2025-03-08 23:02:46
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Today at a glance:
📈 Broadcom: AI Revenue Surge
🛒 Costco: Tariff Concerns Loom
🌊 Sea Limited: Shopee Momentum
📶 Marvell: High Expectations
🚚 JD.com: Strongest Growth in Years
🎯 Target: Tariff Pressures Ahead
🏈 Flutter: FanDuel Drives US Growth
🧑⚕️ Veeva: Raising the Bar
🌐 Samsara: Soaring Margins
🖥️ HPE: Cost-Cutting Begins
🌱 MongoDB: Weak Outlook
🛒 Best Buy: Tariff Headwinds
👟 On: Expanding Global Footprint
🔐 Okta: AI Optimism
🛠️ GitLab: New CRO
⚡️ Celsius: Bold Expansion Move
Broadcom’s Q1 (January quarter) revenue rose 25% Y/Y to $14.9 billion ($330 million beat), with adjusted EPS of $1.60 ($0.09 beat). AI-related revenue surged 77% to $4.1 billion. The company guided Q2 revenue to $14.9 billion ($0.3 billion beat), driven by AI XPUs and custom chips for hyperscalers, with four new customers in the pipeline. Despite recent stock volatility, Broadcom reaffirmed its leadership in AI infrastructure, lifting shares post-earnings.
CEO Hock Tan emphasized that AI spending remains strong, with major cloud providers racing to build 1 million AI chip clusters by 2027. While non-AI segments like industrial and wireless face headwinds, AI growth is offsetting those pressures. Broadcom’s software unit, bolstered by the VMware acquisition (completed in late November 2023), reached $6.7 billion in quarterly revenue, up 47% Y/Y. With AI demand exceeding prior forecasts, Broadcom remains well-positioned, reinforcing its place as a top AI semiconductor player alongside Nvidia.
Costco's Q2 (February quarter) saw revenue rise 9% Y/Y to $63.7 billion ($640 million beat), with adjusted comparable sales up 9% and e-commerce surging 22%. US comps grew 9%, outpacing Walmart and Target, while membership fee income increased 7% to $1.2 billion. However, EPS of $4.02 ($0.09 miss) fell short, partly due to FX headwinds. Strong traffic and renewal rates (90.5% globally) continue to support Costco’s premium valuation, while management highlighted a steady consumer backdrop, with more spending shifting toward food at home.
Despite its resilience, tariff uncertainty looms, with CEO Ron Vachris warning that potential cost increases could affect pricing. Approximately a third of US sales stem from imports, but Costco's supplier relationships and membership-driven model provide a competitive advantage. Analysts are optimistic, noting market share gains and substantial cash reserves ($12 billion), which raises speculation about a special dividend. While shares fell after earnings, the long-term outlook remains positive, supported by expansion plans and ongoing digital momentum.
2025-03-07 21:00:59
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Investors are shifting focus. After last year’s AI boom sent chip stocks soaring, tariff headwinds and rising competition have cooled the category.
Now, attention is turning to software—the next big AI play.
That shift has put CrowdStrike (CRWD) in the spotlight. As an AI-native cybersecurity leader, its threat detection helps businesses stop breaches in real time. But it hasn’t been a smooth ride. A massive IT outage in July 2024 caused widespread disruption, forcing the company into damage control.
Despite the setback, CrowdStrike recently hit a new all-time high, briefly touching a $110 billion valuation—before its latest earnings sent shares tumbling this week.
Let’s unpack the quarter.
Today at a glance:
CrowdStrike’s Q4 FY25.
Recent developments.
Key quotes from the call.
What to watch looking forward.
CrowdStrike Falcon is a cloud-native security platform that protects endpoints (laptops, servers), cloud workloads, identities, and data.
🪶 Lightweight agent: A single agent is installed on every device, requiring no constant updates or reboots, making it easy to deploy and manage at scale.
🧠 Threat intelligence: Continuously updated threat intelligence detects and blocks attacks before they happen, using machine learning to predict and prevent breaches in real time.
💻 EDR (Endpoint detection and response): Detects and automatically responds to malware, ransomware, and phishing attempts, ensuring instant protection on all endpoints.
☁️ XDR (Extended detection and response): Expands beyond endpoints to analyze cloud workloads, network activity, and identity behavior, providing full visibility into security threats.
Unlike traditional security solutions, Falcon doesn’t rely on signature-based detection. Instead, it harnesses AI and automation to stay ahead of emerging threats.
Let’s define a few terms:
ARR (Annual Recurring Revenue): The annualized value of all recurring customer contracts, a core indicator of CrowdStrike’s growth. ARR grew +23% year-over-year to $4.24 billion in Q4, driven by strong customer adoption.
Dollar-Based Net Retention (DBNR): Measures how much revenue existing customers generate over time, including upsells. It was 112% in Q4, below the ~120% expected for FY25 due to credits and discounts issued after the IT outage.
