at roughly a 3.7% compound annual growth rate (CAGR) through 2029, reflecting slower but stable long-term demand as markets saturate. Most developed households already subscribe to digital media services, so future growth depends more on monetization efficiency than on new users.

Advertising is becoming the main growth driver of the industry. PwC research highlights that digital advertising formats are rapidly increasing their share of total media revenue. Revenue growth increasingly comes from monetization per viewer rather than subscriber expansion.

Consumer behavior already reflects a structural shift toward streaming. Nielsen data shows streaming captured about a record 44.8% of total TV viewing in mid-2025, surpassing both cable and broadcast television combined. This transition indicates streaming is no longer a substitute product but the primary viewing format, supporting durable demand for major platforms.

Growth is also geographically unequal. Mature markets show slower subscription expansion, while emerging regions contribute most new viewers due to improving internet access and smartphone adoption. This dynamic supports continued scale growth but at lower revenue per user, making pricing strategy and advertising adoption critical for profitability.

Economic Moat

NFLX has a narrow economic moat driven by intangible assets and scale. The moat exists because the company built a large global subscriber base before most competitors entered the market, allowing it to move past the heavy early-stage cash burn typical of streaming platforms. This early scale reduced long-term unit economics risk and remains positive for sustaining returns above the cost of capital.

Engagement data is a core moat component. In the second half of 2025, Netflix users watched 96 billion hours of content globally. This volume is driven by a steady flow of content across genres and regions, lowering dependence on individual franchises. High engagement supports advertising demand and lowers churn risk.

The moat remains narrow because the content itself is not exclusive in the long term. Competitors with sufficient capital can fund large content libraries and bid for talent. It limits excess returns and explains why Netflix must continuously reinvest to defend its position.

Business Strategy

Netflix’s strategy focuses on organic growth supported by steady content investment and expanding monetization tools. For 2026, management guides revenue between USD 50.7 billion and USD 51.7 billion, implying year-over-year growth of 12% to 14%. This moderation reflects that NFLX is operating from a much larger revenue base. Growth remains strong for a company of this size.

Advertising is a central strategic component. In 2025, advertising revenue exceeded USD 1.5 billion, rising more than 2.5 times year-over-year. This growth exists because Netflix expanded its ad-supported tier across more markets and improved advertiser tools. Advertising increases revenue per user without requiring proportional increases in content spending.

Netflix is also expanding into live events, games, and video podcasts. These initiatives exist to deepen engagement and extend time spent on the platform. The short-term financial impact is neutral, but the long-term impact is positive if these formats improve retention and advertising inventory quality.

To Read: Netflix is ‘judiciously’ expanding into interactive experiences

Capital Allocation

The company does not pay dividends, which reflects management’s priority to reinvest capital into content, product development, and advertising infrastructure rather than return cash directly to shareholders. The absence of dividends is positive for long-term growth investors, as retained capital is directed toward expanding competitive advantages rather than distributing cash prematurely.

Netflix also continues to reduce its diluted share count gradually. This reduction reflects management's decision to use excess cash for share repurchases when appropriate, which supports earnings per share growth over time.

In addition, Netflix is actively pursuing strategic expansion through acquisitions, including efforts to close a transaction involving Warner Bros.

In 2025, the company achieved an operating margin of 29.5%, an improvement of three percentage points compared with the prior year. This expansion reflects revenue growth outpacing operating cost growth. It shows operating leverage in a content-heavy business.

Free cash flow generation has improved significantly. Management expects approximately USD 11 billion in free cash flow in 2026. This improvement comes from revenue expanding faster than content cash spending. It reduces reliance on external financing and increases strategic flexibility.

Content amortization is expected to grow by around 10% in 2026. This increase reflects a fuller and more balanced release slate. The impact is neutral, as content remains the primary driver of engagement and long-term revenue stability.

Analyst’s Note:

Content amortization is the accounting process of spreading the cost of produced or licensed content (like movies, TV shows, or software) over its estimated useful life rather than expensing it all at once. It matches the expense to the revenue generated over time, usually over 10 years or less, typically using a straight-line method based on viewing patterns.

Advantages

Unmatched global scale, serving hundreds of millions of paying households. This matters economically because fixed content costs are spread across a very large base, lowering average cost per viewer and improving returns on successful titles.

The advertising model. Management expects advertising revenue to roughly double again in 2026. This matters because each viewing hour becomes more valuable without raising subscription prices.

Strong engagement supports pricing power. Viewing of branded originals increased 9% year over year in the second half of 2025. This matters because premium content supports future pricing actions.

Operational focus reduces complexity. Netflix avoids managing declining legacy assets such as cable networks. This matters because capital can be reinvested into growth rather than maintenance.

Improving profitability supports valuation durability. Operating income grew 30% year over year in the fourth quarter of 2025. This matters because profit growth exceeded revenue growth.

Disadvantages

Revenue growth is structurally decelerating. Guidance implies mid-teens growth rather than historical acceleration. This is negative for valuation multiples.

The United States and Canada markets are mature. Household penetration is already high. This limits future user growth and increases reliance on pricing and advertising.

Content spending remains structurally heavy. Streaming content obligations exceeded USD 20 billion. This limits margin expansion during weaker content cycles.

International exposure increases volatility. Currency and tax issues can distort reported results. This is negative for earnings predictability.

Competition for leisure time is intense. Streaming competes with gaming, social media, and live entertainment. This limits long-term pricing flexibility.

Competitors

Below are companies whose value depends directly on streaming profits, such as Disney, Warner Bros. Discovery, and Comcast. HBO Max and Paramount+ are covered through their parent companies, while services like Apple TV+ are excluded because streaming is only a small part of their broader ecosystem. Amazon Prime Video affects pricing and content costs but is not treated as a main competitor since its results are driven mainly by retail membership rather than media profits.

Disney operates with a wide economic moat supported by franchises and physical assets. This matters because Disney can subsidize streaming losses through parks and merchandise, while Netflix relies almost entirely on streaming returns.

Warner Bros. Discovery combines streaming with legacy television and film assets. This structure creates internal cash flow pressure from declining businesses. Netflix avoids this burden, improving capital efficiency.

Comcast integrates streaming with broadband and cable services. This bundling reduces churn but dilutes streaming profitability. Netflix’s standalone model keeps unit economics transparent.

Amazon Prime Video is bundled within a broader membership offering. This weakens standalone economics and obscures content returns. Netflix’s pricing reflects direct consumer willingness to pay.

Past

Here are the 5- and 10-year CAGR returns for NFLX, compared to the S&P 500 (VOO).

Below are some significant recent events.

Warner Bros. Discovery Transaction: In January 2026, Netflix amended its agreement with Warner Bros. Discovery to an all-cash structure and publicly supported the board’s commitment to the merger process. The deal originally announced in December 2025 valued the target at about USD 82.7 billion enterprise value. The transaction signals Netflix’s willingness to use large-scale strategic acquisitions to expand its content library and intellectual property portfolio, which could materially strengthen long-term competitive positioning.

Stock Split Announcement: In October 2025, the board approved a ten-for-one forward stock split. The action does not change company fundamentals but improves trading accessibility for smaller investors and often increases liquidity and retail participation.

Physical Experience Expansion: During 2025, Netflix opened themed entertainment locations branded as “Netflix House,” including Philadelphia and Dallas, with a future Las Vegas location planned. This initiative indicates a strategy to extend intellectual property beyond digital viewing into physical experiences and merchandising ecosystems, creating additional monetization channels outside subscriptions.

Mini-Tender Offer Rejection: In December 2025, Netflix recommended that shareholders reject an unsolicited mini-tender offer from TRC Capital. The company stated the offer price was below market value, reinforcing management’s focus on protecting shareholder value and discouraging opportunistic share accumulation.

Toy and Consumer Product Partnerships: Netflix launched major merchandising collaborations tied to original content, including partnerships with Mattel and Hasbro connected to a K-pop franchise. This reflects a broader strategy to monetize intellectual property through consumer products and licensing rather than relying solely on viewing revenue.

Future

Revenue is projected to rise from about $51B in 2026 to nearly $63B by 2028, while annual growth slows toward ~10% as the business matures. Earnings per share continue increasing, but at a moderating growth rate, indicating profitability is still improving, though the pace of expansion is normalizing.

Below is the estimated EPS growth rate for the next 5 years (CARG), the highest value among the competitors (section above).

According to 1-year price targets provided by other analysts, the average target for NFLX is $112, indicating a potential increase of 46%.

Current Valuation

The charts below display the 5-year average valuation comparison and the comparison to the Communication Services sector (XLC). The company is currently trading below its 5-year averages, but above the sector averages (except the PEG ratio).

Fair Price

The Long-Term Pick’s Fair Price (Base Case) for NFLX is $110.48. The current price of $76.87 is lower by 30.42%, so the stock is undervalued.

• Fair-to-Current Price (%): 30.42%

• Current Price/Fair Price: 0.70

Used:

• Discount Rate: 12%

• Margin of Safety: 30%

• Years: 5

• Future EPS Growth Rate: 20% (Long-Term Pick’s maximum value)

• Future Dividend Yield: 0%

• Total Future Annual Growth Rate: 20 + 0 = 20%

For the Base Case, the exit Price/Earnings ratio is set at 25. In the Bear Case, 5 is subtracted from the Base Case value.

The Base Case might be a bit optimistic because the company now operates in a more mature industry where valuation multiples typically compress as growth slows and competition remains high. Therefore, it’s recommended to use the Bear Case, which is still above the current price by 13%.

Due Diligence

Financial Strength (8 of 10):

✅ Debt-to-Equity: 0.64
✅ Piotroski F-Score: 7 of 9 (Not passed: CFROA > ROA, Higher Current Ratio YoY)
✅ Altman Z-Score: 9.45

The balance sheet is solid for a content-driven media company. Leverage is moderate, and bankruptcy risk appears minimal, showing the business has transitioned from financed growth toward self-funded operations.

Profitability (9 of 10):

✅ Gross margin at least 40%: 48.50%
✅ Net margin at least 10%: 24.30%
✅ FCF margin at least 10%: 20.94%
✅ Management (ROIC, ROE, ROA): All above 10%
❌ EPS surprises in the last 5 years: No (Missed: 2022, 2023, and 2025)
❌ EPS growth YoY 5 years in a row: No (Decline: 2022)

Margins are unusually strong for the media industry and confirm that scale now drives earnings rather than only subscriber growth. Temporary earnings volatility does not undermine the long-term profitability trend.

Advantage (8 of 10):

✅ Does it have a moat: Yes (narrow)
✅ Highest ROIC in streaming competitors, global scale advantage, engagement lock-in, and improving monetization engine (ads)
🟨 Outperformed the S&P 500 CAGR: Partially (10-Year CAGR: 15.29% VOO vs 23.54% NFLX, 5-Year CAGR: 14.50% vs 7.55% NFLX)

The company maintains a durable competitive position supported by global scale, engagement, and monetization capabilities. Performance vs the market reflects valuation compression rather than weakening fundamentals.

Shares & Ownership (8 of 10):

❌ Insider ownership at least 5%: Yes (0.62%)
✅ Less shares outstanding YoY: Yes
❌ Insider buys last six months: No
✅ Short interest no more than 5%: Yes (1.80%)

Share repurchases indicate management confidence and support per share value creation. Insider ownership is low but typical for a mature large-cap platform business.

Expectations (8 of 10):

✅ 1-year stock price forecast is above 10%: +46%
✅ Next 5-year EPS growth estimates (CAGR) is above 10%: Yes (21.70%)
✅ Long-Term Pick Fair Price is above at least 10%: Yes

Forward growth forecasts remain attractive for a company of this size. The outlook depends more on monetization expansion than on rapid subscriber additions, making execution quality the key driver.

Investment Thesis

Netflix now trades below its 5-year average valuation despite continuing double-digit revenue growth and expanding profitability. The company still benefits from a massive global membership base that spreads content costs across hundreds of millions of households and stabilizes engagement.

The business is evolving beyond subscriptions. Advertising is becoming a second revenue engine, while expansion into live events, games, and video podcasts increases platform usage and strengthens retention. At the same time, returns on invested capital have risen over the past five years and remain the highest among major competitors, supported by disciplined investment and ongoing share repurchases.

Risks remain. Core markets are mature, competition is intense, and content spending stays structurally high. The balance sheet also carries elevated debt, although leverage has declined over the last five years as cash flow improved. Despite these negatives, Netflix maintains the strongest net income margin and forward earnings growth outlook among competitors.

The stock currently suits a watchlist-to-accumulate approach. The business remains strong and profitable, but industry maturity and competition can create periodic valuation pullbacks. Long-term investors may consider gradually building a position during market weakness rather than chasing short-term momentum, while existing shareholders can reasonably continue holding as long as profitability trends and capital efficiency remain intact.

This is not a financial or investing recommendation. It is solely for educational purposes.

Koyfin was used for charts in this analysis. Use this URL to receive a special pricing offer of 20% off all Koyfin plans.

Content:

• Anthropic Raises Growth Expectations
• AI Use at Work Keeps Rising
• Meta’s AI Starts to Show Returns
• Microsoft’s Cloud Backlog Keeps Growing
• Growing Global Copper Demand
• Data Centers Drive Copper Demand
• Central Banks Shift Toward Gold
• US Sentiment Signals Slower Growth
• 2026 Growth Outlook
• Central Bank Balance Sheets

Anthropic Raises Growth Expectations

Anthropic has raised its revenue outlook for the next few years. Updated internal scenarios show higher revenue paths than earlier estimates, especially in the optimistic case.

Even the more conservative case points to very strong growth, while the optimistic case reflects faster adoption and higher pricing for advanced AI models. This confirms that demand for large-scale AI systems is growing faster than previously expected.

The key takeaway is indirect exposure. Amazon owns around 20% of Anthropic and is its main cloud partner through AWS, meaning Anthropic’s growth could drive higher demand for AWS compute and services.

AMZN Current Valuation vs 5-Year Mean:

Price/Forward Earnings: 32.1x / 53.7x
Price/Forward Sales: 3.3x / 2.8x
PEG: 1.77 / 2.51

Stocks & ETFs to watch:

AMZN – Amazon (Anthropic equity stake and AWS infrastructure)
MSFT – Microsoft (OpenAI partnership and Azure AI)
GOOGL – Alphabet (Gemini and internal AI models)
NVDA – NVIDIA (AI training and inference hardware)
SMH – VanEck Semiconductor ETF (broad AI hardware exposure)

Previous Notes:

AI Use at Work Keeps Rising

AI is becoming part of everyday work. Around 46% of US employees now use AI at least once a year, 26% use it weekly, and 12% use it daily. Daily usage has increased sharply since 2023, showing that AI is moving from testing to regular use.

Adoption is highest in technology, followed by finance and professional services, but usage is spreading across many industries. Employees mainly use AI tools to write text, analyze data, code, and improve productivity.

This trend supports long-term demand for AI software, cloud infrastructure, and enterprise tools that are built directly into daily workflows.

Stocks & ETFs to watch:

MSFT – Microsoft (Copilot and enterprise AI tools)
GOOGL – Alphabet (Gemini and Workspace AI)
AMZN – Amazon (AWS AI infrastructure)
META – Meta Platforms (AI tools for businesses)
IGV – iShares Expanded Tech-Software ETF (software and AI exposure)

Meta’s AI Starts to Show Returns

Meta is seeing clear results from its AI investments. Both ad impressions and average ad prices are rising at the same time. In digital advertising, this usually happens only when ads are converting better, and advertisers are getting real value.

