I am Ray, a passionate investor and equity analyst. And today I am covering ServiceNow.

For over a decade, investors saw SaaS subscription-based business models as the best in the world!

The theory was that long-term contracts with large companies created a reliable and predictable growth model.

The most important word here is predictable.

Investors love predictability and hate uncertainty.

Thus, SaaS investors drove valuations to unsustainably high multiples, expecting this predictability to continue. Little did they know that there was a meteorite coming to obliterate SaaS stock valuations, and the name of that meteorite was AI.

When the AI boom started, investors began to question the assumptions behind SaaS multiples, causing ServiceNow to fall 57% from its all-time high.

Some investors believe that ServiceNow’s business model is no longer reliable, durable, or predictable.

Well, while AI will certainly disrupt the business models of some low-quality SaaS companies, it seems highly unlikely that vibe-coding will disrupt ServiceNow.

In fact, we are starting to see the first signs that AI could significantly increase ServiceNow’s total addressable market.

In this ServiceNow Deep Dive, I will explain everything an investor must know before buying the stock. Business model, services, the AI risk, the AI opportunities.

Most importantly, as always, I will conclude with a 2030 valuation model that calculates the target share price.

Let’s dig in.

1. Business Model

2. Competitive Advantages

3. Competitors

4. The AI Disruption Risk

5. The AI Opportunity

6. Q2 2026 Financial Results

7. Valuation

8. 2030 Valuation Model

9. Conclusion

1. Business Model

ServiceNow is a Software-as-a-Service (SaaS) platform that serves the needs of large enterprises.

Most importantly for potential investors, ServiceNow is not a simple point solution, it is a system of action.

It unifies corporate IT, HR, customer service, and security workflows through its suite of vast product offerings such as:

• IT service management

• IT operations management

• Customer service management

• HR service delivery

• Cyber security operations

• Creator workflows

Let me explain.

1.1. IT Service Management (ITSM)

ITSM is the core product that handles how a company manages tech support.

Without a centralized platform, tech support in a large enterprise would be chaotic. Employees would send random emails, make phone calls, or chat with IT staff, leading to lost tickets and long delays.

Many of us have been in a situation where we have to wait a long time for someone from IT to fix that “simple” issue you are having.

ITSM automates these requests, routing them to the right IT specialist based on what the problem is.

The platform divides this tech support into 4 core areas to ensure every issue is tracked and solved properly.

1. Incident management logs and resolves unexpected technical glitches quickly.

When a worker has a technical issue, like a broken MacBook, a forgotten password, or a software bug, they use ITSM to get help.

This is vital because it lowers the time an employee can’t do a task and lowers support costs.

2. Change management plans and track system and software updates, preventing large-scale systems from breaking during updates.

3. Problem management investigates the underlying root cause of repeating glitches in order to stop the same tech support issues from happening again.

4. Service request management has a digital catalog for workers to order hardware and licenses, enabling the standardization of procurement, speeding up item delivery.

In Q2 2026, licensed user growth for ITSM remained strong.

ServiceNow has integrated Now Assist, its generative AI assistant, into ITSM.

This AI helps by summarizing long chat histories and writing email replies to employees automatically, which speeds up support times and improves agent productivity.

1.2. IT Operations Management (ITOM)

ITOM is a product that monitors and manages the actual IT infrastructure.

This includes physical and virtual servers, networks, and cloud storage like AWS or Azure.

While ITSM is the help desk for people and processes, ITOM is the monitoring tool for the machines and software.

This monitoring is done because business software runs on thousands of connected databases and servers. If one server fails, entire systems can go offline. ITOM gives IT teams real-time visibility into what assets exist and how they are performing. This prevents business downtime, which can cost millions of dollars in lost business. It also helps businesses such as banks, phone companies, and manufacturing firms comply with strict government regulations that require tracking risks and protecting infrastructure.

ITOM capabilities could be packaged into different tiers depending on the needs of the company.

ITOM Visibility provides a complete view of IT infrastructure across on-premises and cloud environments. It scans networks to identify devices, applications, and servers, building and maintaining an accurate information database.

Also, this module shows how infrastructure components support business services, helping teams understand dependencies, assess outage impacts, and improve change planning.

Meanwhile, ITOM Health improves service reliability by collecting alerts from monitoring tools. It filters duplicate and unnecessary alerts, groups related events, and helps identify the root cause of incidents.

ServiceNow’s AI detects anomalies and automates analysis, enabling faster issue resolution and reduced downtime.

Furthermore, ITOM Optimization helps organizations manage cloud resources across all cloud platforms, providing visibility into usage and spending.

ServiceNow also identifies underutilized resources, recommends cost optimizations, and supports governance, helping organizations reduce cloud costs while maintaining operational efficiency.

In practice, ITSM and ITOM work together to build a proactive IT system.

Service management creates the ticket, while operations identifies why the issue is happening. When operations detects a server outage, it automatically builds an incident ticket in the service management system and alerts the correct repair team, resolving the problem before employees or customers even notice a slowdown.

1.3. Customer Service Management (CSM)

Customer Service Management manages customer support functions for ServiceNow users.

It connects front-office agents with back-office departments, like engineering, finance, or operations, to solve complex customer questions and issues.

Old customer databases only track emails and log phone calls.

They do not help solve the root cause of the customer’s problem if it requires another team to fix it.

CSM builds automated workflows that send customer issues directly to the team that can resolve them. This is vital because resolving issues quickly keeps customers happy and reduces customer churn. It is well known that keeping an existing customer is many times cheaper than acquiring a new one. In high customer acquisition cost industries, even a minuscule increase in customer retention can significantly boost profits.

ServiceNow platform uses specialized features to help support agents solve cases quickly.

Omni-channel support unifies email, chat, phone, SMS, and social media into a single workspace, giving agents a complete view of customer interactions. This enables faster responses and a more consistent support experience.

Next, a self-service portal provides customers with knowledge bases and AI-powered chatbots to find answers, submit requests, and reset accounts independently. This improves customer satisfaction while reducing support costs.

The advanced work assignment tool automatically routes cases based on business rules, agent skills, availability, and workload. This ensures each case is assigned to the most appropriate agent, improving efficiency and resolution times.

Furthermore, guided playbooks provide step-by-step guidance for handling common support processes. This helps agents deliver consistent, accurate, and compliant service while reducing training time.

Meanwhile, proactive CSM uses AI and monitoring data to detect outages and service issues before customers report them. Organizations can proactively notify affected customers, reducing inbound ticket volumes and improving the overall customer experience.

1.4. HR Service Delivery (HRSD)

Human Resources Service Delivery (HRSD) automates and simplifies employee HR workflows.

This replaces long emails, spreadsheets, and phone calls with a single secure platform.

Employees often have to navigate multiple confusing systems to get basic help with payroll or submit forms. This wastes time and lowers productivity.

HRSD gives them a single place to ask questions, view information, and complete tasks.

This improves employee satisfaction, keeps HR data secure, and frees HR teams from manual paperwork.

Employee center is a centralized portal or a mobile app where employees can access personalized content, search the knowledge base, submit requests, and track their cases in one place. By offering a single self-service experience, ServiceNow improves accessibility, reduces the need for HR assistance, and enables employees to quickly find the necessary information.

Next, case and knowledge management standardizes how employee inquiries are captured, routed, and resolved. Requests are securely assigned to the appropriate HR teams while informational articles help employees and AI agents find correct answers faster. The platform tracks case progress, resolution times, and service performance to improve efficiency.

Furthermore, lifecycle events automate workflows for major employee milestones, such as onboarding, promotions, transfers, and offboarding. Tasks are coordinated across HR, IT, facilities, and other departments, ensuring each activity is completed on time. This reduces manual effort, eliminates process gaps, and provides employees with a consistent experience throughout their employment.

Meanwhile, employee document management provides a secure, centralized repository for employee contracts, forms, and other HR documents. Role-based access controls help protect sensitive information while supporting compliance with privacy regulations. Digital document storage reduces paperwork, simplifies document retrieval, and streamlines HR processes across the employee lifecycle.

Standardizing these HR processes can help companies shorten onboarding times, reduce errors, and lower costs.

1.5. Security Operations (SecOps)

Security Operations (SecOps) connects security threat scanning tools.

ServiceNow’s automated workflows speed up security response and fix vulnerabilities.

Security teams are often overwhelmed by technical alerts. Even when they find a serious threat or a software vulnerability, it takes too long to coordinate with IT teams to eliminate the issue.

This significantly increases the probability of data breaches.

Security incident response tools automate the detection, containment, and remediation of security threats. They can isolate infected devices, block malicious activity, and coordinate response actions across security and IT teams. Automated workflows reduce response times, minimize business impact, and help organizations recover from incidents more quickly.

At the same time, ServiceNow’s Veza access graph provides deep visibility into identity permissions across users, machines, applications, and AI agents. By mapping access relationships throughout the enterprise, it helps organizations identify excessive permissions and enforce access, reducing exposure when login information is stolen.

Meanwhile, vulnerability response tools integrate security scan results with central data to identify, prioritize, and remediate security risks. It automatically creates and assigns remediation tasks to the appropriate IT teams, prioritizing critical systems based on estimated impact.

Next, security posture control software continuously monitors on-premises and cloud environments to ensure assets comply with security policies. It identifies weaknesses, highlights compliance gaps, and provides visibility into an organization’s overall security posture.

Lastly, in Q1 2026, ServiceNow completed a $7.8B acquisition of Armis, expanding into proactive security.

Armis discovers and protects billions of physical connected assets, including manufacturing tools, medical devices, and IoT infrastructure.

To clarify, ServiceNow is not a cybersecurity platform like CrowdStrike, Okta, or Cloudflare.

Instead, it enables organizations to automate and manage security operations by connecting various cybersecurity tools, IT teams, and business workflows. It helps prioritize threats, coordinate incident response, manage vulnerabilities, and ensure security processes are completed efficiently across the enterprise.

However, it could, in the future, increase its cybersecurity offering by releasing new capabilities or acquiring a full-on cyberfirm.

“We now have a 10-figure cybersecurity business that’s growing faster than all the other top cybersecurity companies... I think cybersecurity will be bigger than ServiceNow is in the next few years.” Bill McDermott, CEO, Q2 2026 Earnings Call.

Essentially, the CEO expects that in a few years, probably 5-7 years, the cybersecurity vertical alone could generate as much revenue as the entire company is generating today.

1.6. Creator Workflows

Creator Workflows, powered by App Engine, is a low-code development platform that users use to build custom applications.

Every business has unique tasks that standard software cannot handle. Normally, building a custom app takes months of coding and costs a lot of money, creating a huge backlog for IT departments.

App Engine solves this by using low-code and no-code tools.

A low-code and no-code environment is a development platform that lets people build applications with visual drag-and-drop tools and minimal or no written code, making software creation faster and more accessible.

Having such functionality allows companies to build apps in days instead of months, alleviating IT backlogs and reducing development costs.

This ServiceNow offering helps companies digitize old paper forms and manual spreadsheets!

The App Engine might sound like vibe-coding, but it is not.

In short, vibe coding generates code, while App Engine generates entire apps and enterprise workflows that conform to an organization’s rules.

App Engine focuses on building structured business applications within ServiceNow’s platform using internal data, workflows, security controls, and governance.

This tool is primarily designed to build internal enterprise applications, not consumer-facing or standalone commercial apps.

These small apps automate specific business processes, for example, employee onboarding procedures, and securely use data already stored in ServiceNow or connected enterprise systems.

Its primary purpose is to rapidly build secure, workflow-driven business applications for internal enterprise use, rather than general-purpose external software like a mobile app.

1.7. Professional Services

In addition to selling software subscriptions, the company also provides what it calls Professional Services.

The professional services segment includes earnings from implementation, consulting, training, customer onboarding, and technical support fees.

Setup consulting is done to build and configure the software to meet a company’s specific business requirements.

Software only works well when its workflows are designed to match the company’s real processes, making the implementation a highly important part of the business.

Training is done to teach employees and system administrators how to manage the platform. The aim is to prevent costly errors and help users get the most value out of the software.

Meanwhile, customer onboarding is done to guide new customers through their first steps, enabling users to get comfortable with the system quickly.

In 2025, professional services brought in $395M, a 17% increase Y/Y.

However, this segment makes up only about 3% of the total revenues.

Furthermore, unlike the highly profitable subscription business, the professional services unit operates at a loss. In 2025, the GAAP gross loss for professional services was -$19M, which equals a negative 4.5% margin.

This unprofitability is a deliberate strategic choice.

ServiceNow uses its services unit to help with customer setup and to encourage long-term software adoption, rather than as a profit generator.

Setting up the platform is the largest expense for a new customer, typically costing 3 to 5 times the annual software fees. To protect its overall profitability, ServiceNow is moving implementation work to its global partner network.

ServiceNow relies on a large ecosystem of third-party partners like Accenture and IBM to do most of the setup work. This means ServiceNow does not depend on hiring thousands of human consultants. Instead, partners carry the load of setup work, while ServiceNow focuses on selling highly profitable software subscriptions.

Essentially, the company doesn’t see implementation and consulting as its core competency and prefers to focus on improving its platform.

Simply put, ServiceNow can sell more software subscriptions by partnering with consultants and system installers compared to if they had to go at this alone. This is why the professional services revenues have only grown with a CAGR of 10.6% since 2017, compared to a 27% CAGR of total revenue, but I will expand on this in the finances chapter.

