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 31Aug 2024, the portfolio has surged (through November 30, 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% |
| Sep24 | 71.2% | 22.1% |
| Oct24 | 58.2% | 21.0% |
| Nov24 | 87.3% | 28.1% |
The GauchoRico portfolio’s cumulative return in the 7.92 years (through the end of November 2024) since the start of 2017 is now +1029.3% compared to the S&P 500 (TR)’s return of +209.1%. In those seven years and eleven months, the portfolio’s CAGR was +35.8%.
| 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* | +87.3% | +1029.3% | +28.1% | +209.1% |
AGGRESSIVE GROWTH PORTFOLIO
The purpose of this portfolio is to maximize growth over the long run. Over the short run an aggressive growth portfolio can be volatile and have occasional large drawdowns. I’ve personally decided to go for a higher volatility, higher long-term return rather than a less volatile, lower long-term return. During the rise from 2017-2020, the portfolio contained virtually my entire net worth. During this period, there were one >50%, two >75%, and several >35% drawdowns. It can be psychologically challenging when large drawdowns occur, and there’s a spectrum of tolerance among people in response to seeing the majority of one’s portfolio vanish. For me, it was psychologically challenging to manage through the two >75% drawdowns (these occurred in 2015/2016 and 2021/2022). Some methods to alleviate the stress of large drawdowns include 1) remembering that it’s a long game played over many years and that drawdowns are usually not permanent, 2) allocating some portion of one’s net worth to assets outside of an aggressive portfolio, 3) earning an income to fund one’s lifestyle, 4) finding a group of like-minded investors to share one’s investing journey, and 5) matching the risk taken with one’s own risk tolerance. Personally, I have utilized all five of these methods; in particular, starting in the middle 2020, I have removed a significant portion of my assets from the portfolio so that I now have about 40% outside the portfolio and 60% in the portfolio. Until May 2020, 100% of my net worth was in the portfolio. The current 60/40 split between my growth portfolio and my outside assets are specifically tailored to my individual personal circumstances which include 1) my current minimum and future income needs and desires, 2) a requirement that my assets and income derived from my assets will be entirely sufficient to fund #1, and 3) my risk tolerance. I’ll also note that given my age and my desire to never have to return to a job where others control my tasks and my time, I can only have a high risk tolerance with respect to my stock portfolio because I have removed enough to fund all my lifestyle needs. I want to be able to solely focus my portfolio management on achieving a maximum return which I’ve found is only possible when I have that safety of the outside assets. Again, my circumstances are unique and therefore how I decide to split my assets among my growth portfolio and my outside assets is also unique. If my circumstances change, I can simply adjust the split between my portfolio and my outside assets to better optimize in response to changes in my personal circumstances. This will allow me to always pursue the portfolio’s goal of maximizing long-term returns. Getting to this philosophy was a process that was also highly influenced by the very large drawdowns that I experienced.
However, investing with an aggressive growth style is not for everybody, and it’s not by any means intended to be a get-rich-quickly scheme; for me this has been a multi-decade journey. Furthermore, concentrating a portfolio in 5-12 stocks is very risky when one doesn’t understand the underlying businesses and the fundamentals and market forces that drive the success of those businesses. With my blog and with the portfolio updates, I have offered a view into one regular person’s investing journey, but I do not advocate that others follow me into the investments or the approach. In addition, I sometimes use stock options to leverage some of my positions, and this tactic can be very dangerous for those who a) don’t really understand what they are doing, and b) overdo it so much that their portfolio could be totally wiped out. I’ll emphasize that everyone should do their own research and analysis before deciding to invest in individual stocks. Furthermore, for those who do choose to invest with an approach similar to mine, it would be wise to think carefully about how much of one’s total net worth is prudent to allocate, if any. My journey has gone very well so far, but it is possible that this won’t always be the case.
