ThePeachPit Model Portfolio Vol. XXXV: Business Viability = Growth

Operational update: I will be changing the nameplate of ThePeachPit in the coming weeks and will announce the name closer to the date. As this publication and my planned move to managing a book of business in the coming year matures, a more professionally named entity will be necessary. Nonetheless, you will still receive the same high-quality research written by yours truly.

This week will be somewhat of a busy week for economic updates and earnings. This week’s economic calendar includes the S&P/Case-Shiller Home Price index and JOLTs Job Openings earlier this Tuesday morning. Wednesday will provide us with the updated GDP growth rate figures. The forecast for the GDP growth rate is 3%, a shift to reaccelerated growth when compared to the previous two quarters.

Core PCE will also be released on Wednesday with estimates calling for a decline of 2.10% growth. This Friday will be exceptionally busy with NFPs, unemployment, and the S&P Global Manufacturing PMI Index printing results.

Though these factors may be impactful for the market in the near-term, the election is only a week away and will be a much greater catalyst for market movement, net of earnings.

On the earnings front, the Mag7 will begin reporting today after market close. For the most part, I’m not expecting too much excitement coming out of the hyperscalers. Google kicks it off this afternoon AMC and will likely be defending its position for search and AI as search competitors like Perplexity storm in on the firm’s market share. For those that haven’t used the search app, I highly recommend it as it came highly recommended to me. The app provides an unbiased search result with data sources. As far as I’m aware, the app doesn’t hallucinate like other GenAI applications and provides data that can easily be traced back to the original source.

Microsoft will report on Wednesday. Given that Nvidia Blackwell GPUs are sold out for the next year, I suspect that Microsoft’s capital outlay will remain strong with durable demand for power consumption to accommodate training and inferencing.

Meta Platforms will also be reporting on Wednesday. I’ll be providing post-earnings commentary and initiate coverage in next week’s newsletter.

Amazon will report on Thursday. I suspect that the firm may face some pressure on the consumer side that will be offset by strength in AWS consumption. In its last earnings call, Amazon reported a major rotation to lower-cost items at its webstore, suggesting that consumers are stretching the dollar as much as possible while maintaining a certain quality of life.

Apple also reports on Thursday and may provide some lackluster guidance to its AI-enabled handheld device. There is chatter that the AR/VR headset has experienced weak sales and will likely experience volume curtailment as a result.

Nvidia will be reporting earnings later next month. Tesla reported q3’24 earnings last week.

Tesla (NASDAQ: TSLA)

Tesla Outperforms In The Face Of Global Automotive Decline (Rating Upgrade)

Tesla reported earnings last week with an upbeat report on top- & bottom-line improvements. Despite a narrower automotive segment, Tesla experienced a strong tailwind in its energy & storage segment with a significant improvement in margins.

I know Tesla is a story of the future; however, I’m quite excited to see how the company brings its vision to fruition. Looking from the outside in, Tesla appears to be developing a complete autonomous ecosystem that can potentially be self-sustaining. Bringing the compute power in-house with a 50,000 GPU AI factory, Tesla can potentially leverage its Starlink networking capabilities across its vehicle fleet, and inevitably its humanoid robot fleet, and power the robotic labor force with its solar panels and battery packs.

QuantumScape (NYSE: QS)

QuantumScape May Face EV Adoption Headwinds When It Comes Time To Produce

QuantumScape also reported earnings late last week with a major update in its operational viability. The next-generation automotive battery designer is moving forward with its next round of test batteries at the automotive OEMs and is in the process of implementing its high-volume process for cell manufacturing. Despite the company’s directional improvements, QuantumScape remains pre-revenue and continues to generate a substantial net loss. Assuming no additional equity raises, the firm has under two years of cash on the balance sheet.

The firm faces macroeconomic challenges as the EV hype cycle has waned. European OEMs and battery plants are facing crises of their own and are drastically scaling back operations in an attempt to retain cash. QuantumScape’s success will be dependent on properly timing the market for the next cycle; that is, if it comes. Hybrids are in; EVs are out.

Digital Realty (NYSE: DLR)

Digital Realty Has Huge Repricing Potential In 2025

I updated my guidance on DLR going into q3’24 earnings. The data center operator is front and center of the next generation of compute. I have reason to believe that DLR holds more value than one may perceive as a hosting site given that power generation is constraining the true growth potential of the industry. I’m forecasting that this may put a squeeze on rates going forward until additional capacity is built out. Given that the hyperscalers are seeking to leverage nuclear energy to fulfil baseload capacity, the growth era will likely be pushed back to 2030-2035. DLR reported AFFO in q3’24 at $1.52/share, right in line with my estimate, and has updated its guidance for the duration of eFY24 for adjusted EBITDA and core FFO.

Seagate (NASDAQ: STX)

Seagate Technology Is Well Positioned For The Last Half Of The Upcycle

I initiated coverage of Seagate post-q1’25 earnings last week. The firm appears to be at the midpoint of the next upcycle for storage expansion going into the beginning of its 2025 fiscal year. Though management doesn’t guide much on growth, using my analyses of HPE and Dell Technologies would suggest that storage is in the early stages of being ramped up in tandem with general compute servers. If the next server refresh cycle takes shape in the coming year, Seagate will be well-positioned for this upcycle.

The firm built up a significant amount of inventory in q1’25 with the intention of managing it down throughout the duration of eFY25. This will result in a major tailwind for free cash flow generation for the year.

Nucor Corporation (NYSE: NUE)

Nucor's Near-Term Growth May Depend On Public Policy

Nucor reported earnings on October 22, 2024 that sent shares down -8% on lackluster results. The firm is expanding production while moderating volumes in the near-term to position itself for the potential expansion of infrastructure and construction work. The challenge Nucor faces is the timing of shovels on the ground as it appears that minimum funding through the IRA and IIJA has been deployed thus far. One factor that must be considered is whether these potential cash injections will remain if there is a change in administration this coming presidential election.

Netflix (NASDAQ: NFLX)

Netflix's Ad-Supported Tier Is Its Key To Accelerated Growth

Netflix reported strong q3’24 earnings as subscription growth held steady. The firm is well-positioned for an acceleration in growth for its ad-supported subscription tiers as it expands into live events, including two Christmas Day NFL games, the Paul Vs. Tyson fight, and the installment of weekly WWE matches. This will likely pull forward the necessary critical mass to bring in monetization of its channels, providing an impactful breakeven to growth for the ad-supported tier.

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