Gross retention rate: Tracks how many customers stay with CrowdStrike (maximum = 100%). It held steady at 97% in Q4, showing customers are not abandoning CrowdStrike despite the IT debacle.
Modules: Individual services within CrowdStrike Falcon. Multi-module adoption is crucial for ARR growth as customers expand their usage over time.
CrowdStrike’s strategy revolves around its lower Total Cost of Ownership (TCO)—not just in software costs but in time and expenses saved by using a unified platform.
New customers start with nearly five modules on average, and in Q4, 21% of customers used eight or more—a strong indicator that existing customers continue to invest deeper into the platform.
Revenue grew +25% Y/Y to $1,059 million ($20 million beat).
☁️ Subscription grew +27% Y/Y to $1,008 million.
💼 Professional services grew +2% Y/Y to $50 million.
Gross margin was 74% (-1pp Y/Y).
Operating loss margin was -8% (-12pp Y/Y).
Non-GAAP operating margin was 21% (-4pp Y/Y).
Non-GAAP EPS $1.03 ($0.17 beat).
Operating cash flow was $346 million (33% margin).
Free cash flow was $240 million (23% margin).
Cash and cash equivalent: $4.3 billion.
Long-term debt: $0.7 billion.
Q1 FY26: Revenue +20% Y/Y to $1.10 million (slightly short of consensus). Non-GAAP EPS ~$0.65 ($0.31 miss).
FY26: Revenue +21% Y/Y to $4.78 billion (slightly ahead of consensus). Non-GAAP EPS ~$3.39 ($1.04 miss).
Net new ARR remains a key metric for momentum. It was $224 million (+23% Y/Y), a step down from last year’s $282 million, but already a strong rebound after the outage’s impact on new deals and customer credits in Q3 FY25. Management reaffirmed a target of $10 billion in ARR by FY31, with ARR set to re-accelerate in the second half of FY26 and beyond.
Customer Commitment Package unwinds. The company is phasing out its CCP—a program launched after last year’s outage—which temporarily impacted ARR and margins. Leadership remains bullish on second-half growth as these short-term discounts roll off.
Impressive quarter, but weak guidance. CrowdStrike delivered large beats on the top and bottom line for Q4 FY25. But guidance was the sticking point—next quarter’s earnings forecast came in well below expectations, leading to a sell-off. The profitability miss in FY26 was primarily due to sales & marketing costs associated with the CCP and amortized over a year.
Margins and cash flow remain strong. Adjusted operating income grew 27% year-over-year. The company reported a record free cash flow of $1.1 billion for the full year FY25, highlighting the strength of its business model.
Getting worse before it gets better. Q1 FY26’s cash flow will include ~$73 million of outage-related costs, including sales compensation and flexible payment terms. Management expects to return to GAAP profitability by Q4 FY26 and expand the adjusted operating margin to 23% in FY27.
Bottom line: The business fundamentals remain strong, but the market didn’t like the near-term margin impact. CrowdStrike is investing in future growth, betting on AI-driven security demand—but near-term profitability remains impacted by outage-related costs.
Gartner’s Magic Quadrant: In July 2024, CrowdStrike was named the leader in Endpoint Protection Platforms, outranking Microsoft and all competitors in execution and vision.
FedRAMP Authorization: Falcon Next-Gen SIEM, Falcon for IT, Falcon Data Protection, and Falcon Exposure Management received FedRAMP certification, expanding its federal market reach.
Gartner Peer Insights: 96% of customers recommend CrowdStrike for Managed Detection and Response as of September 2024.
Forrester Wave: Crowdstrike was named a leader in Managed Detection And Response Services in Q1 2025.
Why it matters: Despite the July 2024 outage, CrowdStrike maintained its leadership position in cybersecurity, continuing to gain industry recognition and expand its product certifications.
CrowdStrike aggressively acquires companies to enhance its multi-module platform, a strategy mirroring Microsoft and Salesforce.
Key acquisitions shaping CrowdStrike’s future:
Payload Security (2017): Automated malware analysis sandbox.
Preempt Security (2020): Zero-trust and real-time access control ($96M).
SecureCircle (2021): Cloud-based data security solution.
Humio (2021): High-speed log management & observability ($400M).
Reposify (2022): Threat detection for IoT devices.
Bionic (2023): Cloud security management ($350M).
Flow Security (2024): Data security posture management (DSPM) ($200M).
Adaptive Shield (2024): SaaS security posture management (SSPM) for cloud apps ($300M).
Why it matters: CrowdStrike’s acquisition spree is a core part of its strategy, expanding its cloud and AI-powered cybersecurity offerings. This keeps it ahead of legacy competitors while strengthening module adoption.
“Everyone loves a comeback story, and that's exactly what we've started experiencing in Q4 as we've closed out the year. The results tell our story. One, we've never been closer to our customers and partners with market-leading customer satisfaction levels. Two, we're playing best-in-class defense as well as offense with our Falcon Flex subscription model. And three, our innovation engine hasn't missed a beat.”