ALLOCATIONS
| 11/30 | 10/31 | 9/27 | 8/31 | 7/31 | 6/30 | 5/31 | 4/30 | 3/31 | 2/29 | 1/31 | 12/31 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| NVDA | 21.3%* | 25.4%* | 19.6%* | 16.7% | 20.4%^ | 17.3% | 15.6% | 11.9%^ | 14.9% | 13.2% | 13.2% | 10.6% |
| TSLA | 19.6%* | 14.5%* | 20.4%* | 18.0%* | 15.7%* | 9.3%* | 5.6%* | 3.3%* | 2.9%* | 3.3% | 3.3% | 4.0% |
| MELI | 17.6% | 18.9% | 16.2% | 17.2% | 15.2% | 14.8% | 12.2% | 12.1% | 11.7% | 12.4% | 10.0% | 10.4% |
| AXON | 11.9% | 18.7% | 17.5% | 17.3% | 15.5% | 15.1% | 13.6% | 12.3% | 10.1% | 9.5% | 10.0% | 10.4% |
| AMZN | 10.2% | 4.2% | — | — | — | — | — | — | — | — | — | — |
| ASPN | 7.0%* | 7.1%* | 6.8% | 10.3% | 4.9% | 5.4% | 6.1% | 4.0% | 4.3% | 3.4% | 1.2% | — |
| ROOT | 4.5% | 1.2% | 1.4% | — | — | — | — | — | — | — | — | — |
| SNOW | 2.0% | — | — | — | — | — | 2.8% | 8.7% | 8.8% | 8.6% | 9.6% | 9.8% |
| TTD | — | 7.0% | 5.4% | 5.5% | 5.2% | 5.4% | 5.0% | 4.9% | 8.2% | 8.1% | 6.9% | 7.3% |
| TMDX | — | — | 11.1% | 12.5% | 11.5% | 11.7% | 10.3% | 7.8% | 6.0% | — | — | — |
| 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%^* |
| IOT | — | — | — | — | — | — | — | 4.8% | 5.0% | — | — | — |
| META | — | — | — | — | — | — | — | 0.2%** | — | — | — | — |
| ZS | — | — | — | — | — | — | — | — | 0.1%** | — | — | — |
| WW | — | — | — | — | — | — | — | — | — | 0.1%^ | 0.2%^ | 0.5%^ |
| AEHR | — | — | — | — | — | — | — | — | — | — | — | 3.2% |
| Cash | 7.0% | 4.3% | 2.1% | 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 November 30, 2024. Three of the eight positions in the portfolio are leveraged with long-term call options. TSLA: Of the 19.6% position, 11.7% is in shares and 7.9% is in Dec2026 $330 and $350 call options. NVDA: Of the 21.3% position, 17.6% is in shares and 3.6% is in Jan2026 $105 and $110 call options. ASPN: Of the 7.0% position, 6.2% is in shares and 0.7% is in Jan2026 $22.5 call options. The portfolio consists of 81.8% in shares, 7.0% cash, 12.3% long-term call options, -0.4% short call (covered) options, and -0.6% short-term puts.
PORTFOLIO CHANGES
Changes since 31Aug 2024
My last portfolio update was on 31Aug 2024. Since then I completely sold TMDX and TTD. I also bought a small position in APP and sold it before the end of November for a 27% gain. I added some new positions: ROOT and SNOW. I no longer report my detailed changes in my portfolio updates, but I have been reporting my allocation changes (buys, sells, and conversion between shares and LEAPS) on a weekly basis on my X account: For more granular updates, see @gauchorico.
EARNINGS RESULTS
Since the last portfolio update, all portfolio companies reported their latest quarterly results. I’ll review them in the order they reported.
TSLA (reported results on 23Oct)
TSLA was the first portfolio company to report results this earnings cycle. For those of you who have been following my portfolio and my updates for a while, you know that I first started a TSLA position in August 2023. Buying the stock then was solely based on a bet that TSLA would solve autonomy for automobiles and that this would greatly increase the value of the Company. Then in the Spring this year when TSLA released the first version 12 Full Self-Driving (FSD), I began increasing my TSLA allocation. As FSD performance and functionality continued to improve, I kept adding more shares and leveraging some of my position into LEAPS (see how I use LEAPS to leverage some of my portfolio positions). In my opinion, FSD has advanced rapidly in capability which is the driver for my increased confidence that FSD will be not only a revenue and valuation driver for TSLA but also a massive disruptive force in the automotive market. Much has happened in the three months since my last portfolio update on 31Aug.
TSLA held its so-called robotaxi event on 10Oct. At the event, TSLA announced and demoed the robotaxi (called CyberCab). In addition, the Robovan, which is more like a bus also capable of carrying some cargo, was announced and shown. The Optimus humanoid robot was among the crowd fixing drinks and engaging in other activities with the guests. Optimus continues to make progress with improved hand hardware including a 22 degrees-of-freedom hand. Last week, a video was released showing Optimus catching a tennis ball thrown to it. While the timing of the CyberCab is planned for launch in 2025 with scale up in 2026, there was much anticipation about the timing and the price point which was higher than expected. This event was not a stock price catalyst but rather more of a “sell the news” event.