AI is improving ad targeting, ranking, and creative performance across Facebook, Instagram, and other Meta platforms. Better performance increases advertiser demand, which supports higher prices and stronger revenue growth.

This shows that Meta is monetizing AI in a practical way. The company is not just spending on AI models, but using them to improve core ad economics and long-term profitability.

META Current Valuation vs 5-Year Mean:

Price/Forward Earnings: 26.1x / 22.1x
Price/Forward Sales: 7.8x / 6.5x
PEG: 1.45 / 1.63

Stocks & ETFs to watch:

META – Meta Platforms (AI-driven advertising)
GOOGL – Alphabet (AI in Search and YouTube ads)
TTD – The Trade Desk (programmatic ads and AI)
PINS – Pinterest (performance-focused visual ads)
SNAP – Snap Inc. (early-stage AI ad tools)
SOCL – Global X Social Media ETF (social media exposure)

Read Also:

Microsoft’s Cloud Backlog Keeps Growing

Microsoft’s cloud backlog continues to expand. Commercial Remaining Performance Obligations (RPO) increased strongly year-over-year, showing that more long-term cloud contracts are being signed. RPO represents revenue that is already contracted but not yet recognized, which makes it a useful indicator of future growth.

The growth is mainly driven by Azure, large enterprise deals, and rising demand for AI-related cloud services. A higher backlog improves revenue visibility and supports more stable cash flows over time. This suggests that Microsoft’s cloud business still has a long growth runway.

MSFT Current Valuation vs 5-Year Mean:

Price/Forward Earnings: 24.5x / 30.8x
Price/Forward Sales: 9.0x / 10.6x
PEG: 1.70 / 2.55

Stocks & ETFs to watch:

MSFT – Microsoft (Azure cloud and enterprise software)
AMZN – Amazon (AWS cloud services)
GOOGL – Alphabet (Google Cloud platform)
ORCL – Oracle (enterprise cloud contracts)
SKYY – First Trust Cloud Computing ETF (broad cloud exposure)

Growing Global Copper Demand

Global copper demand is projected to reach 40+ million metric tons by 2040. The main drivers are electrification, renewable energy, EVs, power grids, and data centers. Copper is hard to replace in these areas.

New large mines are rare, expensive, and take many years to develop. This creates a growing gap between supply and demand. If alternatives like aluminum are not widely adopted, higher copper prices may be needed to balance the market. This sets up a strong long-term case for copper.

FCX Current Valuation vs 5-Year Mean:

Price/Forward Earnings: 24.3x / 19.3x
Price/Price to Sales: 3.3x / 2.3x
PEG: 0.69 / 1.63

Stocks & ETFs to watch:

FCX – Freeport-McMoRan (large copper producer)
BHP – BHP Group (diversified miner with copper exposure)
SCCO – Southern Copper (high sensitivity to copper prices)
RIO – Rio Tinto (global miner with copper growth projects)
COPX – Global X Copper Miners ETF (basket of copper miners)

Data Centers Drive Copper Demand

Another note regarding copper demand. Investment in US data centers has accelerated sharply over the past decade, reaching new highs in 2024–2025. The buildout is driven by cloud computing, AI workloads, and rising demand for digital infrastructure. As data center capacity expands, demand for power, cooling, and cabling is rising in parallel.

Copper plays a key role in this trend. A typical data center uses around 27 metric tons of copper per megawatt of capacity. According to BHP estimates, copper used in data centers globally could increase about six times between 2025 and 2050. This adds long-term pressure to copper demand, on top of electrification and energy transition needs.

If supply growth remains limited, data center expansion could become an important structural driver for copper prices over the next decade.

Central Banks Shift Toward Gold

Gold has become a more important asset for central banks. Global official gold holdings have reached around $5.0 trillion, now exceeding foreign official holdings of US Treasuries, which stand near $3.9 trillion. This is the first time in at least 20 years that gold has moved ahead of Treasuries.

Since Q4 2019, the value of central bank gold holdings has tripled. This increase comes from strong gold purchases by central banks and higher gold prices. Over this period, central banks have added about 4,500 tonnes of gold, including some purchases that were not fully reported. At the same time, foreign holdings of US Treasuries have remained mostly flat.

This shift reflects a move toward assets with no counterparty risk and less exposure to sanctions and currency risk. Gold is again playing a central role in reserve management.

Stocks & ETFs to watch:

GLD – SPDR Gold Shares (physical gold exposure)
IAU – iShares Gold Trust (low-cost gold ETF)
B – Barrick Mining Corp (large global gold producer)
NEM – Newmont Corporation (leading gold miner)
AEM – Agnico Eagle Mines (high-quality gold assets)

US Sentiment Signals Slower Growth

US consumer confidence continues to weaken. The Conference Board Consumer Confidence Index fell sharply to 84.5, the lowest level since 2014. This marks the sixth straight monthly decline and places confidence below levels seen during the 2020 pandemic.

Lower-income households remain the most pessimistic, which raises risks for consumer spending. When confidence stays this low, consumers usually reduce discretionary spending. This can slow economic growth and pressure earnings in consumer-facing sectors.

2026 Growth Outlook

Global economic growth in 2026 is expected to stay modest and uneven across regions. World GDP growth is forecast at around 3.1%, in line with the long-term average. The US is expected to grow at about 2.1%, which is below its 10-year average.

China’s growth is projected to slow compared to recent years, while India remains the fastest-growing major economy, even with a small decline from 2025. In Europe, growth remains weak. Germany, France, and Italy are improving from very low levels. Japan also continues to operate in a low-growth environment.

Overall, the data suggest a fragmented global economy, where growth is concentrated in a few regions rather than broad-based across major economies.

Stocks & ETFs to watch:

INDA – iShares MSCI India ETF (India growth exposure)
FXI – iShares China Large-Cap ETF (China equity exposure)
EEM – iShares MSCI Emerging Markets ETF (emerging markets exposure)

Central Bank Balance Sheets

The balance sheets of the world’s largest central banks remain extremely large. The Euro Area, China, and the United States hold the biggest asset bases, each above $6 trillion. These assets include government bonds, foreign exchange reserves, and other financial instruments used to support financial stability.

Japan also remains a major player, while Switzerland and the UK stand out with very large balance sheets relative to the size of their economies. Emerging markets like India and Brazil are smaller in absolute terms, but their central banks have expanded significantly over the past decade.

Stocks & ETFs to watch:

GLD – SPDR Gold Shares (gold exposure linked to central bank reserves)
TLT – iShares 20+ Year Treasury Bond ETF (long-term government bonds)

This is not a financial or investing recommendation. It is solely for educational purposes.

Content:

• Company Overview
• Market Overview
• Economic Moat
• Business Strategy
• Capital Allocation
• Advantages
• Disadvantages
• Competitors
• Past
• Future
• Current Valuation
• Fair Price
• Due Diligence
• Investment Thesis

Company Overview

IPO Date: Sep 22, 2021
Market Cap: ~$19.87B
Sector: Technology
Industry: Software - Infrastructure
Type: Mid Growth
Total Number of Employees: ~5,700
Next earnings report: Feb 12, 2026 (approved; after-market)
Total Debt: $18M
Cash & Investments: $1.86B
Beta: 1.94
Website: pos.toasttab.com

Toast Inc. (NYSE: TOST) is a cloud-based technology company that builds a full digital operating platform for restaurants. The platform combines point-of-sale software (POS), payment processing, and purpose-built hardware into one integrated system. Toast mainly serves small and mid-sized restaurants in the United States, but it has been expanding into enterprise restaurant groups, international markets, and food and beverage retail. As of the third quarter of 2025, the platform supported approximately 156,000 active locations, showing steady adoption across different restaurant formats.

To Watch: Meet Toast in 90 seconds

Toast’s revenue model is recurring income. The company earns revenue from software subscriptions, transaction-based financial technology solutions, and hardware-related services. In Q3 2025, Toast surpassed $2.0 billion in annualized recurring run-rate revenue, which marks a structural shift from early-stage growth to scaled operations. Total quarterly revenue reached $1.63 billion during the same period, supported by strong performance in subscription services and payment processing activity.

Analyst’s Note:

Revenue Run Rate is an indicator of financial performance that takes a company’s current revenue in a certain period (a week, month, quarter, etc.) and converts it to an annual figure to get the full-year equivalent. This metric is often used by rapidly growing companies, as data that’s even a few months old can understate the current size of the company. Another term for this is the Sales Run Rate. Read more.

Toast is led by its co-founder and CEO, Aman Narang. He guided the company from its early development into a scaled public business and remains closely involved in long-term strategy. Management emphasizes controlled expansion, disciplined investment, and gradual margin improvement. This approach allowed the company to remain growth-oriented while reaching consistent profitability at the operating level.

The platform is used by a broad range of restaurant clients. Toast serves independent operators, regional chains, and large enterprise customers. Notable customers include Nordstrom, which is rolling out Toast across nearly 200 dining locations, TGI Fridays, which is moving its existing U.S. restaurants from another POS system to Toast, and Everbowl, a fast-growing multi-location brand. Toast is also used by many fine-dining restaurants, including a significant share of Michelin-recognized locations and restaurants featured by Bon Appétit.

In addition, Toast works with third-party partners such as Uber, which supports delivery and off-premise ordering, and Coca-Cola, which collaborates on data-driven beverage sales initiatives.

To Read: Toast and Uber Announce Strategic Partnership to Help Restaurants Drive Guest Demand

Market Overview

The restaurant industry is one of the largest service sectors globally and provides the economic foundation for restaurant-focused technology platforms. In the United States, restaurant and foodservice sales reached approximately $1.5 trillion in 2025, with activity remaining resilient into early 2026. The sector includes more than one million restaurant locations and employs over 15 million people, highlighting both scale and operational complexity.

The technology layer serving restaurants is expanding alongside the industry. The global restaurant POS terminal market was estimated at $17.4 billion in 2025 and is projected to grow at around an 8% compound annual growth rate (CAGR) through the end of the decade. Growth is driven by the replacement of legacy systems, rising digital payment usage, and demand for secure and compliant payment infrastructure.

Software-focused segments are growing faster than hardware alone. Research firms estimate the global restaurant POS software and restaurant management software markets to grow at approximately a 14-15% CAGR through 2030. This reflects rising demand for subscription platforms that integrate ordering, payments, analytics, inventory, and labor management into a single system.

Payment economics also influence the market. McKinsey’s industry research shows long-term pressure on transaction take rates in pure payment processing due to competition and regulation. For vertically integrated platforms like Toast, this trend is less negative because a large share of value is captured through software subscriptions and operational services, rather than relying only on payment margins.

Analyst’s Note:

The numbers above:

~8% CAGR → applies to POS terminals/hardware
~14–15% CAGR → applies to POS software & restaurant management software

POS hardware is a mature market. Restaurants replace terminals every few years, but adoption is already high. Growth mainly comes from upgrades, compliance, and incremental expansion. That leads to mid-single-digit growth, around 8%.

POS software, on the other hand, is still in an expansion phase. Restaurants are moving from basic systems to cloud platforms with analytics, marketing, labor tools, and integrations. This drives double-digit growth, often in the mid-teens, which is where the 14–15% CAGR comes from.

Toast operates across both, but its long-term value is much more exposed to the faster-growing software layer.

Economic Moat

The company has a narrow economic moat driven primarily by switching costs. The platform is deeply embedded in restaurant operations, covering order flow, payments, inventory, staffing, payroll, and reporting. Replacing the platform would require coordinated changes across hardware, software, and internal workflows, creating operational disruption and risk.

Customer behavior. Toast reports retention close to 90%, which implies long customer relationships even in an industry with high failure rates. Most churn results from restaurant closures rather than competitive displacement, indicating operational dependence once adopted.

Unit economics support durability. Toast recovers customer acquisition costs in a relatively short period compared with the length of customer relationships. Hardware subsidies accelerate adoption, while recurring software and payment revenue generate value over many years, supporting sustained reinvestment.

Business Strategy

The company focuses on expanding its leadership in U.S. small and mid-sized restaurants while building additional growth engines. The core restaurant segment remains the primary revenue contributor, supported by continued location growth and deeper product adoption through cross-selling.

At the same time, Toast is investing in enterprise restaurants, international markets, and food and beverage retail. These segments are smaller today but are scaling and are expected to become meaningful contributors over time. Management believes the same vertical integration strategy can be applied across these markets.

Long-term scale ambition. Management announced a vision to expand from roughly 156,000 locations today to more than 500,000 locations over time.

Product innovation, including AI-driven tools such as Toast IQ and Toast Advertising, is central to increasing platform value and customer reliance.

Capital Allocation

The company follows a disciplined capital allocation strategy supported by a strong balance sheet and no long-term debt. A large cash position provides flexibility to invest through economic cycles without external financing.

Capital is primarily deployed toward organic growth. Investments focus on research and development, sales capacity, and customer acquisition, including hardware subsidies that support platform adoption. These investments are justified by favorable unit economics and long customer lifetimes.

Toast also initiated modest shareholder returns through share repurchases, mainly to offset dilution. The company does not pay dividends. Acquisitions have been small and targeted, aimed at expanding product capabilities rather than scale-driven consolidation.

Advantages

Deep platform integration. The platform replaces multiple disconnected systems with one unified platform that supports daily restaurant operations. This simplifies workflows and reduces operational friction for restaurant owners and staff.

Data-driven insight. By processing large volumes of transactions, Toast can provide analytics and AI-driven recommendations that help restaurants improve pricing, promotions, and cost control. These insights increase platform value over time.

Strong customer retention. Retention near 90% indicates that restaurants that remain in business tend to stay on Toast. This stability supports predictable recurring revenue and long-term planning.

Improving operating leverage. High-margin software and fintech services represent an increasing share of revenue. As scale increases, profitability improves even if hardware growth moderates.

Validation from high-quality customers and partners. Adoption by enterprise operators and partnerships with companies like Uber and Coca-Cola strengthen platform credibility. These relationships support expansion into larger and more complex customers.

Disadvantages

Exposure to the restaurant industry risk. Restaurants operate with thin margins and high failure rates. Economic pressure can increase closures and negatively affect customer retention.

The slowing growth in the core market. As Toast increases penetration among U.S. mid-sized restaurants, incremental location growth becomes harder. Future growth depends more on new segments.

Execution risk in new verticals. Grocery and convenience retail differ from restaurants in operations and economics. Product-market fit in these areas is still developing.

Strong competitive pressure. Toast competes with large payment and software providers that have significant financial resources. This can limit pricing power and margin expansion.

Reliance on continued innovation. AI and marketing tools require sustained investment and customer adoption. If adoption slows, expected returns may weaken.

Competitors

Fiserv competes with Toast mainly through its Clover platform. Fiserv benefits from scale, long-standing payment relationships, and a broad merchant base. However, Clover is designed for many merchant types, which limits its depth in restaurant-specific workflows compared with Toast.

Block competes through its Square ecosystem, which is widely adopted by small businesses. Square offers simplicity and strong brand recognition, but it is not purpose-built for full-service and multi-location restaurants. Toast differentiates through deeper operational features tailored to restaurants.

To Read: Square vs Toast POS: Which is better for your restaurant in 2026

Adyen competes primarily in enterprise payment processing. It offers an advanced global payment infrastructure and a strong international reach. However, Adyen does not provide a full restaurant operating platform, which limits overlap with Toast’s core software-driven value proposition.