CrowdStrike is in recovery mode. After last summer’s IT outage, the company is gaining momentum with strong customer engagement, growing adoption of its Falcon Flex model, and continued innovation.
“With the summer now several quarters behind us, we're ending our customer commitment package program. The CCP program was an excellent proactive measure, which not only built our relationship with impacted customers, but also resulted in significant platform adoption. This uptake gives me confidence in our second-half net new ARR reacceleration as products are deployed, one-time discounts drop off, and contracts are upsized and renewed.“
Short-term pain, long-term gain. Ending the CCP program means CrowdStrike will no longer offer discounts to customers impacted by the outage. This sets the stage for ARR reacceleration in the second half of FY26.
“CrowdStrike is cybersecurity's AI-native SOC. Our greatest asset is our role as the creator of cybersecurity's richest data. We've curated this dataset with millions of Falcon Complete analyst annotations, making threat data contextualized and actionable. No one else has this. Our data is liquid gold for creating new agentic models for continuously improving protection.”
Data is the moat. CrowdStrike isn’t just selling software—it’s leveraging a massive dataset to make its AI-driven security platform smarter and harder to replicate.
“We find ourselves placed at the epicenter of a rapidly evolving demand environment. A new administration, a new wave of technology, and a new threat landscape necessitate all businesses to evolve their cybersecurity programs. Consolidation, cost reduction, and automation are now the accepted enterprise and federal priorities.."
Cybersecurity spending isn’t slowing down. As AI threats grow, enterprises and governments are making cybersecurity a top priority, driving demand for CrowdStrike’s consolidated platform.
“Falcon Flex is a subscription model that enables customers to adopt the modules they want across their subscription term. This model deeply resonates with prospects and customers as well as our ecosystem partners.”
Flex customers adopt more than nine modules on average. Management provided updates on three fast-growing modules:
Cloud Deployed: $600 million in ARR (> 45% growth Y/Y).
Identity Security: $370 million in ARR (> 20% growth Y/Y).
Logscale Next-Gen SIEM: $330 million in ARR (> 115% growth Y/Y).
Combined, these three modules grew nearly 50% Y/Y.
“In Q4 alone, we've closed new records in every total deal value segment. Over 20 deals greater than $10 million, over 350 deals greater than $1 million, over 2,300 deals greater than $100,000 and that was all in Q4.”
This momentum is a critical component of management’s expectations for ARR re-acceleration.
“We recently announced being the first cybersecurity ISV to achieve more than $1 billion in sales on the AWS marketplace in one calendar year. We also had a noteworthy year with Google Marketplace, where in our first year of partnership, we did over $150 million in deal value out of the gate. We've aligned our partner ecosystem around hyperscaler marketplaces where we see larger deal sizes and faster deal cycle times.”
The fact that CrowdStrike’s sales through AWS Marketplace doubled in just over a year shows how cloud-based cybersecurity solutions are gaining momentum. This partnership strength gives CrowdStrike a powerful sales channel beyond traditional enterprise sales.
Customers are encouraged to go ‘all-in’ with Falcon to save costs, and hyperscalers play a critical role in facilitating this. Many come through SIs (System Integrators) like Accenture or Deloitte Consulting.
“Our visibility is improving. We expect net new ARR reacceleration as well as operating margin and free cash flow margin expansion in the second half of FY26. We believe this momentum will set the stage for further acceleration in FY27 over FY26 and position us well to achieve our long-term targets […] as we scale the business to our goal of $10 billion of ending ARR by FY31.”
Given that this management team consistently beats its guidance, ARR could grow in the mid-20s CAGR in the next five years.
CrowdStrike has consistently positioned itself as the defining "Security Cloud" aiming to mirror the success of category-defining platforms:
Workday (HR Cloud)
Salesforce (CRM Cloud)
ServiceNow (Service Management Cloud)
The company was GAAP profitable before the 2024 outage and expects to regain profitability by January 2026. With revenue growth in the mid-20s, CrowdStrike is on track to scale into strong profitability—just like its cloud predecessors.
Public cloud software companies often operate unprofitably for years, but history shows that once the focus shifts to the bottom line, margins can expand rapidly (see Workday below). With highly predictable subscription revenue and efficient unit economics, CrowdStrike is building what could become a cash flow machine at scale.
CrowdStrike is currently trading at:
~18x forward EV-to-revenue, among the highest in software, trailing only Palantir (PLTR) and Cloudflare (NET).
~72x forward EV-to-EBITDA, reflecting strong growth expectations.
By traditional metrics, this looks expensive. But best-in-class businesses rarely trade cheap—investors often pay a premium for dominant, high-growth platforms.
Take Salesforce in 2013—unprofitable, growing in the high 20s, and generating ~$4 billion in revenue. Back then, it traded at 9x revenue and over 50x free cash flow. Many saw it as overvalued, yet those who invested tripled their money in five years.
History suggests that in high-quality software businesses, the duration of growth matters more than the valuation multiples at any given moment.
