In case you missed it:
a. General Market Thoughts
Entering Q1 earnings, trade and tariff drama led to plummeting expectations, soaring anxiety and volatile markets. Negative guidance revisions were seen as inevitable, so anything better than that was generally rewarded. For Q2, the backdrop was starkly different. Indexes aggressively bounced-back, with individual names doubling in the span of a quarter and multiples zooming higher. That pattern has generally continued into the Q3 print. Rallies have gotten even more dramatic, and we’ve seen that led by the lowest-quality, least profitable and most speculative names that Mr. Market has to offer. Multiple expansion has continued to rage and animalistic spirits have grown more pronounced.
But there’s some encouraging nuance as we head into this season. I see this mania more confined to market pockets than it was in 2021. It’s the AI infrastructure darlings, data center energy players and quantum researchers where the froth seems the most obvious. Many of them are pre-revenue, with immensely risky investment cases and sky-high valuations that don’t account for all of that real risk.
It’s hard to find anything close to that same level of excitement elsewhere. And? I do not think that this dose of market froth is nearly as broad-based as it was during the pandemic bubble. So while I do think the high-fliers come with terrible risk/reward today… I don’t think that applies to the majority. And I don’t think it applies to enterprise software, consumer internet or consumer discretionary, which are the sectors that we mainly focus on. While those areas felt overly excited entering Q2, that’s not true for Q3.
I expect the areas that I focus on to deliver generally strong results that lead to small upward estimate revisions and brightening market sentiment. There are very strong and healthy names trading at highly compelling valuations. There is deep relative value to be found in this market and the craziness hasn’t extended to everything. At least not yet. With that in mind, the word I would use to describe market conditions today is bifurcated.
I do think there is room for positive data to be rewarded for most of the portfolio. And while that’s not crucial for the long-term investor like myself, I think it’s still relevant. It leaves me with a compelling setup for the quality firms that continue to fundamentally deliver. Either these quality names see their stocks go up and I make money. Or? The results are shrugged off, multiples contract from an already enticing starting point, I accumulate and make money later.
One more note before we begin. I am about to do a ton of prognostication. Some of that speculation, especially when it pertains to share price reaction, will inevitably turn out to be wrong. As always, I will likely use disconnects between financial strength and share price weakness to build out positions in companies. These are educated guesses based on inter-quarter data and news – with the takes on how actual data will look being more important than how Mr. Market will immediately react.
Here is how portfolio performance looks heading into the busy season:
b. Level-Setting Expectations for Each Portfolio Holding
1. Starbucks (SBUX)
Last quarter gave us the clearest turnaround signs yet. Despite some quick service sector weakness, this quarter should mark continued positive revenue growth, and should be the final quarter of sharp Y/Y profit contractions. From there, I expect throughput momentum, successful product launches (like the protein cold foam) and astronomically better leadership to keep this company on a promising track. And I I anticipate that the 20%+ EPS growth expected for 2026-2027 will become more obvious to the masses. The actual headline numbers will probably make an explosive share price reaction unlikely, but I expect the company to stay on a favorable path.
2. Cava (CAVA)
Quick service as a sector remains challenged, but I expect Cava to keep comfortably outperforming its peers and taking more market share. Comps will remain very tough due to an overwhelmingly strong 2024 for new stores and its steak launch. When considering these obstacles in tandem with how good of a company/team this is, I think results will be more or less in line with expectations. I think guidance will be reiterated. I think they’ll fare better than most. There could be some modest upward revisions if their previous forecast was pessimistic enough, but I’m not expecting anything explosive. I’d love to use any continued share price pressure to keep building out this stake. It has gotten far more reasonable in recent quarters, which is why I’ve begun to build out the position. I’d like to see it get a bit cheaper before I resume buying.
