I intend to continue posting detailed portfolio updates on a quarterly basis, typically after the end of an earnings reporting cycle. For more frequent updates on the portfolio composition, I post regularly on X (formerly Twitter). The posts there can be seen by following @gauchorico. I have also been posting weekly changes to the portfolio on X.
PRIOR PORTFOLIO UPDATES
PORTFOLIO PERFORMANCE
Since the last portfolio update on 7Jun 2024, the portfolio has risen significantly (through August 31, 2024). During that time, the S&P 500 total return (including dividends) index lagged further behind the portfolio as shown in the table below.
| DATE | GauchoRico Portfolio (YTD) | S&P500 Total Return (YTD) |
|---|---|---|
| Jan24 | 0.7% | 1.7% |
| Feb24 | 20.7% | 7.1% |
| Mar24 | 21.5% | 10.6% |
| Apr24 | 18.0% | 6.0% |
| May24 | 39.4% | 11.3% |
| Jun24 | 44.3% | 15.4% |
| Jul24 | 40.5% | 16.7% |
| Aug24 | 60.5% | 19.5% |
The GauchoRico portfolio’s cumulative return in the 7 3/4 years (through the end of August 2024) since the start of 2017 is now +867.6% compared to the S&P 500 (TR)’s return of +188.5%. In those seven years and eight months, the portfolio’s CAGR was +34.4%.
| Year | GauchoRico Return | GauchoRico Cumulative Return | S&P 500 (TR) Return | S&P 500 (TR) Cumulative Return |
|---|---|---|---|---|
| 2017 | +61.6% | +61.6% | +22.8% | +22.8% |
| 2018 | +55.9% | +152.0% | -5.2% | +16.5% |
| 2019 | +41.8% | +257.3% | +31.5% | +53.2% |
| 2020 | +245.6% | +1134.7% | +18.4% | +81.4% |
| 2021 | +27.7% | +1477.3% | +28.7% | +133.4% |
| 2022 | -71.4% | +350.5% | -18.1% | +91.1% |
| 2023 | +33.9% | +503.0% | +26.3% | +141.4% |
| 2024* | +60.5% | +867.6% | +19.5% | +188.5% |
A PURE GROWTH PORTFOLIO
In my portfolio update from 31Dec 2023, I shared that I would be investing a bit less aggressively than I had been during the 2017 through 2022 period. Then, in my portfolio update from 7Jun 2024, I reported that I would once again resume managing my stock portfolio with the primary goal of maximizing growth. On 14Jul, I wrote a post titled “How I Changed My Money Game” explaining how my financial management priorities had evolved and how I would manage my portfolio separately from a safe bucket of assets. It took a couple of years and some trial and error for me to reach this new approach, which I believe will work well for me.
This bifurcated style gives me the best of both worlds, which I find particularly useful at this stage in my life. On one hand, I have my “safe bucket” intended to completely support my lifestyle for the rest of my life. Throughout 2024, I have continued to pull cash out of the portfolio bucket to add to the safe bucket because the size of the safe bucket isn’t large enough to support all of my wants and needs for my remaining time (potentially 45 more years unless technology somehow extends my lifespan). I also need to consider that it’s likely I could live well beyond another 45 years; therefore, I’d like the safe bucket to support my financial needs in perpetuity rather than for a defined timeframe. Having an adequate safe bucket in place provides me with a significant psychological advantage when managing my stock portfolio. It enables me to focus squarely on maximizing my portfolio’s returns without fear of inevitable large drawdowns. This focus on maximizing my portfolio’s growth aligns well with my ability to analyze businesses and pick stocks that are likely to outperform. After all, better stock picking leads to higher portfolio returns. If I didn’t believe I could pick better stocks and outperform an index, I wouldn’t invest my time and effort in analyzing companies. My 7 3/4-year track record of average annual returns of 34.4% supports my belief that I can outperform the market, so I will continue.