Despite outage headwinds, CrowdStrike has proven its resilience—and the stock has followed. The company continues to drive multi-module adoption and expand its market presence.
For long-term investors, the next five years matter more than the next five months. And if history is any guide, the path forward looks up and to the right.
That’s it for today!
Stay healthy and invest on!
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Disclosure: I own CRWD, a Starter Stock in App Economy Portfolio, since 2021. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.
2025-03-04 21:03:31
Welcome to the Premium edition of How They Make Money.
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The 97th Academy Awards marked a shift in how audiences experience Hollywood’s biggest night. For the first time, the Oscars streamed live on Hulu, reinforcing streaming’s growing grip on major live events.
But the performance didn’t earn a standing ovation. Viewers struggled to log in, and just as the night reached its climax—Best Actress and Best Picture—the Hulu stream cut out entirely. A déjà vu moment for those who remember Netflix’s Paul-Tyson boxing debacle in November: buffering, blurry signals, and frustration all around.
With streaming platforms racing to own live events, the stakes have never been higher. Live TV isn’t just about content anymore—it’s about execution. As more marquee broadcasts cut the cord, can streaming platforms handle primetime without a glitch?
Let’s dive into how the biggest players performed last quarter.
Today at a glance:
Trends and Market Share.
Disney: Streaming Profit Beat
Comcast: Broadband Struggles
Warner: Max Powers Up
Paramount: Merger in Motion
Roku: Platform Strength
For a glossary on SVOD, AVOD, OTT, DTC, and more, revisit our Industry Showdown article for an extensive market overview.
The chart below shows the paid subscriber trends in the past five years.
💡 Reminder: Some platforms, like YouTube Premium, Amazon Prime, and Apple TV+, don’t share quarterly numbers. Disney+ Hotstar is excluded following its merger with Reliance.
The shift from linear TV to streaming has been a high tide lifting all boats. According to Nielsen, streaming accounted for 43% of US TV Time in January 2025, representing a 7-point increase year-over-year, eating away at Cable and Broadcast.
For the first time, Nielsen consolidated Disney’s streaming entities (Disney+, Hulu, and ESPN+) into a single market share. Why? Because Disney made Hulu and ESPN+ directly available within the Disney app for some subscribers, affecting attribution.
Key trends to watch:
🛑 Password-Sharing Crackdown Expands: Following Netflix’s success, Disney began enforcing paid sharing in the US and will expand globally in 2025. Max is set to follow as Warner Bros. Discovery prioritizes streaming profitability. These changes could boost average revenue per user (ARPU) but also test subscriber retention.
📺 YouTube Dominate Streaming Time: YouTube still leads the pack, accounting for over a quarter of US TV streaming time (excluding YouTube TV). Even vertical video is making its mark, with 15% of Shorts viewing now on connected TVs.
▶️ Ad-Supported Streaming Gains Momentum: Ad tiers are now a key growth driver. Roku’s ad revenue outpaced the market, Disney’s streaming ad sales jumped 26%, and Warner and Paramount ramped up ad-supported plans to boost margins. Competition for ad dollars is heating up.
👨👩👧👦 Content Still Rules: Max added 6.4 million subscribers, fueled by True Detective: Night Country and global expansion. Paramount+ gained 5.6 million, driven by NFL broadcasts and Taylor Sheridan’s Yellowstone and Landman. Meanwhile, Disney+ lost 700,000, despite Moana 2’s success. Retention remains a challenge as prices rise.
💰 Profitability Takes Center Stage: Streaming is shifting from growth to profitability. Disney’s streaming unit turned a profit for the third straight quarter, Warner expects over $1 billion in streaming profits in 2025, and Peacock, Roku, and Paramount are closing the gap.
Disney’s fiscal year ends in September, so the December quarter was Q1 FY25.
🍿 Moana 2's Box Office Splash: The Studio division posted $312 million in profit, reversing a year-ago loss. The success of Moana 2, which grossed over $1 billion worldwide, fueled the rebound. Disney reaffirmed its dominance, producing the top three highest-grossing films of 2024: Inside Out 2, Deadpool & Wolverine, and Moana 2.
📈 Streaming Profits Hold Steady: Disney’s direct-to-consumer (DTC) segment, including Disney+ and Hulu, posted its third straight profitable quarter with $293 million in operating income—beating analyst expectations by over $100 million. Despite a modest 700,000 decline in Disney+ subscribers, Hulu added 1.6 million new accounts, highlighting strong engagement despite price hikes.
🏰 Parks Face Weather Setbacks: Operating income for Disney’s Experiences division, which includes theme parks and cruises, remained flat at $3.1 billion. Hurricanes Milton and Helene led to temporary closures, costing Disney $120 million in lost revenue and additional pre-opening expenses for its new Disney Treasure cruise ship.
📺 Linear TV's Ongoing Decline: Revenue from traditional TV networks fell 7%, with operating income dropping to $1.1 billion. ESPN’s domestic revenue rose 8%, offset by higher programming costs. CEO Bob Iger reiterated that Disney’s linear networks are still an asset despite the industry shift toward streaming.