2. Competitive Advantages

Read more

Meanwhile, large commercial success enabled the stock of Celsius to become a darling of capital markets.

At the May 2024 peak, Celsius had a market cap of $22.4B, with the stock rising 4,890% in just 4 years.

However, as of July 2026, the stock is down 67% from the peak.

In 2022, Celsius signed a game-changing distribution agreement with Pepsi that enabled it to massively increase its sales and profits. The market rewarded the company handsomely for this growth.

However, this growth stopped fast and suddenly, as Celsius and Pepsi realized that they might have overestimated the demand.

Many analysts and investors saw this as a classic story of the once fast-growing trend stock collapsing, however, the company had different plans.

It acquired two completely different energy drink brands, Alani Nu and Rockstar, and is positioning itself to become an energy beverage portfolio company with over 20% market share in the US.

In this Deep Dive, I will explain Celsius business model, its acquisition of Alani Nu and Rockstar, its distribution strategy with Pepsi, and the company’s finances.

Most importantly, I will conclude with a valuation model to see whether returns to the previous share levels are possible.

Let’s begin.

1. The Story of Celsius

2. Marketing Strategy

3. Distribution

4. Risks

5. Opportunities

6. Finances

7. Valuation

8. Valuation Model

9. Conclusion

1. The Story of Celsius

Celsius is an energy beverage company based in Florida, USA. While the company is around 20 years old, the bulk of its success has come in the last 5 years.

The energy drink industry is very competitive, with many brands fighting for customers.

There is a massive demand for caffeinated, uplifting, and refreshing drinks, while at the same time, people and governments are getting more concerned about the negative health effects of addictive, highly caloric sugary beverages. Energy drinks, being the primary culprit, have a reputation for not being the healthiest option. Celsius saw a gap in the market and tackled it head-on.

Celsius has chosen a specific sub-niche, the “healthier” fitness energy drink market!

This was a great market entry strategy.

In the fast-moving consumer goods (FMCG) business, marketing determines one’s success.

If we are being honest, a lot of the FMCG brands sell the same stuff, just packaged and marketed differently. Customers choose one product over another because of the product’s message.

Celsius is hip, “healthy”, and functional, while other energy drinks are “unhealthy sugar bombs”!

1.1. Products

One of the company’s main products is its flagship 12oz Celsius energy drink can.

Through the years, as the company tried to become more mainstream, it completely redesigned the packaging. In 2008, Celsius drinks were primarily sold in niche stores to fitness enthusiasts. As you can see from the left picture, the design was quite cluttered, emphasizing its calorie-burn-enhancing qualities. Such design and messaging would appeal only to a certain subset of the fitness community. It’s night and day compared to how the cans look today.

Understanding the importance of packaging in FMCG was one of the main drivers behind Celsius success!

People shop with their eyes. The redesigned can is not a cluttered, ugly mess, rather, it’s clean, bright, and inviting. Instead of telling its customers what their drink does, Celsius invites you to “feel” what it does.

A clean white can, with bright pictures of fruits, small text with claimed health benefits, and 3 little icons of a person running, cycling, and meditating.

There are over 20 flavors on offer, with names such as Cosmic Vibe, a strawberry, lemon, orange, mandarin, and blueberry-flavored drink.

Oasis Vibe, pear cactus, watermelon, kiwi, bubblegum, and citrus. A green Apple Cherry drink. And so on. Again, I believe Celsius demonstrates its understanding of consumer preferences.

People crave unique products!

Most energy drinks taste and look the same. Celsius differentiates itself from the other brands by offering more flavors, with more enticing names.

I am emphasizing again that people shop with their eyes. If the price were not a factor, most people would choose Green Apple Cherry over a simple “Energy Drink with Apple” each time.

The company argues its drinks are healthier than others because of its unique, scientifically tested formula!

All of their energy drinks contain green tea extract that the company claims boosts metabolism, thus helping one burn more calories. Guarana seed extract is used to infuse the drinks with caffeine. Ginger root supports the digestive system. Vitamins B and C are added to support overall health, help relieve fatigue, and support the immune system. Chromium mineral reportedly helps normalize blood sugar levels and enhances metabolism.

Essentially, Celsius is similar to vitamin water but with caffeine!

Many gym goers and people with active lifestyles have been drinking vitamin water for its various added benefits. At the same time, they were drinking coffee or energy drinks when they needed a pick-me-up. Celsius offers a middle option, combining both together.

With this strategy, Celsius could steal market share not only from coffee and energy drinks but also from soda and vitamin water!

Subscribe now

1.2. Manufacturing

In the beverage industry, there are lots of manufacturing strategies. Some brands handle their production independently, while Coca-Cola famously sells the syrup to hundreds of regional bottling plants.

Celsius doesn’t own any manufacturing facilities, the company outsources the manufacturing to co-packers.

“Our functional energy drinks, on-the-go powders, and supplements are produced by well-established third-party beverage co-packers. Utilizing these co-packers, strategically located across the, enables us to efficiently produce and distribute our products. We procure most ingredients and all packaging materials, while our co-packers handle assembly and charge us a fee on a per-case basis.” Celsius 2025 10K

A co-packer is a company that specializes in manufacturing a particular product but doesn’t have a brand and distribution of its own.

Large grocery chains use these companies to manufacture their store-brand goods such as cheese, snacks, candy, drinks, etc. The advantage of this model is that each side can focus on their core competency, an activity they are an expert in.

Co-packers focus on being the best at manufacturing, whilst the client can focus on branding and generating demand for the end product.

Celsius is not a beverage manufacturing company, rather, it is a beverage marketing company!

Celsius benefits greatly from this arrangement.

The company doesn’t need to incur large expenses connected to building its own manufacturing plants. Furthermore, it allows for faster expansion. Manufacturing plants have maximum capacity, and they often take many years to build. However, there are plenty of co-packers who, by just changing the packaging and pumping different ingredients through the pipes, can manufacture a lot of Celsius drinks in a relatively short time.

Another benefit of this strategy is the ease of international expansion.

International shipping is expensive, and costs are calculated based on weight. Beverages generally tend to have a low value per KG shipped, making it uneconomical to transport them for long distances.

This is one of the main reasons why Coca-Cola has hundreds of bottling plants. Celsius is utilizing a similar strategy in Europe, with the company having signed an agreement with the Japanese company Suntory to be an exclusive manufacturer and distributor of Celsius energy drinks in certain markets.

Celsius will likely sign more such agreements in other geographies.

1.3. Alani Nu

In my previous Celsius reports, I talked about how, with “feminine marketing,” Celsius has managed to attract a lot of women to the energy drink category. (I will expand on this in the next chapters)

Well, Alani has taken that to another level!

Red Bull and Monster are believed to generate 80% of their sales from men, whilst Celsius is about 50/50.

Alani is 90% female!

The brand is especially strong with GenZ and millennial women.

This is why the company paid $1.8B to acquire 100% of Alani Nutrition and all its subsidiaries through a mix of cash and equity! Alani shareholders became 8.7% equity owners of the combined company,

Celsius paid 3 times Alani’s 2024 revenue and 12 times fully synergized Adj EBITDA!

The acquisition of Alani Nu was a strategic move aimed at strengthening Celsius’s market position, expanding its consumer base, and leveraging synergies between the two brands.

But most importantly, this was a defensive acquisition!

I find it extremely likely that if Celsius hadn’t acquired Alani, Red Bull, Monster, or another beverage giant would have done so!

This means that growing new brands is not as easy as it once was. Consolidation is coming, and Celsius must act accordingly. By acquiring Alani, Celsius prevents a competitor from acquiring this young and promising brand.

There is no doubt that Monster, Red Bull, or Nestle could have used their scale and distribution network to turbocharge Alani’s growth. This would have put pressure on Celsius’s growth and margins. By paying $1.8B now, Celsius could be preventing billions of losses in the future.

So far, it seems that Alani Nu is on a path to generate extremely strong returns for the company!

In Q4 2025, Alani Nu grew revenues by an incredibly strong 101% Y/Y to $315.6M!

This means that in Q4 2025, Alani Nu’s revenues were about 44% of Celius. I think this acquisition was not only smart, but it seems that in just a few years, analysts will look back at it as a bargain.

Giving up 8.7% of your equity, some cash, and debt seems like a great deal if, already in the first quarters post-acquisition, it grows by over 100% Y/Y.

As of 2025, Alani Nu held a 6.4% energy drink market share in the US, an increase from 3.2% Y/Y!

In pure dollar terms, during Q3 2025, Alani Nu was the second fastest-growing energy drink brand in the US, only behind Red Bull.

Red Bull grew retail energy drink sales in the US by $275M, compared to the $266M of Alani Nu. Monster, the second largest energy drink brand, grew retail sales by $234M.

While as a portfolio, Celsius brands grew a healthy $337M, individually, the Celsius brand achieved decent growth of $88M.

1.4. Rockstar

As part of the expanded partnership with Pepsi announced last summer, Celsius acquired Rockstar Energy’s US and Canada business from Pepsi for $585M.

Rockstar is your classic 2000s energy drink brand that uses the same design and marketing elements as Monster and Red Bull.

Founded in 2001, the brand has often been associated with partying, extreme sports, and music festivals, with “Party like a Rockstar” being its famous tagline.

Read more

Technological advances have made video games better, more engaging, and easier to play than ever before. Today, video games are popular with adults and kids alike and are a fast-growing $330B industry poised for rapid changes.

With $6.6B in revenues, Take-Two Interactive is the 10^th largest video game company in the world!

However, T2’s fortunes are set to change rapidly, with the release of the most anticipated entertainment product in human history.

Grand Theft Auto 6 is set to be released on 19 November 2026.

I firmly believe that GTA 6 will be completely transformative for the company, with sales and profits way above current analyst estimates.

Analysts estimate that about 40M units will be sold in the first 12 months, largely based on T2 sandbagged fiscal 2027 guidance.

However, early reports suggest that pre-orders of the game have already reached $3B, an absolutely insane figure.

I see an asymmetric upside opportunity, with T2 stock being essentially flat for the past year, despite the bazooka of cash that’s coming their way.

After the release of GTA 5 in 2013, T2 stock went on a generational run, rising by 673% in the next 5 years.

I foresee the release of GTA 6 being a similar catalyst, with T2 ready for the next leg up.

For this reason, I have opened a 3.4% starter position in Take Two’s German listing $TKE @ €222.30 a share in the Global Equity Portfolio.

I see 128% upside in the next 3 years in my base-case scenario.

185% in the mid-case scenario.

228-310% in the bull-case scenario.

In this Take Two Interactive Investment Thesis report, I will explain why I have purchased this stock.

Furthermore, I will explain the company’s business model, look at the game portfolio, with a huge focus on the upcoming GTA 6.

I will conclude this report with a 3-year valuation model.

Let’s begin.

1. Business Mode

2. Shift to Mobile

3. GTA 6

4. Rest of the Portfolio

5. Analyst Estimates

6. Valuation Model

7. Conclusion

1. Business Model

Take-Two (T2) is a global video game developer and distributor through 3 main brands:

• Rockstar

• 2K

• Zynga

Rockstar is the developer of its flagship title, Grand Theft Auto, and the company has spent a reported $2B to develop the next GTA 6, but we will expand on it later in the report.

2K is most famous for the development of its basketball-themed video game NBA2K. But this division also produces best-selling titles such as Bioshock, Borderlands, Civilization, and Mafia.

Zynga is the T2s mobile gaming arm, responsible for huge hits such as FarmVille. This division was acquired for $12.7B in 2022, which later proved disastrous. I will expand on it in a bit.

To fully understand T2 and its business model, we need to look at:

• Game design cycle

• One-time purchases

• In-game purchases

• Subscriptions

• Cloud gaming

1.1. Game Design Cycle

The video game design and development cycle is one of the most complicated production processes in any creative industry. It blends software engineering, screenwriting, music composition, and large-scale project management.

Studios spend years and tens and sometimes hundreds of millions of dollars to develop a game, without a guarantee of success.

Game development largely follows a cycle:

• Pre-production

• Production

• Alpha and beta testing

• Launch

• Post-production

The cycle begins with pre-production, which could span anywhere from 6 months to 2 years and consumes about 10% to 15% of the total development budget.

During this foundational phase, a small core team of directors, writers, and lead designers maps out the game’s core concept, target audience, and primary platform architecture.

Simultaneously, programmers create prototypes using simple shapes to test if the basic gameplay mechanics, like jumping or driving, are actually engaging before scaling up production. Producers use the end of this phase to finalize budgets and establish strict milestone schedules for the hiring surge ahead.

Once the blueprint is approved, the project enters production, the longest and most expensive phase of the entire cycle.

Lasting anywhere from 2 to 5-plus years for major AAA titles, this stage devours roughly 60% to 70% of the total budget as the studio scales up to maximum staff capacity across multiple departments.

Artists and animators translate concept art into 3D models and use motion capture to create lifelike character movements, while software engineers concurrently write the underlying engine code, physics systems, and gameplay.

Writers, voice actors, and orchestral composers record the narrative and audio components, which level designers then piece together to construct the actual physical environments, pacing out every enemy encounter and story beat.

After pieces of the game are stitched together into a cohesive build, the project moves to the alpha and beta testing phases.

