VIDEO: Assessing the Pressure on 2 Portfolio Holdings

Chris Versace gives his take on the June CPI and PPI reports, and explains why, given the rebound in oil and gas prices so far in July, the Pro Portfolio is more focused on next week’s Flash July PMI data.

We also dig into what’s pressuring the shares of Arista Networks (ANET) and Marvell (MRVL) today and explain why Thursday’s quarterly results and guidance from Taiwan Semiconductor (TSM) will be a must watch for AI and data center, and several holdings in the Portfolio.

Chris closes out the video with some quick comments on Morgan Stanley (MS) and Bank of America (BAC). 

At the time of publication, TheStreet Pro was long ANET, BAC, MRVL and MS.

Transcript

Hey everybody, Christopher Versace, and it is Wednesday, July 15^th. I hope you enjoyed our podcast conversation yesterday with Conexeu, an interesting company, early stage, but some potentially promising developments in the next few years in the area of wound core wound care anesthetics. If you didn’t listen to the podcast, I would encourage you to do so or at least thumb through the transcript of the conversation. Again, I think you’ll find it rather interesting. 

But let’s talk about today. Wednesday, like I said, middle of the week. Markets are modestly higher as I tape this conversation. what but what are we seeing? Renewed conflict between the US and Iran. And yes, oil prices are still moving higher yet again. If we draw back over the last few weeks, they’re really up about 20% or so off their recent lows. And if we look at the AAA data, we are starting to see gas prices rebound as well.

The context on this is that they are still down, oil prices, gas prices, down big from where they were before, but they are rebounding. And of course, for us, the key, as I talked about in our comments the last two mornings, is that the duration of the renewed conflict, the duration for the closure of the strait, that is going to be something we monitor very, very closely because that renewed disruption is  what’s moving oil prices higher than we’ve already seen. Same thing with gas prices. 

The longer the duration goes on, the greater the pain point, the greater the pain point, the more likely we’re to see oil, petrochemical, and other prices rebound higher than where they are today. So, as we think about that, yes, the market was a little excited by the softer than expected June CPI report we got yesterday and today’s June PPI report, similarly, for the most part, a little softer than expected, although core PPI on a year-over-year basis ticked higher month over month, ever so slightly. And yes, it was below what the market was expecting. But again, even after the downward revision on the May numbers, it was still slightly higher. 

Now, our thinking on all of this is that given the rebound that we’ve seen in oil prices, diesel prices, and others, which were the biggest factors cited in the drop in PPI for June, this rebound has us paying very close attention to the report we’ll get next week. I’m referring to the Flash July PMI report and what it says about inflation. We will be looking at it for everything else – orders, employment, and what it says about the overall speed of the economy. But in this case, we will be paying very close attention to inflation pressures, input pricing, output pricing. 

And I say output pricing because when we sift through the PPI report, outside of oil, diesel, gas, there were areas where we saw continued price increases, like for plastics and chemicals. And I don’t know if you saw it, but this morning, chemical company BASF raised its outlook for the year because of the because of the chemical price increases it put through as a result of the US-Iran conflict. So it tells us that we are going to see the impact in certain areas of inflation continuing, and companies will be benefiting from that. So we’ll continue to look for opportunities in and around for the portfolio.

Near term for us, what we see in next week’s July Flash PMI is gonna be as important, arguably more important, than the back-to-back inflation reports that we got yesterday and today. 

Now, let’s turn and talk about some portfolio happenings. out of the gate, I want to talk about Arista Networks. stock has had a very, very good run, but the shares are falling today. Last I looked around 6% or so.

The “catalyst” that we’ve identified is that the reports of some insiders selling, that’s what’s hitting the shares. the report that we uncovered is that the chairman and CEO disposed of some shares. But here’s the thing: two things actually. One, the selling is part of a 10B5-1 plan that went into effect last November, which means that the decision was not really in the hands of the CEO. second, even after the trades that were made.

The CEO, who’s also the chairman, still has a substantial portion in in the shares spread across multiple trusts. if you’re interested in learning a little bit more, you can go to the SEC website, sc.gov, type in ANET, and just look for the ownership section. You’ll see exactly what I’m talking about. I would say this when we think about Arista Networks, they have been strong. Why have they been strong?

Well, think about the comments of late from Micron, SK Hynix, Samsung about adding capacity. Think about the comments we talked about in earlier today from ASML about the strength that it is seeing relative to AI and data center. There are multi-year contracts being inked. There are capacity constraints that need to be addressed, demand is very robust and tells us that the oncoming demand for networking equipment, networking chips, like those from Arista Networks, Marvell, Broadcom, NVIDIA, should also be very robust. 

And with that, I would just say some folks might focus a bit much on that selling, even though it was from a 10v5-1 plan. But I would say that perhaps, folks should listen a little bit more about what UBS had to say about Arista Networks yesterday. So, what did they say? Here it is. 