Toast shows higher expected earnings growth, which reflects a company still early in its profit expansion cycle. Lower gross and net margins indicate that the company continues to reinvest aggressively in customer acquisition, product development, and hardware subsidies, prioritizing long-term platform scale over near-term optimization. In contrast, competitors operate more mature models with higher margins and steadier returns, signaling efficient capital deployment but limited incremental growth opportunities.

Toast’s improving ROIC suggests management is gradually converting growth into economic value, even if absolute efficiency still lags peers.

Past

Here is the 3-year CAGR return for TOST, compared to the S&P 500 (VOO).

Below are some significant recent events.

Fortune Recognition: Toast was named a 2026 World’s Most Admired Company by Fortune, highlighting strong brand reputation and industry leadership among technology and hospitality peers.

New Jobs Expansion: In December 2025, the company announced it would create 120 new jobs in Dublin as part of a three-year investment to support growth in Europe and strengthen international operations.

Strategic Enterprise Adoption: Iconic restaurant brand TGI Fridays selected Toast’s platform for its entire U.S. presence, aiming to streamline operations and enhance guest experiences with integrated technology across multiple service channels.

Product Innovation — AI Insights: Toast expanded its platform with ToastIQ, an intelligence engine that delivers personalized prompts, recommendations, and automated workflows designed to help restaurants improve efficiency and revenue.

Future

Here is the 3-year forecast for future sales and EPS growth. Note the high EPS growth prediction for fiscal year 2025.

In addition, below is the EPS growth rate estimate for the next 5 years (CARG), the highest value among the competitors (section above).

According to 1-year price targets provided by other analysts, the average target for TOST is $46.56, indicating a potential increase of 37.75%.

Current Valuation

The charts below illustrate the current 5-year average valuation comparison. The company is trading below its 5-year averages, and the current PEG ratio stands at only 1.

Fair Price

The Long-Term Pick’s Fair Price (Base Case) for TOST is $42.78. The current price of $33.80 is lower by 21%, so the stock is undervalued.

• Fair-to-Current Price (%): 21%

• Current Price/Fair Price: 0.80

I used:

• Discount Rate: 12%

• Margin of Safety: 30%

• Years: 5

• Future EPS Growth Rate: 20% (explanations below)

• Future Dividend Yield: 0%

• Total Future Annual Growth Rate: 20 + 0 = 20%

As the exit Price/Earnings ratio for the Base Case, I used 30, since this is a growth business and the future long-term EPS projection is close to this number (28%). For the Bear Case, I subtracted 5 from the Base Case.

Since my maximum forecast for future EPS growth is 20%, I chose to use this figure instead of the actual value of 28%. Even with the adjusted value of 20%, it’s important to note that my projected future EPS (as seen in the right section of the screenshot above) remains below the expected levels for the next three financial years (shown in the left section of the screenshot).

Due Diligence

Financial Strength (9 of 10):

✅ Debt-to-Equity: 0
✅ Cash-to-Debt: 103
✅ Piotroski F-Score: 8 of 9 (Not passed: Less Shares Outstanding YoY)
✅ Altman Z-Score: 14.74

Profitability (5 of 10):

❌ Gross margin at least 40%: 25.73%
❌ Net margin at least 10%: 4.66%
🟨 FCF margin at least 10%: 9.63%
🟨 Management (ROIC, ROE, ROA): Partially (All above 10%, except ROA)
❌ EPS surprises in the last 5 years: No (Missed in all years)
✅ EPS growth YoY 5 years in a row: Yes

Valuation (7 of 10):

✅ Valuation below its 5-year averages: Yes
✅ Valuation below the sector (XLK): Yes
❌ DCF Value: $31.46; Overvalued by 8% (10 years, discount rate: 10%, terminal growth: 3%, equity model: FCFE)

Advantage (7 of 10):

✅ Does it have a moat: Yes (narrow)
🟨 Outperformed the S&P 500 CAGR: Nearly (3-Year CAGR: 22.84% VOO vs 22.73% TOST)

Shares & Ownership (7 of 10):

✅ Insider ownership at least 5%: Yes (19.55%)
❌ Less shares outstanding YoY: No
❌ Insider buys last six months: No
🟨 Short interest no more than 5%: Nearly (5.19%)

Expectations (8 of 10):

✅ 1-year stock price forecast is above 10%: +37.75%
✅ Next 5-year EPS growth estimates (CAGR) is above 10%: Yes (28%)

Investment Thesis

Toast offers an attractive long-term investment case as the company transitions from rapid platform expansion toward improving profitability. The stock trades below its historical valuation and my fair price estimate. The current valuation reflects meaningful skepticism around margin conversion, which creates an opportunity if management continues to execute on operating leverage. At the same time, forward earnings growth expectations remain strong, suggesting that the market still underestimates the long-term earnings power of the platform.

The core strength of Toast lies in its integrated restaurant operating system, which combines software, payments, and hardware into one platform. This structure creates high switching costs and supports strong customer retention over long periods. While gross and net margins are still below those of mature peers, the business shows clear signs of margin improvement. This indicates that growth is increasingly driven by recurring, higher-quality revenue rather than volume alone.

The company operates with no long-term debt and holds a large cash position, which allows continued investment without financial pressure. Management has shown discipline by prioritizing organic growth, targeted innovation, and gradual margin expansion. Additionally, founder-led leadership and meaningful insider ownership align long-term decision-making with shareholder interests.

Taken together, Toast represents a transition-stage platform business with expanding economic value, where continued execution could drive meaningful upside over a multi-year horizon.

This is not a financial or investing recommendation. It is solely for educational purposes.

Koyfin was used for charts in this analysis. Use this URL to get a special pricing offer of 20% off all Koyfin plans.

Content:

• Adobe Trades at Half Its Normal Valuation
• Google, Meta, and Amazon to Control $934B Ad Market by 2030
• Top 10 Stocks Hit Extreme Valuation Levels
• ASML’s Hidden $6B Recurring Revenue
• TSMC Controls 72% of Global Chip Manufacturing
• Renewable Energy to Nearly Double by 2050
• The World’s Largest Economies in 2025
• China Dominates 71% of Global Battery Manufacturing

Adobe Trades at Half Its Normal Valuation

Adobe (ADBE) is now trading at its lowest valuation in years. The stock’s forward Price/Earnings ratio has dropped to just 13.2, far below its historical average of 29.0. Adobe’s Price to Free Cash Flow ratio is only 15.0, compared to its average of 30.6. This means Adobe is trading at less than half its normal valuation.

The company’s buyback yield has reached 8%, more than double its historical average of 3.43%. This shows the company is aggressively buying back its own shares at these low prices, which is a strong signal that management believes the stock is undervalued.

Meanwhile, the company’s Return on Invested Capital (ROIC) has climbed to 38.71%, well above its average of 29.63%. This means the company is generating more profits from its investments than ever before.

The combination of low valuation, high buybacks, and strong returns makes Adobe look very attractive right now. The company still dominates creative software (Photoshop, Illustrator) and is growing fast in AI with tools like Firefly.

Google, Meta, and Amazon to Control $934B Ad Market by 2030

Digital advertising is booming, and three tech giants will dominate the market. Combined revenue for Google, Meta (Facebook, Instagram, WhatsApp), and Amazon is expected to reach $934 billion by 2030, up from $385 billion in 2023. That’s a 142% increase in just seven years. Google Properties (Search and YouTube) will remain the largest player.

This growth is driven by businesses moving more advertising budgets to digital platforms. These three companies have massive user bases and advanced targeting technology that traditional media cannot match.

Stocks to watch:

GOOGL (Alphabet/Google) - largest digital ad platform
META (Meta Platforms) - Facebook, Instagram, WhatsApp
AMZN (Amazon) - fastest-growing ad business
SNAP (Snap Inc.) - smaller social media advertising
PINS (Pinterest) - visual discovery advertising
TTD (The Trade Desk) - programmatic advertising platform
ROKU (Roku) - connected TV advertising

Top 10 Stocks Hit Extreme Valuation Levels

The biggest companies in the S&P 500 are trading at their highest valuations in decades. The top 10 stocks now have a forward P/E ratio of 27.8, compared to just 19.8 for the rest of the market. This is a huge gap.

In 2020, the top 10 stocks had a forward P/E of 29.1 – the highest ever recorded. We’re now close to that level again at 27.8. Meanwhile, the other 490 stocks in the S&P 500 trade at only 19.5, which is much more reasonable.

This creates a dangerous situation. When a few mega-cap stocks become extremely expensive, they drive the entire market higher. But if these top 10 stocks fall, they can drag down the whole market with them.

ETFs to watch:

RSP (Invesco S&P 500 Equal Weight ETF) - spreads risk evenly
VTV (Vanguard Value ETF) - focuses on cheaper stocks
SCHD (Schwab U.S. Dividend Equity ETF) - dividend value stocks
COWZ (Pacer US Cash Cows 100 ETF) - free cash flow focused
QUAL (iShares MSCI USA Quality Factor ETF) - quality companies
SPLV (Invesco S&P 500 Low Volatility ETF) - defensive positioning

ASML's Hidden $6B Recurring Revenue

ASML is best known for selling advanced chip-making machines, but its real profit engine is the recurring revenue that comes after the sale. The company’s Installed Base Management business (service, upgrades, and maintenance) has grown to over €6 billion per year.

When ASML sells a machine, customers must keep paying for maintenance, upgrades, and service for many years. These machines are incredibly complex and cost over $100 million each, so customers have no choice but to work with ASML to keep them running.

TSMC Controls 72% of Global Chip Manufacturing

TSMC dominates the pure foundry market like no other company. Its market share has grown from 65% in Q2 2024 to 72% in Q3 2025. This means nearly three out of every four advanced chips made worldwide come from TSMC.

Samsung Foundry holds second place but is losing ground, dropping from 10% to just 7% market share. SMIC remains steady at around 5-6%, while UMC holds 4-5%. GlobalFoundries and other smaller players split the remaining 12%.

TSMC’s dominance keeps growing because it has the most advanced technology. The company is the only one that can mass-produce the most advanced 3nm chips for companies like Apple, NVIDIA, and AMD.

This near-monopoly gives TSMC incredible pricing power. As AI and advanced computing grow, demand for cutting-edge chips will only increase. TSMC can raise prices because customers have almost no alternatives for the most advanced nodes.

Renewable Energy to Nearly Double by 2050

Renewable energy will grow from just 15.4% in 2024 to 23.3% by 2050. This means renewables will nearly double their share of total energy demand in just 26 years.

Fossil fuels will still dominate, but will decline from 79.8% today to 67.1% by 2050. Oil will drop slightly from 30.6% to 29.8%, while coal will fall dramatically from 26.5% to 13.6%. Natural gas will stay relatively stable.

Nuclear energy will grow from 4.8% to 6.6%, showing a comeback for nuclear power as countries look for clean baseload energy. Solar and wind will lead renewable growth, jumping from 3.5% to 13.5% of global energy.

However, the change is slower than many people expect. Even by 2050, two-thirds of energy will still come from fossil fuels.

Stocks and ETFs to watch:

ICLN (iShares Global Clean Energy ETF) - renewable energy
TAN (Invesco Solar ETF) - solar power companies
FAN (First Trust Global Wind Energy ETF) - wind power
NEE (NextEra Energy) - largest renewable energy producer
ENPH (Enphase Energy) - solar technology
FSLR (First Solar) - solar manufacturing
SMR (NuScale Power) - small modular reactors
CCJ (Cameco) - uranium mining for nuclear
URA (Global X Uranium ETF) - nuclear energy exposure

The World's Largest Economies in 2025

The United States remains the world’s largest economy by far, with a GDP of $30.6 trillion in 2025. China is second at $19.4 trillion, followed by Japan at $4.3 trillion, India with $4.4 trillion, and Germany at $5.0 trillion. The gap between the U.S. and China is still very large at over $11 trillion.

The UK comes in sixth at $4.0 trillion. France, Italy, Brazil, and Canada round out the top ten.

Emerging markets like Indonesia, Mexico, Turkey, and Saudi Arabia are growing fast. These countries offer strong growth potential as their middle classes expand.

ETFs to watch:

INDA (iShares MSCI India ETF) - India growth
VWO (Vanguard FTSE Emerging Markets) - emerging markets
VEA (Vanguard FTSE Developed Markets) - developed international
VTI (Vanguard Total Stock Market) - total U.S. market

China Dominates 71% of Global Battery Manufacturing

China controls the global battery manufacturing industry with a massive 71% share of all investment. Out of $184 billion in total battery manufacturing investment for 2025-2026, China is investing $130.6 billion. This gives China an enormous lead in the race to supply batteries for electric vehicles and energy storage.

Europe comes in second with just 11% ($20.2 billion), followed by the United States at 10% ($18.4 billion).

This dominance means China controls the entire battery supply chain, from raw materials to finished batteries. Companies like BYD are building massive factories.

Stocks and ETFs to watch:

LIT (Global X Lithium & Battery Tech ETF) - battery industry
BATT (Amplify Lithium & Battery Technology ETF) - battery tech
CATL (Contemporary Amperex) - Chinese battery leader
BYD (BYD Company) - Chinese EV and battery giant

This is not a financial or investing recommendation. It is solely for educational purposes.

Koyfin was used for charts in this analysis. Use this URL to get a special pricing offer of 20% off all Koyfin plans.

Content:

• Company Overview
• Market Overview
• Economic Moat
• Business Strategy
• Capital Allocation
• Advantages
• Disadvantages
• Competitors
• Past
• Future
• Current Valuation
• Fair Price
• Checklist
• Due Diligence
• Investment Thesis

Company Overview

IPO Date: Sep 15, 2021
Market Cap: ~$16.23B
Sector: Consumer Cyclical
Industry: Footwear & Accessories
Type: Mid Growth
Total Number of Employees: ~3,200
Next earnings report: Mar 3rd, 2026 (estimated, pre-market)
Total Debt: $633M
Cash & Investments: $1.29B
Beta: 2.15
Website: www.on.com

On Holding AG (NYSE: ONON) is a Swiss premium sportswear company founded in 2010 by former professional triathlete Olivier Bernhard, together with David Allemann and Caspar Coppetti. The company was built around proprietary CloudTec® cushioning technology, designed to reduce impact and improve running efficiency. On focuses primarily on performance footwear while steadily expanding into premium apparel and accessories (representing approximately 7% of total revenue) to build a complete sportswear ecosystem.

On’s Chief Innovation Officer Scott Maguire:

Innovation at On is about obsessively making the best possible products that push the limits of sensation and performance. The fusion of SURREAL foam and CloudTec cushioning is our superpower. This is a fundamental enhancement to our core technology that we believe will elevate the experience for runners of all kinds.

To Read: The On story

On sells its products in more than 80 countries through a balanced mix of direct-to-consumer (DTO) and wholesale channels. This hybrid model allows the company to control brand experience while reaching global scale. The company operates flagship and brand stores in cities such as Zurich, New York, Tokyo, and Palo Alto, which serve as both retail and marketing hubs.

Co-Founder Caspar Coppetti:

From the first prototype in the Swiss Alps to the global stage, On was built on the belief that performance can be redefined when form and function come together in new ways. The fusion of SURREAL foam and CloudTec cushioning will revolutionize the running sensation for years to come.

