VIDEO: CoreWeave, Lumentum, Super Micro Set Up Next Leg of the AI Trade

In this Portfolio update, Chris shared his thoughts on the latest development on the U.S. and Iran front, including the market’s growing frustration with peace talk speculation. He quickly touched on Eaton (ETN) and Microsoft (MSFT) shares and shed some light on the continued strength in Axon (XON).

He then turned his attention to after-hours earnings from CoreWeave (CRWV), Lumentum (LITE) and Super Micro Computer (SMCI) and the read-through they will bring for several of our holdings.

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Transcript

Hey everyone, Chris Versace here. It’s Tuesday, August 11th. As you’ve probably noticed, the market is trading off today, but we’re also in a bit of a no-man’s-land as we wait for some big earnings after the market close that will speak to the AI and data center trade. Tomorrow morning we get the July Consumer Price Index, and Thursday we get the July PPI.

So why are we trading off if the market is in a bit of a no-man’s-land, even though it’s a small move? I’d argue it’s because the market is growing weary of what’s happening between the U.S. and Iran. We’re seeing reports that the U.S. fired on a ship that broke the blockade, and that’s overshadowing other reports that the U.S. and Iran are close to some sort of arrangement over the strait — at least according to a senior Pakistani minister.

We’ve been here before, and as I said, the market is growing weary after so many false starts: a deal is coming, no deal, pushback on any potential deal, and simply put, a lot of missed cues. In our view, the market now needs to be won over by firm details, firm deadlines, and yes, rising volume of traffic through the strait. That gets back to what we’ve talked about almost from the very beginning: details, details, details will matter, and we’ll continue to focus on that. As I mentioned in our comments this morning, the volume of traffic through the strait will be our North Star for when things truly start to improve on a sustained basis.

During office hours yesterday, we had a question about Eaton (ETN) shares as they approached our price target. Today, the stock actually moved past that price target. We’re also aware that Microsoft (MSFT) has hit our price target, moving above $500, but it’s now in deeply overbought territory. We’re on the case and will have more to say on both before too long.

We also had a question in the forum today about Axon (AXON), asking why the stock continues to move higher. The commentary following the company’s earnings results last week was largely positive, and we did see some price-target increases, which we covered in Friday’s July Monthly Roundup. But more recently — yesterday and today — the shares have continued to climb, and we’ve been digging into why. We haven’t seen any fresh price-target increases, earnings revisions, or similar catalysts in the last 24 hours. However, we are reading about a backlash against competitor Flock Safety, with municipalities removing Flock’s equipment over privacy concerns and moving to Axon’s automated license plate readers.

This is probably an incremental positive for Axon. As you’ll recall, the company has leveraged its Taser and body-camera businesses to capture a growing share of overall public safety budget dollars, and we continue to like that story as public safety contends with police shortages, driving productivity investments in software, services, and AI. We see this as another example of Axon either replacing Flock in certain markets or simply expanding its dollar content within a given municipality.

So why would Axon shares be moving on this news? For one, it supports the thesis; it also helps burnish the company’s AI-related business, which is another positive. But let’s remember that Axon shares carry a higher-than-market beta, and higher-beta stocks tend to move more quickly on news like this. We’ll also say that Axon shares can be volatile — we recognize that, so please be mindful. The shares have been on a tear. Do we continue to like them over the long term? Absolutely.

Our thesis on Axon centers on the ongoing mix shift toward the higher-margin software, services, and recurring-revenue side of the business, which will benefit from AI, as well as the razor-and-blade relationship with the hardware business. We’re inclined to remain long-term shareholders of Axon, especially because this margin transformation will play out over quarters, not months. In the near term, though, please be mindful that the shares can be volatile. We’ll want to pick and choose where we add to the position. Given the move we’ve seen lately, if you’re underweight the shares, we’d suggest waiting for a cooling-off period rather than chasing them — especially on a report like this one involving Flock, which is a very small competitor.