A few days later was the earnings call. Elon focused solely on TSLA’s business and not a word about anything to do with politics or the upcoming Presidential election. This was also true for the robotaxi event even though Elon had been aggressively campaigning for and funding Donald Trump’s reelection bid. The earnings call showed mostly positive and improved business fundamentals including a large 243% Y/Y jump in EBITDA margins to 18.5%, a 223% Y/Y increase in free cash flow, an 89% in Y/Y operating income, and an 8% Y/Y increase in revenue. The market cheered the result with a stock price pop of 22% the following day. The improvement in sales and the large jump in margins gave investors the assurance that the business is back on track after several years of headwinds due to tighter interest rate policy. The energy business is also growing very rapidly with gigawatt installation growth 75% Y/Y. While all of this was great to see, the valuation increase will come from FSD progress and investors’ faith that FSD will arrive and sooner rather than later.
The next big news for TSLA was the result of the U.S. Presidential election. The victory of Trump plus full control of Congress by the Republicans is very favorable for TSLA. Not only does Elon now have direct access to Trump providing influence into the new administration’s policy decisions, but TSLA will also benefit from a more lenient regulatory policy with respect to autonomous driving. There have already been some prelimary announcements/plans for instating a Federal autonomous driving approval standard instead of the status quo of no Federal regulation which would leave each state to set its own regulations pertaining to the standards and approvals for self-driving vehicles. Eliminating the Federal EV tax credit is also being floated by the incoming administration. EVs are getting less costly with superior technology to ICE vehicles so a tax credit really isn’t necessary anymore to spur consumer demand. However, unlike TSLA, the other OEMs’ EVs aren’t yet profitable so these other firms would face financial hardship while Telsa cars would just be a bit less profitable. Since the earnings results and the Presidential election, the stock price has increased from about $213/share to more than $340/share.
Yesterday, TSLA launched the much anticipated FSD version 13 (v13) to some customers. This was after v12 was launched in March just earlier this year. v12 was a huge leap over v11, and v13 is supposed to be 5-6x better than the latest v12 in terms of miles per critical intervention. Going forward, v13 will continue to get better and better with each new update. It’s also important that v13 was completely redesigned using TSLA’s new Gigafactory Texas data center which is powered by 50,000 Nvidia H100 GPUs. TSLA is no longer compute constrained and has been feeding video from its very large install base of Telsa cars to more rapidly advance FSD software. The innovation speed has accelerated greatly. Most important is that a future update of v13 FSD software will enable Tesla cars to run Unsupervised FSD, making them fully autonomous. Many experts believe that Unsupervised FSD will be ready in the first half of 2025, while others had previously believed that fully autonomous FSD would not be possible to develop. I expect yesterday’s news will cause the shares to rise. My FSD thesis is coming into clearer and clearer view, and as other shareholders and potential shareholders come to share my view, I expect the shares to rise, likely significantly from here. However, attaining Unsupervised FSD is not the end of the story.
The humanoid robot Optimus is advancing as well. The available market for this fully autonomous Optimus is multiples higher than the market for Tesla vehicles. TSLA has near-term plans to bring online another 50,000 Nvidia GPUs which can be used to train Optimus on all sorts of useful tasks currently performed by humans. Training Optimus on a multitude of tasks is an easier problem to solve than FSD with vehicles. There are several reasons for this. First, the safety of autonomously driving vehicles is a much harder problem to solve. Second, there are millions of hours of videos in existence of humans performing thousands of unique task. Cars required that the data be created by cars driving around whereas Optimus can be given the data stock of existing videos. In addition, Optimus can observe humans doing the tasks. Unlike the training of cars, Optimus training can be more safely trained, in isolation from the dangers of harming people. The potential of Optimus is enormous, and there seems to be a straight forward path to realizing a fully autonomous Optimus that can be augmented with more and more new capabilities. The market is the replacement of much of the world’s labor. Success would also mean an unbelievably massive productivity boost to businesses and national economies leading to low inflation and probably deflation. Also, Optimus could be used by individual’s for all sorts of household and other tasks (like a personal butler), freeing up more time for leisure.
One analyst, Cern Basher, routinely creates analyses on TSLA. He recently attempted to build a valuation model using a sum of the parts (adding the value of TSLA’s current and future businesses) approach. Basher’s model is available as a video presentation on YouTube. It shows one view of TSLA’s enormous potential, and it’s worth watching.