In Q3 2025, On reported net sales of CHF 794.4 million, representing 24.9% year-over-year growth and 34.5% growth on a constant currency basis. Footwear remained the largest revenue contributor, while apparel showed accelerating momentum. Growth was broad-based across regions and channels, confirming strong global demand.

The company is led by Martin Hoffmann, who serves as both CEO and CFO. Hoffmann joined On in 2013 and has a strong background in finance and operations. Under his leadership, the company expanded gross margins, improved adjusted EBITDA, and maintained a conservative balance sheet, while continuing to invest heavily in innovation and brand development.

On’s clients include elite athletes, professional runners, and premium lifestyle consumers. The brand sponsors top athletes such as Hellen Obiri. It serves everyday consumers through its digital platform and premium retail partners.

Manufacturing is outsourced to third-party partners (primarily in Vietnam and China), while product design, R&D, and quality control remain in-house.

Market Overview

According to Grand View Research, the global premium sportswear market size was estimated at USD 106.9 billion in 2024 and is anticipated to reach USD 174.3 billion by 2030, growing at a CAGR of 8.5% from 2025 to 2030. The research from Deep Market Insights shows a similar number: 8.9%. And according to another research firm (Research and Markets), the CAGR until 2030 is 6.5%.

The market is driven by factors such as rising health consciousness, increasing participation in fitness activities, and the growing trend of athleisure, where high-end athletic apparel is worn in both workout and casual settings.

According to On’s presentation (PDF), they are still at an early stage of market maturity in many regions. Markets such as China, Japan, Southern Europe, Latin America, and parts of Asia-Pacific are shown in the early phases of brand establishment and market acceleration. Even in the United States, which is On’s largest market today, the brand is positioned in the “win the market” phase rather than full maturity. This indicates that On’s current revenue base reflects partial penetration, with significant room to grow through deeper consumer connection, broader distribution, and repeat purchases over time.

According to the presentation, On’s addressable market (premium segment) is about $25 billion. The total global sportswear is shown at approximately $355 billion, while the broader premium lifestyle, individual movement, and individual sport segment is estimated at around $70 billion.

Analyst’s Note:

The latest company presentation (the PDF URL above) is dated as of 2023, so it is a bit outdated for the moment. The next investor presentation is expected soon in January.

Economic Moat

The company has a narrow economic moat supported by innovation, brand strength, and premium pricing. As already mentioned, its proprietary CloudTec® technology differentiates the brand and supports pricing power, contributing to a 65.7% gross margin in Q3 2025, materially higher than most mass-market competitors.

Another innovation - LightSpray™ technology, which automates spray-on uppers, reducing material waste and production time. This improves cost efficiency while supporting sustainability targets, making the technology strategically valuable.

Brand credibility strengthens customer trust. As I mentioned earlier, On-sponsored athlete Hellen Obiri won the New York City Marathon in both 2023 and 2024, and On athletes secured gold medals at the World Athletics Championships.

DTC growth increases switching costs. DTC sales reached CHF 314.7 million in Q3 2025, improving control over pricing, customer data, and brand experience, which deepens long-term relationships.

Business Strategy

On’s strategy focuses on premium positioning, innovation-led growth, and global expansion. Footwear remains the core of the business, while apparel and accessories are scaled to increase customer lifetime value and reduce reliance on a single category.

In Q3 2025, apparel sales grew 86.9% year-over-year, significantly faster than footwear. This confirms strong product acceptance and supports long-term category diversification.

Asia-Pacific expansion is a key growth region. The region delivered over 90% growth, reducing dependence on mature Western markets and expanding long-term optionality.

On also prioritizes DTC expansion. The company improves margin quality and customer engagement.

Operational discipline. Management avoids aggressive discounting and focuses on supply-chain efficiency, digital capabilities, and selective retail expansion to protect premium brand perception.

Capital Allocation

As I wrote above, On follows a conservative and disciplined capital allocation strategy. As of September 30, 2025, the company held CHF 961.8 million in cash and cash equivalents, providing strong financial flexibility and downside protection.

Capital is primarily allocated to innovation, brand marketing, and DTC infrastructure rather than debt-funded expansion.

Analyst’s Note:

Since I use Koyfin’s data for my charts, the shares outstanding (the chart below) have been increasing, but other resources show that the number decreased during the latest quarter, so in the sections Checklist and Due Diligence, I decided to choose the decreasing option.

Limited reliance on debt reduces financial risk and preserves optionality. Over time, strong cash generation could support selective shareholder returns once growth investments normalize.

On has not engaged in share buyback activity and does not pay dividends. The company is currently focused on growth rather than returning capital to shareholders.

Advantages

Analyst’s Note:

Below, I repeat the numbers I already provided above to emphasize my point of view regarding the company’s advantages.

Strong and consistent revenue growth. Net sales increased 24.9% year-over-year in Q3 2025, supported by demand across regions and channels. This confirms the brand resonates globally and is not limited to niche performance runners.

High gross margins. The 65.7% gross margin reflects premium pricing and strong brand equity. This allows continued investment in innovation and marketing while maintaining profitability.

Product diversification. Apparel sales grew 86.9% year-over-year, reducing dependence on footwear. Over time, this supports higher customer lifetime value and more stable revenue.

Geographic diversification. Asia-Pacific growth above 90% shows strong traction outside Europe and North America. This reduces regional concentration risk and expands long-term growth potential.

Brand credibility. Roger Federer, a shareholder and long-term collaborator, adds global visibility and trust, while elite athletes’ wins strengthen performance authenticity.

To Read: How Roger Federer’s On Investment Made Him a Billionaire

Disadvantages

Premium consumer demand. During economic slowdowns, discretionary spending on high-priced footwear and apparel may decline faster than in mass-market segments.

Operating expenses continue to rise as the company invests in growth. Marketing, retail expansion, and technology spending support long-term positioning but may pressure margins if growth slows.

Foreign exchange volatility affects reported results. Global operations expose the company to currency movements that can distort short-term financial performance.

Apparel and accessories remain smaller contributors to total revenue. Despite high growth, execution risk remains as these categories scale.

Competition from global sportswear leaders remains intense. Larger rivals benefit from scale, marketing budgets, and distribution power, which can pressure pricing and market share.

Competitors

Nike (NYSE: NKE) dominates global sportswear through scale and distribution. Compared to Nike, On is much smaller but grows faster and operates at higher gross margins due to its premium focus. Nike targets mass-market volume, while On prioritizes performance-driven and premium consumers.

Adidas (ADS.DE, OTC: ADDYY) competes directly in performance footwear and apparel. Adidas benefits from global scale, but On differentiates through proprietary technology and stronger pricing power in the premium segment.

Deckers Outdoor (NYSE: DECK), through its HOKA brand, is one of On’s closest competitors in performance running. Both target serious runners, but On positions itself higher on design and lifestyle appeal, while HOKA focuses more on maximal cushioning and performance-first messaging.

Lululemon Athletica (NASDAQ: LULU) overlaps mainly in premium apparel rather than footwear. While Lululemon has strong brand loyalty, On’s footwear-led ecosystem and technical credibility create differentiation as apparel expands.

In my view, while competition is intense, On stands out through innovation, premium positioning, disciplined execution, and strong global momentum, even though its scale remains smaller than industry leaders.

Past

Since the company went IPO only in 2021, I used only 3- and 5-year periods. The stock overperforms the S&P 500 on the 3-year period, and underperforms on the 5-year period.

Below are some significant recent events.

Raised Annual Targets: On Holding raised its annual revenue target after reporting a blowout quarter with strong demand for its running shoes, despite price increases.

Leadership Transition: On announced that its Chief Operating Officer, Sam Wenger, will step down at the end of the first quarter of 2026, and Scott Maguire, who joined On in 2025 with experience at Specialized Bicycle Components and Dyson, will take over expanded operational responsibilities.

Institutional Buying and Ownership Growth: Major institutional investors such as Winslow Capital, Sands Capital, Norges Bank, Ameriprise Financial, and State Street expanded their stakes in ONON.

No Deep Holiday Discounts Strategy: On executives indicated that the company would not offer deep discounts during holiday promotional periods despite strong sales growth, choosing to prioritize brand value and margin protection amid high demand.

Future

Below is the 3-year forecast for future sales and EPS growth. Pay attention to the EPS growth rebound in FY 2026 and the high value in FY 2027.

In addition, below is the EPS growth rate estimate for the next 5 years (CARG).

Comparison of the EPS growth rate with the competitors:

Based on 1-year price targets offered by other analysts, the average price target for ONON comes to $61.58. The average price target represents an increase of 23.71%.

Current Valuation

Below you will find charts with the current 3-year average valuation comparison, along with the comparison to the sector (Consumer Discretionary). The company trades below its 3-year averages. The current PEG ratio is only 1.18.

Fair Price

The Long-Term Pick’s Fair Price (Base Case) for ONON is $48.83. The current price of $49.12 is higher by less than 1%, so the stock is fairly valued.

• Fair-to-Current Price (%): -0.59%

• Current Price/Fair Price: 1.01

I used:

• Discount Rate: 12%

• Margin of Safety: 30%

• Years: 5

• Future EPS Growth Rate: 25% (explanations below)

• Future Dividend Yield: 0%

• Total Future Annual Growth Rate: 25 + 0 = 25%

As the exit Price/Earnings ratio for the Base Case, I used 30, since this is a growth business. For the Bear Case, I subtracted 5 from the Base Case. Notably, the stock has never traded below a Price/Earnings ratio of 40.

Usually, my maximum 5-Yr Expected EPS Growth value is 20, so even if a stock has more than this value, I always set 20. In the case of On, I used 25, since with my default value of 20, there would be a big gap in future EPS representation year-over-year (the right part in the screenshot above). Even with a value of 25, pay attention that my future EPS projection (the right part in the screenshot above) is still below the levels for the next three financial years (the left part in the screenshot above).

Checklist

Profitability:

✅ Gross margin at least 40%: 62.4%
❌ Net margin at least 10%: 7.8%
✅ FCF margin at least 10%: 12.0%
✅ Management (ROIC, ROCE, ROE, ROA): Yes (All above 10%, except ROA)
✅ Piotroski F-Score: 7 of 9 (Not passed: Lower Leverage yoy, Higher Current Ratio yoy)
❌ EPS surprises in the last 5 years: No (Missed in 2021 and 2023; Based on TradingView’s data)
✅ EPS growth YoY 5 years in a row: Yes (Based on TradingView’s data)

Valuation and Advantage:

✅ Valuation below its 5-year averages: Yes
❌ Valuation below the sector: No
✅ Does it have a moat: Yes (narrow)
❌ Outperformed the S&P 500 CAGR: No (3-year yes, but 5-year didn’t)

Shares:

✅ Insider ownership at least 5%: Yes (9.54%)
✅ Less shares outstanding YoY: No
❌ Insider buys last six months: No

Price:

✅ 1-year stock price forecast is above 10%: +23%
✅ Next 5-year EPS growth estimates (CAGR) is above 10%: Yes (26%)
❌ DCF Value: $46; Overvalued by 9% (5 years, discount rate: 10%, terminal growth: 3%, model: Net Income)

Due Diligence

Profitability (6.5 of 10):

✅ Exceptional Gross Margin: 62%
✅ Strong 3-Year Average Gross Margin: 59%
✅ Gross Margin is Increasing: 56% → 62% (in the last 3 years)
🟨 Healthy Operating Margin: 12%
❌ Low 3-Year Average Operating Margin: 8%
✅ Operating Margin is Increasing: 7% → 12% (in the last 3 years)
❌ Low Net Margin: 8%
❌ Low 3-Year Average Net Margin: 5%
✅ Net Margin is Increasing: 5% → 8% (in the last 3 years)
🟨 Positive ROE: 17%
🟨 Positive 3-Year Average ROE: 10%
✅ ROE is Increasing: 6% → 17% (in the last 3 years)
✅ Exceptional ROIC: 26%
🟨 Positive 3-Year Average ROIC: 14%
✅ ROIC is Increasing: 9% → 26% (in the last 3 years)

Solvency (9 of 10):

✅ High Interest Coverage: 17.73 (earns more than enough operating income to safely cover interest payments on its debt)
✅ Short-Term Solvency: short-term assets (2B CHF) exceed its short-term liabilities (686m CHF)
✅ Long-Term Solvency: long-term assets (3B CHF) exceed its long-term liabilities (1B CHF)
✅ Negative Net Debt: –470.8m CHF (holds more cash than total debt)
✅ Low Debt-to-Equity Ratio: 0.31 (limited reliance on debt financing)
✅ High Altman Z-Score: 9.27 (well above the distress threshold, indicating very low bankruptcy risk)

Investment Thesis

On Holding presents an attractive long-term entry point as the stock trades below its three-year average valuation and near my fair price estimate, offering a margin of safety for a premium growth business. At the same time, the PEG ratio of 1.18 indicates that the current valuation remains reasonable relative to expected earnings growth.

The company’s growth outlook remains strong, supported by continued geographic expansion, especially in Asia-Pacific, where revenue growth exceeded 90% year-over-year in recent quarters. This region is still at an early stage of market maturity for On, suggesting a long runway for brand penetration and repeat purchases. Expansion in Asia-Pacific also reduces reliance on more mature Western markets.

On’s gross margin above 60%, the highest among its main competitors, reflects premium positioning, pricing power, and strong brand equity. Improving operating efficiency is further visible in the rising return on invested capital, which increased materially over the past three years. This combination shows that growth is becoming more profitable rather than more capital-intensive.

The business is also becoming more diversified. While footwear remains the core, apparel is now a fast-growing category, increasing customer lifetime value and reducing dependence on a single product line. At the same time, management follows a conservative and disciplined capital allocation strategy, supported by a strong cash position and limited debt, which lowers financial risk.

Finally, On’s brand credibility is strengthened by elite athletic success and high-profile partnerships, while analyst expectations point to strong EPS growth in FY2026 and FY2027.

Taken together, the combination of attractive valuation, expanding global presence, improving returns, and disciplined execution supports a compelling long-term investment case.

This is not a financial or investing recommendation. It is solely for educational purposes.

Koyfin was used for charts in this analysis. Use this URL to get a special pricing offer of 20% off all Koyfin plans.

Content:

• Big Money Is Made Late, Not Early
• Li Lu On Risk Management
• The Fed Adds Liquidity
• 2026 Could Bring The Biggest AI IPOs Ever
• Markets Hit 20-Year Valuation Peaks
• The Shrinking American Home Problem
• Waymo’s Self-Driving Cars Are Safer
• TSMC Wins The AI Race No Matter What
• Google’s 70/20/10 Rule
• Buffett Sells Stocks For 12 Consecutive Quarters

Big Money Is Made Late, Not Early

Most value in successful tech companies is created very late. The image shows that only about 4% of the total value is created in the first 10 years, while around 96% comes after year 10. This means the real growth phase often starts when a company is already mature, has scale, and a proven business model.

This highlights the power of patience. Many great companies like Google, Amazon, and Netflix created most of their market value well after their early years. Selling too early can mean missing the biggest part of value creation.

Li Lu On Risk Management

Super-Investor Li Lu on risk management:

"Our primary frontier of risk management isn't wide diversification ... but the quality of the individual businesses, their balance sheets and the people who run them."

The Fed Adds Liquidity

The chart shows a sharp spike in overnight repo operations at the end of 2025, with the Federal Reserve adding about $16 billion of short-term liquidity to the U.S. banking system. Overnight repos are used when banks need quick cash, often because funding conditions become tight. A move of this size suggests short-term stress in money markets, even if the broader system still looks stable.