🔮 Streaming Integration & Future Outlook: Disney is doubling down on streaming, adding more live ESPN programming to Disney+, launching an ESPN direct-to-consumer service later this year, and expanding its password-sharing crackdown to improve margins. The company reaffirmed high-single-digit earnings growth for FY25 and double-digit profit increases for FY26 and FY27.
What to make of all this?
Disney’s Q1 reinforced its turnaround, bolstered by strong theatrical releases and cost-cutting measures. However, traditional TV challenges and weather-related park disruptions highlight the complexity of its transformation. With aggressive streaming integration and a robust content pipeline, Disney is positioning itself for sustained profitability under Bob Iger’s leadership.
2025-03-02 23:00:43
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✔️ Cut through the noise with clear, concise financial snapshots.
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Here’s a sneak peek. 👀
🛒 Retail: Walmart.
🚗 Automotive: Ferrari, Ford.
📢 CRM: HubSpot, Salesforce.
💹 Investing: Coinbase, Robinhood.
🥤 Beverages: Coca-Cola, PepsiCo.
🥫 FMCG: Hershey, Kraft, Mondelēz.
🏈 Sports betting: DraftKings, Penn.
☁️ Hyperscalers: Amazon, Alphabet.
💬 Social: Match Group, Pinterest, Snap.
💻 Hardware: Dell, HP, Lenovo, Samsung.
📦 Commerce software: Global-e, Shopify.
🏍️ Gig economy: Grab, Lyft, Instacart, Uber.
📱 Subscription: Duolingo, Peloton, The NYT.
📊 Data: Datadog, Elastic, Palantir, Snowflake.
👔 Buffett: Berkshire, Chevron, Oxy, Moody’s.
🌐 Networks: Arista, Cisco, Nutanix, Palo Alto.
🎮 Gaming: NetEase, Nintendo, Sony, Take-Two.
⚙️ Chip design: AMD, ARM, NVIDIA, Qualcomm.
🛍️ E-commerce: Alibaba, Coupang, MercadoLibre.
🔒 Security: Cloudflare, CyberArk, Dynatrace, Fortinet.
🔬 Semis: Applied Materials, Analog Devices, Cadence.
💊 Pharma: Amgen, Eli Lilly, GSK, Merck, Novo Nordisk, Pfizer.
✈️ Travel: Airbnb, Booking, Expedia, Hilton, Marriott, Tripadvisor.
🍿 Entertainment: AMC, Disney, Live Nation, Paramount, Warner.
👜 Luxury: Hermès, EssilorLuxottica, Kering, L’Oréal, , Richemont.
🌯 Franchises: Chipotle, Domino’s, McDonald’s, RBI, Yum! Brands.
💳 Payments: Adyen, Affirm, Block, Dlocal, Fiserv, Global Payments, Nu, Toast.
☁️ Enterprise Software: Autodesk, C3 AI, Confluent, Digital Ocean, Docebo, Intuit, Klaviyo, Olo, Paycom, The Trade Desk, Twilio, Workday, Zoom.
And more, like Align, Amer Sports, Etsy, Spotify, Hims & Hers, Zillow…
2025-03-01 23:01:07
Welcome to the Saturday PRO edition of How They Make Money.
Over 190,000 subscribers turn to us for business and investment insights.
In case you missed it:
📧 Free members get our Friday articles and sneak peeks.
💌 Premium members receive monthly reports with 200+ companies visualized, one extra weekly article, and access to our archive.
💼 PRO members enjoy everything in Premium, plus our timely coverage of the past week's most important earnings on Saturday.
Today at a glance:
🦎 Berkshire: Equities Remain Priority
☁️ Salesforce: AI Potential, Tepid Outlook
✅ Intuit: Small Business Momentum
💻 Dell: Lower-Margin AI Deployments
👔 Workday: Reassuring Investors
🏗️ Autodesk: Workforce Reduction
❄️ Snowflake: AI-Powered Momentum
🇰🇷 Coupang: Farfetch Integration
🖨️ HP: Navigating Headwinds
🖥️ Zoom: AI-First Expansion
☁️ Nutanix: VMware Shift Tailwinds
🦉 Duolingo: Record Growth Continues
🍕 Domino’s: Aggregator Expansion
⛷️ Amer Sports: Sales Surge in Asia
🥕 Instacart: Soft Guidance
🔍 Elastic: Cloud Acceleration
💊 Hims & Hers: Weight-Loss Uncertainty
🧠 C3 AI: Expanding Partnerships
🌊 Digital Ocean: High-Value Customers
🌎 dLocal: Take Rate Compression
🎓 Docebo: AI-First Pivot
🍿 AMC: Box Office Rebound
🍽️ Olo: Expanding Personalization
Berkshire Hathaway ended Q4 with a record $334 billion in cash, up from $325 billion in Q3, reflecting Warren Buffett’s patient approach amid limited acquisition opportunities. A large portion of the cash pile is driven by Berkshire’s property-casualty insurance business. Despite accumulating cash for the 10th straight quarter, Buffett reaffirmed that Berkshire will always prioritize equities over cash—with his stock portfolio reaching $272 billion—led by holdings in Apple, American Express, and Bank of America.