Last week, I completed rolling up my $175-185 Dec 2026 call options to $330-350 Dec 2026 call options. These options presently comprise 7.9% of my total portfolio, and signal my belief that TSLA shares will be much higher in two years from now (for the reasons stated above). Rolling up the options increases my leverage on my TSLA holding by allowing me to control more shares for the same amount of capital. These options will only pay off if TSLA shares rise at least 30% over the next two years. In addition to the options, I hold an 11.7% allocation in TSLA shares. My TSLA allocation is second only to NVDA. However, given yesterday’s v13 FSD release, I am prepared to make TSLA my largest position should the shares not rise too much this week. The developments over the previous three months have not only derisked TSLA’s valuation and future business success, but it has also, in my opinion, put TSLA above all of my other holdings in terms of risk-reward.
TMDX (reported results on 28Oct)
TMDX reported its Q3 results on 28Oct. I had previously stated that TMDX’s growth would eventually slow because the underlying market is not growing, and TMDX was only growing revenue >100% Y/Y because it added additional services revenue and enabled transplants needed far from the available organs (using its own fleet of planes). Based on TMDX’s goal of 10,000 transplants by 2028 and the projected transplants of 4000 for 2024, we get a 150% increase and only a 25.8% CAGR in the four-year period spanning 2025-2028; this is a massive deceleration. Such a deceleration would, in my opinion, result in a downward rerating of the stock price multiple. And then after 2028, TMDX would probably grow revenue 5-10%, at best, because the number of transplants isn’t growing. In fact, we saw liver transplant demand drop after hepatitis C cures became available. Similarly, we may see a demand decrease for heart transplants due to GLP-1 weight loss treatments leading to lower cardiovascular morbidity. So, to me the future doesn’t look bright for the Company’s growth and its stock price.
Now, in Q3 TMDX disappointed in its results. Management attributed the shortfall as temporary due to the convergence of a number of factors that temporally affected overall transplant demand. There were no signs at all of competition affecting TMDX’s business. Listening to management, one might get the impression that the business will rebound to a much higher growth trajectory once these temporary factors subside. Also, the Company plans in 2025 to greatly increase demand for its heart transplant offering, similar to what it did for the liver transplant offering previously. I’m not sure if I believe that TMDX’s revenue growth will bounce back anywhere close to its previous >100% growth. More importantly, even if growth reaccelerates, it will be temporary because there’s not going to be much growth after TMDX hits 10,000 transplants/year. And insurance reimbursement in other significant geographies (outside the U.S.) aren’t anywhere near high enough to make entering those markets worthwhile. In conclusion, exiting TMDX after the Q3 result was a very easy decision. Unfortunately, had I thought more deeply about all this earlier, then TMDX’s contribution to the portfolio would have been much more than just a tiny gain (because I would have exited the position earlier).
ROOT (reported results on 30Oct)
I had a small position in ROOT before earnings, but, unfortunately, I sold the position right before earnings. ROOT reported results on 30Oct, and the post-earnings stock move was as impressive as any stock I’ve seen on the back of an earnings result. At one point, the stock was up >180% on the day after earnings. I think the move was a result of a heavy short position combined with excellent results that not only validated ROOT’s business model but also confirmed that the Company will not fail as some thought it might.
Rather than write about the Q3 earnings results, I will not reinvent the wheel here. I learned about ROOT from my good friend wsm007 on The Motley Fool. I consider him a master investor, and he has past experience in analyzing insurance businesses. I’m providing links to two of his posts on ROOT. The first post is his introduction to and analysis of ROOT as an investment. This was written a few weeks before the Q3 earnings results, and I must say that wsm007 nailed it. The second post includes his thoughts on the Q3 earnings result. I recommend reading both.
The analysis and the past several quarters’ results were compelling enough for me to take a position. I bought shares at about $100/share the day after the earnings results were announced. Yes, ROOT was up 150% from the prior day, but I decided that I wanted to start a position. With the stock price volatility so high, I also sold an equal number of November $100 straddles for a combined $40/share in premiums collected. Then, I added to the position multiple times when the price dipped below $70/share. After I sold out of TTD, I even added some shares at $104/share. In addition, I hold some 20Dec short puts ($100 and $120 strike) and short calls ($70 strike) trading positions; the premiums collected on these short options were just too juicy to pass up.