A portfolio purely designed to maximize returns also gives those who wish to follow along on my journey a clear view of the portfolio’s performance without including any non-growth stock assets (e.g., dividend stocks, bonds, slow growing value stocks). Everyone has a unique set of circumstances that will dictate their risk tolerance. For some, the inclusion of an aggressive equity basket may make sense; the GauchoRico portfolio is one example of such a portfolio. For others, the volatility of such an aggressive portfolio may be too much to bear, particularly during a significant drawdown. However, an aggressive equity basket doesn’t have to be an all-or-nothing decision; investors could allocate a fraction of their net worth to such investments. These portfolio updates are not intended as advice but to provide a front-row seat into how I manage my portfolio. I also try to provide details on my reasoning for the decisions that I make. How anyone chooses to use this information is solely up to them.
ALLOCATIONS
| 8/31 | 7/31 | 6/30 | 5/31 | 4/30 | 3/31 | 2/29 | 1/31 | 12/31 | |
|---|---|---|---|---|---|---|---|---|---|
| TSLA | 18.0%* | 15.7%* | 9.3%* | 5.6%* | 3.3%* | 2.9%* | 3.3% | 3.3% | 4.0% |
| AXON | 17.3% | 15.5% | 15.1% | 13.6% | 12.3% | 10.1% | 9.5% | 10.0% | 10.4% |
| MELI | 17.2% | 15.2% | 14.8% | 12.2% | 12.1% | 11.7% | 12.4% | 12.8% | 11.8% |
| NVDA | 16.7% | 20.4%^ | 17.3% | 15.6% | 11.9%^ | 14.9% | 13.2% | 13.2% | 10.6% |
| TMDX | 12.5% | 11.5% | 11.7% | 10.3% | 7.8% | 6.0% | — | — | — |
| ASPN | 10.3% | 4.9% | 5.4% | 6.1% | 4.0% | 4.3% | 3.4% | 1.2% | — |
| TTD | 5.5% | 5.2% | 5.4% | 5.0% | 4.9% | 8.2% | 8.1% | 6.9% | 7.3% |
| ELF | — | 10.1% | 9.9% | 10.5% | 12.0% | 8.9% | 10.6% | 11.2% | 10.2% |
| CRWD | — | — | 5.3% | 4.7% | 5.0% | 7.7% | 8.3% | 8.1% | 7.1% |
| CELH | — | — | — | 6.9% | 7.6% | 4.7% | 10.6% | 11.2%* | 11.9%^* |
| SNOW | — | — | — | 2.8% | 8.7% | 8.8% | 8.6% | 9.6% | 9.8% |
| IOT | — | — | — | — | 4.8% | 5.0% | — | — | — |
| META | — | — | — | — | 0.2%** | — | — | — | — |
| ZS | — | — | — | — | — | 0.1%** | — | — | — |
| WW | — | — | — | — | — | — | 0.1%^ | 0.2%^ | 0.5%^ |
| AEHR | — | — | — | — | — | — | — | — | 3.2% |
| Cash | 2.3% | 2.3% | 6.3% | 6.8% | 5.6% | 6.6% | 11.3% | 13.1% | 13.4% |
The allocation details described below are as of August 31, 2024. One of the seven positions in the portfolio is leveraged with long-term call options. TSLA: Of the 18.0% position 12.2% is in shares and 5.8% is in Jun2026 $180 call options and Dec2026 $175, $185, and $205 call options. The portfolio consists of 91.8% in shares, 2.3% cash, 5.8% long-term call options, 0.25% short-term call options, and -0.3% short-term puts.
PORTFOLIO CHANGES
Changes since 7Jun 2024
I have made a number of changes since 7Jun 2024. In previous portfolio updates, I reported detailed changes (reductions of and additions to positions) in this section. Recently, I have started reporting such changes on my X (formerly Twitter) account, usually on a weekly basis. Going forward, I intend to report only major changes in this section. For more granular updates, you are welcome to follow me on X at @gauchorico.
- ASPN: Significantly added to the position after Q2 earnings.
- CELH: Completely exited the position.
- CRWD: Completely exited the position.
- ELF: Completely exited the position.
- NVDA: Added to the position; converted shares to LEAPS at or below $106/share; switched some LEAPS back to shares around $128/share; converted remaining LEAPS to shares after Q2 earnings.
- SNOW: Completely exited the position.
- TSLA: Significantly added to the position including Dec’26 $205 call options.