Testing could take 6 months to a year and account for 10% to 15% of the development costs.

Next, we get to the launch phase, which is an intense, highly concentrated window lasting 1 to 3 months that requires about 5% of the overall budget.

Going Gold signifies that the launch build has been locked and submitted to console manufacturers like Sony, Microsoft, or Nintendo for first-party certification to ensure it doesn’t violate operating system security or stability policies.

While the physical manufacturing plants or digital storefronts prepare for mass distribution, the development team shifts immediately to monitoring day-one stability. They spend these final weeks compiling critical bug fixes into mandatory software updates.

In today’s gaming landscape, the launch day is no longer the finish line but the start of the post-production or live service phase.

Funded by recurring consumer spending and DLC sales, this stage requires a downsized but highly efficient team to monitor real-world player telemetry, optimize server infrastructure, and deploy rapid stability fixes.

Designers and artists continuously develop seasonal updates, cosmetic expansions, and new gameplay features to prevent community fatigue and maintain an active player base.

For successful titles, this phase operates as a self-sustaining ecosystem that generates high-margin revenue long after the core game’s initial release.

Overall game development is a long and very detailed, tedious process where a lot of things can go wrong. To reduce volatility, Take Two uses 3 distinct design cycle speeds to balance blockbuster volatility with steady monetization.

• Low-speed, high-polish cycle

• Medium-speed cycle

• High-speed cycle

Rockstar operates on a low-speed, high-polish cycle.

It releases games infrequently but ensures exceptional polish to build unmatched pricing power and game quality. GTA6, which has been in active development for a decade, was given an unlimited budget by management to achieve perfection at launch.

2K operates on a medium-speed cycle.

It releases annualized sports simulation games to keep engagement high, while releasing sequels of core franchises every few years.

Zynga operates on a high-speed mobile cycle.

It uses live-ops updates, mobile analytics, and direct monetization to generate steady daily bookings.

Subscribe now

1.2. One-Time Purchases

Upfront one-time purchases remain crucial for driving game monetisation.

T2 is using the popularity and anticipation of the upcoming GTA 6 to test the upper limits of pricing power. The publisher set a new price benchmark by pricing the Standard Edition of GTA6 at $79.99 and the digital Ultimate Edition at $99.99.

This is the 1st time a major console game has launched with a base price above $70.

This pricing strategy significantly improves the unit economics. Based on Bank of America estimates of 45M copies sold in its 1st year, the extra $10 generates $450M in additional gross revenue before platform fees and taxes.

While digital platforms like Sony and Microsoft take a 30% cut of digital sales, the price hike remains highly accretive to margins.

To reduce physical manufacturing costs, prevent resale, and avoid leaks, boxed copies of the game will not contain discs.

Instead, they will only include digital download codes inside the box. Digital Foundry noted that this also gives the developers extra time to work on the game right up to the launch date.

While revenues from one-time sales remain important, the business model is moving away from one-time sales towards subscriptions and in-game purchases.

As we see in the above chart, full game revenues have been essentially flat since 2017, only growing by 10.5%.

However, recurrent customer spending revenues from subscriptions and in-game purchases have grown by 10x from $459M in 2017 to $5.2B in 2026.

This is a CAGR of 30.9%, far outpacing the growth of full game sales during this period. While the acquisition of Zynga was a huge driver for this in 2023, we see that recurrent customer spending was growing strongly even before that.

The release of GTA Online, Rockstar subscriptions, and the upcoming release of GTA6 are likely to be a massive driver of this revenue segment.

1.3. Subscriptions

Subscriptions play an increasingly larger role in increasing player engagement and achieving a higher ARPU.

Rather than launching a new independent subscription service, Take Two has integrated its game catalog into Rockstar’s popular GTA+ service.

GTA+ memberships nearly grew 2-fold Y/Y in FY 2026, reaching an all-time high of over 1.3M subscribers in January 2026.

Reportedly, this user base generated $10.79M in high-margin revenue for that month alone. To capitalize on this, the subscription price was raised from $5.99 to $7.99.

Meanwhile, 2K has rotated sports titles like NBA 2K26 into GTA+ to test a Game Pass-style rotation.

Subscribers receive free permanent content packs and virtual currency to spark engagement and encourage them to buy the game once it rotates out.

Furthermore, to drive mass adoption, Rockstar is giving 1 free month of GTA+ with all digital preorders of GTA6, pulling millions of console players directly into the recurring monetization funnel.

Quick note, this article is also available as a YouTube video:

1.4. In-Game Purchases

In-game purchases are a growing monetization strategy.

Instead of charging a lump sum to download a game, publishers monetize the experience over time by offering optional digital transactions embedded directly into the gameplay.

This strategy heavily exploits the fact that roughly 5-10% of gamers generate the vast majority of all revenue.

These are the customers who are willing to spend hundreds or even thousands of dollars to buy in-game currency, gold, crystals, special passes, or other things that help improve their position in the game.

By capitalizing on micro-transactions, publishers can steadily increase the ARPU far beyond what a traditional one-time retail price tag would allow. No one would buy a game for $500, but many will pay $500 to have an easier time playing a popular game. Gamers pay to elevate their in-game status.

In fiscal 2026, NBA 2K recurrent spending grew more than 30%, mobile rose 13%, and GTA Online increased 6%.

In Q4 2026, GTA Online recurrent spending rose 5% Y/Y, supported by the A Safehouse in the Hills content update, which featured mansion properties and the return of Michael De Santa.

Analysts at Bank of America raised their price target to $368 because GTA Online is expected to use a pay-to-progress model. This model is expected to monetize more effectively than cosmetics-only games like Fortnite.

1.5. Cloud Gaming

The most important thing investors must understand is that the video game industry is in the early stages of transitioning from one-time purchases to cloud streaming and subscriptions!

With total global sales of 220M T2s, GTA 5 is the second highest-selling video game in history.

It is estimated that the company has generated close to $9B in lifetime revenues from this game. For instance, total revenues of the company in fiscal 2026 were $6.6B.

This demonstrates how video games are fundamentally hit-driven businesses, as the majority of the sales and profits are generated by just a few blockbuster games!

Cloud gaming could change that!

Instead of developing a number of games individually and trying to forecast (more like guess) which video game will be a success, companies will look at their games as part of a portfolio.

Gamers will sign up for a subscription that, for a simple monthly price, will give them access to a portfolio of games, similar to video streaming services such as Netflix, Disney+, and Prime Video.

The transition to cloud-based video game streaming could significantly increase the TAM for video games.

The most advanced video games require powerful PCs or consoles. Millions of people who would like to play some games once in a while are not willing to spend hundreds or even thousands of dollars on such a device. Also, some games are just too demanding for mobile phones.

I am not an avid gamer, but I would love to play the new GTA 6. However, I don’t have a gaming PC, and I am not willing to purchase a console. However, I would be willing to pay a few hundred dollars to stream GTA 6 for a few months.

With cloud gaming, instead of running the game on one’s device, the game is run on AWS, Azure, or Google Cloud’s large and powerful servers, which then stream the video of the game to the device.

In theory, if internet speeds are fast enough, even the most basic devices should be able to run even the most demanding games.

The transition to cloud-based video streaming made Netflix a more predictable and profitable business than old Hollywood studios ever were!

Video game streaming will do the same to the video game industry!

This is why Microsoft paid $7.5B in 2020 to acquire Bethesda and $68.7B in 2022 for Activision Blizzard. They are building a portfolio of games for their cloud gaming subscription offering.

Take Two doesn’t have a video game streaming service, but it could make billions by licensing its older titles to video game streaming services.

Or it could simply pay AWS or Google Cloud to host the games and then stream them.

In any case, in my opinion, the value of TT2’s game portfolio will rapidly increase in the next decade. Video game streaming will create a more consistent cash flow stream than the occasional $10-30 purchases of older games by gamers.

Subscribe now

2. Shift to Mobile

The $12.7B acquisition of Zynga in May 2022 transformed T2 from a console-first publisher into a strong mobile game developer.

However, ultimately the Zynga acquisition is viewed as a failure because the company significantly overpaid, buying the mobile game developer at a peak valuation post covid mobile gaming boom.

Additionally, right as the merger closed, Apple implemented its App tracking transparency framework, which allowed users to opt out of data tracking and fundamentally broke Zynga’s ability to efficiently target high-spending players.

Consumer engagement and mobile micro-transaction spending plateaued across the entire industry, leaving T2 holding an asset priced for a peak that was rapidly correcting.

This massive gap between expectation and reality forced the company to incur staggering write-downs, a $2.2B goodwill impairment in 2024 and an even larger $3.6B impairment in 2025.

Essentially, T2 overpaid by $5.73B for the Zynga acquisition.

However, we are starting to see a recovery.

In 2026, mobile revenues recovered from the post covid slowdown, earning $3.3B and representing 49% of total annual bookings and growing 13.3% Y/Y.

Zynga achieved its highest net bookings since the acquisition in 2026. Key mobile performance drivers include Toon Blast, which grew approximately 25% Y/Y, Empires & Puzzles, which grew 5% Y/Y, and Color Block Jam, which grew 15% to reach 66.7M downloads.

Rollic, a Zynga subsidiary, cleared over 3.9B lifetime installs across its casual portfolio.

This mobile presence helps diversify the company away from console hardware cycles.

At the time of the merger, there were expectations that Zynga would help T2 bring its title to mobile, but that has been slower than expected.

However, that is changing with the company partnering with Apple’s mobile gaming subscription service Arcade and Netflix’s gaming to bring its IP to mobile.

GTA: The Trilogy – The Definitive Edition on Netflix Games generated tens of millions of downloads without requiring heavy new development costs.

Meanwhile, 2K has maintained a massive, highly profitable footprint through its annual mobile premium offerings, such as NBA 2K26 Arcade Edition, which currently sits as a top-5 staple on Apple Arcade.

Overall, mobile will likely become a larger and more important segment for the company.

3. GTA6

I think before discussing the upcoming GTA 6, we need to discuss how truly successful this series has been for the company.

Over the past two decades, the Grand Theft Auto franchise has evolved into one of the most successful, iconic, and critically acclaimed entertainment brands in the world.

Across the series, Rockstar Games has sold more than 470M copies, with GTA 5 alone accounting for nearly 230M units sold.

The game’s commercial success has been unprecedented, generating over $1B in retail sales faster than any entertainment release in history and remaining the best-selling title of the past decade in the US based on both unit and dollar sales.

The franchise’s success extends well beyond its initial game launches. GTA Online has transformed GTA V into a long-term online platform, consistently retaining players through free content updates and monetization initiatives like GTA+.

This sustained engagement has allowed Rockstar to keep GTA relevant for well over a decade, making the series one of the industry’s most profitable and enduring franchises.

With that level of commercial and cultural success behind it, expectations for GTA 6 are understandably enormous, as Rockstar looks to build on one of the strongest foundations in gaming history.

GTA6 is scheduled to launch on November 19, 2026, exclusively on the latest-generation consoles of PlayStation and Xbox.

It is, without a doubt, the most anticipated entertainment product in human history.

Preorders opened globally on June 25, 2026, with rumors that pre-orders have already exceeded $3B.

In France, retailer CDdiscount reported 6 times more preorders than Call of Duty’s typical launches.

Analysts expect the game to sell 25M copies on day 1 and 40M copies in its 1st year!

However, in my opinion, the success of this game will be multiples higher than even the most bullish professional analysts believe and will transform T2 into a top 5 gaming company.

This is largely because of:

• More favourable media landscape

• GTA 6 Online

• GTA+

• In-Game Purchases

3.1. More Favourable Media Landscape

When GTA 5 launched in September 2013, the media landscape was much more complicated for game developers.

More anchored to legacy TV advertising networks, physical retail, and centralized gaming journalism.

The promotional campaign for GTA 5 required a capital-intensive push, and marketing relied heavily on physical placements, such as billboards, bus wraps, and retail-level midnight launches across thousands of brick-and-mortar storefronts.

The digital ecosystems that dominate today’s consumer attention were either non-existent or in their infancy.

TikTok had not yet launched, and Twitch was a niche broadcasting site with negligible daily active users relative to its current scale. Meanwhile, YouTube had 1B active users compared to nearly 3B in 2026.

In contrast, the media landscape of 2026 operates on decentralized, algorithmic networks that maximize organic reach with zero marginal distribution cost to the publisher.

The emergence of short-form video on TikTok and live streaming on Twitch has fundamentally changed how entertainment is popularized. In today’s gaming ecosystem, gameplay clips, reaction videos, and community-generated memes spread through the internet at a rapid speed.

Thanks to this organic loop, smaller titles are achieving millions of sales entirely via viral TikTok trends or Twitch streamer popularity.

This shows how modern video games can expand their audience rapidly without traditional advertising expenditure.

Furthermore, the scale of live streaming has reached global levels. Twitch hosts over 35M daily active users and recorded 21B total watch hours in 2024. GTA 5 itself has been a primary beneficiary of this trend, amassing 1.4B hours watched on Twitch in 2024, which represented approximately 9% of all gaming content on the platform.

Truly amazing engagement that the company will use to turbocharge sales of GTA6.

Traditional marketing is no longer the primary driver of adoption. Instead, the internet’s collective engagement drives compounding awareness.

The effectiveness of this organic model was demonstrated by the game’s initial trailer, which shattered viewership records by generating over 93M views in a single day.