My thoughts and tentative plans for the position are as follows. ROOT’s financial fundamentals and the past several quarters’ results look very solid. Despite the recent share price increase, the valuation still looks very reasonable. Specifically, top line growth has been outstanding at 165% Y/Y growth in Q3. Net income margins were 7% compared to -40% a year ago. With the low valuation, the revenue growth could drop very significantly, perhaps even to 20% or lower, and the valuation would still be attractive. I agree with wsm007 that ROOT should be trading much higher, yet I think that ROOT could eventually be disrupted by autonomous driving. In fact, the entire auto insurance industry could be disrupted by mass adoption of autonomous vehicles. For now, ROOT deserves its current allocation of 4.5%, but the position will likely be sold with the next 1-2 years.
AMZN (reported results on 31Oct)
AMZN is a new holding in the portfolio since 30Oct. AMZN isn’t exactly a high growth business so it’s a fair question why I would buy shares. It’s also already a >$2T company, and it’s not growing revenue more than 30% like most of my other holdings. Several years ago, I wouldn’t have even thought of investing in a >$1T market cap company but favoring much smaller and faster growing businesses. Back then, my reasons included 1) slower top line growth, 2) already captured a large percentage of the TAM (total addressable market), and 3) any new products and services would be unlikely to move the revenue and earnings growth needles simply because their existing products/services comprise such huge revenue. While these reasons still hold, there are a few reasons why I don’t necessarily exclude >$1T companies anymore. Note: I currently own three >$1T market cap stocks: NVDA, AMZN, and TSLA. First, there have not been many new IPOs so the pool of new high growth companies is much diminished compared to the 2017-2021 period. Second, big tech companies have become increasingly dominant and able to extend into and create new markets; their growth rate will be more likely to stay high (for their size) for longer. Their stock prices have continued to rise rapidly in spite of their huge size. Third, the AI opportunity is so huge, and the big tech companies (AMZN, META, MSFT, NVDA, AAPL, GOOG, and TSLA) stand to really benefit. I would rank them best to worst like this: TSLA, NVDA, AMZN, META, MSFT, AAPL, GOOG with GOOG being in a tough spot with the potential disruption of their main search business and some missed opportunities in AI.
After selling TMDX, I had much more cash than I preferred, and I already had high enough allocations in all my other holdings. I chose to deploy a chunk of this cash to AMZN for several reasons: 1) large, stable company that’s very unlikely to get disrupted, 2) the stock price is still weak compared to the other big tech companies, and I believe AMZN deserves a higher valuation, 3) AMZN’s profitability is rapidly improving, and I think there should be room to go higher particularly through ongoing and future automation efforts (both digital automation and physical/labor automation), and, as a bonus, 4) AMZN is a contender to be the first to develop AGI (via its Anthropic investment). I was pleased that the earnings call discussion about future factory automation provided confirmatory information about my own prediction about future net margin improvements.
Like MELI, AMZN is a holding that has a multitude of moving parts and requires less of a watchful eye than my smaller, faster growing stocks. But unlike MELI, AMZN may not end up being a long-term holding in the portfolio. If I find a better place for my capital, then I may very well take funds from my AMZN position. But for now, I’ve been adding shares near or below $200/share.
APP (reported results on 6Nov)
When I sold TTD, I used some of my proceeds to buy shares in APP. It is a much faster growing advertising related company than TTD. These shares rose more than 25% in a short amount of time. I decided to sell my position due to its high market capitalization (greater than $100B) and my uncertainty about whether the Company can have similar success in its next targeted market segments (as it had in the gaming market). I may be missing an opportunity, but given the rapid share price appreciation and limited evidence that APP will gain traction in its next markets, I’m fine missing any future run up.
MELI (reported results on 6Nov)
MELI is an investment that in my opinion doesn’t require too much analysis and monitoring. In Q3 2024, MELI reported net revenue growth of 35% Y/Y. I’m satisfied with anything over 30% and find it incredible that MELI can still grow this fast at this scale after 25+ years. Net income margin was 7.5%, down 3% sequentially and down 10.7% Y/Y. It’s likely that MELI stock sold off after the Q3 earning result because of this decline in net margin. However, MELI’s net income margin pressures can be attributed to increased investments, such as six new fulfillment centers in the quarter, to fuel continued future growth. Some other highlights included increased market share in all major geographies and unique buyers hitting 61M an increase of 21% Y/Y. So, the growth is still intact, and management has earned my trust that they will make the best choices for the business. The stock price dropped below $1800 after the earnings result, and I took advantage by leveraging a portion of my shares into long-dated call options. I have since reversed that leverage when the shares rose back near $2100. The portfolio’s allocation at 17.7% is quite high so I may start to trim shares on strength. On the other hand, I’m confident in the long-run so I’m happy to shift some of my shares back to long-dated call options should the shares decline enough. Perhaps, fears about possible tariffs against Mexico have led to last week’s share price decline.