In his annual letter, Buffett reiterated confidence in the US economy, highlighting Berkshire’s role as America’s largest corporate taxpayer, contributing $20.8 billion in income tax in 2024. He also hinted at potentially increasing stakes in Japan’s five largest trading houses, signaling continued global investment expansion. Despite its massive cash reserves, Berkshire remained a net seller of stocks, trimming its equity portfolio by 23% Y/Y. The conglomerate also paused buybacks for the second consecutive quarter, suggesting Buffett doesn’t find the stock attractive. While Berkshire’s core businesses remain healthy, analysts noted Buffett’s cautious stance could reflect concerns about a softer US economy ahead.
Salesforce posted mixed Q4 results, with EPS of $2.78 ($0.17 beat) and revenue growing 8% Y/Y to $10.0 billion ($50 million miss). The company highlighted strong AI-driven momentum, with Data Cloud and Agentforce reaching $900 million in annual recurring revenue (+120% Y/Y) and 5,000 Agentforce deals signed since October. CEO Marc Benioff emphasized that Salesforce is uniquely positioned to lead the AI-driven "digital labor revolution." Current RPO rose 11% Y/Y—the best forward-looking growth indicator. However, Q4 marked Salesforce’s third straight quarter of single-digit revenue growth.
FY26 revenue outlook was ~$40.7 billion (+8% Y/Y), below the $41.4 billion consensus. While analysts remain optimistic about Agentforce and long-term AI monetization, they expressed concerns about near-term revenue softness and macro headwinds. Meanwhile, Salesforce is navigating leadership transitions, including a new CFO and Chief Revenue Officer. With AI adoption growing but not yet materially impacting revenue, investors will watch RPO to evaluate Salesforce's ability to return to double-digit growth.
2025-02-28 21:03:39
Welcome to the Free edition of How They Make Money.
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In case you missed it:
NVIDIA just delivered another blockbuster quarter, with $39 billion in revenue—a 78% year-over-year surge fueled by insatiable AI demand.
After a hiccup, its latest platform, Blackwell, is off to the fastest product ramp in company history, generating $11 billion in its first quarter.
But CEO Jensen Huang sees this as just the beginning. As AI accelerates, he framed NVIDIA’s role in defining the future. This isn’t just about faster chips—it’s about a fundamental transformation in computing. Huang pointed to the rise of AI reasoning models, requiring 100x more compute power than today’s AI models. Demand isn’t slowing—it’s accelerating into a new phase.
“The next wave is coming, agentic AI for enterprise, physical AI for robotics, and sovereign AI as different regions build out their AI for their own ecosystems.”
Investors shrugged at another record-setting quarter. Why? Expectations are now sky-high. Even a $1.2 billion revenue beat was NVIDIA’s smallest since early 2023.
With AI reshaping entire industries, hyperscalers spending tens of billions, and NVIDIA still at the center of it all, one question looms:
How long can NVIDIA stay untouchable?
Today at a glance:
NVIDIA’s Q4 FY25.
Three scaling laws.
Key quotes from the call.
What to watch looking forward.
NVIDIA’s fiscal year ends in January, so the latest quarter is Q4 FY25. I’m focusing on sequential growth (quarter-over-quarter), which better represents the momentum.
Income statement:
Revenue jumped +12% Q/Q to $39.3 billion ($1.2 billion beat).
⚙️ Data Center grew +16% Q/Q to $35.6 billion.
🎮 Gaming declined by 22% Q/Q to $2.5 billion.
👁️ Professional Visualization grew +5% Q/Q to $0.5 billion.
🚘 Automotive grew +27% Q/Q to $0.6 billion.
🏭 OEM & Other grew +30% Q/Q to $0.1 billion.
Gross margin was 73% (-2pp Q/Q), in line with guidance.
Operating margin was 61% (-1pp Q/Q).
Non-GAAP operating margin was 65% (-1pp Q/Q).
Non-GAAP EPS $0.89 ($0.04 beat).
Cash flow:
Operating cash flow was $16.6 billion (42% margin).
Free cash flow was $15.5 billion (39% margin).
Balance sheet:
Cash and cash equivalents: $43.2 billion.
Debt: $8.5 billion.
Q1 FY26 Guidance:
Revenue +9% Q/Q to $43.0 billion ($1.0 billion beat).
Gross margin 71% (-2pp Q/Q).
So what to make of all this?
NVIDIA’s AI dominance continues, but expectations are higher than ever. The company delivered another strong quarter, beating revenue estimates by $1.2 billion. However, this was the smallest beat since early 2023, reinforcing that the law of large numbers is setting in.