This is a signal to stay alert. Liquidity support does not always mean a crisis, but it often appears when risks are rising under the surface. Periods like this usually increase market volatility and push investors to focus more on balance sheet strength and cash flow quality.

2026 Could Bring The Biggest AI IPOs Ever

AI companies going public are now much bigger than before. The median revenue at IPO has jumped from $381 million (2018-2019) to $878 million (2024-2025). This is more than double in just a few years.

This means AI companies are staying private longer and growing much larger before their IPO.

Many big names are getting ready to go public soon. Companies like OpenAI and Anthropic have over $1 billion in revenue. Others like Perplexity, Synthesia, and Clay are growing fast with $100-200 million in revenue.

These companies are more mature and proven when they go public compared to earlier tech IPOs. However, valuations might already be high by the time regular investors can buy shares.

Markets Hit 20-Year Valuation Peaks

Stock valuations around the world are now at their highest levels in 20 years. The U.S. market leads with a P/E ratio of 22.3, which is the top of its historical range. The U.S. ex. Big Tech stocks are at 20.2.

Most major markets are trading above their median valuations. Europe stands at 14.6, Japan at 16.6, and emerging markets at 13.4. Even China, at 12.3, is within the middle of its 20-year range.

This means stocks are expensive. When valuations are high, future returns are usually lower. Investors are paying more for each dollar of company earnings than they did in the past.

However, high valuations don’t mean markets will crash immediately. They can stay expensive for years, especially if companies keep growing their earnings.

The Shrinking American Home Problem

New American homes are getting smaller. The median size of single-family homes peaked at 2,500 square feet in 2015. Since then, it has dropped to around 2,150 square feet in 2025 – a decline of 350 square feet or 14%.

This trend signals important economic concerns. Smaller homes mean less spending on construction materials, furniture, appliances, and home improvements. The housing sector is a major driver of economic growth, so when homes shrink, it creates a ripple effect across many industries.

Why are homes getting smaller? High construction costs, expensive land, and affordability issues are forcing builders to cut back on size. Young buyers can’t afford larger homes anymore, even though they might want them.

For the economy, this is not good news. It means less economic activity in construction, retail, and manufacturing. Companies that sell building materials, furniture, and home goods may see slower growth. It also shows that American living standards are under pressure.

Waymo's Self-Driving Cars Are Safer

Waymo's autonomous vehicles are dramatically safer than human drivers. The data shows a clear advantage across all crash categories.

For serious injuries or worse, Waymo has only 0.02 crashes per million miles compared to 0.23 for human drivers. That’s more than 11 times safer. Airbag deployments are also much lower – 0.35 for Waymo versus 1.65 for humans, which is nearly 5 times better.

Even for any type of injury, Waymo records just 0.80 crashes per million miles, while human drivers have 3.96. This means self-driving cars are almost 5 times safer overall.

It shows autonomous driving technology is ready for real-world use. As more companies prove their self-driving systems work safely, we could see rapid adoption in ride-sharing, delivery services, and trucking.

The autonomous vehicle market is expected to grow massively in the coming years. Companies developing this technology and those benefiting from it could see strong growth.

Stocks and ETFs to watch: GOOGL (Alphabet/Waymo parent company) - leader in autonomous driving, TSLA (Tesla) - developing Full Self-Driving technology, UBER (Uber) - partnering with autonomous vehicle companies, NVDA (NVIDIA) - provides AI chips for self-driving systems, MBLY (Mobileye) - autonomous driving technology, LIDR (AEye) - lidar sensors for autonomous vehicles, KRNT (Kornit Digital) - autonomous vehicle components, DRIV (Global X Autonomous & Electric Vehicles ETF), IDRV (iShares Self-Driving EV and Tech ETF).

TSMC Wins The AI Race No Matter What

The battle for AI dominance is heating up between Google's Gemini, open-source models, OpenAI, and companies like Grok and Anthropic. But no matter who wins the AI race, there's one clear winner: TSMC, the world's leading chip manufacturer.

Every major AI player depends on advanced chips. Google uses its own TPUs made by TSMC. NVIDIA dominates with its GPUs for training and inference, all manufactured by TSMC. Broadcom designs custom chips for AI companies – also made by TSMC. Even AMD's alternative GPUs come from TSMC.

This means TSMC is the "universal foundation" for all AI development. Whether OpenAI, Google, Meta, or Anthropic wins, they all need TSMC to make their chips. TSMC makes nearly all advanced AI chips in the world.

This is crucial. While AI companies compete against each other, TSMC benefits from all of them. As AI spending grows, TSMC’s business grows regardless of which AI model becomes most popular.

Stocks and ETFs to watch: TSM (TSMC) - the ultimate AI infrastructure winner, NVDA (NVIDIA) - leading AI chip designer, AVGO (Broadcom) - custom AI chip design, AMD (Advanced Micro Devices) - NVIDIA alternative, GOOGL (Alphabet) - AI and custom TPU chips, ASML (ASML Holding) - makes machines that make TSMC's chips, KLAC (KLA Corporation) - semiconductor equipment, SMH (VanEck Semiconductor ETF), SOXX (iShares Semiconductor ETF).

Google's 70/20/10 Rule

Google follows a simple but powerful strategy called the 70/20/10 rule, created by co-founder Sergey Brin. The company spends 70% of its resources on its core business, 20% on adjacent opportunities, and 10% on wild bets.

This strategy is working incredibly well. Google's total revenue has grown from $256 billion in Q4 2021 to nearly $390 billion in Q3 2025. That's 52% growth in less than four years, with year-over-year growth of 13.54% and two-year growth of 14.05%.

Google Search remains the dominant revenue driver (the 70%), bringing in over $200 billion annually. YouTube Ads and the Google Network provide strong adjacent growth (the 20%). Meanwhile, Google Cloud is exploding as a new revenue source, and subscriptions are growing fast.

The 10% “wild bets” like Android and Waymo (self-driving cars) have become massive businesses. Android now powers billions of devices worldwide, and Waymo is leading the autonomous vehicle race.

This shows why Google (Alphabet) is such a strong company. The core business funds innovation, which creates the next generation of products. This cycle keeps repeating.

Buffett Sells Stocks For 12 Consecutive Quarters

Warren Buffett's Berkshire Hathaway has been selling stocks for 12 consecutive quarters – the longest selling streak in the company's history.

Analyst’s Note:

Since Warren Buffett is no longer the CEO of Berkshire Hathaway, I still use his name here, since it was still his decision.

In early 2022, Berkshire was buying over $40 billion worth of stocks per quarter. But since mid-2022, the company has been a net seller every quarter. In Q4 2024, Berkshire sold a massive $75 billion in stocks – the biggest quarterly sale ever.

Throughout 2023, 2024, and into 2025, Buffett has been steadily reducing his stock positions. Berkshire now holds a record $325 billion in cash and short-term Treasury bills. This is the largest cash pile in the company's history.

What does this mean? Buffett typically sells when he thinks valuations are too high and buys when there’s a market crash or good opportunities. His selling streak suggests he’s waiting for better prices or preparing for a market downturn.

This is not a financial or investing recommendation. It is solely for educational purposes.

Koyfin was used for charts in this analysis. Use this URL to get a special pricing offer of 20% off all Koyfin plans.

Content:

• Company Overview
• Open Internet
• Market Overview
• Economic Moat
• Business Strategy
• Capital Allocation
• Advantages
• Disadvantages
• Competitors
• Past
• Future
• Current Valuation
• Fair Price
• Checklist
• Due Diligence
• Investment Thesis

Company Overview

IPO Date: Sep 21, 2016
Market Cap: ~$18.43B
Sector: Communication Services
Industry: Media
Type: Mid Growth
Total Number of Employees: ~3,500
Next earnings report: Feb 18, 2026 (estimated, after-market)
Total Debt: $376M
Cash & Investments: $1.45B
Beta: 1.07
Website: www.thetradedesk.com

The Trade Desk (TTD) is a global demand-side platform that allows advertisers and agencies to buy digital advertising across the open internet (see the next section). The platform covers display, video, audio, mobile, and connected TV, and it does not own or sell advertising inventory. This structure allows the company to focus only on advertiser performance and transparency. Revenue is generated through a take rate on advertising spend, which has averaged close to 20% over the past five years.

In FY 2024, the company generated revenue of approximately $2.45 billion, supported by gross advertising spend of around $12 billion flowing through the platform. Adjusted EBITDA exceeded $1.0 billion, reflecting strong operating leverage as the business scaled. The most recent numbers (third quarter 2025) are below.

The Trade Desk has been profitable since 2013 and operates with more than 3,500 employees across over 35 offices worldwide. Connected TV has become the largest channel on the platform, driven by advertisers shifting budgets away from linear television.

The client base consists mainly of large global brands and major advertising agencies that manage campaigns across multiple channels and regions.

TTD also works with a broad network of third-party partners, including publishers, data providers, and measurement companies. These partnerships expand inventory access and data quality while keeping the platform open and interoperable.

The revenue is well diversified across many advertisers and agencies, with no single client representing a material share of total revenue or spend. This reduces dependency risk and makes revenue more stable across economic cycles.

The company was founded by Jeff Green, who continues to act as its CEO. Green plays an active role in strategy and product direction and consistently promotes the importance of the open internet (see the next section). His long-term focus has formed a company culture centered on trust, independence, and sustainable growth rather than short-term optimization.

Open Internet

It refers to digital advertising inventory that exists outside large closed ecosystems controlled by a single platform. This includes independent websites, mobile apps, and many connected TV streaming services where no single company owns both the media inventory and the advertising technology stack.

In this environment, advertisers rely on independent demand-side platforms to access inventory, manage data, and measure performance across channels. The Trade Desk positions itself as a core infrastructure provider for this open internet, allowing advertisers to buy media transparently without being locked into a single ecosystem’s data or pricing rules.

Market Overview

According to industry forecasts, global advertising spend is projected to reach approximately $1.16 trillion in 2025, with digital channels accounting for roughly 74% of total ad spend, confirming the shift toward digital formats.

Within digital spend, programmatic advertising is now the dominant buying method, capturing a substantial portion of digital budgets. Estimates indicate that programmatic ad spending will reach around $716 billion in 2025, representing more than 80% of global digital ad spend and continuing to grow as advertisers prioritize automation, audience targeting, and real-time optimization.

Retail media, social ads, and streaming video formats are among the fastest-growing segments within digital advertising.

As connected TV consumption rises and first-party data becomes more valuable, advertisers are allocating more budget toward channels and platforms that offer measurable, performance-focused outcomes. 91.7% of online adults consume streaming TV content each month, and 94.6% watched some kind of online video in the past 30 days. More importantly, streaming services now account for 50.4% of internet users’ total TV watch time, surpassing traditional broadcast and cable.

Online adults spend an average of 18 hours and 36 minutes per week using social media, which translates to the world spending roughly 620 million years consuming content on social platforms annually.

According to a recent market report, the programmatic advertising sector is expected to grow at a 14.37% CAGR from 2025 through 2034, driven by rising adoption of automated digital advertising, machine learning, and data-driven marketing strategies across industries.

This growth reflects strong demand for precision targeting, real-time bidding technologies, and the ongoing shift of advertising budgets away from traditional channels toward automated programmatic platforms.

Economic Moat

The Trade Desk has a narrow economic moat based on intangible assets and switching costs.

The company’s main intangible asset is its proprietary technology, which processes large volumes of historical bidding, pricing, and performance data. These algorithms allow advertisers to determine the value of impressions in real time, using systems similar to financial trading models. Performance improves as more campaigns and data flow through the platform.

Switching costs. Advertisers and agencies integrate The Trade Desk deeply into their campaign planning, execution, and measurement processes. Replacing the platform would require rebuilding internal workflows and often accepting less transparency or control. This dynamic has supported customer retention above 95% for more than a decade.

Worth noting the company’s neutral position. Because it does not own inventory or media properties, incentives remain aligned with clients. This neutrality strengthens long-term trust and makes the platform difficult to replace at scale, especially for global advertisers.

Business Strategy

The Trade Desk aims to position itself as the core infrastructure for digital advertising across the open internet. A central element of this strategy is Kokai, its AI-driven operating system. Kokai improves bidding efficiency, forecasting, and optimization by analyzing large data sets across channels. After early usability issues, adoption improved, and most existing clients now use the system.

Another strategic focus is OpenPath, which connects advertisers directly with publishers. This reduces reliance on intermediaries and improves supply chain transparency. Over time, wider adoption could support stronger margins while keeping pricing fair for both sides of the market.

Unified ID 2.0 is another long-term initiative. This open-source identity framework is designed to operate without third-party cookies and relies on consent-based identifiers. Management views this as critical in a privacy-focused environment. International markets and connected TV remain priority growth areas, supported by expectations that global advertising spending could approach $1.5 trillion by 2034.

Capital Allocation

The company operates with low debt and maintains a strong cash position. This conservative financial structure reduces risk during advertising downturns and supports continued investment in technology and partnerships.

Analyst’s Note:

Total liabilities are much higher than total debt because most obligations are operational, such as payables, accrued expenses, deferred revenue, and lease liabilities, rather than interest-bearing borrowings. Actual financial debt remains limited and is well covered by cash and operating cash flow.

Capital returns focus on share repurchases rather than dividends. A $1 billion buyback authorization was approved, and repurchase activity increased (an additional $500 million share repurchase authorization) after the stock price decline in 2025. Management treats buybacks as flexible tools rather than fixed commitments.

Acquisitions remain small and strategic. Past transactions focused on data and identity capabilities rather than revenue expansion. These deals were completed at reasonable valuations and did not materially increase goodwill, reflecting disciplined capital deployment.

Advantages

Platform independence. The Trade Desk does not sell its own advertising inventory, which allows it to optimize campaigns purely based on client objectives. This creates trust with agencies and global advertisers that value transparency.

Operating leverage. In 2024, revenue grew by more than 30% year-over-year while adjusted EBITDA margins stayed high. This shows that incremental growth converts efficiently into profitability.

Leadership in connected TV. This channel has become the largest contributor to advertising spend on the platform. Advertisers benefit from programmatic access and improved measurement compared to traditional television.

Analyst’s Note:

YouTube is part of Google’s closed ecosystem. It is a massive video property, but it is NOT considered “open internet” inventory.

Proprietary data and technology. Years of bidding and performance history feed machine-learning models that continuously improve results. New competitors cannot easily replicate this data depth.

Client retention. Retention above 95% for over ten years reflects deep integration and satisfaction. This stability supports predictable long-term growth.

Disadvantages

Exposure to economic cycles. Advertising budgets often decline during economic slowdowns, which can reduce spending on the platform. Revenue growth can therefore fluctuate sharply.

Intense competition from large technology firms. These companies can subsidize advertising products using profits from other business lines. This creates long-term pricing pressure.

Execution risk. Expanding into infrastructure solutions like OpenPath and identity frameworks increases complexity. Slow adoption could delay expected benefits.

Dependence on agencies. While relationships are strong, agencies ultimately control budget allocation. Strategic changes at agencies could impact spend levels.

Regulatory and privacy developments. Even with Unified ID 2.0, changes in regulation could affect targeting and measurement approaches across the industry.

Competitors

Google (GOOGL) is the strongest competitor. It operates across the full advertising stack, including buying tools, exchanges, and owned media such as Search and YouTube. This vertical integration allows Google to favor its own inventory, reducing neutrality compared to The Trade Desk.