EARNINGS RESULTS
Since the last portfolio update, all portfolio companies reported their latest quarterly results. I’ll review them in the order they reported. I was very pleased with the performance of most companies in the portfolio. It was a very strong earnings season overall. I was particularly satisfied with TSLA, TMDX, MELI, AXON, ASPN, and NVDA. However, I was disappointed with ELF’s results and sold all my shares the day after the earnings release. I also exited CELH, SNOW, and CRWD before their respective earnings announcements, so I won’t cover their earnings results, but I will explain my reasons for exiting each position below.
TSLA (reported results on 23Jul)
TSLA was the first portfolio company to report results this cycle. I shared an update on my thoughts on 29July after the earnings were released. Since then TSLA has continued to make progress on Full Self-Driving (FSD) with several new versions released. TSLA also managed to release a new version 12.5 for their older HW3 (AI3) cars. To get this more advanced model to function on these older cars, TSLA had to compress the code to accommodate the smaller computer in those vehicles. This shows that TSLA has proven it’s possible to shrink model size without losing functionality, which bodes well for future FSD advances (without needing to keep upgrading the car’s computer).
I remain as optimistic as ever that TSLA will soon solve FSD. It could be months away or perhaps next year. I don’t think TSLA needs regulatory approval for unsupervised FSD to significantly increase the stock valuation. The current FSD feature set is already sufficient to drive substantial adoption of FSD software and increase Tesla vehicle purchases.
I have found a few interesting people to follow on X (Twitter) for FSD updates. For FSD videos, @WholeMarsBlog and @AIDRIVR often post videos of their cars using FSD, which are very helpful for keeping up to date on FSD’s progress. Herbert Ong (@herbertong) is another person who provides valuable content and interviews about TSLA. Additionally, @seti_park researches and analyzes patents, focusing on those filed by TSLA, and speculates on their significance.
TSLA has become a large allocation position due to my increased confidence that FSD works and will continue to improve until unsupervised FSD arrives. While I’m not certain about the timing of the latter, I’m confident that when (not if) it arrives, the Company’s valuation will increase significantly. In my opinion, the risk-reward on TSLA is very favorable with substantial potential upside.
TMDX (reported results on 31Jul)
TMDX reported its Q2 results on 31Jul. In July (during Q3), TMDX purchased its 17th plane. As I’ve discussed previously, the continued plane purchases and management’s signaling of the number and timing of future plane purchases (20 by the end of 2024 and 30 by the end of 2025) are, in my opinion, good indicators of the revenue and growth to come. These continued purchases would only be made if supported by business growth. TMDX is filling the gap between available donor organs and needed transplants. Once this gap is filled, I expect TMDX’s business and revenue growth to slow dramatically. Therefore, investors should always keep an eye on the gap between the latest business results and the future business potential. Slide 3 from TMDX’s latest investor presentation (31Jul 2024) illustrates the gap between available organs (i.e., donors) and transplants that were performed in the United States in 2023.
The figure above shows that in 2023 there were 16,336 deceased donors, yet only 2,996 lung transplants (18% of available lungs were transplanted), 4,039 heart transplants (25% of available hearts were transplanted), and 9,546 liver transplants (58% of available livers were transplanted). The number of transplants facilitated by TMDX was even lower at about 2,300 transplants in calendar year 2023. Thus, less than 5% of potential transplants (assuming each donor can provide one heart, one liver, and one set of lungs to three different recipients) were facilitated by TMDX. In addition to enabling better clinical outcomes, the statistics show that the available organ supply is still far greater than the transplants being performed, indicating that high growth for TMDX can continue.
TMDX’s National OCS Program (NOP) is a service that provides everything needed before the actual organ transplantation; it includes organ extraction, storage, and transport. NOP has a better clinical outcome with a lower incidence of primary graft dysfunction. In addition, OCS enables transplants to be scheduled and performed at a convenient time, considering staff and operating room availability, rather than being rushed to minimize organ spoilage. NOP was added several quarters ago, and its adoption by transplant centers has been remarkable, demonstrating the value it provides. The sequential quarterly NOP adoption was 12%, 80%, 95%, and 98% (these figures represent the cumulative percentage of centers that have adopted NOP!!) in the most recent quarter!