3. Mercado Libre (MELI)
The noise surrounding the Brazilian competitive environment was as loud this quarter as it has been in years. I expect MELI’s beloved brand, best-in-class fulfillment, cross-selling machine and unmatched assortment breadth to overcome these competitive headwinds. I don’t think Amazon running yet another seller promotion in the region is at all a reason to grow nervous. I don’t think Sea Limited’s continued push into the region is either. Brazil and LatAm e-commerce are a large and relatively untapped opportunity. Of course there’s competition. I expect MELI’s profitable growth engine to keep zooming, perhaps with some modest short-term margin pressure related to fulfillment investments to stay ahead of the pack. It’s rare that sentiment gets so negative for a name like this, and I don’t think this will prove to be connected to actual fundamental weakness. If that’s true, this quarter should be a lot better than feared and should go a long way in calming investor nerves. There’s a good chance the stock would follow suit and meaningfully recover if that happens.
4. Nu (NU)
I expect more of the same from Nu: An excellent quarter. None of the LatAm risks hitting MELI right now are related to credit health. They’re all related to rising e-commerce competition, which does not impact Nu. The press release they recently published on Mexico points to durably explosive growth in that region. Colombia should be no different and they keep dominating in Brazil too. I’m excited about more global expansion. More cross-selling, successful product expansion, sticky deposit growth, rapid demand generation, blistering pace of margin expansion, and pristine balance sheet health. That is my expectation for a name trading at 25x forward EPS.
5. Coupang (CPNG)
I expect another strong quarter from Coupang. Last quarter, they surprised investors a bit with Taiwan commentary and a commitment to accelerate spend there based on promising demand signals. That was exciting to me, but did lead to negative profit revisions. That decision is now known, estimates have adjusted and there’s likely no large negative profit surprise coming in this report. What will come is steady core product growth, effective category expansion, impactful geographic expansion and, generally speaking, continued execution. They’ll keep showing how dominant and tight their grip is on a Korean e-commerce market that still has plenty of room to run. And they’ll do so while demonstrating how extensible their model is in other regions. That’s my view.
6. SoFi (SOFI)
I expect a great quarter for SoFi too. Everything we’ve heard from leadership during the quarter has indicated outperforming results. Great data from big banks and Lending Club adds to my confidence and a few cases of irresponsible actors in the subprime auto space don’t shake that. Their customer is too affluent, their underwriting is too strict and their commentary is too upbeat for that to be the case. I’m excited to see how crypto, cheaper money transfers and options impact the financial services segment and think all 3 of those products can quickly become material to results. That should provide upside vs. current company expectations and should be joined by more fantastic momentum across lending. The tech platform commentary in recent months has gotten better, and that should begin to translate into meaningfully faster growth as we move into 2026. With all of this said, the stock is up over 200% since April. The multiple has expanded from ridiculously cheap to somewhere between moderately cheap and fair. Do not be at all surprised if Mr. Market shrugs off a fantastic quarter.
7. PayPal (PYPL)
Commentary during the quarter from leadership likely means results will be roughly in line with expectations or perhaps a tad better. Braintree growth is set to resume, Venmo growth keeps accelerating and PayPal growth has stabilized.
And while that’s all good for a company trading under 10x FCF, I think investors are focused on 2026. There’s a large gap between what a candid, accurate PayPal leadership team has guided to for 2026 vs. what analysts currently expect. Analysts are highly skeptical of the durable acceleration the company has told investors to expect. If management is right, there’s likely a lot of upside here. With the old PYPL team, taking their guidance seriously was a fool’s errand. With this team, it has been the correct decision. They take meeting targets very seriously and have consistently done so since CEO Alex Chriss took over. If leadership is wrong about this coming, the company will remain in the same penalty box it has been in for 3 years. Clarity on whether PayPal is still on track for 2026-2027 is what I’m personally most fixated on. And I’m optimistic.
8. Lemonade (LMND)
The quarter should be strong. It should mesh with what I’ve grown to expect over the last few years… leadership promises made and leadership promises kept. The trends I’ve been so excited about should again be on full display… accelerating gross earned premium (GEP) growth, unmistakable underwriting improvements, robust cross-selling momentum, more car expansion and steady margin progress with flat fixed costs. With the stock up nearly 200% in a year, I’m not confident that all of this success will immediately lead to a more explosive stock price. It’s possible, but it’s not overly important to me. What is important is that all the reassuring things Lemonade has consistently done since 2022 should remain firmly intact. And, if that’s the case, my bullishness will too.