Amazon (AMZN) competes through its retail-focused advertising platform. Its strength comes from direct access to shopping and transaction data. This makes Amazon attractive for advertisers focused on commerce outcomes.

Microsoft (MSFT) competes by combining advertising tools with enterprise software and cloud services. Its advertising business benefits from integration with data and productivity platforms, though scale remains smaller.

Adobe (ADBE) competes by embedding advertising and analytics within a broader marketing software suite. This approach appeals to large enterprises but lacks an independent media buying scale.

Worth noting, none match The Trade Desk’s clear focus on the open internet.

Past

The CAGR rate for the stock over 3, 5, 10, and 15-year time periods is shown above. The stock overperforms the S&P 500 only on longer time periods (10Y and 15Y), and underperforms on 3Y and 5Y periods.

Below are some significant recent events.

• AI-Driven Platform Innovation: TTD continued to build out its AI-powered Kokai platform and related features like Audience Unlimited, enhancing advertisers’ ability to optimize campaigns using data and machine learning.

• Privacy & Identity Initiatives (UID2): The Trade Desk continued supporting Unified ID 2.0 (UID2) as a privacy-centric identity framework to help advertisers target and measure audiences without third-party cookies.

• Connected TV (CTV) Momentum: The Trade Desk’s platform saw continued strength in connected TV demand, with further integrations and partnerships expanding access to premium inventory globally.

• Share Repurchases & Capital Allocation: TTD announced a $500M share repurchase authorization and used a portion of cash for buybacks during 2025, underscoring capital-return discipline.

• Customer Retention: The company maintained high customer retention (above 95%), as it has for the past 11 consecutive years.

• Added to the S&P 500 Index: The Trade Desk was officially added to the S&P 500 index on July 18, 2025, replacing Ansys Inc. in the benchmark.

Future

Below is the 3-year forecast for future sales and EPS growth, which is projected to be around 16.6% and 14.2%, respectively.

Based on 1-year price targets offered by other analysts, the average price target for TTD comes to $62. The average price target represents an increase of 62%.

Current Valuation

The Trade Desk’s valuation ratios indicate that the stock trades at lower levels compared to its 5-year history across all ratios.

The company’s price-to-earnings ratio on a trailing basis is 43.3x, which is below the 5-year average of 191.3x. On a forward basis, the price-to-earnings ratio is 19.4x, also below its historical mean of 68.4x. The forward price-to-sales ratio is 5.8x, below its mean of 18.9x.

Looking at cash generation, TTD trades at 26.9x times free cash flow, which is below its 5-year mean of 83x. The price-to-book ratio is 7.1x, also below its historical mean of 20.2x. The PEG ratio is only 0.98, which is significantly below its 5-year historical level (9.17x).

Below is a comparison with the communication services sector (XLC) in a 5-year timeframe. TTD trades above the sector averages, except for the PEG ratio.

Fair Price

The Long-Term Pick’s Fair Price (Base Case) for TTD is $56.55. The current price of $38.31 is lower by 32.26%.

• Fair-to-Current Price (%): 32.26%

• Current Price/Fair Price: 0.68

I used:

• Discount Rate: 12%

• Margin of Safety: 30%

• Years: 5

• Future EPS Growth Rate: 17.5%

• Future Dividend Yield: 0%

• Total Future Annual Growth Rate: 17.5 + 0 = 17.5%

As the exit Price/Earnings ratio for the Base Case, I used 25. For the Bear Case, I subtracted 5 from the Base Case (the value is close to the current Price/Forward Earnings ratio).

Checklist

Profitability:

✅ Gross margin at least 40%: 78.8%
✅ Net margin at least 10%: 15.7%
✅ FCF margin at least 10%: 24.3%
🟨 Management (ROIC, ROCE, ROE, ROA): Yes (All above 10%, except ROA)
🟨 Piotroski F-Score: 5 of 9 (Not passed: Lower Leverage yoy, Higher Current Ratio yoy, Higher Gross Margin yoy, and Higher Asset Turnover yoy)
🟨 EPS surprises in the last 5 years: No (Missed in 2022; Based on TradingView’s data)
✅ EPS growth YoY 5 years in a row: Yes (Based on TradingView’s data)

Valuation and Advantage:

✅ Valuation below its 5-year averages: Yes
❌ Valuation below the sector: No
✅ Does it have a moat: Yes (narrow)
❌ Outperformed the S&P 500 CAGR: No (3 and 5-year didn’t)

Shares:

✅ Insider ownership at least 5%: Yes (9.54%)
✅ Less shares outstanding YoY: Yes
❌ Insider buys last six months: No

Price:

✅ 1-year stock price forecast is above 10%: +62%
✅ Next 3-year EPS growth estimates (CAGR) is above 10%: Yes (14.2%)
❌ DCF Value: $35.4; Overvalued by 8% (5 years, discount rate: 10%, terminal growth: 3%, model: FCFF)

Due Diligence

Profitability (7 of 10):

✅ Exceptional Gross Margin: 79%
✅ Strong 3-Year Average Gross Margin: 81%
❌ Declining Gross Margin: 82% → 79% (in the last 3 years)
🟨 Healthy Operating Margin: 19%
🟨 Sustainable 3-Year Average Operating Margin: 12%
✅ Operating Margin is Increasing: -1% → 19% (in the last 3 years)
🟨 Sustainable 3-Year Average Net Margin: 10%
🟨 Healthy Net Margin: 16%
✅ Net Margin is Increasing: -1% → 16% (in the last 3 years)
🟨 Positive ROE: 17%
🟨 Positive 3-Year Average ROE: 10%
✅ ROE is Increasing: -1% → 17% (in the last 3 years)
🟨 Positive ROIC: 25%
🟨 Positive 3-Year Average ROIC: 15%
✅ ROIC is Increasing: -1% → 25% (in the last 3 years)

Solvency (9.5 of 10):

✅ High Interest Coverage: 433.23 (earns more than enough operating income (427m USD) to safely cover interest payments on its debt (986k USD))
✅ Short-Term Solvency: short-term assets (5B USD) exceed its short-term liabilities (3B USD)
✅ Long-Term Solvency: long-term assets (6B USD) exceed its long-term liabilities (3B USD)
✅ Low Debt-to-Equity Ratio: 0.15 (very limited reliance on debt financing)
✅ High Altman Z-Score: 5.08 (above the distress threshold, indicating very low bankruptcy risk)

Investment Thesis

The Trade Desk offers an attractive long-term entry point as the stock trades below its five-year average valuation and below my fair value estimate. This discount provides a margin of safety for a business with strong fundamentals and continued revenue and cash flow growth. At the same time, the PEG ratio of 0.98 suggests the valuation is reasonable relative to expected growth.

The company is a clear core leader in digital advertising on the open internet, supported by a narrow economic moat built on scale, high switching costs, and strong global client relationships. Its independent position differentiates it from closed ecosystems and aligns well with advertisers seeking transparency and control.

Long-term growth is supported by a strong global presence, expanding digital advertising budgets, and key initiatives such as Unified ID 2.0 and OpenPath, which address privacy and supply-chain efficiency. With disciplined capital allocation and potential future buybacks, TTD presents a compelling long-term investment opportunity despite near-term advertising cyclicality.

This is not a financial or investing recommendation. It is solely for educational purposes.

Koyfin was used for charts in this analysis. Use this URL to get a special pricing offer of 20% off all Koyfin plans.

Content:

• Company Overview
• Market Overview
• Economic Moat
• Business Strategy
• Capital Allocation
• Advantages
• Disadvantages
• Competitors
• Past
• Future
• Current Valuation
• Fair Price
• Checklist
• Due Diligence
• Investment Thesis

Company Overview

IPO Date: Jul 27, 2018
Market Cap: ~$1.76B
Sector: Communication Services
Industry: Internet Content & Information
Type: Mid-Cap Core
Total Number of Employees: ~650
Next earnings report: October 30, 2025 (estimated)
Total Debt: $9.73M
Cash & Investments: $133.82M
Beta: 0.96
Website: www.opera.com

Opera Limited (OPRA) is a global software and internet company that focuses on delivering browsers and AI-driven products to millions of users. Founded in 1995 in Oslo, Norway, Opera is publicly traded on Nasdaq under the ticker symbol OPRA. The company has expanded its reach through a broad portfolio of browsers, each designed for specific user groups. Opera One serves as the flagship product, Opera GX is built for gamers, Opera Mini is designed for low-data consumption, and Opera Neon brings new agentic browsing features. Opera also provides versions for both iOS and Android devices, ensuring presence across platforms.

By the second quarter of 2025, Opera had 289 million monthly active users. Of these, 83 million were desktop users and 206 million were mobile users. In Western markets alone, the company served 58 million monthly users. This wide base represents about 7% of global internet users outside of China.

The company is managed by Co-CEOs Yahui Zhou, who has been in the role for 9 years, and Lin Song, who has been with Opera for 23 years. Opera also has a geographic presence across Europe, with offices in countries such as France, Germany, Norway, Poland, Spain, Sweden, and the UK.

Market Overview

To Read: Web Browser Statistics 2025: Market Share, User Preferences, and Future Outlook

According to Global Growth Insights, the global browser software market size was $5.85B in 2024 and is projected to touch $6.23B in 2025, reaching $9.96B by 2034. This is about a CAGR of 6.05% during the forecast period from 2025 to 2034. With over 34% market activity transitioning to mobile environments.

Another source (Data Insights Market) gives a similar number: about $5.11B in 2025, with a CAGR of 4.8% from 2025 to 2033.

According to StatCounter, Chrome dominates the market with 69.23% of market share, and Opera has 1.85% of market share.

Market share held by leading mobile internet browsers worldwide from January 2014 to March 2025:

Economic Moat

Opera’s narrow moat is built on its long history of innovation, brand strength, and deep partnerships. The company is recognized for introducing first-to-market features that later became industry standards.

It was the first to launch tabs in 1996, built-in search in 2000, mobile browsing in 2002, synchronization between PC and mobile in 2006, built-in ad blocker in 2015, VPN in 2016, and the world’s first gaming browser in 2019. More recent milestones include the integration of ChatGPT in 2023, local large language models in 2024, and the announcement of Opera Neon in 2025.

Brand awareness is another important part of its moat. Surveys show Opera has 44% recognition in the United States, 60% in the UK, 71% in Germany, and 84% in Brazil. These figures reflect Opera’s ability to position itself as a recognized alternative to mainstream browsers.

Finally, Opera benefits from long-term business relationships. Its partnership with Google for search monetization has lasted for more than 20 years. This provides a steady flow of revenue while Opera differentiates itself through niche products such as GX and innovative features like the Aria AI engine.

Business Strategy

Opera’s business strategy focuses on profitable growth while expanding its ecosystem of products. In Q2 2025, advertising generated 65% of revenue, while search accounted for 35%. Advertising revenue grew by 44% year-over-year, supported by demand from e-commerce partners, while search revenue grew by 11%.

A key strategic goal is to increase revenue per user. Opera’s annualized ARPU reached $1.97 in Q2 2025, up 35% from the year before. This growth is the result of Opera’s focus on high-value regions. In Western markets, the user base has grown to 58 million, with higher ARPU compared to emerging regions. Opera GX has 33 million users and the highest ARPU among all Opera products.

Opera is also expanding into new services. MiniPay, its non-custodial stablecoin wallet, became one of the fastest-growing digital wallets globally. It surpassed 9 million activated wallets and processed more than 250 million transactions, with a 255% activation surge in Q2 2025. Opera is also strengthening premium services. In 2025, VPN Pro was upgraded with faster speeds, better security, and more global locations. These moves show Opera’s ambition to move beyond browsing into financial services and security products.

Capital Allocation

Opera has consistently returned capital to shareholders while maintaining a strong balance sheet.

Since 2020, the company has returned about $477 million to investors. This includes $228 million spent to repurchase 35.5 million ADS shares, equal to 30% of shares outstanding at the start of 2020.

The company has also paid dividends. In January 2023, Opera distributed a special dividend of $0.80 per ADS, equal to $71 million. Later that year, it started a recurring dividend program of $0.80 per ADS per year, paid semi-annually. By mid-2025, this program had distributed $178 million.

Opera maintains liquidity to continue these shareholder returns. At the end of June 2025, Opera held $392 million in cash and investments. This included $133.8 million in cash and a 9.4% stake in OPay valued at $258.3 million. Such capital strength allows Opera to balance dividends, buybacks, and investments in new products.

Advantages

Consistency in growth metrics. Opera has delivered 17 consecutive quarters above the “Rule of 40.” In Q2 2025, the combination of revenue growth and EBITDA margin was 53%. This consistency shows Opera can scale while staying profitable.

The Rule of 40 is a benchmark for Software-as-a-Service (SaaS) companies, stating that a company's combined revenue growth rate and profit margin should be 40% or higher to indicate strong financial health and long-term sustainability.

Revenue expansion. Revenue increased 30% year-over-year in Q2 2025. The strong rise was driven by advertising growth of 44%, which outpaced most industry averages. This performance supports Opera’s raised full-year guidance.

Focus on high-value users. Opera’s ARPU reached $1.97 in Q2 2025, reflecting a 35% year-over-year rise. By targeting Western markets, which reached 58 million MAUs, Opera maximizes revenue efficiency rather than relying only on scale.

Leadership in niche segments. Opera GX serves 33 million gamers, around 8% penetration of its addressable market. This focus builds loyalty in a valuable segment that larger competitors do not prioritize.

Innovative ecosystem. Opera invests in features like MiniPay and VPN Pro. MiniPay surged 255% in activations during Q2 2025, making it one of the fastest-growing wallets worldwide. VPN Pro improvements show Opera’s push to monetize security-conscious users.

Disadvantages

Decline in net income. Net income fell to $15.7 million in Q2 2025 from $19.3 million a year earlier. This shows that even with strong revenue growth, profitability at the bottom line has weakened.

Higher operating expenses. Operating costs rose by 40% year-over-year, reaching $124.9 million. The faster rise in expenses compared to revenue pressures Opera’s margins.

Rising share-based compensation. Compensation costs have significantly increased in recent years.

Increased marketing spend. Marketing and selling expenses rose. While necessary to grow user numbers, these costs reduce operating efficiency if growth slows.

Lower operating margin. Operating profit dropped to $18.1 million with a margin of 13%, down from 20% in Q2 2024. This decline reflects that Opera is spending heavily to maintain growth momentum.

Competitors

Google Chrome. Chrome dominates the global market share with pre-installation on Android devices and integration with Google services. Opera, with its 7% global user share outside China, competes by offering built-in VPN, ad blocker, and AI assistants, features not present in Chrome.

Apple Safari. Safari benefits from being the default browser on iPhones and Macs. Opera does not have that advantage, but it is available across all devices, including Android. Unlike Safari, Opera invests in gamer-specific and AI-driven features, giving it unique differentiation.

Microsoft Edge. Edge is the default on Windows and ties directly into Microsoft’s ecosystem. Opera builds loyalty instead through product design and integrated AI. Features like Aria, MiniPay, and Opera Neon provide differentiation that Edge does not emphasize.

Mozilla Firefox. Firefox attracts users who value privacy and open-source development. Opera also emphasizes privacy with VPN and ad-blocking, but combines it with mainstream AI features. This allows Opera to appeal to both privacy-conscious and innovation-seeking users.

Past

The CAGR rate for the stock over 3 and 5-year time periods is shown above. The stock overperforms the S&P 500. But please note that the company went public “only” in 2018.