Now let’s look at the actual numbers for Q2 2024. Revenue grew 118% to $114.3M from $52.5M in Q2 2023. Product revenue grew 68.9% Y/Y and 17% sequentially. While this is still an excellent performance, product revenue growth has been slowing (growth was consistently well above 100% growth just two quarters ago). Service revenue grew 326% Y/Y and 19.2% sequentially. The Y/Y growth is still high because the relatively new NOP service has rapidly ramped up over the past year. The 19.2% sequential growth would compound to about 100% annual growth. I think it’s likely that growth will still top 100% for the entire 2024 year, but growth will continue to slow. How quickly will growth decelerate and at what point will the stock price be rerated downward? I plan to sell my TMDX position before this happens, but I would also like to gain more while there is still fuel in the growth tank. Perhaps, the answer is to gradually reduce the allocation over the coming year or so.
TMDX has achieved positive operating margins over the past several quarters: 10.3%, 19.9%, and 17.6% in the last three quarters from Q4 2023 through Q2 2024, respectively. Cash flow from operations was $8.3M, -$3.4M, and $25.7M in those same quarters. However, these figures don’t include the significant capital investments in planes, which cost about $14M each. All of TMDX’s cash flow from operations (plus a lot more) is being spent on these planes, but the plane purchases are necessary to fuel the growth. TMDX will probably spend another $210M on planes in the six quarters from Q3 2024 through Q4 2025, which is $35M per quarter. The good news is that going forward, TMDX will likely be able to fund the plane purchases with cash generated from operations.
Overall, I’m very happy not only with TMDX’s continued performance, strategy, and execution, but also its position in the market. However, I realize that this investment will need to be exited at some point within the next two years.
MELI (reported results on 1Aug)
As I’ve mentioned over the past few quarters, MELI is a company that has consistently delivered outstanding performance. It’s also a company that, for me, doesn’t require a very detailed examination of the quarterly results. The 25-year track record carries a lot of weight, and I’m satisfied to see mid-30% revenue growth, strong execution by the seasoned management team, and a continuation of dominance in the Latin American eCommerce markets. MELI once again delivered. In Q2 2024, MELI grew 42% Y/Y! In the prior quarter, MELI grew 36%. Total Payment Volume was up 36% (35% in Q1), and Gross Merchandise Volume was up 20% (same as in Q1). Net income was up 103% Y/Y, and the net income margin reached 10.5%, the highest level since 2007 and 300 basis points higher than the same period last year. Each quarter, I am amazed that the results can be this good for a company of this scale. Finally, with interest rates in the United States at such a high level relative to other developed economies, the U.S. dollar has been strong. Rate cuts by the Fed are imminent, which will likely negatively impact the USD, providing a boost to MELI’s dollar-reported results. I’m a happy MELI shareholder, and even though MELI stock recently hit a new all-time high (after several years), I’m not selling any shares.
AXON (reported results on 6Aug)
AXON reported Q2 FY24 results on 6Aug. Revenue growth accelerated ever so slightly to 34.6% Y/Y, the operating margin came was 21% for the quarter, and adjusted free cash flow (FCF) was $75.3M with a 14.9% FCF margin. Trailing 12-month FCF was $224M. AXON also raised its full-year revenue guidance by about $50M, targeting about 31% revenue growth at the high end of guidance. These results are outstanding, and the stock soared the day after the earnings results were published.
On top of these great results, I really liked what I heard from management about DraftOne, AXON’s new service/product that writes police reports from body camera video and audio. When I heard about this product during the Q1 earnings call, I was very excited because I suspected it could have excellent product-market fit and be rapidly adopted by AXON’s customers. During the Q2 earnings call, AXON provided additional information about DraftOne. While revenue from DraftOne in Q2 was minimal, the sales pipeline for DraftOne is already $100M. Furthermore, DraftOne works best when used in conjunction with some of AXON’s other offerings, so DraftOne can increase the adoption of some of AXON’s other products and services. Finally, DraftOne seems to work in any language (even the unique U.S. dialects) as the product is based on OpenAI’s latest large language model (LLM) capable of operating in most languages. I’m hopeful that DraftOne can help AXON maintain or even accelerate its revenue growth rate going forward.