AXON (reported results on 7Nov)
AXON reported its Q3 2024 results on 7Nov. Revenue grew 8% sequentially and 31.6% Y/Y, a slight deceleration from Q2. Annual revenue guidance was raised by $20M to $2.07B on the top end of the range, which would represent full year growth of 33.0% and Q4 Y/Y growth of 31.9%. Of course, AXON will probably beat guidance as it typically does. ARR grew 36% Y/Y, and NRR was 123%, the highest in several years. During the prepared remarks, AXON spent considerable time emphasizing its AI offerings, which it now refers to as AXON AI and includes products and services like Axon Auto-Transcribe, DraftOne, automatic license plate reading (ALPR), and video redaction, among others. Axon’s AI efforts include a new AI bundled, subscription based AI offering called “The AI Era Plan”. The Company intends to continuously add enhancement features and new capabilities to this subscription plan offering. For investors, the expectation is that The AI Era Plan will help AXON deliver high revenue growth for longer on a recurring basis and at high margins. At a recent customer conference, AXON highlighted Draft One (described in more detail in my last portfolio update) as well as some products in development including Axon Body 4 Live Translation (with expected availability in the first half of 2025); this product will provide live, real-time translation across over 100 languages to help officers better interface with the community. Axon Body 4 Live Translation was well received at the conference. In addition, AXON plans to introduce the following new products: Evidence Translation, Form One, Brief One, Smart Capture, Policy Chat, CAD Q&A, and others. AXON is an extremely customer-centric company, and it strives to deliver innovations that provide efficiencies to customers so that they can do more with less manpower while also improving employee job satisfaction.
I agree with management that AI offerings will most likely help AXON maintain high (>30%) revenue growth for several years into the future. However, I do question whether AXON’s share price has run too far, too fast. I added very aggressively to my position when the shares were trading between $290-310/share. Since then the shares have more than doubled. As much as I like AXON, I do not want my allocation to get too large. The valuation has become very elevated with a 210x multiple of EV/TTM FCF. It’s EV/sales ratio based on Q3’s revenue run rate is 23.1, but AXON is not a pure high-margin, recurring revenue company so it’s EV/S deserves a lower multiple due to its lower blended gross margin (61% versus 75-90% for typical SaaS businesses). I have been trimming my position repeatedly since just before Q3 earnings when the shares were at about $460. Now, the share price is pushing $650. While I still like AXON for its market dominance, well executing management team, and future growth prospects, I will likely trim my AXON position further, purely for valuation reasons.
ASPN (reported results on 7Nov)
ASPN reported its results on 7Nov. Rather than repeat much of what I wrote back in my last portfolio update, it would be useful for you to read what I wrote then before reading on here.
My thoughts about ASPN are still similar. Now that we’ve had another quarter of results behind us, let’s look at those numbers. I like to look at the fast growing Thermal Barrier (for EVs) and the Energy Industrial businesses separately as I place a lot more weight on the Thermal Barrier business. The Thermal Barrier segment grew revenue 176% Y/Y. The Energy Industrial segment contracted by 4% Y/Y, but it was supply constrained. While the Energy Industrial segment is nice to have and contributes to income and cash flow, it isn’t the reason for owning ASPN shares. ASPN will have soon outsourced all of the production of the Energy Industrial segment so all of the available capacity will be available for the Thermal Barrier segment’s growth.
ASPN doesn’t expect additional capacity needs until 2027, and, to provide capacity for growth beyond 2027, a new manufacturing plant will be needed. On the earnings call, management announced preliminary approval of the U.S. Department of Energy loan to fund the completion of the second manufacturing plant in Georgia (U.S. state). The Company expects final approval of the loan in Q1 2025, and management is pushing hard to get the approval completed by January 20th. There is some uncertainty about whether the incoming Trump administration will approve the loan which is likely one reason for the recent stock price drop after the U.S. Presidential election. Management thinks the loan will get funded regardless of whether it can be done by January 20th, but there is a Plan B, which I learned about on November 20th when ASPN’s CFO presented at the Barclay’s Global Automotive & Mobility Tech Conference (webcast available). The CFO explained that Plan B is to offshore additionally needed production capacity by building a plant overseas. Either way, ASPN fully intends to increase capacity to meet future demand and growth projections. Furthermore, the CFO explained that ASPN’s cost structure would be similar under Plans A and B, but he, convincingly I think, explained that the plant in Georgia would provide U.S. manufacturing jobs and greatly add to the local economy there so he expects that the Trump administration will move forward with funding the loan. I added to my ASPN position (increased allocation from 4.8% to 7%) after hearing the explanation about Plan B.