Arista has benefited from broadening and deepening its relationships with hyperscalers and neo clouds, which we believe will drive revenue and earnings above estimates. Again, that’s UBS. They went on to say we expect the company to increase its calendar year 2026 revenue guide to around 33% growth from 27.5%, which was its last guidance, owing to the building strength in orders and accelerated product deferred revenue over the past year. 

Now we see that as if there’s an acceleration in Arista Network’s revenue, that means that there is more AI and data center capacity coming on stream. That’s a good thing for a few different areas. One, remember that one of the key customers from Arista Networks, Microsoft, that probably means that they’re going to be able to monetize their massive RPOs at a quicker pace than some folks are expecting. That is obviously very good for the shares. It also means that demand for AI networking chips should rise as well. For us, that reinforces our view as to why we added some additional shares of Marvell yesterday.

It also reinforces the notion along with the H200 comments we shared with you this morning that NVIDIA share, despite everything that you have seen, when you look at them on a PE to growth basis or peg basis, they are still relatively inexpensive. Hence, we are maintaining our one rating on that. But getting back to Marvell, the shares are down today. 

Why is that, given all that I said? Well, they were downgraded over at Erste Bank to a hold, which I’m kind of scratching my head at, because if you look at all the demand side comments and the fall in the share price, you would have to ask yourself, Erste Bank.

Why now? 

We were correct in lightening up on our Marvell shares and saying that we would look for a spot to pick up more shares, which we did yesterday. But to me, to downgrade the shares, rather questionable. Let let’s just leave it at that. but I would also say that the folks at Erste Bank, they also downgraded the shares at TJX today. So you know, I think it’s fair to say that we’re not really seeing what they’re seeing. Our opinions are different. 

For us, when we think about TJX, given the rebound in oil and gas prices that we’re seeing, and arguably inflation pressures are likely to be a little more persistent, we see consumers continuing to move towards TJX to extend their shopping dollars. That has us, as I commented earlier this week, keeping a close attack, a close eye, sorry, on TJX shares because they’re landing on our shopping radar. I can’t totally badmouth the folks at Erste Bank because they did upgrade the shares of Arista Networks today. 

We’ll have more to say on all this as more data unfolds. And with that, I would say this: the next big data point that we’ll be watching as it relates to our chip positions and on the larger AI data center outlook comes tomorrow when Taiwan Semiconductor TSM reports its second quarter results and delivers its outlook for the back half of the year. 

We already know what the numbers are for the company’s top line because they report monthly figures. And we talked earlier in the week that they had a substantial ramp in June. And from our perspective, when we assess the monthly data on a three-month moving average, you could see that this big step up in April, in May, and June. 

So I do think that bodes very well for the end market commentary for AI and data center demand, but we’re going to want to pay very close attention what they say for their revenue outlook for the back half of the year, what the breakdown by N market is. 

I suspect that they are going to say something along the lines of robust outlook for AI and data center demand, that the smartphone market will see some seasonal strength, but likely to be limited by key component shortages, including memory. Same thing with the PC market. That’s what I think they’re going to say. Obviously, that’s very good for our positions in NVIDIA, Marvell, and Broadcom. We will also be paying very close attention to what Taiwan Semiconductor has to say about its capital spending plans for the back half of the year. 

My suspicion is that given all the comments about capacity shortages, there will be some additional spending on the part of Taiwan semiconductor. That would be good for applied materials. but again, we’ll have to see exactly what those numbers are. I would also say that we will have some comments coming this afternoon from about Morgan Stanley and Bank of America. 

Good reports all the way around, but remember too, that we’ve raised our price targets several times in the first half of the year, given the strength of MA activity, given the strength of the IPO market, and because of market volatility and the positive benefits that has had on their trading operations. all that was really confirmed yesterday. So we are seeing folks lift their Morgan Stanley, lift their Bank of America price targets a lot closer to where we are. We’ll still share more in-depth comments with you.

Maybe we will tinker with our price targets a little bit, but you know us, we’re not really inclined to be like some others and bump our price target by a dollar or two. We’ll wait to see something more meaningful. And what we will be watching on that front is some of the things that I just talked about. IPO activity in the near term, MA activity, and trading volumes. 

Those are the big drivers that we’ll be paying close attention to. so with that, that is today’s video. And I will share on the housekeeping front, almost forgot, we did promise to have an updated table with RSI levels, checkpoint levels, and pickup point levels. And we’re gonna target trying to have that to you either this afternoon or early tomorrow. So be on the lookout for that, which means between the Morgan Stanley Bank of America comments and that updated table.

Please continue to check your emails and your alerts. We want to make sure you’re getting our latest thoughts. And as always, folks, if we make any moves with the portfolio, we want you right there with us.