Simply put, the professional analysts who are, on average, older and less active in the TikTok, Twitch, and YouTube digital ecosystems are significantly underestimating the impact this new environment will have on GTA 6 sales.

GTA 5 sold 45M copies in the 12 months, and I just don’t see how GTA 6 doesn’t destroy this metric.

3.2. GTA 6 Online, GTA+ and In-Game Purchases

As the industry has shifted, the GTA 6 online and in-game purchases will be much higher revenue and profitability drivers than during the GTA 5 era.

Although Rockstar does not publicly break out GTA Online’s exact revenue, analysts have estimated that the game is generating around $500M in yearly revenues from Shark Cards and GTA+ even nearly a decade after launch.

Shark Cards let players buy the in-game currency with real dollars instead of earning it through gameplay.

Imagine if, a decade after the release of GTA 5, GTA Online makes $500M a year, how much will the fully upgraded GTA 6 version of GTA Online make once scaled?

This could realistically become a multi-billion-dollar recurring revenue business. Yes, there is some cannibalization with the existing revenues, but looking at analyst estimates, they seem not to be pricing this in at all.

Furthermore, T2 is deliberately separating the game’s single-player and its multiplayer releases.

Rockstar Games has confirmed that at launch, GTA 6 will be a single-player-only experience, with no multiplayer modes or online components included on day one.

This launch strategy mirrors the successful staggered rollouts of both GTA 5, where GTA Online launched two weeks after the story campaign, and Red Dead Redemption 2.

Furthermore, separating the two releases creates two distinct, highly publicized cultural and commercial events.

This will give Rockstar two separate opportunities to dominate the news cycle. The release of GTA Online will drive more sales for the single-player GTA 5 version.

When the multiplayer version of GTA 6 eventually launches, it will build upon a highly lucrative, structurally integrated ecosystem designed around user-generated content and roleplaying.

Roleplay servers have been central to GTA 5’s long-term engagement, maintaining massive daily player counts and high viewership on Twitch long after standard content updates had run their course.

A roleplay mode is where players act as a character instead of simply playing to win. Rather than focusing on missions or combat, players create stories by interacting with others as if they were living in that game’s world.

On these servers, you create a character with a name, job, personality, and backstory. From there, you stay in character while playing.

For example, you might choose to be a police officer investigating crimes, a business owner running a restaurant, or a criminal planning robberies or smuggling.

The key difference is that everyone is expected to behave as their character would.

If you’re a police officer, you don’t randomly start shooting people. If you’re arrested, you cooperate with the role-play instead of treating it like a normal GTA deathmatch.

These types of experiences are extremely popular, and T2 is positioning to make that a core of the GTA 6 online experience.

This company will transition the custom server community from an external, grey-market ecosystem into an officially sanctioned, regulated, and monetised platform.

Historically, custom server hosts operated independent donation models or unapproved transactions to fund server costs and generate profit. Now, Rockstar will act as the central clearinghouse, enabling creators to charge paid access fees for premium servers, sell custom cosmetics, and distribute user-generated gameplay modes, of course for a fee.

Furthermore, as I mentioned previously in the business model chapter, the industry is moving towards micro-transactions.

T2 is positioning GTA 6 to rapidly expand this recurring revenue model by integrating the GTA+ subscription service directly into the game’s launch.

At its standard price of $8 per month, GTA+ provides players with a consistent flow of premium content in the current iteration of GTA Online.

Players who pre-order GTA 6 get one month of GTA+ for free. Crucially, this promotional month comes with an automatic subscription.

So unless a player actively cancels the subscription before the trial period expires, it automatically converts into a paid monthly subscription.

Given the massive scale of early pre-orders, converting even a fraction of those players into long-term subscribers creates a highly durable, high-margin monthly cash flow.

Share

4. Rest of the Portfolio

The rest of the portfolio is also highly attractive and has potential for further strong revenue generation.

5. Analyst Estimates

T2 CEO Strauss Zelnick has given out completely sanbagged guidance for 2027. This is clearly done to temper expectations in case of any unforeseen issues.

They are guiding for revenues of $7.9-$8.1B in fiscal 2027, implying the company expects only $1.2-1.4B in incremental revenues from the launch of GTA 6.

Granted, there will be some cannibalization, with GTA 6 causing lower revenues for other games during the launch period, but just $1.2-$1.4B in incremental revenues is significantly below my expectations, especially considering the information that the game has already collected $3B in pre-orders.

Even consensus estimates see through this sandbagging.

Analysts expect revenues of $8.6B and net income of $1.2B in 2027. While this is $500M above the guidance, it is still too low.

Most importantly, looking out to 2028 and 2029, we notice the real divergence between my opinion and the analysts.

Analysts expect only modest 7% Y/Y revenue growth in 2028 and a minuscule 2% growth in 2029.

For such results to materialize, GTA 6 sales, GTA Online, GTA+, and in-game purchases should underperform my estimates.

At $8 a month, 10M GTA+ subscribers would generate $1B a year in recurring subscription revenues. For comparison, EA Play subscription has about 12-13M subscribers. I don’t see why GTA+ couldn’t significantly exceed that by 2029.

At 20-30M subscribers, GTA+ could potentially generate $2-3B a year.

This would significantly increase margins.

6. Valuation Model

Let’s build a valuation model to see what kind of returns investors in T2 could expect.

Base Case:

Revenue growth of 55% in 2027, 20% in 2028, and 10% in 2029.

26% operating margin in 2029.

20% tax and net of interest.

We get revenues of $13.6B and net income of $2.8B in fiscal 2029.

Applying a 40x exit multiple, we get 128% upside.

You can argue about what a fair multiple is, but EA was taken private at 20x FCF, with the company basically not growing for 3 years.

With the quality of the T2 portfolio, durability of their franchises, mobile gaming recovery, GTA 6, GTA+ and GTA Online, the company is in a much better position to grow at a healthy pace for a longer period of time.

In this scenario, GTA 6 generates $3.7B in incremental revenues in 2027 vs $1.2B guidance and $1.7B analyst estimates. This also assumes strong adoption of GTA Online and GTA+, and normal performance of the remaining gaming portfolio.

Mid Case:

Revenue growth of 65% in 2027, 25% in 2028, and 15% in 2029.

28% operating margin in 2029.

20% tax and net of interest.

We get revenues of $15.8B and net income of $3.5B in fiscal 2029.

Applying a 40x exit multiple, we get 185% upside.

In this scenario, GTA 6 generates $4.3B in incremental revenues in 2027 vs $1.2B guidance and $1.7B analyst estimates. This also assumes very strong adoption of GTA Online and GTA+, and a good performance of the remaining gaming portfolio.

Bull Case:

Revenue growth of 70% in 2027, 25% in 2028, and 20% in 2029.

30% operating margin in 2029.

20% tax and net of interest.

We get revenues of $17B and net income of $4.1B in fiscal 2029.

Applying a 40-50x exit multiple, we get 228-310% upside.

In this scenario, GTA 6 generates $4.7B in incremental revenues in 2027 vs $1.2B guidance and $1.7B analyst estimates. This also assumes incredibly strong adoption of GTA Online and GTA+, and a very strong performance of the remaining gaming portfolio.

Overall, I see it as a very realistic possibility for the stock to rise 100-200% in the next 2-3 years.

7. Conclusion

In conclusion, Take Two sits at the cusp of the launch of the biggest entertainment product in human history.

GTA 6 sales volumes will break all records and could very realistically beat Minecraft to become the best-selling game of all time.

Furthermore, with GTA Online, GTA+ and the new in-game purchase wave, Take Two could significantly beat analyst expectations to become a $12B+ revenue company by 2029.

Overall, I see it as a very realistic possibility for the stock to rise 100-200% in the next 2-3 years.

For this reason, I have opened a 3.4% starter position in T2’s German listing @ €222 a share in the Global Equity Portfolio.

Leave a comment

Become a Premium Member!

Here is what my Premium Members can expect:

Portfolio Review - Each month, I will present the portfolio performance and discuss my stock watchlist and my best ideas.

• Recent developments.

• Unwarranted pullbacks.

• Insider activity.

• Potential catalysts.

Deep Dives – 8,000+ word detailed analysis of a company, delivered in 3 Parts.

• Part 1 – Brief History of the company and its Business Model.

• Part 2 – Management, Moats, Competitors, and Risks.

• Part 3 – Opportunities, Financial Analysis, and a Valuation Model.

You can expect a comprehensive research report that is educational, interesting, and provides actionable insights!

To see what you can expect, read my Palantir Deep Dive!

Members of the Premium service get access to my library of 15 Deep Dives and to all future Deep Dives, which will be released on semi-monthly basis.

Investment Cases – A short, concise report with actionable insights.

This report is about the size of a single part of a Deep Dive.

• Focused Investment Thesis

• Main drivers of the Bull Case

• Valuation Model

To see what you can expect, read my Oscar Health Investment Case!

Earnings Reviews and Updates – For companies that are of great interest to me and my readers, I will provide regular quarterly or semi-annual updates after earnings reports.

• Financial performance

• Business Update

• New developments

• Updated Valuation Model

To see what you can expect, read my Google Q2 2025 Earnings Review!

You can follow me on Social Media below:

X(Twitter): TheRayMyers

YouTube: TheRayMyers

Threads: @global_equity_briefing

LinkedIn: TheRayMyers

Equity Research Report List

1. Broadcom

2. Mercado Libre

3. Meta

4. SpaceX

5. Micron

6. Nebius

7. Meridian Holdings

8. Weight Watchers

9. Lumentum

10. Sivers Semiconductors

11. Klarna

12. Ondas

13. Cipher Digital

14. SanDisk

15. Novo Nordisk

16. Sofi Update

17. UiPath

18. Mercado Libre Update

19. Nu Update

20. QXO

21. ASTS

22. Pagaya

23. IREN

24. Rubrik

25. Oscar Update

26. Arteche

27. Nebius Update

28. WhiteFiber

29. Harrow Health

30. Root

31. Zeta Global

32. SentinelOne

33. Golden Matrix Group

34. ASML

35. AMD

36. UnitedHealth Group

37. AppLovin

38. Adyen

39. TransMedics

40. Evolution

41. Nebius

42. Oscar Health

43. SoFi

44. Dlocal

45. Sea Limited

46. Microsoft

47. TSMC

48. Hims and Hers

49. Meta

50. Nu Bank

51. High Tide

52. Tesla

53. Grab

54. Google

55. Amazon

56. Hello Fresh

57. Mercado Libre

58. Celsius

59. Robinhood

60. Palantir

61. Ferrari

Disclaimer: Global Equity Briefing by Ray Myers

The information provided in the “Global Equity Briefing” newsletter is for informational purposes only and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. Ray Myers, as the author, is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented in this newsletter is based on publicly available information and sources believed to be reliable. However, Ray Myers does not guarantee the accuracy, completeness, or timeliness of the information provided. The author assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned in the “Global Equity Briefing” report. Any investment decisions made based on the information in this newsletter are at the sole discretion of the reader, and they assume full responsibility for their own investment activities.

I am Ray, a passionate investor and equity analyst.

Today, I am reviewing the June performance of the Global Equity Portfolio.

A reminder that I track all aspects of the Global Equity Portfolio for my Premium subscribers.

• All sales/buys are revealed as they occur in the Substack Chat

• Portfolio composition

• Performance

• Strategy

• Stock watchlist

• Potential catalysts

Since its founding, the portfolio has returned 169.76%, a CAGR of 17.40%, beating the S&P500 return of 129.64%, a CAGR of 14.38%!

In the above image, we see a graph from Portseido that compares the performance of the Global Equity Portfolio to the S&P500 if invested in the index at the same time as I bought the stocks.

I have been using Portseido to track the performance of the Global Equity Portfolio for some time now. They are an investment performance tracking and visualization platform that is extremely easy to use. I especially like their smart benchmarking graphs and tables you can see in the picture above.

This is exactly what I was looking for, and I would recommend them to everyone looking to approach investing seriously and beat the market in the long term.

Use my link below to begin your 2-week trial.

https://www.portseido.com/?fpr=global

If you are new to the Global Equity Portfolio, I recommend reading my full Portfolio reveal and analysis from November 2025.

Let’s take a look at June’s performance.

Read more

Companies like Nvidia, Microsoft, Amazon, and Google have driven demand for dense GPU servers operating in huge, stable, climate-controlled data centers.

While the majority of the AI demand will indeed be served from these purpose-designed data centers, there is a large and growing subset of the AI industry that cannot be served from these on-the-ground data centers.

And that is Physical and Military AI.

The next stage for AI is moving out of the data center.

Instead of sending sensor data back to the cloud, organizations increasingly need AI to run at the edge, where decisions must be made quickly, and internet connectivity cannot be guaranteed.

This is where One Stop Systems (OSS) operates.

The company purchases Nvidia AI chips and modifies them to work on planes, tanks, submarines, and wherever else its clients need them to work. This is not all, as the company has a large and growing portfolio of products and services that enable AI and advanced sensors to work in other difficult/rugged environments.

OSS estimates the global TAM for rugged compute at $17B.

The defense industry has only recently begun a multi-decade procurement cycle to prepare itself for the age of AI.

In this OSS equity Deep Dive, I will examine the company’s business model, its growth opportunity, finances, and, as always, conclude with a valuation model.