A second concern among investors is the rhetoric from the incoming administration about cutting incentives to EVs. This could hurt ASPN because the non-Tesla OEMs are not yet profitable with their EV line-ups, and the EV tax credits provide some support for these OEMs. My big picture take is unchanged: ICE cars are going to be completely disrupted, probably within 10 years; this means that OEMs must switch away from ICE cars or they will go out of business. I believe that self-preservation will force these enterprises to make the switch even if they have a few intervening unprofitable years. GM seems to get it. Those that don’t will go out of business. Clearly, OEMs going out of business is not good for ASPN because they are current or potential customers. As I’ve mentioned previously, my large position in TSLA will would soften the blow from a financial loss on my ASPN position.
I thought the earnings call was overall very positive with management doing a superb job at presenting the business case, the opportunity, and the execution needed to meet the opportunity. I really like this management team, their execution foresight, and plans. However, the Company’s performance will simply boil down to the decisions that auto OEMs (in aggregate) make about their EV franchises. Again, I’m a believer that they won’t sit idly by and watch their companies get completely disrupted by EVs over the next decade. Clearly, I see the risk if I’m wrong. My 4.5% position includes a 0.7% allocation in Jan 2026 $22.5 call options. I recently added shares below $15, and I’ll likely trim my position somewhat above $25/share.
TTD (reported results on 7Nov)
TTD reported its Q3 FY2024 results on 7Nov. Revenue grew 27% Y/Y, which was an acceleration both Y/Y and sequentially. TTD remains very well positioned to benefit from the changes in the advertising market. I expect the business to thrive for many years to come. In addition, TTD has many trends that favor its business. However, TTD is a relative slow grower in the portfolio, and, with the U.S. election spending behind us and the 2025 full year forecast looming, I decided to sell TTD.
NVDA (reported results on 20Nov)
NVDA reported its Q3 FY25 results on 20Nov. The Company delivered revenue of $35.1B topping guidance by 7.9%. The Y/Y revenue growth was 94% growth, an expected and continued deceleration. However, total revenue growth is hampered by the slower growing segments, so data center revenue, by far the largest segment, remains the story here, and its growth continues to outpace each of the other segments. Data center revenue grew 112% Y/Y and 17.1% sequentially, but this growth is under supply constrained conditions. Therefore, does it really matter what the revenue amount is when the revenue would be much higher if more could be produced? For at least the next several quarters, the growth will be dependent on and be limited by how many GPUs can be manufactured. New manufacturing plants are being produced all over the world. Demand will exceed supply in Q4 and into 2025, perhaps longer. It’s important to watch this demand-supply balance every quarter.
Some investors worry about competition. NVDA recently improved from a two-year to a one-year new product introduction cycle. This makes it difficult for competitors to disrupt NVDA because the product features and specifications are a moving target. Furthermore, if NVDA new product introduction cadence is the fastest, then the competition cannot catch up. An important specification, if not the most important, is compute per watt, which is how much data can be processed/computed on per unit energy. As the world rushes to bring more and more AI capability online, it requires more and more data centers to be built. However, there’s not unlimited energy to feed these data centers. Recently, there have been reports from AMZN, MSFT, and GOOG announcing nuclear energy development projects dedicated to feed current and future data centers. In a world so thirsty for more compute and also energy constrained, GPU efficiency (compute per watt) is paramount. The cost of the GPUs is less important because the AI race makes cost secondary to total compute output. This dynamic helps maintain NVDA’s market share and its high margins.
The big tech companies continued to invest record amounts into CapEx, most of which was and continues to be spent on AI infrastructure. The bulk of this spend is for NVDA’s GPUs. The LLM scaling has continued, but there were recently some reports that pre-training scaling may be approaching its limit and that diminishing returns may be beginning. However, during the Q3 earnings call, Jensen said the following:
A foundation model pre-training scaling is intact and it’s continuing. As you know, this is an empirical law, not a fundamental physical law, but the evidence is that it continues to scale. What we’re learning, however, is that it’s not enough that we’ve now discovered two other ways to scale. One is post-training scaling. Of course, the first generation of post-training was reinforcement learning human feedback, but now we have reinforcement learning AI feedback and all forms of synthetic data generated data that assists in post-training scaling. And one of the biggest events and one of the most exciting developments is Strawberry, ChatGPT o1, OpenAI’s o1, which does inference time scaling, what’s called test time scaling. The longer it thinks, the better and higher-quality answer it produces and it considers approaches like chain of thought and multi-path planning and all kinds of techniques necessary to reflect and so on and so forth and it’s intuitively, it’s a little bit like us doing thinking in our head before we answer a question. And so we now have three ways of scaling and we’re seeing all three ways of scaling.