AXON remains a very high-confidence portfolio holding. It has most of the attributes that I look for in an investment: dominant market position, excellent business model, very strong management team, high historical growth, multiple vectors for continued growth, and high gross margins, operating margins, and free cash flow margins. In addition to all these attributes, AXON also serves the public sector, making it resistant to recessionary downturns due to continued funding of public safety during recessions. I’m satisfied with my high allocation in AXON, and I’m not considering reducing my position size despite its current valuation.
ASPN (reported results on 7Aug)
ASPN reported its results on 7Aug and held the earnings conference call on 8Aug. Recall that ASPN stock soared 58% the day after its Q1 earnings report. The stock has been volatile, dropping more than 40% (below $19/share) before the Q2 earnings. Q2 was another blowout quarter with revenue increasing 25% sequentially and 145% Y/Y. ASPN also raised its full-year guidance for revenue, net income, adjusted EBITDA, and earnings per share; this revised revenue guidance doesn’t include a potential additional upside of $50M from GM. ASPN’s very strong growth is accompanied by improvements in cash flow and profitability. Additionally, ASPN is in final negotiations with a German OEM. The Thermal Barriers unit, which supplies thermal barriers for the EV market, saw its revenue increase by 540% Y/Y (not a typo!). The Energy Industrial unit’s business rebounded in Q2, growing 27% sequentially and 4% Y/Y. ASPN has also nearly completed the outsourcing of this unit’s manufacturing to free up more capacity for the fast-growing Thermal Barriers unit. Finally, the Energy Industrial unit is beginning to receive business from carbon capture projects (a new market for ASPN).
Management believes it has good visibility into near-term demand, and this outlook is strong. I’m also optimistic about longer-term demand, though I am less certain. I do believe that EVs will continue to disrupt internal combustion engine (ICE) vehicles, but I’m not sure that ASPN’s EV OEM customers will be the ones driving that disruption. Will GM, Honda, Toyota, VW, and ASPN’s other future customers succeed, or will Tesla and the Chinese manufacturers capture the majority of the EV market in the long-run? ASPN’s long-term success will likely depend on the former group’s success. Currently, ASPN’s customers are not profitably producing EVs; they need to scale their EV businesses to become profitable. If they scale enough to cover their huge fixed costs, ASPN will benefit from increased business and revenue. This is what ASPN’s management has forecasted: legacy ICE manufacturers will invest to scale EVs in an attempt to reach profitability. However, scaling also depends on consumer demand for their EVs because they can’t succeed by building cars that can’t be sold. Will there be enough consumer demand, or will consumers prefer Tesla cars? The car companies that don’t successfully transition from ICE vehicles to EV vehicles will likely become extinct, and, since they know this, they must attempt to scale. If they scale and fail to achieve sufficient sales, both they and ASPN will suffer. However, in that scenario, Tesla should dominate, and my portfolio’s large allocation in TSLA should more by far offset any decline in my ASPN investment.
ASPN is still awaiting a decision on government financing to fund the buildout of its second manufacturing facility to support future growth in its Thermal Barriers business. A preliminary decision from the government is expected before the Q3 earnings conference call. Meanwhile, on 19Aug, ASPN closed on $225M in financing ($125M term loan plus $100M revolving credit facility) to (1) pay off convertible debt that could have been dilutive above $30/share and (2) give the Company flexibility to support continued growth. This financing also aims to assure existing and prospective OEM customers that ASPN will have the financial means to supply products to them.
I previously kept ASPN as a small allocation. After the Q2 results, I decided to roughly double my position at around $22/share, as I felt the stock price had not increased as much as it deserved. ASPN remains a more speculative and risky investment than my other portfolio holdings, but its near-term prospects look promising.
TTD (reported results on 8Aug)
TTD reported its Q2 FY2024 results on 8Aug. Revenue grew 26% Y/Y, and, as usual, TTD continued to make progress on all strategic fronts as the industry moves from linear programming to connected TV and UID 2.0. TTD will continue to remain as a small position in the portfolio.