Let’s begin.

1. Key Products

2. Business Model

3. AI Growth Opportunity

4. Financials

5. Valuation Model

6. Conclusion

1. Key Products

I hope that after reading many of my equity reports by now, it is clear that running powerful AI models requires massive computing power.

AI requires many physical components to work together, such as GPUs, CPUs, memory, networking, cooling, and more.

In a data center, keeping these components safe is simple because they reside in quiet, air-conditioned rooms.

However, only delivering that computing power through the internet is not always possible or desired. Especially in situations where stable internet access might not be possible.

Military operations happen in some of the most punishing environments on Earth. Computers are bolted inside moving tanks, Navy warships, fighter jets, drones, and submarines.

In these environments, standard AI servers fail immediately due to physical stress.

To deliver AI under these conditions, systems must be heavily modified to handle:

• Vibration and shock

• Environmental factors

• Very high and very low temperatures

• Power conditioning

Military installations and equipment encounter rough terrain, waves, or high g-forces.

The physical chassis must be built from rugged aluminum, using mechanical hold-down bars to lock cards in place and specialized dampening mounts to absorb physical shocks.

Additionally, systems must be sealed against dust, sand, and wet conditions so that particles do not clog electrical connections.

Furthermore, computers must operate in freezing cold temperatures as low as minus 20 degrees Celsius or intense heat up to 50 degrees Celsius. This requires specialized thermal management like sealed liquid-cooling blocks.

Lastly, military vehicle generators produce erratic electrical currents. Custom power supplies are needed to clean the power and protect the delicate and expensive computer chips.

In the industry, such tough environments are called rugged.

Modifying commercial high-performance parts to survive these physical threats is the core business of One Stop Systems.

Subscribe now

1.1. Ruggedized Short-Depth Servers

Standard data center servers are long metal boxes.

In such data centers, server racks are uniform, they are about 19 inches wide and anywhere from 30 to 36 inches deep. They sit in massive, climate-controlled rooms with plenty of space behind them for cables and airflow.

Vehicles like naval ships, fighter jets, trucks, and submarines do not have 3 feet of depth to spare.

If you try to jam a standard data center server into these environments, it literally sticks out into the hallway or blocks a door.

OSS solves this problem by designing Short-Depth Servers (SDS) that are only 20 inches deep, shrinking the length of a high-performance server by over 30%.

The company compressed and packaged enterprise-level AI capabilities into a footprint small enough to fit inside a standard equipment closet or a vehicle hull.

The flagship Gen 5 SDS is a highly compact system built from rugged, lightweight aluminum, weighing 45 lbs.

This compact machine enables data center-level computing speed for edge use cases.

It supports up to 5 Nvidia H100 GPUs, 16 high-speed NVMe storage drives, and high-power AMD EPYC processors running up to 400W.

Because the box is small, components are packed tightly together. OSS designs specialized physical boards and high-speed PCIe circuits that allow the GPU and CPU to transmit data instantly without creating massive interference or choking on data bottlenecks.

The SDS platforms incorporate 2 key features designed specifically for high-risk military and defense missions:

• Removable storage canisters

• Secure single-command erase

Removable storage canisters are tough, hot-swappable canisters that hold up to 1 petabyte of solid-state storage. Military missions require swapping data fast. If a surveillance plane lands after an 8-hour flight, technicians don’t want to plug in cords to download data.

Soldiers can pull these canisters out in seconds to transport recorded sensor data.

They pull a physical handle, pop out a canister containing all the terabytes of recorded data, slide a fresh one in, and the plane takes off again.

Moreover, let’s not forget that the security of military information is paramount.

If a military vehicle is in danger of capture, a soldier can trigger the secure data erasure command with a single command or immediately wipe all classified data, physically destroying the encryption keys.

The commercial potential of this product was demonstrated this June, when OSS announced an initial $8.4M contract from a leading defense company. Under this contract, the company will deliver 91 high-performance 3U SDS units to process large volumes of signal surveillance data and AI models to run real-time data.

Instead of beaming messy, raw battlefield radio waves, radar signals, or video feeds back to a cloud server in Virginia (which could easily be jammed by the enemy), the 3U SDS sits right there on the deployment platform.

It runs local AI inference models to filter out the noise and detect hostile communication frequencies.

This gives commanders immediate, split-second situational awareness without needing an internet connection.

1.2. Liquid Cooled Enterprise Solutions

To run high-end AI inference, you need massive processing power. The problem is that Nvidia’s H100 AI chips generate a lot of heat that standard air fans cannot always safely cool down.

For example, in a sealed drone, tank, or plane, you cannot use those massive and noisy server fans.

For extreme environments, the company designs liquid immersion-cooled systems.

The system uses a pump to circulate liquid coolant directly over the hot processor surfaces. The liquid absorbs the heat and carries it to a radiator, which allows the chips to run at top speeds without slowing down.

This involves submerging the entire computer directly into a tub of specialized fluid that does not conduct electricity. The fluid absorbs heat from all components simultaneously.

OSS won a contract to supply a liquid immersion-cooled storage server to a US Intelligence AI project.

On the commercial side, the company received a $300,000 prototype order from a major commercial vehicle manufacturer to design a rugged liquid cooling system for Level 4 autonomous trucks. This system integrates a coolant pump, chiller, and custom control firmware to cool the advanced driver-assistance computing systems mounted on the back of the truck cabs.

Another major application is high-end healthcare imaging.

Advanced medical scanners process thousands of high-resolution images every second, relying on AI to map out human tissue or catch anomalies.

In certain instances, hospitals prefer these machines to process data instantly and locally right next to the patient, rather than sending data to the cloud or server.

OSS liquid-cooled server modules slip right inside the chassis of MRI and CT equipment. Because liquid cooling eliminates the need for loud, roaring server fans, the computer runs in absolute silence, an important requirement for calm clinical hospital settings.

1.3. Flash Storage and Sensors

OSS also provides products that handle the brutal mechanics of high-speed data acquisition in tough environments.

Self-driving trucks and military aircraft must make immediate decisions by combining data from cameras, radar, and other scanners.

This process is called sensor fusion.

Sensor fusion creates continuous streams of data that must be saved instantly without latency.

If a plane has 10 cameras, radar, and various sensors all running at the same time, it creates a massive amount of digital data, sometimes reaching gigabytes per second. If the storage drive inside the plane is too slow, the system chokes, drops frames, and the AI models become useless.

OSS designs strong storage using solid-state memory, which has no moving parts and does not break during heavy vibration.

This system collects this data, encrypts it in real time, and passes it to the AI server.

Outside of aircraft, OSS makes specialized PCIe extension systems.

When an autonomous truck or a military vehicle needs to link up 10 different radar and camera modules to a single central CPU, standard computer wiring creates a lag or latency issue.

OSS sells physical interconnect systems.

These are flexible, ultra-fast physical bridges that link external sensor boxes straight into their central servers. This enables the blending of radar, lidar, and camera into a single, cohesive 3D environment map in real time with near-zero latency.

To run their systems, the company developed its own specialized storage software, called Ion Accelerator 5.3.

In demanding AI computing, hardware is only half the battle. If you pack a server with ultra-fast solid-state flash drives but use standard commercial storage software like Windows data management tools, the software creates a massive processing overhead.

The code acts as a traffic cop that slows down the data, resulting in latency bottlenecks.

Ion Accelerator 5.3 is custom-designed to bypass that overhead, extracting near-native, unthrottled performance directly out of flash drives.

Subscribe now

2. Business Model

2.1. Assembly and Modification

OSS does not build or design computer chips.

That is an incredibly expensive, difficult, and time-consuming industry dominated by giants.

Instead, the company operates an asset-light assembly and modification business model.

OSS purchases parts, such as GPUs from Nvidia, CPUs from AMD or Intel, and flash memory chips from Micron or Sandisk. The core competency of these companies is to design the best computer chips possible. They don’t care about the assembly and the modifications business, as it is too small for them.

Instead, chip suppliers work with companies such as OSS that build around these computer chips to enable them to function in tough, rugged environments.

OSS adds value by designing custom high-speed circuit boards, like PCIe switch fabrics, that allow these chips to communicate with almost 0 delay.

They also construct the rugged aluminum chassis, build the liquid-cooling systems, and write the essential system management software.

This business model is highly efficient. It keeps capex requirements very low.

For example, during Q1 2026, the company spent only $15K on capex, less than 1% of revenues.

OSS can simply adopt the latest chips as soon as Nvidia or AMD releases them.

It then modifies and repackages them to work in rugged environments in which its military or commercial clients operate.

2.2. Military Contracts

Defense contracts are a key focus for OSS.

The company operates as a subcontractor to large multi-billion-dollar companies, which often outsource some processes to smaller partners.

The sales cycle for military programs is slow, often taking 2 to 3 years of testing, engineering, and meeting strict military standards.

However, once a military customer selects OSS, the company becomes a platform incumbent.

Military organizations do not want to change suppliers because doing so would require starting the expensive testing and certification process all over again. This makes military contracts highly sticky, providing highly predictable sales that span over multiple years.

Key military and defense programs include:

• P-8 Poseidon aircraft

• US Army rotary-wing platforms

• Radar simulation upgrades

The P-8 Navy patrol plane has been a key driver of sales for OSS.

This plane famously participated in the US capture of the Venezuelan dictator Nicolas Maduro.

OSS supplies rugged storage products that have over $65M in contracted sales, with over $23M awarded since early 2025. This includes $10.5M in new orders that will contribute to sales in 2026 and 2027.

For US Army rotary-wing platforms, OSS secured an initial $500,000 contract to supply 3U SDS units for high-speed airborne data recording on helicopters. If successfully integrated, it could lead to more orders.

Next, the company secured a $3M contract to upgrade radar simulation systems for the US Department of War.

The main business risk in military contracts is budget lumpiness. Sales can swing dramatically from quarter to quarter, depending on the timing of budget approvals and product delivery

2.3. Commercial Contracts

Last year, OSS completed the sale of its European assembly business, Bressner, for over $20M. OSS had originally acquired Bressner in 2018 for approximately $5.6M, so they sold it for a decent profit.

While Bressner grew sales, it operated with thin gross margins.

Divesting this division allowed the company to focus entirely on its higher-margin, custom rugged AI business.

Following the sale of Bressner, the commercial division focuses on high-value partnerships across several industries:

• Medical imaging

• Autonomous trucking

• Commercial aerospace

• Autonomous robotics

• Alternative energy data centers

OSS has a signed 5-year partnership with a medical imaging company that has a potential value of over $25M. The company supplies custom liquid-cooled servers to handle real-time calculations for advanced medical scans that I mentioned earlier in the report.

Furthermore, OSS secured a contract with an autonomous mining and construction robotics company. This program is expected to generate $2M in orders in 2026, with a 5-year opportunity of $10M to $15M.

$25M and $15M potential orders over 5 years seems small, and it is. However, these orders should be in part viewed as R&D and technology validation. If successful, more and larger orders for these use cases will follow.

3. AI Growth Opportunity

The AI market is expected to continue growing rapidly, but much of the current investment is focused on data centers.

If edge AI adoption accelerates over the next decade, OSS could benefit from the growing demand for rugged AI compute.

Moreover, the US and its allies have only recently begun a multi-decade procurement cycle to prepare their militaries for the AI revolution.

For instance, the research firm Grand View Research forecasts that the Military AI market will grow with a strong 13% CAGR to reach $19.3B in 2030.

The defense segment stands as a key driver of long-term revenue growth, representing a potentially highly profitable and stable market.

While the majority of this market will be served by the AI software giants such as OpenAI, Anthropic, Microsoft, and Palantir, there will be a lot of demand that will spill over to OSS.

To run the software that these companies develop, a lot of OSS systems products could be purchased by the US and allied militaries.

Every few years, as AI advances and sensor requirements increase, military clients are forced to buy denser, faster flash storage from OSS to keep up. Furthermore, the more powerful AI chips get, the more it makes sense to have them embedded directly on military vehicles.

This gives the company a more predictable revenue stream embedded directly into major government equipment fleets.

OSS estimates that with its current product offering, it has a serviceable addressable market of $690M a year in Defense industries and $500M in Commercial.

Within defense, the largest opportunities are in ground, airborne, and maritime applications.

For instance, the U.S. Army alone represents a significant opportunity.

OSS recently secured a design win for a ruggedized sensor processing and distribution system built around its PCIe switch architecture and Nvidia GPU technology for combat vehicles.

Management estimates this platform could be deployed across 5,000+ combat vehicles over time, with the potential to expand into multiple US. Army and international vehicle programs.

Beyond the initial deployment, the program also creates opportunities for follow-on revenue through production, sustainment, and additional upgrades.

On the commercial side, industrial automation, PCIe expansion, aerospace, and autonomous navigation are expected to be the primary growth drivers as the shift to Industry 4.0 intelligent solutions.

Management believes this represents only its current opportunity, with further product development potentially expanding its addressable market over time.

Furthermore, to increase its serviceable addressable market and capture a larger share of its TAM, the company is open to M&A.

Management is targeting acquisitions in adjacent AI, sensor processing, fusion, and rugged edge AI server businesses. The goal is to find targets that can add customers, technologies, or markets.

Rather than pursuing transformational deals, OSS is focused on disciplined, earnings-accretive bolt-on acquisitions that enhance its capabilities.