9 & 10. Shopify (SHOP) & CrowdStrike (CRWD)
The conversation for these two names is identical. All of the sell-side data we’ve seen this quarter has been great for both. The ChatGPT integration is exciting for Shopify, while the jam-packed CrowdStrike Investor Day was too. These companies, with their world-class teams and product suites, are firing on all cylinders. Shopify is fully past its fulfillment failure and CrowdStrike is fully past its July 2024 outage. They’re both back to being world-class vendors, Wall Street darlings and future blue chips. There is nothing to do but praise the elite fundamentals they’re both delivering. But? Both fetch expensive price tags that reflect all of that and more. I expect two strong quarters, and I think the most likely outcome is that neither stock cares in the least. They’re both priced for perfection and they both need to cool off, in my opinion.
11. Duolingo (DUOL)
Noisy quarter incoming. The AI-first backlash that led to them pausing social media virality is still affecting them. They have not been able to recover all of the positive sentiment they lost, and engagement metrics have not fully bounced back. They’re encouragingly beginning to, but not in time to avoid likely user growth weakness in Duolingo’s Q3 report. That’s what I expect and what pretty much everyone expects at this point. It’s known. I’ll be very focused on forward-looking commentary like user growth guidance to gauge whether or not this issue simply needs more time to revert or is more structural than leadership thinks. I’m optimistic that it will be temporary and business as usual after this quarter. If that commentary is good and I’m comfortable with Duolingo being through this rough patch, I’ll likely add into any potential share price weakness. Who knows if that comes. Don’t be surprised if seemingly underwhelming results are still rewarded by markets in a “better-than-feared” fashion.
12. DraftKings (DKNG)
Noisy quarter incoming for DraftKings as well. Outcome luck means they’ll probably miss guidance, but that’s not what matters from this upcoming report. Investors will be tightly focused on any signs of prediction markets taking share or not. We will all be fixated on state-level volume data as the potential evidence. The data we have access to has looked quite good and we’re about to get a lot more of it. I think DraftKings will revise 2025 numbers lower, say that’s entirely related to outcome luck and continue talking about a strong 2026. I think they’ll remain optimistic on the superiority of their product and competitive positioning. I just don’t know if investors will believe them or care (for now), considering everyone is convinced that prediction markets are killing them. Regardless of whether or not that’s actually in the data we track, that’s how many feel. While I think they’re off-base, proving the doubters wrong will take time. If they keep progressing towards nearly $2B in 2027 FCF, I will stay as patient as I need to be. Results will take care of that putrid sentiment eventually.
13. Uber (UBER)
I think results will come in roughly in line with expectations and guidance will too. This is not the kind of name that massively outperforms quarterly expectations. At the same time, it is a name with a very reasonable multiple, large and growing market share, an unmatched product suite and subscription, 15%+ growth at massive scale and increasingly healthy margins. It’s a name with a best-in-class network effect, best-in-class driver earnings and best-in-class customer wait times. That’s a lot of best-in-class and is what will continue to matter (alongside more signs of being a deeply entrenched player in the AV revolution). I expect more marvelously boring execution for this great company.
14. Meta (META)
Sell-side data has been reasonably strong for social media and digital advertising more broadly speaking. I do not think Sora (OpenAI’s new AI video sharing app) will have any kind of material impact on Meta’s guidance and think its performance will remain excellent. The only thing to keep an eye on is 2026 expense guidance and if that’s dramatic enough to upset some people on the street. Zuck is just 3 years removed from infuriating investors with his insatiable metaverse spending, so I don't see that mistake being repeated here. And furthermore, this massive CapEx would come while the core business is thriving. In 2022, it came while that core business was structurally challenged by Apple targeting restrictions and TikTok’s entrance.