Below are some significant recent events.

• Opera Neon Browser Announced: In May 2025, Opera introduced Opera Neon, a new agentic browser with a fully integrated AI agent. It combines advanced reasoning and summarization with user context, aiming to redefine productivity and browsing experience.

• MiniPay Wallet Surge: MiniPay, Opera’s non-custodial stablecoin wallet, surpassed 9 million activated wallets and processed over 250 million transactions. It recorded a 255% surge in activations in Q2 2025, making it one of the fastest-growing wallets globally.

• VPN Pro Upgrade: In 2025, Opera revamped VPN Pro, offering faster connection speeds, stronger privacy features, and expanded coverage with more global server locations.

• Strong Advertising Momentum: Advertising revenue grew 44% year-over-year in Q2 2025, reaching $92.9 million. E-commerce partners remained the fastest-growing vertical.

• Dividend Distribution: In June 2025, Opera announced and later paid a recurring semi-annual dividend of $0.40 per share in July, continuing its shareholder return program.

• User Growth: Opera reached 289 million average monthly active users in Q2 2025. Opera GX, the gaming-focused browser, reached 33 million users, up 11% year-over-year.

• Capital Strength: At the end of Q2 2025, Opera held a 9.4% stake in OPay valued at $258.3 million.

Future

Below is the 3-year forecast for future sales and EPS growth, which is projected to be around 17.58% and more than 26.30%, respectively.

Based on 1-year price targets offered by other analysts, the average price target for Opera comes to $25.50. The average price target represents an increase of more than 29%.

Current Valuation

Opera’s valuation ratios indicate that the stock is trading at reasonable levels compared with its 5-year history. Overall, the company is valued modestly relative to both its earnings growth and historical averages, suggesting that the stock offers investors a balanced entry point.

The company’s price-to-earnings ratio on a trailing basis is 21.9, which is below the 5-year average of 25.9. On a forward basis, the P/E ratio is 14.5, also below its historical mean of 17.6. The price-to-sales ratio is 2.8, below its mean of 3.1.

Looking at cash generation, Opera trades at 17.1 times free cash flow, which is under its 5-year mean of 22.0. The price-to-book ratio is 1.8, slightly above its historical mean of 1.2.

Finally, the PEG ratio stands at 0.93, a level under 1.0, which implies that Opera’s expected growth is not yet fully reflected in the share price.

Below is a comparison with the communication services sector (XLC) in a 5-year timeframe. OPRA trades below the sector averages in terms of all the ratios.

Fair Price

The Long-Term Pick's Fair Price (Base Case) for OPRA is $33.32. The current price of $19.29 is lower by 42%.

• Fair-to-Current Price (%): 42%

• Current Price/Fair Price: 0.58

I used:

• Discount Rate: 12%

• Margin of Safety: 30%

• Years: 5

• Future EPS Growth Rate: 19%

• Future Dividend Yield: 2%

• Total Future Annual Growth Rate: 19 + 2 = 21% (but my maximum is 20%)

As the exit Price/Earnings ratio for the Base Case, I used 20, which is still lower than the 5-year mean value (25.9). For the Bear Case, I subtracted 3 from the Base Case.

Checklist

Profitability:

✅ Gross margin at least 40%: 67.2%
✅ Net margin at least 10%: 14.5%
✅ FCF margin at least 10%: 18.5%
❌ Management (ROIC, ROCE, ROE, ROA): No (All below 10%)
🟨 Piotroski F-Score: 5 of 9 (Not passed: Higher ROA yoy, Higher Current Ratio yoy, Less Shares Outstanding yoy, and Higher Gross Margin yoy)
❌ EPS surprises in last 5 years: No (Based on TradingView's data)
❌ EPS growth YoY 5 years in a row: No (Based on TradingView's data)

Valuation and Advantage:

✅ Valuation below its 5-year averages: Yes
✅ Valuation below the sector: Yes
✅ Does it have a moat: Yes (narrow)
✅ Outperformed the S&P 500 CAGR: Yes (3 and 5-year CAGR)

Shares:

✅ Insider ownership at least 5%: Yes (7.52%)
❌ Less shares outstanding YoY: No
❌ Insider buys last six months: No

Price:

✅ 1-year stock price forecast is above 10%: +32.50%
✅ Next 3-year EPS growth estimates (CAGR) is above 10%: Yes (26.30%)
✅ DCF Value: $26.60; Undervalued by 28% (5 years, discount rate: 10%, terminal growth: 3%, model: Net Income)

Due Diligence

Profitability (6 of 10):

✅ Exceptional Gross Margin: 67%
✅ Strong 3-Year Average Gross Margin: 78%
❌ Declining Gross Margin: 90% → 67% (in the last 3 years)
🟨 Healthy Operating Margin: 16%
🟨 Sustainable 3-Year Average Operating Margin: 16%
✅ Operating Margin is Increasing: 8% → 16% (in the last 3 years)
🟨 Sustainable 3-Year Average Net Margin: 13%
🟨 Healthy Net Margin: 15%
✅ Net Margin is Increasing: -36% → 15% (in the last 3 years)
❌ Low ROE: 9%
❌ Low 3-Year Average ROE: 7%
✅ ROE is Increasing: -10% → 9% (in the last 3 years)
❌ Low ROIC: 9%
❌ Low 3-Year Average ROIC: 7%
✅ ROIC is Increasing: 3% → 9% (in the last 3 years)

Solvency (9.5 of 10):

✅ High Interest Coverage: 161.16 (earns far more than enough operating income to cover its interest payments)
✅ Short-Term Solvency: strong liquidity position with current assets exceeding current liabilities
✅ Long-Term Solvency: long-term assets are greater than long-term liabilities, supporting financial stability
✅ Negative Net Debt: –$128.6M (holds more cash and equivalents than total debt)
✅ Low Debt-to-Equity Ratio: 0.01 (very limited reliance on debt financing)
✅ High Altman Z-Score: 10.38 (well above the distress threshold, indicating very low bankruptcy risk)

Investment Thesis

OPRA trades below its five-year averages, below the sector benchmark (XLC), and under my fair value estimate of $33.32. With high EPS and revenue growth projections, the company offers upside potential at a discounted valuation.

Opera is diversified across multiple segments, including desktop and mobile browsers, the world’s first gaming browser, fintech with MiniPay, advertising, and crypto-related services. Its long-standing cooperation with Google provides stable search revenue, while growing ARPU and brand awareness strengthen its positioning. A recurring dividend program and disciplined capital allocation further support shareholder returns.

The company’s balance sheet is very strong, with solvency of 9.5 out of 10 and negative net debt. However, Opera faces challenges from a decline in gross margin, rising share-based compensation, and intense competition in a market where it holds only a small share.

Despite these risks, Opera’s combination of solvency, growth, diversification, and undervaluation creates a compelling case for investors seeking exposure to a profitable and innovative mid-cap stock.

This is not a financial or investing recommendation. It is solely for educational purposes.

If you like the content, please hit the like icon, leave a comment, and share the publication with your friends and colleagues - this will support the project. If you're ready to become a patron of the project, visit this page.

Content:

• Company Overview
• Market Overview
• Economic Moat
• Business Strategy
• Capital Allocation
• Advantages
• Disadvantages
• Competitors
• Past
• Future
• Current Valuation
• Fair Price
• Checklist
• Due Diligence
• Investment Thesis

Analyst’s Note:

The first time I wrote about Paxman on my Patreon was in January 2025. Since then, the stock has risen by more than 25%. Another notable “hype” stock nowadays is Nebius - the first time I wrote about it at the beginning of the year.

Company Overview

Market Cap: SKR 1.7B (~$177.6M)
Sector: Healthcare
Industry: Medical Devices
Type: Small Growth
Total Number of Employees: ~102
Next earnings report: Aug 20, 2025 (confirmed)
Total Debt: SKR 9.54M (~$950K)
Cash & Investments: SKR 152.72M (~$15.20M)
Beta: 0.36
Website: www.paxman.se

Paxman AB (STO: PAX, PXMBF) is a Swedish medical technology company founded in 1996. The company develops and sells a medical scalp cooling system that helps reduce chemotherapy-induced hair loss. These systems are used in more than 65 countries.

In 2024, the company installed 618 systems, and 173 of those were in the United States.

In the first quarter of 2025, the company continued its strong performance, with sales reaching 67.1 million SEK, up 14.5% compared to the same quarter last year.

The company is led by CEO Richard Paxman (LinkedIn), the son of the company’s founders. He has been the CEO since 2013 and is responsible for global growth, research investments, and new product development.

In 2025, Paxman completed its acquisition of Dignitana, a major competitor in the same industry. The company is building a new headquarters and production facility in Huddersfield, set to open by the end of 2026, which will improve manufacturing and logistics for future growth.

The prevalence of cancer is growing globally. On average, one in two people will get cancer in their lifetime. There were an estimated 20 million new cases of cancer globally in 2022, which is expected to rise to 32.6 million in 2045.

Economic Moat

The company holds a strong position in a narrow but important market. Its scalp cooling system uses a liquid-based method and is protected by patents until 2031. It is also supported by clinical studies, including the first randomized, multicenter trial in the U.S., completed in 2017. The system is approved in several countries, including the U.S., Japan, and Australia. Paxman’s system is known for its ease of use, hygiene, and comfort. The company also offers a range of cooling caps to improve fit and user experience.

To read: Paxman Scalp Cooling System Is FDA Approved for Chemotherapy-Associated Alopecia

In 2024, the American Medical Association approved three permanent CPT (Current Procedural Terminology) I codes for scalp cooling. These codes take effect in 2026 and mark a major step forward for insurance reimbursement. Paxman’s treatment is now seen as a standard medical service, not an experimental one. This recognition builds trust with hospitals.

CPT (Current Procedural Terminology) codes are a standardized system of codes used by physicians and other healthcare professionals to describe and report medical procedures and services. These codes are crucial for billing, claims processing, and medical reporting. They are maintained by the American Medical Association (AMA) and are used to ensure consistency and clarity in medical documentation.

In addition, the market is still largely untapped: over 4 million cancer patients per year could benefit from scalp cooling, but less than 1% are currently treated with it. This gives Paxman a long growth path ahead.

The scalp cooling caps market size was valued at $1.5B in 2025 and is expected to reach $3.2B by 2033, growing at a CAGR of 11.43% from 2026 to 2033.

Business Strategy

The company’s main strategy is to increase access to scalp cooling by using an insurance-based billing model in the U.S. By the end of 2025, all U.S. providers are expected to switch to this new model, which will allow full use of the new CPT codes. Paxman is also preparing to launch a second product: a cryocompression system to prevent nerve damage from chemotherapy. Clinical studies have shown positive results in Singapore and are continuing in the U.S.

Paxman adapts its business model for each market. In Japan, it works with a distributor; in Germany, it owns 49% of Paxman GmbH. In Canada, the company operates directly with local technicians. In 2024, the company also expanded into the Middle East and South Korea and added new distributors in India and China. Paxman is also working on a more cost-effective single-use cap and a topical product to increase treatment effectiveness and recurring income.

The company works with leading hospitals and cancer centers around the world. In the U.S., the company has a five-year contract worth $2.7 million with the Department of Veterans Affairs, covering multiple facilities under the National Precision Oncology Program.

To support patients in the U.S., Paxman partners with CoverMyMeds. This helps with insurance approvals and appeals and makes it easier for patients to access treatment.

Paxman continue to implement a process, as part of the insurance-based billing model, to help open access to Paxman Scalp Cooling for any US patient regardless of their insurance coverage or f inancial situation. The service offering helps patients and providers access scalp cooling through Paxman Hub services, and these services are offered through CoverMyMeds – a McKesson Company — Company’s Presentation.

The company also runs a Patient Assistance Program (PDF) that provides free systems to those in financial need. The company collaborates with top research centers, including the University of Huddersfield, the University of Leeds, and the National University of Singapore, for product testing and innovation.

Capital Allocation

In March 2025, Paxman raised 123.5 million SEK through a directed share issue. The funds will support three areas: the commercialization of the cryocompression system, investment in the new headquarters, and further product development. The new facility in Huddersfield will improve workflows and increase manufacturing capacity in 2026 and 2027.

In May 2025, the company completed the acquisition of Dignitana by issuing new shares valued at 153 million SEK.

At the end of Q1 2025, Paxman had a strong cash position of 153 million SEK. The company is still investing in growth while maintaining financial stability; it does not pay dividends.

Advantages

The global leader in scalp cooling technology. Its patented system is approved in many countries and supported by years of clinical data. It is recognized in major treatment guidelines such as NCCN in the U.S. and ESMO in Europe, giving it strong credibility with hospitals.

The insurance-based billing model is gaining traction. In 2024, 74% of patients using this model received positive insurance coverage. Another 65% of those without coverage were supported by the company’s patient assistance program. This shows Paxman’s success in removing financial barriers for patients.

Recurring income is rising steadily. In Q1 2025, the company earned 36 million SEK from repeat sales of caps and treatments, up 19% from the same quarter in 2024. This makes the business more stable and less dependent on new system sales.

Paxman is developing a second product, a cryocompression device to prevent nerve damage. Early clinical data are positive, and a larger trial is underway in the U.S. The company plans to commercialize this product in 2026, which will open a new revenue stream.

The company and its leadership have received strong recognition. Paxman won the SMART award from Innovate UK. Dr. Aishwarya Bandla and Claire Paxman received national and international awards for professional and leadership achievements, reflecting the company’s strong team and innovation culture.

Disadvantages

Currency risks that affect profits. In Q1 2025, it recorded a loss of 11.5 million SEK from exchange rate changes between GBP, USD, and SEK. The company does not yet have a hedging plan to protect against this type of loss.

Profit margins are under pressure from rising costs. In Q1 2025, EBITDA fell from 11.7 million SEK to 10.3 million SEK due to higher personnel expenses. The number of employees grew from 94 to 102, and pay increases were made to support expansion.

The insurance billing model is still being adopted. In early 2025, income from this model was lower than expected due to timing delays. Although more patients are using the service, revenue recognition was postponed, which could hurt cash flow if delays continue.

The company is investing heavily in growth. In Q1 2025, it spent 4.2 million SEK, including 1.7 million SEK for the cryocompression project. These investments are important, but they raise fixed costs and require continued strong sales to be sustainable.

There are integration risks after the Dignitana acquisition. Paxman must now combine operations, supply chains, and teams across two formerly competing businesses. If not managed carefully, this could disrupt service or delay projects during the transition.

Competitors

Paxman’s main competitor, Dignitana, was acquired in May 2025. Dignitana made the DigniCap system, another scalp cooling device. The merger removes a major rival and gives Paxman full control over product development and global sales in this niche.

Penguin Cold Caps (privately owned) offers manual cold cap systems. These are cheaper but less convenient, as they require personal assistants and have no automatic temperature control. Hospitals are more likely to prefer Paxman’s professional, automated systems.

Hilotherm (privately owned), based in Germany, offers cooling systems for other purposes, such as post-surgery treatment. While not a direct competitor in scalp cooling, it could compete with Paxman’s new cryocompression device in the future.

In Germany, Paxman increased its stake in Paxman GmbH to 49%. This gives more control in the region and reduces competition from semi-independent operations that existed before the ownership change.

In Asia, low-cost entrants may appear, but without CPT coding, clinical studies, or major insurance support, they are unlikely to be a real threat in major markets like the U.S. and EU.