NVDA (reported results on 28Aug)
NVDA reported its Q2 FY25 results on 28Aug. NVDA continues to deliver enormous numbers with revenue topping $30B for Q2, up 122% Y/Y. Data center revenue continues to explode: data center revenue was $26.3B in Q2, and, before the AI-induced breakout occurred in 2023, data center revenue was only $4.3B in Q1 FY24. Data center revenue growth for Q2 was still 154% Y/Y despite lapping the first breakout quarter (Q2 FY24). This surge in growth has been accompanied by very high margins: 75.7% gross margin, 56.4% net margin, and 44.9% FCF margin! The fact that NVDA is able to keep delivering such huge margins is a sign of a business that is not subject to price-cutting pressures from competition. NVDA’s total solution for advanced computing remains several steps ahead of the competition. Looking backward, NVDA’s performance has been nothing short of amazing. The question for investors is how quickly growth will decelerate (it’s obviously decelerating and it will continue to do so). Investors who believe 1) that deceleration will come more quickly, and 2) that this boom phase of the typical semiconductor boom-bust cycle will soon enter a bust phase will not continue to hold onto their shares. On the other hand, investors who believe that AI is causing a multiyear boom for computing and that this particular boom phase will last much longer than typical in past cycles will continue to hold their shares. I fall into the latter camp. Let’s dive deeper into the reasons why I think this AI boom will last longer than other investors expect.
Several days ago, there was an excellent podcast in which Patrick O’Shaughnessy interviewed another investor, Gavin Baker. Gavin followed up that podcast with a post on X. The podcast and follow-up post are excellent, and they’re aligned with my thinking about future demand. A side note: I find it important to pause the podcast or stop reading when the speaker or author uses a term that I do not understand or don’t know. Continuing to listen or read without fully understanding all the terms, concepts, or acronyms will lead to an incomplete understanding on my part. Furthermore, an incomplete understanding of a premise makes it impossible for me to judge whether or not I agree with the speaker’s/author’s conclusions. So, if you come across something that’s not clear to you, stop and spend a little time looking up a term or an acronym before continuing on.
A key conclusion in Gavin’s podcast and post is that spending on CapEx AI for hardware will continue until the scaling law breaks. The scaling law states that large language models (LLMs) will continue to show significant improvement with each 10x addition of parameters, and, to add more parameters, which requires a big increase in compute power — compute for which NVDA is the sole arms dealer. There are five key players (MSFT, AMZN, x.ai, META, and GOOG with some investing via OpenAI and Anthropic) participating in the AI arms race, and they all believe that the first to develop a super-intelligent AI (i.e., like a digital god) will unlock a potentially $100 trillion opportunity; furthermore, the losers of the arms race could see their existing businesses completely disrupted. Each of these players has access to hundreds of billions of dollars to spend on CapEx to make it happen. The AI game currently being played by the big technology companies places NVDA in an enviable position.
For NVDA to continue to be a good investment, growth needs to remain higher for longer than the market expects. Revenue growth is the single most important metric as all other growth metrics are derived from or a symptom of revenue growth. In fiscal 2024, revenue grew 126% over FY23. The consensus among analysts predicts revenue growth in FY25 and FY26 to be around 100% and 39%, respectively. Beyond FY26, most analysts have not yet made predictions. For FY25, there are only two more quarters left, so the analysts’ collective prediction will likely be close to the actual number. However, for FY26, I think that the revenue estimates ($168.6B) will turn out to be too low.
During the Q2 earnings call management, for the first time since the rush to build out AI hardware infrastructure began, management did not comment on how demand far exceeds supply; the supply of GPUs is now more balanced with demand. Part of the reason, I believe, is due to NVDA’s and its suppliers’ efforts to increase manufacturing capacities over the past year. Another reason is likely the transition from Hopper to the Blackwell platform, but the fact that Hopper sales are still increasing demonstrates not only a lack of an Osborne effect due to the imminent release of Blackwell but also the strength of NVDA’s GPU franchise. I think Blackwell will usher in the next wave of growth for NVDA. Demand for Blackwell should be heavily constrained because (1) it will take time for the supply chain to ramp production, and (2) competition among the big tech companies will have them scrambling to be the first to purchase Blackwell — the next big step up in compute with lower compute/watt — in their quest not to lose the race to develop the world’s first super-intelligent AI.