As a publicly listed company with improving finances (will expand in the next chapter), OSS is in a great position to acquire military start-ups at favourable multiples. Historically, this industry has been capital constrained, due to ethical and ROI considerations of usual VC investors.

This strategy should strengthen its position in the rapidly growing edge/rugged AI market and accelerate both organic and inorganic growth.

A key focus on M&A could be international expansion, with the company estimating that its current product portfolio has a $1B international market.

An acquisition of a European company could both increase the product portfolio and be used as a launchpad for existing products into Europe.

4. Financials

OSS reported a strong financial performance in Q1 2026, showing that its strategy of focusing on core AI edge platforms is succeeding.

In Q1 2026, revenue from continuing operations grew by 55% Y/Y to $8.1M, compared to $5.2M in Q1 2025.

This excludes the financials of the sold Bressner division.

Product sales rose by 48% to $7.1M, up from $4.8M, while customer-funded development rose by more than 100% to $1M, up from $0.4M.

Customer-funded development refers to revenue OSS earns for design and development work for customized products. This allows the company to recover R&D costs upfront while creating the potential for larger follow-on production orders and long-term support revenue. Large military contractors know that they need an AI server, but instead of dealing with all the R&D, they pay OSS to do it for them. This is cheaper and faster for the end customer.

This growth enabled the gross margin from continuing operations to reach a record 51.6% in Q1 2026, up from 45.5% in Q1 2025.

This expansion was driven by a highly profitable mix of product sales and manufacturing efficiencies. Operating expenses grew very modestly by 2.5% to $4.8M, reflecting improving cost controls.

Because of these improving margins and flat expenses, the operating loss narrowed to $671K.

The net loss from continuing operations narrowed to $360K, which is only -$0.02 per share, compared to a net loss of $2.28M in Q1 2025.

Furthermore, ADJ EBITDA turned positive at $180K compared to a loss of $1.1M in the same quarter last year.

Next, OSS achieved a record positive OCF of $4M, a huge swing from the negative OCF of $1.1M in Q1 2025.

Since capex was extremely low at $15,000, FCF for the quarter was $4M.

Bookings reached nearly $15M, creating a strong book-to-bill ratio of 1.8x, which provides excellent visibility for future sales.

Most importantly, for a company of this size and a clear goal to do M&A, the balance sheet is clean and holds no long-term debt.

As of Q1 2026, the company held $34.4M in cash and had total liabilities of around $5.8M. This gives the company ample wiggle room to raise debt to fund expansion or product development.

For the full year of 2026, the firm expects sales growth of 20% to 25%. Gross margins are expected to normalize to approximately 40% as product mix changes, and ADJ EBITDA is projected to remain positive.

5. Valuation Model

After rising 145% in 2026, OSS now trades for a market cap of $445M. With LTM revenues from continuing operations (excluding the sold business) of $35M, the company trades for TTM P/S of 13x.

This is a bit of a demanding multiple for an unprofitable company that guided for 20-25% growth in 2026.

Investors buying at today’s multiple are betting on the growth to meaningfully accelerate in the next few years.

So, let’s model what kind of growth and margins the company would have to deliver for investors to make meaningful gains.

Assumptions:

• Revenue 40% CAGR

• Operating margin of 20%

• Tax and other at 20% of operating income

• Dilution of 3% per year

With such assumptions, we get net income of $27.7M.

Modelling an exit multiple of 30-40, we get an upside of 73-130%.

Considering the company is guiding for 20-25% growth in 2026, a 40% 2025-2030 revenue CAGR is an aggressive assumption. So is the 20% operating margin, considering the company currently has a negative operating margin.

So, achieving such assumptions, while possible, is certainly not a very likely outcome.

Furthermore, even if these results are achieved, an investor could only be rewarded with 73-130% upside.

Thus, at this valuation, I don’t find OSS to be an attractive investment opportunity.

However, that can change rapidly if there is a sell-off in the stock or the company shows improvements that would increase growth expectations.

“in that pipeline, we’re seeing probably an increased number of potential transitional or transformational opportunities ….. it is creating more opportunities for us to find potential transformational organic growth out of out of things that we’re doing….

continuing to strengthen our positive feeling about the ability to grow at that 20% to 30% range.

As I mentioned, there are those transformational opportunities and some long programs of record that were we to see those come to fruition, would represent substantially greater growth than what we’re seeing.” Mike Knowles, OSS CEO, Q1 2026 Earnings Call

Essentially, the CEO said that they expect a 20-30% long-term growth rate. However, there is a probability of this growth rate being substantially higher if they get more Army, space, or robotics contracts.

However, it seems that the company is priced as if these successes are guaranteed.

Subscribe now

6. Conclusion

In conclusion, OSS is a high-growth, pure-play edge/rugged AI hardware player.

The company works with large military defense companies to build AI servers capable of working in tough environments like air, sea, and space.

It is clear that the next stage of AI development is moving out of the data center.

OSS is well positioned to serve that large and growing $17B TAM for rugged/edge AI. With its existing product and regional portfolio, the company has a serviceable addressable market of over $1B across military and commercial applications. By successfully expanding outside the US internationally, the company could further increase that by another $1B.

Moreover, with consistent product development and smart M&A, OSS could increase its addressable market further.

However, the stock price of OSS has risen dramatically by 146% in 2026, reaching a market cap of $445M. While that is great for existing investors, it makes entering the stock problematic.

As the valuation model showed, investors are already paying for strong profitability and 40% revenue CAGR, while the company has indicated it expects its long-term growth rate to be in the 20-30% CAGR range.

As such, I don’t find the current valuation of OSS an attractive entry point.

However, I will continue following the company to see if that changes.

Leave a comment

Become a Premium Member!

Here is what my Premium Members can expect:

Portfolio Review - Each month, I will present the portfolio performance and discuss my stock watchlist and my best ideas.

• Recent developments.

• Unwarranted pullbacks.

• Insider activity.

• Potential catalysts.

Deep Dives – 8,000+ word detailed analysis of a company, delivered in 3 Parts.

• Part 1 – Brief History of the company and its Business Model.

• Part 2 – Management, Moats, Competitors, and Risks.

• Part 3 – Opportunities, Financial Analysis, and a Valuation Model.

You can expect a comprehensive research report that is educational, interesting, and provides actionable insights!

To see what you can expect, read my Palantir Deep Dive!

Members of the Premium service get access to my library of 15 Deep Dives and to all future Deep Dives, which will be released on semi-monthly basis.

Investment Cases – A short, concise report with actionable insights.

This report is about the size of a single part of a Deep Dive.

• Focused Investment Thesis

• Main drivers of the Bull Case

• Valuation Model

To see what you can expect, read my Oscar Health Investment Case!

Earnings Reviews and Updates – For companies that are of great interest to me and my readers, I will provide regular quarterly or semi-annual updates after earnings reports.

• Financial performance

• Business Update

• New developments

• Updated Valuation Model

To see what you can expect, read my Google Q2 2025 Earnings Review!

You can follow me on Social Media below:

X(Twitter): TheRayMyers

YouTube: TheRayMyers

Threads: @global_equity_briefing

LinkedIn: TheRayMyers

Equity Research Report List

1. Broadcom

2. Mercado Libre

3. Meta

4. SpaceX

5. Micron

6. Nebius

7. Meridian Holdings

8. Weight Watchers

9. Lumentum

10. Sivers Semiconductors

11. Klarna

12. Ondas

13. Cipher Digital

14. SanDisk

15. Novo Nordisk

16. Sofi Update

17. UiPath

18. Mercado Libre Update

19. Nu Update

20. QXO

21. ASTS

22. Pagaya

23. IREN

24. Rubrik

25. Oscar Update

26. Arteche

27. Nebius Update

28. WhiteFiber

29. Harrow Health

30. Root

31. Zeta Global

32. SentinelOne

33. Golden Matrix Group

34. ASML

35. AMD

36. UnitedHealth Group

37. AppLovin

38. Adyen

39. TransMedics

40. Evolution

41. Nebius

42. Oscar Health

43. SoFi

44. Dlocal

45. Sea Limited

46. Microsoft

47. TSMC

48. Hims and Hers

49. Meta

50. Nu Bank

51. High Tide

52. Tesla

53. Grab

54. Google

55. Amazon

56. Hello Fresh

57. Mercado Libre

58. Celsius

59. Robinhood

60. Palantir

61. Ferrari

Disclaimer: Global Equity Briefing by Ray Myers

The information provided in the “Global Equity Briefing” newsletter is for informational purposes only and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. Ray Myers, as the author, is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented in this newsletter is based on publicly available information and sources believed to be reliable. However, Ray Myers does not guarantee the accuracy, completeness, or timeliness of the information provided. The author assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned in the “Global Equity Briefing” report. Any investment decisions made based on the information in this newsletter are at the sole discretion of the reader, and they assume full responsibility for their own investment activities.

And my first Stock Deep Dive is about Micron.

50+ years, the memory was viewed as a brutal, cyclical commodity.

Companies in this space were prone to extreme boom-and-bust cycles, where periods of high profitability were quickly followed by devastating oversupply and price collapses.

However, the rise of AI has fundamentally changed this dynamic.

Micron is transitioning from a cyclical commodity manufacturer into a structural enabler of AI.

In Q3 2026, the company grew revenues by an insane 346% and net income by 1,400%, reaching a net margin of 68%!

As a result, the stock is up 1,800% in 3 years.

These types of results are unheard of for an industrial company of such scale and remind me of the stratospheric growth of Nvidia in 2024.

In this Micron Video Stock Deep Dive, I will examine what is driving the growth and whether the company remains an attractive long-term investment opportunity.

My goal with this YouTube channel is to bring my finance research to a different audience that prefers videos over long-form text.

I hope my Substack readers will enjoy watching this Micron breakdown.

Become a Premium Member!

Thank you for reading Global Equity Briefing!

You can follow me on Social Media below:

X(Twitter): TheRayMyers

YouTube: TheRayMyers

Threads: @global_equity_briefing

LinkedIn: TheRayMyers

Disclaimer: Global Equity Briefing by Ray Myers

The information provided in the “Global Equity Briefing” newsletter is for informational purposes only and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. Ray Myers, as the author, is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented in this newsletter is based on publicly available information and sources believed to be reliable. However, Ray Myers does not guarantee the accuracy, completeness, or timeliness of the information provided. The author assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned in the “Global Equity Briefing” report. Any investment decisions made based on the information in this newsletter are at the sole discretion of the reader, and they assume full responsibility for their own investment activities.

The AI is likely the most transformational technology in human history. Those who miss this technology revolution will regret it.

So today, I am buying 2 extremely important businesses that will benefit from the AI revolution.

One of these AI stocks I bought today is an AI infrastructure stock, seeing huge demand that I believe has 228-360% upside in the next 3 years.

I am also buying a little bit of a small-cap.

This is a turnaround play on a company that’s going through a painful transition. If my thesis is correct, this transition will end this year, enabling the company’s stock to rise rapidly. In such a case, the stock could be 2-3x just this year.

If my thesis is correct, and this company successfully turns around its business, this is a 5-10x stock in the next 5 years.

To fund these purchases, I have decided to sell 15% of my portfolio.

Normally, I prefer to hold stocks for longer, but I believe these 3 other stocks have more upside in the next 1-2 years.

Read more

OpenAI’s ChatGPT grew from 0 to 900M weekly active users in 4 years.

Anthropic ARR grew from $9B in December 2025 to $44-47B by June 2026.

Google’s Cloud backlog grew from $92B in Q1 2025 to $468B in Q1 2026.

This unprecedented growth has created a massive demand for infrastructure that enables the AI to function, and I don’t just mean Nvidia.

There is a company whose AI products have been highly successful and are at the core of the AI infrastructure strategies of the aforementioned OpenAI, Anthropic, and Google.

That company is Broadcom.

Broadcom is a semiconductor company that designs networking chips capable of transferring data between AI servers at speeds demanded by these incredibly complicated AI models.

Furthermore, the company has partnerships with Google, OpenAI, and Anthropic to build custom AI chips capable of functioning better than Nvidia’s GPUs for very specific use cases.

In this Broadcom Deep Dive, I will explain all of the most important things a potential investor needs to know.

• Key Products

• Business Model

• Business Strategy

• Opportunities

• Risks

• Financials

• Valuation

• 2030 Valuation Model

After reading this report, you should be fully up to speed on what Broadcom does and whether it could be a great investment opportunity for a patient long-term investor.

Let’s begin.

1. Semiconductor Solutions

A semiconductor is a tiny computer chip that manages the flow of electricity inside computers, routers, and phones to help them process information and complete tasks.

In this industry, there are many areas in which companies specialise, as no company can manufacture all the chips in the world.

So, Broadcom focuses on chips for:

• Wireless systems

• Broadband and telecommunications

• Storage and server infrastructure

• AI and data center chips

This division is the main driver of Broadcom’s success.

In 2025, the division brought in $36.9B in revenues, representing 57.7% of the company’s total revenue.

Since 2017, the semiconductor business has delivered a CAGR of 12.4%.

Let’s look deeper at the chips Broadcom makes.

Subscribe now

1.1. Wireless

Wireless components are chips that let electronic devices transmit data to each other and connect to cellular networks or Wi-Fi without using physical wires.