⚙️ Data Center remains the growth engine, contributing 90% of total revenue. However, margin pressure intensified due to the high cost of scaling production and a shift to next-gen architectures.
⚡ Compute: Demand for Hopper GPUs remained strong, but Blackwell’s rollout stole the spotlight, contributing $11 billion in first-quarter sales.
🔌 Networking: Revenue remained lumpy, with another sequential decline. However, Spectrum-X Ethernet solutions for AI continued to gain traction. Management expects a return to growth in Q1 FY26. The first Stargate data center will notably use Spectrum-X.
🎮 Gaming: Revenue declined 22% sequentially to $2.5 billion, reflecting supply constraints following a strong Q3 FY25. The segment is expected to rebound next quarter.
👁️ Professional Visualization: Revenue grew 5% sequentially to $511 million, with AI-driven workflows and Omniverse adoption driving demand, notably in automotive and healthcare.
🚘 Automotive: Revenue jumped 27% sequentially to $570 million, fueled by increasing adoption of autonomous vehicles and digital cockpit solutions. Toyota, the world’s largest automaker, will build its next-gen vehicles on NVIDIA Orin.
💡 The AI demand narrative is evolving. CEO Jensen Huang emphasized a shift toward AI reasoning models, which require far more computing power. Despite concerns over DeepSeek’s efficient AI model, Huang argues this trend actually expands NVIDIA’s long-term opportunity—reasoning models could require up to 100x more compute.
📉 Margins took a hit. Gross margin dipped 2 percentage points sequentially to 73% as Blackwell production ramped up. Management expects further compression to 71% in Q1 FY26 before stabilizing in the mid-70s later in the year.
🔮 The outlook remains strong but no longer shocking. NVIDIA guided for 9% sequential revenue growth next quarter, slightly above expectations. While impressive, it’s a slowdown from previous quarters, reflecting tougher comparisons. Data Center and Gaming will drive sequential growth in Q1.
⚠️ Risks are emerging. Beyond slowing beats, NVIDIA faces growing competition from AMD and custom AI chips built by hyperscalers like Amazon, Microsoft, and Google. Tariff uncertainties could also impact future sales, with potential new US trade restrictions on AI chip exports.
Big picture: NVIDIA is still at the heart of the AI boom, but the days of effortless upside surprises may be fading. Blackwell’s rapid adoption and AI’s shift to reasoning models remain tailwinds, but margin pressure, competition, and geopolitical risks are worth watching.
NVIDIA faced its biggest AI scare yet when Chinese startup DeepSeek unveiled an AI model trained with far fewer GPUs, triggering a ~17% sell-off in one day for NVDA. Investors worried that AI development might shift away from NVIDIA’s power-hungry chips. But Jensen Huang flipped the narrative, arguing that DeepSeek’s approach could actually increase long-term demand.
Huang’s take:
“We've really only tapped consumer AI and search and some amount of consumer generative AI, advertising, recommenders, kind of the early days of software. […] Future reasoning models can consume much more compute.”
DeepSeek-R1, he said, has “ignited global enthusiasm” and will push reasoning AI into even more compute-intensive applications. In short, NVIDIA’s chips aren’t getting sidelined—they’re becoming even more critical.
Huang laid out a new framework for understanding AI’s growing compute needs, highlighting three distinct scaling laws:
Pre-training scaling: The traditional scaling law, where AI models grow smarter by consuming more data. Multimodal learning and reasoning-based data are now enhancing this phase.
Post-training scaling: The fastest-growing compute demand, where AI refines itself using reinforcement learning (both from human and AI feedback). Huang noted that post-training now requires even more compute than pre-training, as models generate vast amounts of synthetic training data.
Inference & reasoning scaling: The biggest shift ahead, where AI performs “long thinking” through techniques like chain-of-thought reasoning and search. Huang emphasized that test-time compute (inference) already demands 100x more compute than early LLMs—and could eventually require millions of times more.
Huang positioned Blackwell as the first GPU designed specifically for this new AI paradigm. The architecture is built to handle pre-training, post-training, and inference in a unified, flexible data center environment. AI isn’t just getting bigger—it’s thinking deeper. Each phase now demands exponentially more compute, reinforcing why NVIDIA’s dominance in AI hardware could be here to stay.
“Q4 data center compute revenue jumped 18% sequentially and over 2 times year-on-year. Customers are racing to scale infrastructure to train the next generation of cutting edge models and unlock the next level of AI capabilities.”
Kress provided updates on the three major customer categories:
☁️ Cloud Service Providers (CSPs): Contributed ~50% of Data Center revenue (unchanged sequentially), with hyperscalers like Amazon, Microsoft, Google, and Oracle racing to meet customer demand for AI. Data Center revenue from CSPs has nearly doubled year-over-year.
💬 Consumer Internet Companies: Meta is the elephant in the room here, with Llama models, the Meta AI assistant, and deep learning recommender engines to serve ads (Andromeda) and improve monetization and ROI. Management also called out xAI and its Grok 3 model. This category has surged 3x year-over-year.