15. Amazon (AMZN)
Very important quarter incoming for Amazon. They need to offer commentary that makes the world confident in an Anthropic-led AWS acceleration starting in Q4. They need to get capacity online more quickly to show the world they’re not falling behind in AI – just in capacity growth. It’s a negative that they’re falling behind in capacity, but that’s a lot more fixable than core capabilities. The tariff risk for the marketplace is entirely understood at this point and Amazon baked in a considerable headwind for Q3 guidance. They do love to sandbag (especially for EBIT guidance) and that could have been used as an easy excuse for them to massage sell-side expectations lower and set themselves up for an easier quarter. While that’s nice… again… AWS accelerating is what matters the most. Their e-commerce dominance is fully intact and this is the segment that needs to show strength.The company is near decade lows for forward valuation, and AWS health could easily change things.
16. Alphabet (GOOG)
Google has clearly gotten its mojo back. There are rumors of a giant $120B-$125B CapEx guide for 2026, which would be seen as a negative for FCF generation and a positive for forward-looking demand. Unpacking that debate (if the rumor is true) could lead to Mr. Market shrugging off a great quarter after an aggressive stock run.
Generally speaking, sentiment has fully recovered for this titan. It’s amazing what leads across several structural growth categories can do. Data for search has been very good in recent months/weeks, while YouTube data has been equally good and the new Anthropic deal adds another chunk to the cloud business.
17. The Trade Desk (TTD)
This is going to sound a lot like my coverage on the name for the last 3 months. It’s hard to think of a more important quarter for Trade Desk than this upcoming report. The doubters have fully emerged and grown quite large. They do not believe in CEO Jeff Green’s 2026 acceleration. They think Amazon is destroying the firm’s competitive positioning and pricing power. They do not have faith in this company. I still do. They’ve given me 10+ years of reason to trust their words over short-sighted sell-side analysts. They’ve demonstrated for well over a decade that they deliver superior return on ad spend (ROAS).
That is the single most important factor for winning competitive deals and fetching a fair margin on those deals. Amazon can try to offer promotions or undercut on a fee here and there, but advertisers will flock to whoever wins the ROAS fight. That’s what will make them the most money and deliver the most growth to show off to their stakeholders. Not a discount for 6 weeks. Google tried and failed to outcompete Trade Desk for years with aggressive promotions and predatory selling practices. I think Amazon will try and fail as well. Both of them will continue to have massive and growing ad businesses within their own properties, but in the open internet, I think TTD will re-establish themselves as king once more. They’ll remain one of the go-to conflict of interest-free players in a truly gigantic industry. And they’ll see growth meaningfully accelerate accordingly as Kokai fixes take hold, comps get much easier and the new leadership team executes. Furthermore, I think guidance was aggressively sandbagged to set the new CFO up for success (which management explicitly hinted at in sell-side interviews) and I think this company is about to prove a lot of doubters wrong. We shall see.
18. SentinelOne (S)
Last quarter’s net new ARR number was quite encouraging and could show that this firm – with its great tech, expanding suite and revamped go-to-market – is turning a corner. That’s what I expect and that’s what I need to see to remain a shareholder of this company. With the massive valuation discount for this name vs. all other peers, simply stabilizing the growth engine while margins keep exploding higher could go a long way in turning the narrative for this name. They need to keep successfully cross-selling more products and expanding up-market. If they can do that, this investment should work very well from here and I will remain a patient shareholder.
19. Zscaler (ZS)
Because of how much of ZS’s business is partner sourced, channel checks are especially relevant for this company. And they’ve uniformly been good throughout the quarter. I expect these results to look a lot like ZS’s other quarters. More brisk growth with expanding margins and modest upside vs. consensus results. The scheduled billings debate (which really should not have been a debate) is now resolved as ZS turned contracted, non-cancelable contracts into billings as expected. That momentum should keep yielding great results for the foreseeable future and this company should remain a primary vendor in the budding network, AI and cloud security spaces.