Broadcom’s wireless division designs components like:

• Bluetooth transceivers

• Wi-Fi chips

• GPS receivers

• RF filters

Broadcom’s Bluetooth chips enable devices such as smartphones, laptops, earbuds, and others to communicate wirelessly over short distances.

To support high-speed wireless networks, Broadcom offers several Wi-Fi chips.

These Wi-Fi chips inside devices such as smartphones provide the wireless networking functionality to connect to the internet.

For instance, the BCM4398 chip is a highly integrated, low-power Wi-Fi and Bluetooth combo chip designed for mobile phones.

Meanwhile, Broadcom’s GPS/GNSS chips receive signals from satellite navigation systems.

They are needed to calculate a device’s precise location, speed, and time for navigation, mapping, tracking, and location-based services.

For automotive and industrial systems, the company designed the BCM47722, which combines Wi-Fi, dual IoT radios, and an integrated GPS/GNSS receiver on a single chip to assist with tracking and location data. Such integrated chips eliminate the need for multiple chips, reducing power consumption.

Furthermore, Broadcom designed the Wi-Fi combo chips for Android and Apple devices, such as the BCM4339 used in the Nexus 5 and the BCM4361 used in the Galaxy S8.

Today, the most important customer for these wireless products is Apple.

In May 2023, Apple signed a multi-year, multi-billion-dollar agreement with Broadcom to purchase 5G RF components and FBAR filters.

An FBAR filter is a tiny acoustic device inside a phone that acts like a highly precise screen. If someone walks into a noisy room where 100 people are shouting, an FBAR filter acts like a selective earplug that blocks out 99 of those voices so you can hear the single person speaking perfectly. In a phone, it blocks out thousands of surrounding radio signals and static noise, letting in only the exact 5G or Wi-Fi signal the phone needs.

This increases connection speed, prevents dropped calls, and drastically improves user experience.

1.2. Broadband and Telecom

Broadcom designs silicon platforms for wired broadband and telecommunication networks.

This includes chips for

• Cable modems

• Fiber gateways

• Home routers

• Cable boxes

• Other equipment

Broadband is high-speed internet delivered to residential homes or corporate buildings via physical cables, like copper or fiber-optic lines. While telecom equipment includes the large computer switches that phone and internet companies use to route internet traffic.

Broadcom designs gateway chips and access point chips for fiber, cable, and DSL internet routers.

Fiber-optic networks send internet data as rapid pulses of light through thin glass cables. A gateway chip acts like a translator, turning those light pulses from outside the building into electrical signals that home routers and computers can understand.

Broadcom’s newest broadband chip, the BCM68850, is the 1st general-purpose 50G Passive Optical Network, or PON, home gateway chip.

This chip supports download and upload speeds of up to 50Gbps, which is up to 50 times faster than current 1Gbps home internet connections.

It features an integrated neural processing unit, or NPU, which is a tiny AI chip that acts as an automated helper to predict internet demand, manage data flows, and detect cyber threats. It also uses post-quantum cryptography to encrypt internet data, protecting it from futuristic quantum computers that could hack standard encryption.

Broadcom has a complete 50G PON chip lineup, BCM55050 for devices inside subscriber homes, BCM68660 for telecom network facilities, and the BCM68850 for home gateways.

These chips are systems-on-chip, or SoCs.

This means they combine the CPU, the network routing engine, and the Wi-Fi radios onto one single piece of silicon.

This single-chip design cuts manufacturing costs and reduces router electricity use.

These chips support SMD roaming, which lets a mobile device connect to a new router in a large office before disconnecting from the old one, preventing internet dropouts. The chips also integrate power amplifiers, which strengthen the radio signals, and digital pre-distortion, which automatically fixes signal errors, to save costs for router makers.

1.3. Storage and Server Infrastructure

Data centers use thousands of servers to store massive files, run websites, applications, and manage company databases.

Storage infrastructure refers to the chips, cables, and boards that write, retrieve, and protect this stored data.

Broadcom designs products such as:

• RAID controllers

• PCIe switchers

• Fibre Channel adapters

A RAID controller acts like an automated data backup manager. It splits data and writes it across multiple hard drives at the same time. If one hard drive fails or gets damaged, the RAID controller uses the backup pieces on the remaining drives to rebuild the lost files without any downtime.

Whilst PCIe switches act like high-speed traffic controllers inside the server, routing data between the CPU, the storage drives, and the graphics chips.

Meanwhile, Fibre Channel adapters use high-speed optical connections to transfer data between storage drives and server computers at speeds up to 64Gbps with very low latency.

Broadcom’s newest RAID controller chip, the SAS5116W, delivers a 2-fold increase in random read speed and a 3-fold increase in random write speed over prior generations.

It features an integrated 2-core ARM design CPU, a hardware encryption engine, and a bandwidth optimizer that lets customers connect older drives to newer systems without losing performance.

Simply put, the SAS5116W lets data centers get significantly more performance, security, and storage efficiency from their drives while extending the useful life of existing storage hardware.

Key customers are server and storage manufacturers, system builders, and hyperscalers.

For instance, Broadcom collaborates closely with Hewlett Packard Enterprise to supply Smart Array controllers for its ProLiant Gen10 server, while Lenovo integrates the RAID controller chips into its servers.

1.4. AI and Data Centers

Broadcom AI and Data Center business is exploding and is really driving the whole company’s performance due to incredible AI demand.

Training and running AI systems require running huge parallel math calculations on a massive scale.

When the AI boom began, the demand for Nvidia’s GPUs exploded, as they are flexible chips built to handle many different types of parallel tasks.

However, because GPUs are built to be so flexible, they contain parts that AI models do not use, making them highly expensive and inefficient when used in certain ways.

To save money and energy, major tech companies are co-designing custom chips with Broadcom called custom accelerators or XPUs.

These are Application-Specific Integrated Circuits, or ASICs, which are custom chips designed to do only one specific job, like running a specific type of AI model extremely fast.

An ASIC is like a specialized tool built for a specific task, while a GPU is like a multi-tool pocketknife.

The ASIC is much more energy-efficient and cost-effective once a company is running millions of tasks a day.

Read more

I am Ray, a passionate investor and equity analyst. And today I am covering the Best Company in Latin America.

The Dutch East India Company became exceptionally wealthy trading goods between Europe and Asia.

Cornelius Vanderbilt was one of the US railroad pioneers during the late 1800s. His railroads enabled the transportation of goods from manufacturers to customers at a never-before-seen speed and efficiency!

John Pierpont Morgan empowered money to flow through the booming US banking system.

What if I told you that there is a single company doing all of these 3 things?

Facilitating trade of goods!

Enabling the transportation of goods!

Empowering the flow of money!

If you read the title of this report correctly, you know I am talking about Mercado Libre.

The company has ambitions to become the ultimate commerce and technology champion for the 670+ million people of Latin America.

In my opinion, Mercado Libre is one of the best long-term opportunities, because analysts perpetually underestimate its TAM!

Many investors mistakenly believe that because the economies of Latin America are weaker than those in the US or Europe, e-commerce will have a tougher time there.

Yet, in the last 5 years:

• GMV has grown by 238%

• Payment Volumes by 516%

• Revenues by 700%

• Operating profit by 2,282%

Despite that, the stock has increased only 15%!

In this Deep Dive, I will explain why Mercado Libre is the best company in Latin America and why it is currently significantly undervalued.

Let’s dig in.

1. Facilitating the Trade of Goods

2. Enabling the Transportation of Goods

3. Empowering the Money to Flow

4. Risks

5. Competition

6. Opportunities

7. Financial Analysis

8. Valuation

9. Valuation Model

10. Conclusion

1. Facilitating the trade of goods

Globalization has made us more connected than ever. No longer are we forced to be satisfied with local products. Goods from all over the world are now available with just a click of a button, quickly and cheaply.

That wasn’t always the case, and still isn’t the case in all parts of the world.

Mercado Libre is the company that’s making that a reality in Latin America.

1.1. Mercado Libre Marketplace

Marketplace is their flagship product, an online marketplace that facilitates the trade of products.

Customers can easily browse the marketplace for millions of products in thousands of categories. The platform has become extremely popular with sellers and customers alike.

The platform has all the features of a sophisticated e-commerce platform. Reviews from thousands of other customers, detailed product descriptions, pictures, videos, customer support, a broad set of payment options, delivery information, and more.

Mercado Libre is primarily a technology company that strives to deliver the best experiences for all its stakeholders.

“Our main focus is to serve people in Latin America by enabling wider access to retail, digital payments, and e-commerce services, and by providing compelling technology-based solutions that democratize commerce and money, thus contributing to the development of a large and growing digital economy in a region with a population of over 700 million people and one of the fastest-growing e-commerce and internet penetration rates in the world.” Mercado Libre 2025 10K

The technology-first approach has enabled the company to create one of the fastest-growing e-commerce platforms in the region.

Gross merchandise volume measures all sales on the company’s e-commerce platform.

GMV growth has been parabolic. In Q1 2026, GMV grew by an impressive 42% Y/Y to $18.9B, the fastest growth rate in many years.

Since 2012, GMV has grown by 1,139%, a CAGR of 21%!

The marketplace is essentially the backbone of the company. The more it’s used for commerce, the easier it is for Mercado to upsell various other services, but we will get to that later.

Overall, GMV growth can be a great barometer for the growth of the company.

There are two main direct ways the company monetizes the marketplace:

• First-party sales (1P)

• Third-party sales (3P)

When Mercado sells products that it owns and holds in inventory to customers, it acts as a first-party seller. In this scenario, Mercado sources goods directly from the manufacturer or the distributor and handles the transportation and storage.

Most crucially, the company is in full control of pricing and recognizes the entire sale as revenue.

So, if they sell a blender for $60, they recognize the whole $60 as revenue.

Meanwhile, 3P is when a product purchased by the customer is sold by an independent merchant, not by Mercado Libre itself.

Mercado charges the merchant fees for using the platform and recognizes said fees as revenue.

All the shipping costs, insurance, warranty, returns, and COGS are paid by the seller. For instance, in Mexico, the fees range from 12.5% to 22.5% depending on the product category, and whether sellers use any extra services. In other countries, fees might be different.

The economics of these transactions are quite different.

1P depends on their ability to negotiate a favorable price with a supplier and the customer’s willingness to pay for the product. In 1P, gross margins are low, sometimes as low as 10%-20%.

However, remember that in a 3P sale, the independent merchant is responsible for his own expenses. Mercado incurs the costs of maintaining and managing the platform, but as the platform has a massive scale, Mercado can achieve a very high gross margin on its 3P sales.

In the $60 blender example, Mercado would keep about $9 in 80% gross margin platform fees and recognize those $9 in revenue.

As of LTM of Q1 2026, 2.66B items were sold on the marketplace.

This is a 38x increase in 13 years, a CAGR of 32%!

Subscribe now

1.2. Mercado Shops

Mercado Shops used to empower sellers to quickly, cheaply, and efficiently create an e-commerce website. This offering was similar to Shopify.

This was a platform with hundreds of different features and integrations, not only with all of Mercado’s services but also with various third-party apps. Shops had a website-building portal with lots of templates that enable people without technical skills to design their website.

However, in stark contrast to Shopify, Mercado didn’t charge a fixed monthly subscription. For example, in Mexico, the use of the platform is free, and there was no cost per transaction. Later, however, the company introduced various transaction fees.

Mercado’s strategy was to monetize shops by feeding all their other business lines!

Clients used Mercado’s logistics to store and deliver products. Mercado advertising solutions are quite useful to increase sales. Various financial products can be used to finance inventory and other expenses.

Sellers could build their brand using social media and other channels outside of Mercado’s ecosystem. As they continue building a brand and increasing sales, Mercado benefits as the provider of services. At the same time, sellers are not excluded from Mercado’s massive marketplace.

However, ultimately, Mercado Shops was a leaky bucket for them.

They realized that merchants who grew large enough on Shops eventually migrated to Shopify anyway because Shops lacked all the advanced features that Shopify built over the years to specifically serve very large merchants.

So Mercado Shops was closed in 2026, and replaced with Mi Pagina. (My page in Spanish)

Instead of a separate website, Mi Pagina is a branded storefront hub within the Mercado Libre platform that lets merchants create a personalized business profile complete with their own logo, banners, and curated product collections.

Unlike Mercado Shops, which was a standalone e-commerce website with a custom external domain, Mi Pagina operates entirely within Mercado Libre’s ecosystem, utilizing standard marketplace fees and charging a small monthly maintenance fee after a free trial.

Mercado Libre made this pivot because it decided to stop competing with enterprise software e-commerce players such as Shopify. Instead, they consolidated their technology to focus heavily on their core strengths, locking small-to-medium sellers into their highly profitable platform.

1.3. Mercado Libre Classifieds

Classifieds is a separate service that allows people to list real estate, cars, and various other local goods and services. The platform is comparable to Craigslist and the Facebook marketplace.

The platform is monetized by Mercado, charging real estate agents and car dealerships a placement fee for advertising on the platform.

Additionally, large merchants pay for subscriptions for advanced features.

The company itself doesn’t sell goods. Mercado wants to create an independent ecosystem for real estate agents, car dealerships, and other professionals, so they trust the platform.

Classifieds serve as a great way to further monetize its active client base!