Now, on to the big stuff happening after today’s market close: earnings from CoreWeave (CRWV), Lumentum (LITE), and Super Micro Computer (SMCI). We don’t have direct exposure to any of them, but we do have a lot of indirect exposure through our positions in the chip stocks and other networking plays. Our plan is to sit back, take in these quarterly results, and look for increased guidance and backlogs, and what they may mean for our portfolio holdings.

To get a bit more granular on CoreWeave: in early May, the company said it had $40 billion in new commitments and that its contracted revenue backlog had risen to $100 billion. Consider the timing — that was months before the hyperscalers issued their updated capex figures, and remember, CoreWeave’s customers include Microsoft, Meta, Anthropic, IBM, and others, and it’s a key partner of Nvidia. We have indirect exposure to CoreWeave through our Portfolio position in Neostellar Capital (NSLR), which we added to yesterday.

For folks curious about CoreWeave shares, they’ve jumped nearly 50% since their late-July low and are hitting tough resistance between $91 and $93. That suggests a simple beat-and-reiterate quarter won’t be enough. The revenue consensus for CoreWeave’s current quarter is about $3.4 billion, up from the $2.56 billion it’s expected to report for the prior quarter tonight. The high end of guidance for the current quarter is around $3.85 billion — a high bar. But given the run we’ve seen in the stock, expectations are elevated, so please be careful if you’re contemplating CoreWeave shares. We’ll be reviewing the company’s comments on new commitments and backlog levels, and tying that back to our shares of Nvidia.

Lumentum also reported in early May, delivering 90% year-over-year revenue growth to more than $800 million for the quarter, and guiding the current quarter to $960 million to $1 billion — a big number both year-over-year and quarter-over-quarter. On tonight’s call, we’ll be listening for management’s outlook, as well as whether the supply-and-demand imbalance they flagged last quarter has carried through or improved. We’ll also be listening for what Lumentum says about overall networking demand and what that means for our shares of Arista Networks (ANET), Marvell (MRVL), Broadcom (AVGO), and, of course, Nvidia (NVDA).

Finally, Super Micro Computer also reports tonight. For its prior quarter, it posted around $10.2 billion in revenue and called out customer-readiness issues as a headwind to how much revenue it could deliver — that sounds a bit like the supply-demand imbalance Lumentum flagged as well. For the quarter Super Micro reports tonight, revenue is targeted between $11 billion and $12.5 billion, another large step up quarter-over-quarter. For the full year, the company had guided to around $40 billion in revenue when it last reported, and we’ll be looking for an update on that figure. Any top-line revision would be very positive for its suppliers, which are also Portfolio holdings — we’re talking Nvidia on the processor side and Broadcom on networking.

When we compile the findings from these three companies — CoreWeave, Lumentum, and Super Micro — we’ll have some nice dot-connecting to do, as we like to say. It will also bring useful context from what we’ve heard from companies that have recently reported, like Arista Networks and others. And we’d argue the learnings will help prepare us for upcoming earnings from Nvidia on August 26th, Marvell on August 27th, and Broadcom on September 2nd.

Coming off the hyperscaler earnings reports and their capex commentary, what we’ve heard from the neoclouds and other capex figures tied to AI and data centers, as well as July revenue from Taiwan Semiconductor and Foxconn — it’s hard not to be bullish. I’ll admit that. But we’re investors, so what does that mean? Let’s check the emotion at the door and double-check the outlook against what we hear tonight. We’ll have a lot more to say on all of this in tomorrow morning’s early comments, where we’ll flesh things out further.

So please be sure to check your emails and alerts tomorrow. If we have anything meaningful to say — and that could mean adjustments to our price targets or perhaps a rating change — it will all come down to what we hear tonight. We want you to be informed with our latest thinking on all of it. So again, please check your emails tomorrow, and if we make any moves within the Portfolio, we want to make sure you’re right there with us.

Thanks for watching.

At the time of publication, TheStreet Pro was long ANET, AVGO, AXON, ETN, MRVL, MSFT, NSLR and NVDA.