🗄️ Enterprise: GenAI apps and co-pilots are flourishing across healthcare, education, and robotics. Kress called out the automotive vertical, which is expected to grow to $5 billion in FY26. This category will become the largest over time with physical AI and robotics.
“Blackwell sales exceeded our expectations. We delivered $11 billion of Blackwell revenue to meet strong demand. This is the fastest product ramp in our company's history, unprecedented in its speed and scale. […] With Blackwell, it will be common for these clusters to start with 100,000 GPUs or more. Shipments have already started for multiple infrastructures of this size. Post-training and model customization are fueling demand for NVIDIA infrastructure and software as developers and enterprises leverage techniques such as fine tuning, reinforcement learning, and distillation to tailor models for domain-specific use cases.”
NVIDIA’s management wants to educate investors on the role played by its chips and software beyond training.
“Blackwell was architected for reasoning AI inference. Blackwell supercharges reasoning AI models with up to 25 times higher token throughput and 20 times lower cost versus Hopper 100. It is revolutionary. […] Many of the early GB200 deployments are earmarked for inference, a first for a new architecture.”
“As a percentage of total Data Center revenue, data center sales in China remained well below levels seen on the onset of export controls. Absent any change in regulations, we believe that China shipments will remain roughly at the current percentage. […] We are awaiting [the US government’s] plan—its timing, its where, and how much.”
NVIDIA’s China sales have already been cut in half, and new US tariffs and export restrictions could hit even harder. The Biden administration curbed AI chip sales to China, and Trump has suggested further tariffs on Taiwan-made semiconductors—potentially impacting NVIDIA’s supply chain. The risk? NVIDIA’s data center dominance is heavily reliant on global supply chains. Any disruption could slow growth and squeeze margins.
NVIDIA maintained its aggressive buyback pace in Q4:
$9.5 billion in FY24.
$33.7 billion in FY24.
Q1: $7.7 billion.
Q2: $7.2 billion.
Q3: $11.0 billion.
Q4: $7.8 billion.
While this signals management's confidence in the company’s prospects, some investors might question whether the current cash influx would be better spent on R&D, M&A, or other growth initiatives to sustain long-term growth.
We recently reviewed hedge funds’ top picks in the latest 13F filings.
Altimeter increased its NVDA allocation by 5% (now 19% of the fund), but the stock was mostly absent from other Q4’s top buys.
The trend? Funds aren’t buying NVIDIA as aggressively as before, but they’re not selling either—NVDA remains one of the most widely held stocks.
Here are the current forward PE ratios (via Ychartz):
Apple 33.
Microsoft 30.
NVIDIA 30.
AMD 22.
NVIDIA’s valuation reflects its rapid earnings growth. With $22 billion in net profit in Q4 (+80% Y/Y), this isn’t a dot-com-style bubble like Cisco in 2000—the profits are real, and fundamentals remain strong.
If you’re a regular reader, you already know the key risks, but let’s reiterate the most pressing concerns:
Cyclicality and volatility: NVIDIA’s forward earnings rely on sustained AI demand. The semiconductor industry has historically been cyclical, and shortages often lead to oversupply. Could we see an AI chip glut?
High customer concentration: NVIDIA’s biggest buyers are also building their own AI chips. A shift to internal solutions could impact long-term demand.
Geopolitical uncertainty: Due to export restrictions, NVIDIA’s China sales have already been cut in half. US tariffs on Taiwan-made semiconductors could squeeze margins or disrupt supply chains.
Jensen Huang laid out a three-layer AI transformation unfolding across industries:
💬 Agentic AI (Enterprise AI): AI copilots and automation tools that enhance employee productivity in industries like automotive, finance, and healthcare.
🦾 Physical AI (AI for Machines): AI-powered training systems for physical objects, from robotic warehouses to autonomous vehicles.
🚖 Robotic AI (AI-powered systems in the real world): AI that interacts with and navigates physical environments, such as self-driving cars and industrial robots.
Huang believes enterprise AI will eventually outgrow hyperscaler demand as AI transforms both digital and physical industries.
“No technology has ever had the opportunity to address a larger part of the world's GDP than AI. No software tool ever has.”
Huang isn’t just talking about AI’s potential—he’s framing it as the biggest economic shift in history. Unlike past software revolutions, which digitized existing workflows, AI is creating entirely new industries while reshaping every sector, from manufacturing to healthcare.
For NVIDIA, this isn’t just about selling chips—it’s about powering the intelligence layer of the global economy.
That’s it for today!
Stay healthy and invest on!
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Disclosure: I own AAPL, AMD, AMZN, GOOG, META, and NVDA in App Economy Portfolio. I share my ratings (BUY, SELL, or HOLD) with App Economy Portfolio members.
Author's Note (Bertrand here 👋🏼): The views and opinions expressed in this newsletter are solely my own and should not be considered financial advice or any other organization's views.