Regarding NVDA in the portfolio, it remains one of the largest allocation positions. When the shares dropped from the all-time high of around $140 to $106-ish and below on rumors that Blackwell was being delayed for three months, I sold a portion of my shares and bought Dec 2025 call options with strike prices of $105 and $100. I was unsure whether the Blackwell delay rumors were true, but I reasoned that even if with a delay, NVDA’s value (given that the Hopper chips could pick up the slack until Blackwell was ready) would not be materially impacted. Thus, I leveraged my position to benefit when the shares rebounded. After the Q2 result, I reversed the shares to LEAPS trade back into shares because 1) NVDA shares are now less of a fat pitch than they were around $105 or below, and 2) I was expecting more comments from management on how NVDA GPUs are still supply constrained (now supply and demand are more in balance as was revealed on the earnings call), and 3) given the second point, I think that analyst revenue estimates of $121.6B in FY25 revenue are pretty close to what we can expect; therefore, I’d rather wait for another fat pitch (if we get one) rather than continue to hold LEAPS and a leveraged position.
Exited Positions
Since the last portfolio update, I exited four positions: CELH, SNOW, CRWD, and ELF. I previously described the reasons for each of these decisions in posts on my @gauchorico X account. I’ll briefly repeat those reasons below.
CELH: Growth was eventually going to slow. The energy drink market is not growing quickly, so CELH’s growth is dependent on gaining market share. The bump from the Pepsi distribution deal is now behind us. As a result, future growth would depend on international growth, and I became increasingly concerned that this would not be fast enough or substantial enough to significantly impact overall revenue growth. Rapidly slowing growth would likely cause the stock price to drop.
SNOW: SNOW was supposed to be a major beneficiary of AI but with a lag compared to hardware infrastructure providers like NVDA. Data is crucial for AI and for making actionable business decisions. SNOW provides a secure platform for storing, analyzing, and sharing data. While I was willing to wait for SNOW to become a true AI beneficiary and for growth to reaccelerate, I exited my position when its biggest competitor, Databricks, delivered growth that far exceeded SNOW’s growth.
CRWD: I’ve been a CRWD shareholder for a long time. CRWD is a dominant company in the cybersecurity market, and I expected it to remain in the portfolio for a long time. Companies with a dominant market position, a highly profitable business model, growing target markets, and a strong founder-led management team are not easy to find, and when I do, I prefer to hold on to them even when the stock valuation is high. CRWD’s valuation was very high. However, when CRWD pushed an agent update that crashed millions of computers, its sterling reputation took a hit. The response to the incident was not very professional, and some customers, like Delta Airlines, are suing CRWD. Prospective customers may delay their evaluation period before purchasing. Vendor consolidation, which had been benefiting CRWD, may become less of a theme. I believe CRWD’s valuation premium is unlikely to be regained, and this incident highlighted the risks inherent in owning any cybersecurity business. As a result, I am no longer interested in investing in the cybersecurity sector.
ELF: ELF’s growth was highly dependent on grabbing market share from its competitors. The underlying market isn’t growing fast, so once that market share gain ends, growth will essentially halt. I initially thought that ELF’s growth had room to continue, but last quarter’s results disproved that idea. The Naturium acquisition masked ELF’s underlying organic growth rate, which has now slowed considerably. I exited ELF the day after the earnings report.
More on Allocations
The portfolio is now down to seven positions. While I prefer to hold 8-12 positions, I am comfortable with the current composition. The growing bucket of safe assets helps alleviate any anxiety I might otherwise feel about owning just seven companies. If I find another worthy company to add, I will do so. With fewer positions, each holding must have a larger allocation; seven positions average to a 14.3% allocation per holding (assuming no cash is held in the portfolio).
FINAL THOUGHTS
The Q2 earnings season is over, and the Q3 season won’t begin until mid-October, but there are a couple of important dates to watch before the start of the next earnings cycle. First, the Fed will hold its next FOMC meeting in September and announce any changes to monetary policy on 18Sep. This meeting could be significant because it is widely anticipated that the Fed will shift its policy and begin a series of interest rate cuts, which could affect aspects of the global economy, including stock prices and the relative currency values. The second event to watch is the 10Oct TSLA robotaxi event, which we now know will feature a prototype robotaxi at Warner Bros Studio in Burbank, CA. I’m planning to post my next portfolio update around the end of November (after my last portfolio company reports its results); by then, we will also know the result of the U.S. Presidential election.
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