Past

The CAGR rate for the stock over 3 and 5-year time periods is shown above. The stock overperforms the S&P 500. But please note that the company went public “only” in 2017.

Below are some significant recent events.

• Paxman's chairman Per-Anders Johansson buys shares for SEK 0.35 million.

• Paxman in Forbes: An article featuring Paxman was published in Forbes Magazine on May 29, covering the impact of chemotherapy-induced alopecia, scalp cooling, and patient motivations, as well as Paxman’s role and history.

• Two Key Partnerships in France: In the last few months, Paxman had the privilege of being appointed as both the preferred supplier to Helpévia (a private sector purchasing group) and the exclusive partner of UniHA (a public sector purchasing group).

• Paxman Acquires Dignitana: Paxman acquired Dignitana, another scalp cooling device manufacturer. The two companies will merge to create a new, unified group named Paxman AB. Two companies were once working in competition.

• Dr. Aishwarya Bandla (Clinical Innovation Manager) received the prestigious Outstanding Young Professional Award.

• Removing Financial Obstacles for US Patients: The company is working to transition all existing facilities in the US using the Paxman system to their Insurance-Based Billing Model.

You have read only the first part of the analysis. The second part is available for patrons of the project and includes:

• Future Overview

• Current Valuation, along with comparison with the industry

• Fair Price Estimate with Base, Bull, and Bear case scenarios

• Checklist

• Due Diligence

• Investment Thesis

Continue Reading

This is not a financial or investing recommendation. It is solely for educational purposes.

If you like the content, please hit the like icon, leave a comment, and share the publication with your friends and colleagues - this will support the project. If you're ready to get access to additional materials, visit this page.

Content:

• Company Overview
• Market Overview
• Economic Moat
• Business Strategy
• Capital Allocation
• Advantages
• Disadvantages
• Competitors
• Past
• Future
• Current Valuation
• Fair Price
• Checklist
• Due Diligence
• Investment Thesis

Company Overview

Market Cap: ~$264.84B
Sector: Technology
Industry: Software
Type: Large Core
Total Number of Employees: ~76,453
Next earnings report: Aug 27, 2025 (estimated)
Total Debt: $11.37B
Cash & Investments: $17.41B
Beta: 1.35
Website: www.salesforce.com

Salesforce (NYSE: CRM) is the world’s largest provider of customer relationship management (CRM) software with over 150,000 customers worldwide. Headquartered in San Francisco and founded in 1999, the company is led by CEO Marc Benioff, a pioneer of the software-as-a-service (SaaS) business model.

Salesforce helps businesses improve how they manage sales, service, marketing, and commerce by offering cloud-based software. These services allow customers to access their tools through the internet, which removes the need for physical installation and maintenance.

Salesforce has become one of the most important companies in enterprise software. It serves companies of all sizes, and about 90% of Fortune 100 firms use at least one Salesforce product. The company itself is the world’s #4 employer on the Fortune 100 list.

The Salesforce CRM is especially widespread among smaller companies – businesses with annual revenue of between 1-10 million USD. Bigger businesses with revenue from 10 to 50 million USD come second, and huge companies with revenue up to a billion occupy the third place.

Most of the revenue, about 95%, comes from subscription and support services. The remaining about 5% comes from professional services like training and consulting. Some of the biggest companies that use Salesforce: Spotify, Amazon Web Services, U.S. Bank, Walmart, Toyota, BMW, L’Oreal Americas, American Express, The American Red Cross, McDonald’s, UnitedHealth Group.

To read: Customer Success Stories

The main reason for the popularity of Salesforce across the globe is that the company has developed a range of ready-made CRM applications specifically tailored to the needs of different industries and business departments.

Traditionally, sales departments tend to use Salesforce the most. They are followed by IT departments, Customer Support, Marketing, and Finance/Administrative departments. The usage of Salesforce is less common among Product Development and Operations departments.

Market Overview

Salesforce holds a leading position in the global CRM market, with a share of more than 21%. The next vendor (Microsoft) has a much smaller share, only about 6%.

Grand View Research valued the market at $73.40 billion in 2024, projecting it to reach $163 billion by 2030 with a Compound Annual Growth Rate (CAGR) of 14.6% from 2025 to 2030. Other sources, like Mordor Intelligence, suggest $114.10 billion by 2030 (a 7.74% CAGR from 2025), and SNS Insider forecasts $248.48 billion by 2032 (a 13.45% CAGR).

Salesforce was named the #1 CRM provider by IDC for the 12th consecutive year. This recognition highlights Salesforce’s ongoing leadership and its ability to consistently deliver comprehensive and innovative CRM solutions.

IDC, a premier global market intelligence firm, is widely recognized for its high-quality market data.

Economic Moat

Salesforce has a wide economic moat, primarily because of high switching costs. Many businesses rely on Salesforce for daily operations. Replacing Salesforce with another system would take a lot of time, effort, and money. This keeps customers locked into the platform for many years.

Analyst’s Note:

NI Margin - Net Income Margin
EBIT Margin - Also known as Operating Margin

Worth noting the network effects. Developers build apps on the Salesforce Platform and sell them through AppExchange, the company’s app marketplace. More apps attract more users, and more users attract more developers. This makes the ecosystem stronger over time.

Salesforce maintains a customer retention rate of about 92%. The rate is the percentage of customers who remain with a company over a specific period. It's a key metric for understanding the success of a business's customer retention efforts and overall customer loyalty.

It's calculated by dividing the number of customers retained by the total number of customers at the start of the period, and then multiplying by 100.

Business Strategy

Salesforce aims to offer a full range of tools that help companies improve customer interactions. Its major products include Sales Cloud, Service Cloud, Marketing Cloud, Commerce Cloud, and Data Cloud. Each tool works on its own, but becomes even more powerful when used together. Businesses can also build custom apps using the Salesforce Platform.

The company’s growth strategy focuses on cross-selling, international expansion, and investment in AI. Over half of its large customers now use six or more clouds.

Salesforce is also expanding its vertical offerings for industries like healthcare, finance, and communications.

A vertical market is a market encompassing a group of companies and customers that are all interconnected around a specific niche. Companies in a vertical market are attuned to that market’s specialized needs and generally do not serve a broader market. As such, vertical markets typically have their own set of business standards. They may also have high barriers to entry for new companies.

Business segments

Sales Cloud: This is one of Salesforce's flagship offerings, providing tools for sales automation. It helps businesses manage customer relationships, track sales progress, forecast opportunities, and improve productivity through features like contact management and opportunity management.

Service Cloud: This segment focuses on customer service and support. It enables organizations to deliver personalized customer service experiences, manage customer interactions across channels, and improve case resolution through features like call center management and support ticketing.

Marketing Cloud: Salesforce's Marketing Cloud offers digital marketing automation and analytics software and services. It helps businesses engage customers across multiple channels, including email, social media, and mobile, delivering personalized marketing campaigns and managing customer data.

Commerce Cloud: This segment provides solutions for both B2B and B2C commerce. It helps businesses create seamless, intelligent customer experiences across digital storefronts and other channels, both online and offline.

Platform and Other: Salesforce’s platform services allow businesses to build and deploy custom applications using its cloud-based architecture. This includes the Salesforce AppExchange, which hosts a wide array of third-party apps that integrate with Salesforce, providing extended functionalities.

Tableau and Analytics: This segment includes analytics tools that help organizations visualize, understand, and leverage their data for insights. The acquisition of Tableau enhanced Salesforce’s offerings in data visualization and business intelligence.

Slack: Acquired by Salesforce, Slack enhances collaboration and communication within organizations. It integrates various tools and workflows, allowing teams to work together more efficiently, regardless of location.

MuleSoft: MuleSoft provides the tools for building application networks. It offers integration and API management services that help businesses connect different systems and applications, enhancing data sharing and operational efficiency.

Capital Allocation

Salesforce has a strong balance sheet (chart above) and a clear capital strategy. The company has $17.41 billion in cash and cash equivalents. Its long-term debt is $8.44 billion, with a debt-to-capital ratio of just 0.15 (15.78%). This is well below the industry average.

Analyst’s Note:

A negative net debt means a company has more cash and cash equivalents than it has debt. This indicates the company has a strong financial position, as it can easily cover its debts and may even have excess cash for investments or growth.

In fiscal 2025, Salesforce bought back $7.8 billion worth of its own shares and paid out $1.5 billion in dividends (started paying dividends in 2024).

The company also continues to invest in acquisitions and new product development, especially in AI. In May 2025, Salesforce announced its largest acquisition since Slack, agreeing to purchase data management firm Informatica for $8 billion. This move aims to enhance Salesforce's AI capabilities, particularly its Agentforce platform, by integrating Informatica's data management tools.

To read: List of Top 25 Salesforce Acquisitions

Salesforce Ventures supports early-stage tech companies around the world. This helps Salesforce stay close to new technologies and future partners.

Advantages

Salesforce is the market leader in CRM software, holding the number one spot for 12 years in a row. This leadership helps the company win large contracts and makes it the default choice for many enterprises.

The company has a strong and predictable revenue model. About 95% of its income comes from subscription services, which offer stability and allow for better long-term planning.

Salesforce is investing in AI to create new tools for customers. Agentforce and Einstein GPT are already generating revenue and helping clients become more efficient. Agentforce has closed over 8,000 deals. These tools make Salesforce more competitive in the evolving tech market.

Strategic partnerships add extra value to the business. By working with large companies like Amazon (AWS), Salesforce can offer new features and reach more customers through different platforms.

The company’s financial position is solid. It generates high free cash flow and maintains a low debt ratio. This gives it room to invest in growth, return capital to shareholders, also overcome economic downturns.

Disadvantages

Salesforce faces strong competition, especially from Microsoft, which offers cheaper CRM options integrated with its popular tools like Office and Teams. This competition could slow Salesforce’s growth.

The U.S. market, which provides most of the company’s revenue, is reaching a saturation point. To keep growing, Salesforce must expand internationally, which requires large investments.

The company has a high level of goodwill on its balance sheet, around $49 billion or 54% of total assets. This creates risk if acquired businesses do not perform well and need to be written down.

Foreign exchange rates are another challenge. Currency changes reduced revenue by $150 million in fiscal 2025.

There have been some changes in top management. While Marc Benioff remains CEO, several senior executives have left recently. Leadership turnover can create uncertainty and affect company direction.

To read: CEO of Salesforce AI Clara Shih has left

To watch: Infographic: Recent Salesforce Executive Changes (image)

Competitors

Microsoft (NASDAQ: MSFT) offers the Dynamics CRM and ERP platform, which is tightly connected to Office 365, LinkedIn, and Teams. This makes it easier for existing Microsoft customers to adopt Dynamics. Microsoft also uses lower pricing to attract small and mid-sized businesses, which puts pressure on Salesforce to defend its market share.

Oracle (NYSE: ORCL) focuses on large enterprise clients and offers CRM as part of a full suite of software. Many companies already use Oracle’s database and back-office tools, making it easier for Oracle to sell CRM services to existing customers. This gives Oracle an advantage in long-term relationships with large companies.

SAP (NYSE: SAP) focuses on large multinational companies and provides CRM as part of its broader ERP system. SAP's strength lies in integrating customer data with supply chain, finance, and HR functions. This makes it a preferred choice for global companies that already use SAP for other business operations.

Adobe (NASDAQ: ADBE) competes in the digital marketing space through its Experience Cloud. Adobe is known for its creative tools and offers powerful personalization and content management features. Companies focused on marketing and content may prefer Adobe over Salesforce for those specific needs.

To read: Compare CRM Pricing and Costs in 2025

IBM (NYSE: IBM) provides AI and cloud tools that also support CRM functions. IBM targets industries like banking and healthcare, offering deep integration with legacy systems. While IBM’s CRM tools are less user-friendly, its strength in infrastructure and consulting makes it a strong option for complex enterprise needs.

HubSpot (NYSE: HUBS) is a strong competitor in the small and mid-sized business market. Its CRM tools are simple, affordable, and easy to use, which makes them popular among startups and growing companies. While Salesforce has more advanced features, HubSpot’s lower cost and ease of adoption attract customers who do not need complex solutions.

There are also lots of other CRM systems on the market, e. g. Zoho CRM, Zendesk, Monday CRM, SugarCRM.

Past

The CAGR rate for the CRM stock over 5, 10, and 15-year time periods is shown above. The stock overperforms the S&P 500 in longer periods (10 and 15-year timeframes).

In the section Competitors, you can compare Salesforce with the S&P 500 on a 10-year interval (the last chart in the section above): +269% vs. 238%.

Below are some significant recent events.

• Salesforce Signs Definitive Agreement to Acquire Informatica: Salesforce and Informatica (NYSE: INFA), a leader in enterprise AI-powered cloud data management, entered into an agreement for Salesforce to acquire Informatica for approximately $8 billion in equity value. Under the terms of the agreement, holders of Informatica’s Class A and Class B-1 common stock will receive $25 in cash per share.

• Salesforce Signs Definitive Agreement to Acquire Convergence.ai: Salesforce signed a definitive agreement to acquire Convergence.ai, an AI agent company recognized for developing advanced systems that perform complex, human-like tasks in digital environments. Convergence’s technology enables AI agents to navigate dynamic interfaces, managing everything from web-based workflows to multi-step processes by adapting in real time to challenges like pop-ups, errors, and UI updates.

• Salesforce Partners with Ferrari: Salesforce announced a new strategic partnership with Ferrari (NYSE: RACE), focused on elevating the client experience, particularly through the deployment of its CRM technology for Ferrari sports car clients and elevated through a marketing partnership with both Ferrari Hypercar and Ferrari Challenge Trofeo Pirelli motorsport activities.

• #1 CRM Provider for 12th Consecutive Year: Salesforce was named the #1 CRM provider by IDC for the 12th consecutive year.

• New Flexible Agentforce Pricing: Salesforce (NYSE: CRM) introduced new flexible pricing for Agentforce, designed to meet rapidly accelerating demand for digital labor for every employee, department, and business process.

• Salesforce to Invest USD $1B in Singapore over 5 Years: Salesforce announced plans to invest USD $1 billion in Singapore over the next five years, affirming a strong commitment to accelerate the nation’s digital transformation and Agentforce adoption.

• World’s Most Ethical Companies List for 16th Year: The Ethisphere Institute, a global leader in defining and measuring corporate ethical standards of business practices, once again recognized Salesforce as one of the World’s Most Ethical Companies.

• A Bold Move By Google And Salesforce: Salesforce and Google expanded their partnership to integrate Google’s Gemini AI into Salesforce’s Agentforce platform. The seven-year, $2.5 billion deal allows Salesforce’s core applications, including its CRM and Agentforce AI offerings, to run on Google Cloud with Gemini embedded. This gives enterprises a new choice in advanced AI for customer engagement and is widely seen as a move to challenge Microsoft’s dominance in enterprise AI.

• MuleSoft Named a Leader in IDC MarketScape: MuleSoft was named as a Leader in the IDC MarketScape: Worldwide B2B Middleware, 2024.

• Salesforce to Invest $500M in Argentina over 5 Years: Salesforce announced plans to invest $500 million in Argentina over the next five years. The company made the announcement during the World Economic Forum in Davos.

• Salesforce Expands Presence in Saudi Arabia: Salesforce announced plans to expand its presence in Saudi Arabia with a new regional headquarters in Riyadh. It pledged to provide upskilling opportunities to 30,000 Saudi citizens by 2030.