Jensen predicts that test time scaling will be huge. During an interview with Brad Gerstner on the BG2 podcast episode 17 (this is a must watch for NVDA investors), Jensen predicted that inferencing will grow by a billion-fold! With 40% of NVDA’s datacenter revenue coming from inferencing, even realizing a small fraction of Jensen’s prediction would tremendously increase the total available market size for NVDA’s GPUs.
The biggest risk I see is a China invasion of Taiwan as this would affect most of NVDA’s GPU production capacity. The world and TMSC, NVDA’s most important manufacturing partner, continue to build semiconductor plants outside of Taiwan which will help mitigate this risk in the long run.
In conclusion, I believe that it’s all systems go with NVDA. NVDA is the largest allocation position in the portfolio, and, for now, I’m keeping all of my shares and all of my call options.
SNOW (reported results on 20Nov)
SNOW is a back in the portfolio. SNOW’s product revenue growth had continuously decelerated from very high level of 143% in fiscal Q3 2020 to 29.5% in fiscal Q2 2025. The Q3 2025 result was similar at 28.9% suggesting that the decline may have finally stopped. Part of the original thesis of owning SNOW was that the building out of AI infrastructure would lead to a boom in AI run applications provided by companies like SNOW. However, there was an expected lag before the infrastructure’s layer buildout would trickle down to the application layer. In hindsight it’s clear that the lag was longer than I expected. With the hire of new CEO Ramaswamy in February, there was promise of a greatly increased effort of developing new AI relevant products. These products are now being released, and with the revenue growth decline arrest and a more reasonable valuation, perhaps SNOW is now poised for a reacceleration driven by AI and a better future investment return. I haven’t fully completed my own updated analysis of SNOW so I’ve restarted a position at a low allocation. I will be digging deeper to determine whether I wish to increase the allocation.
FINAL THOUGHTS
So much has changed in the past three months, and, during the past weeks, we have seen some major geopolitical developments in Eastern Europe and the Middle East. Let’s go through a few recent developments all of which can have perceived effects on stocks while some can also have real impacts on their underlying businesses.
The U.S. Presidential election is now behind us so the collective investor angst due to the uncertainty of the results and a peaceful transition of power are now gone. When this type of uncertainty is removed, stocks usually rally no matter who wins so the rally in stocks isn’t very surprising. What was surprising to many was that the Republicans got complete control over the Presidency and Congress, giving them some real power to make legislative and policy changes. The Republicans hold only a narrow majority in the House. They also hold a majority in the Senate, but there are at least two moderate Republicans who may vote with Democrats on some legislative bills. Nevertheless, we’re likely to see a decreased tax rate, decreased regulation, and less scrutiny with respect to anti-trust oversight. All of these are viewed as business friendly so part of this stock market rally is due to the results we got in the elections rather than just the removed uncertainty. The current perception of a pro-business administration in the U.S. is clearly creating additional optimism among stock investors.Geopolitically there are some major shifts occurring. We have seen big changes in the situations in Syria, Georgia, Romania, and Ukraine. There are power shifts happening that will affect other countries in those regions including Russia, Turkey, Iran, Israel, and Saudi Arabia among others. Some of these events may have occurred anyway, but it sure seems like some events may have been triggered by the perception that there will be some profound policy adjustments made by the incoming Trump administration. There could be some efforts to front-run these likely policy changes to influence more favorable future outcomes. There have also been threats of tariffs against Canada, Mexico, China, and the BRIC countries. Trump is acting as if he will be a lot more willing to exercise America’s economic might to extract outcomes on economic as well as other issues. It’s an uncertain time, and I can only hope for a stable world that supports economic growth and peace. When the world is stable. It’s easier to create more wealth, not just for investors like myself but also for societies as a whole.
The opinions, thoughts, analyses, stock selections, portfolio allocations, and other content is freely shared by GauchoRico. This information should not be taken as recommendations or advice. GauchoRico does not make recommendations and does not offer financial advice. Each person/investor is responsible for making and owning their own decisions, financial and otherwise.