The platform in itself is not a significant revenue driver, its main objective is to generate traffic for Mercado’s other businesses. A customer who purchased a vehicle is more likely to buy accessories such as a phone stand, a foot mat, an air refresher, and so on. Additionally, Mercado can upsell various financial services, such as a car loan and insurance. Similarly, with real estate, new houses require TVs, blenders, coffee machines, paintings, and other products.

Mercado Classifieds is leveraging technology, scale, and customer trust to offer a superior product at a lower cost!

2. Enabling the transportation of goods

Mercado Envios is the company’s logistics arm.

For any E-commerce company to gain scale, a sophisticated logistics network is a must. If one wants to buy sneakers, they are willing to wait if it’s cheaper, however, if the wait time is too long, they will just go to a brick-and-mortar store.

Simply put, people love convenience and are generally not very patient!

However, delivering packages is expensive and takes time.

If E-commerce is to take market share from brick-and-mortar stores, it must offer a superior customer experience.

Customers want quick and cheap delivery, however, there are too many middlemen in the process. Various distributors, warehouses, customs agents, trucking companies, cargo airlines, last-mile delivery providers, and so on. Each involved party delays the process and adds an additional cost.

E-commerce platforms realized that to deliver packages quickly and at a low price, they must take logistics in-house.

That is what Amazon did in the US, Alibaba in China, Coupang in Korea, and that is what Mercado Libre is doing in Latin America!

Read more

I am Ray, a passionate investor and equity analyst.

Today, I am reviewing the May performance of the Global Equity Portfolio.

A reminder that I track all aspects of the Global Equity Portfolio for my Premium subscribers.

• All sales/buys are revealed as they occur in the Substack Chat

• Portfolio composition

• Performance

• Strategy

• Stock watchlist

• Potential catalysts

Since its founding, the portfolio has returned 161.22%, a CAGR of 17.06%, beating the S&P500 return of 126.97%, CAGR of 14.39%!

In the above image, we see a graph from Portseido that compares the performance of the Global Equity Portfolio to the S&P500 if invested in the index at the same time as I bought the stocks.

I have been using Portseido to track the performance of the Global Equity Portfolio for some time now. They are an investment performance tracking and visualizations platform that is extremely easy to use. I especially like their smart benchmarking graphs and tables you can see in the picture above.

This is exactly what I was looking for, and I would recommend them to everyone looking to approach investing seriously and beat the market in the long term.

Use my link below to begin your 2-week trial.

https://www.portseido.com/?fpr=global

If you are new to the Global Equity Portfolio, I recommend reading my full Portfolio reveal and analysis from November 2025.

Let’s take a look at May’s performance.

1. Performance

The Global Equity Portfolio rose 8.16% in May, compared to +6.45% for the S&P 500 and +7.51% for the Nasdaq!

Read more

• AI winner stocks are ripping, reaching new highs almost daily.

• Everything else is either flat or falling.

Mr. Market has placed Meta in the second camp, as Zuck’s social media giant has seen its stock fall 20% from the August 2025 highs.

Investors are concerned that Meta might be overinvesting in AI infrastructure without having an easy and direct way to monetize that infrastructure.

Microsoft, Google, and Amazon have highly successful enterprise cloud businesses that are showing accelerated revenue growth, driven by AI startups and large enterprises implementing AI across their organizations.

Meta doesn’t have such a business, and it doesn’t have highly visible, easily monetizable consumer AI products comparable to ChatGPT, Claude, or Gemini.

Furthermore, Meta just reported its first quarter-over-quarter daily active user decline in years.

These factors have built a strong bear narrative that has dragged down the stock.

But if one looks under the hood, the reality of a high-quality undervalued business smacks you in the face.

Revenue growth is accelerating, margins remain top-class, AI is a clear tailwind, and the valuation is by far the most appealing among the Magnificent 7 companies.

Most importantly, this week, Meta revealed a slew of consumer subscriptions, aiming to further monetize its most active users and create directly monetizable AI products.

In today’s article, I will explain why the market is wrong about Meta!

• It can monetize AI

• It will continue gaining users

• It is undervalued

Let’s begin.

1. Subscriptions

2. AI

3. Growing User Base

4. ARPU Growth

5. WhatsApp Monetization

6. RealityLabs

7. Valuation

8. Valuation Model

1. Subscriptions

On May 27, 2026, Meta announced a set of paid subscription plans for its 3 flagship apps.

• $3.99 a month for Facebook Plus.

• $3.99 a month for Instagram Plus.

• $2.99 a month for WhatsApp Plus.

These tiers operate in parallel to the existing Meta Verified program, which continues to provide verification and impersonation protection for creators and businesses at price points ranging from $15 to $500 per month.

Ultimately, Meta plans to consolidate these social offerings, along with professional and AI packages, under 1 unified brand known as Meta One.

This integrated ecosystem aims to create high-margin recurring revenue products as the company invests aggressively in its Reality Labs VR venture and AI buildout.

The Plus subscriptions provide optional tools for users looking for deeper customization, detailed analytics, and enhanced privacy controls.

Interestingly, these tools do not remove advertising from the feeds.

Instead, they establish a 2-tier user experience where paying subscribers receive functional perks while non-paying users operate with standard features and a less engaging interface.

This makes sense as the average US DAU is estimated to generate over $80 in yearly revenue. This subscription would generate less than that, about $48, and that assumes no churn.

So revenues generated by these new offerings will be incremental, and not reduce advertising revenues.

For Instagram Plus, subscribers paying $3.99 per month receive tools that provide advanced insights and profile design choices.

Key capabilities include:

• More detailed statistics

• How many people rewatched a story

• The option to build unlimited story audience lists

• Secret preview mode to view stories without appearing on the viewer list

• Extend stories beyond the standard 24-hour window

• Spotlight 1 story per week for extra visibility

• Search story viewer lists

Additionally, to enhance privacy, subscribers can post content directly to their profiles and highlights without displaying those posts in the feeds of their followers.

Cosmetic enhancements include animated Super Heart reactions, custom app icons, special fonts for bios, and additional profile pins.

Facebook Plus offers a matching suite of features, including story rewatch statistics, profile customization, and detailed user analytics.

WhatsApp Plus, priced at $2.99 per month, prioritizes messaging utility and visual personalization.

Subscribed users can change the visual theme of the application, apply custom app icons, send premium stickers, set unique ringtones, pin extra chats beyond the standard limit, and access advanced list customization tools.

Overall, these seem like cosmetic features that will appeal to creators, teens, or power users.

I am a user of all 3 of Meta’s main apps, and none of these features raises any interest in me. However, I imagine that millions of people will sign up, especially considering the affordable price tags.

These features remind me a bit of video game skins. For those unfamiliar, many video games offer players the opportunity to purchase in-game customizations that have no impact on the gameplay, they simply change how some weapons or characters look. Despite having no benefit on the game field, gamers spend billions of dollars on these in-game skins.

I expect these subscriptions to have the same effect.

Subscribe now

Meta is also introducing high-capacity plans for AI power users, creators, and businesses, consolidating them under the Meta One offering.

While basic access to Meta AI remains free, high-volume consumers will eventually hit usage caps.

Meta is testing 2 consumer AI subscription levels to resolve this issue:

• $7.99 per month Meta One Plus

• $19.99 per month Meta One Premium

The Meta One Plus for $7.99 a month tier is built for individuals who frequently generate images and videos or require extended reasoning capacity from Meta’s chatbot.

The Meta One Premium for $19.99 a month provides the same features as Meta One Plus but with significantly higher usage ceilings and access to the chatbot’s advanced thinking mode.

According to Helen Ma, the head of subscriptions at Meta, users who purchase these AI packages will also have access to premium features from the individual app subscriptions.

If that was not confusing enough, for business users and professional creators, Meta is launching 2 separate tiers designed to improve visibility, simplify management, and solve common operational pain points.

• $14.99 per month for Meta One Essential

• $49.99 per month for Meta One Advanced

Meta One Essential for 14.99 per month provides a Verified badge, impersonation protection, and enhanced linksheets to promote cross-platform presence.

Meta One Advanced for $49.99 per month gives businesses priority feed visibility on Facebook, higher ranking in Instagram search results, and enhanced Follow buttons on Reels.

It also features optimized scheduling tools, account moderator management without password sharing, and alert notifications when other users copy original content.

A major benefit is direct access to human customer support for Facebook and Instagram pages, resolving a historical pain point for small businesses.

Meta is currently testing all these subscriptions in various geographies before a global rollout.

Yes, it is a bit confusing with Meta now releasing 7 different subscription offerings, each with different features and use cases. This is the first serious foray of Meta into consumer subscriptions, so it is expected that there will be some learning moments on the way. I expect it will figure out which price points and feature sets appeal the most and consolidate and simplify its offering in the future.

Overall, I don’t believe that any of these subscriptions will create game-changing revenues for Meta.

In the last 12 months, Meta generated over $200B from advertising revenues. Let’s assume Meta gets to 100M subscriptions in a few years, which is a generous assumption. If the blended average subscription price is about $5, Meta would make $6B in subscription revenues.

That’s only 3% of its current advertising revenues. By the time Meta reaches that many subscriptions, advertising revenues would have already reached $300B. So, the subscriptions are just a small cake slice that will slightly increase revenue growth.

Nevertheless, these revenues are incremental and likely will have a huge incremental EBIT margin of 90%, as they would only require limited expenses. That could result in a $4-5B bump to EBIT.

Most importantly, it could end up helping Meta beat the narrative that it doesn’t have ways to monetize AI.

2. AI

A lot of investors are worried that Meta is overinvesting in AI development.

Read more

A share cannibal is a company that repurchases huge amounts of its own shares.

When a mature and financially strong company buys back its own stock, it directly reduces the float.

As a result, the remaining shareholders automatically own a larger piece of the business.

This shrinking of shares has a powerful effect on driving EPS growth.

If a company has $100M in net income and 100M shares outstanding, its EPS is $1.

If that company buys back 50% of its shares, leaving only 50M shares outstanding, the EPS jumps to $2.

This is a 2-fold increase in EPS, even though the core business net income did not grow at all.

By investing in growing businesses that regularly repurchase a lot of shares, investors could turbocharge their returns.

Mohnish Pabrai describes this capital return method as Uber Cannibal investing.

He points out that if a business grows its earnings by 15% each year and buys back 84% of its shares over 20 years, the investment turns into a 100-bagger with 0 changes to its price-to-earnings multiple.

If the earnings grow by 10% Y/Y, the company buys back 80% of its shares, and the price-to-earnings multiple expands by 50%, it becomes a 50-bagger in 20 years.

This shows how stock repurchases could compound wealth for patient investors, even in companies that are not seen as “exciting growth stocks”.

For some investors, 10-15% might not seem strong in this AI era, but if combined with consistent buybacks for over a decade, it could lead to quite healthy results.

So, in this report, I decided to take a break from the AI discussion and focus on these share cannibals that Charlie Munger loved so much.

1. Criteria for Investing in a Share Cannibal

Investors often hear quotes from famous investors without really understanding the context in which it was said and apply them the wrong way.

When Mr. Munger said to focus on the cannibals, he didn’t mean to simply look at the buyback yield or the announced buyback plan.

Not all stock buybacks are good. Many companies destroy cash by buying back stock under unfavorable conditions.

Management teams are constantly evaluated based on the performance of their stock. So, in the hope of increasing their share price, some CEO’s announce aggressive buyback plans. While buybacks are great, investors have been conditioned to love them, even when done out of weakness, and that has led to many CEOs focusing too much on buybacks and not enough on their business.

To find the best share cannibals, investors must look for some key criteria:

• Stable business

• BuyBacks funded with cash flow, not debt

• Consistent buybacks

• Net buybacks

• Organic growth

• Valuation discipline

• Reinvestment needs are covered

Let me explain.

A great share cannibal must have a highly stable, mature business.

It should not be in decline. If a company is losing sales or customers, buying back stock is useless because the core business value is eroding. Investors must look for companies with a high level of expected stability over the next 10 to 20 years.

Furthermore, ideally, stock buybacks must be paid for with cash flow, not debt.

They should never be funded by taking on high levels of debt. Some bad management teams borrow huge amounts of money to buy back stock just to artificially boost the share price in the short term. This is highly dangerous and can lead to massive trouble in the long term. Using debt to fund share repurchases is beneficial to long-term investors only if the company has a stable balance sheet and it can borrow at a fair rate to purchase undervalued stock.

A clear bad example of this is Hims and Hers. Last year, they raised $1B in a convertible note offering, diluting shareholders. It then committed to spending $250M of that on share repurchases. They spent $80M of this allocation on buybacks at a high share price in Q4 2025, and when it fell over 50%, they didn’t do any buybacks. Now the company is unprofitable and raising $250M in a convertible note offering. Why dilute shareholders by raising funds that were meant for investments, then not announcing buybacks, then raising money again? Such a mess.

So clearly, for buybacks to have a real effect, the company must be a reliable and consistent repurchaser of its own stock.

Sporadic buybacks often happen only when management has too much cash at the peak of a market cycle, like in the Hims and Hers example. This means that likely they pay very high multiples. Consistent buybacks average out the purchase price over time, showing a disciplined plan to return cash to shareholders.

Crucially, investors must not take the buyback yield and announced repurchase plans at face value.

Many companies issue a massive number of shares to employees every year. If a company repurchases shares just to offset employee dilution, those buybacks do not directly benefit shareholders. A real share cannibal must reduce its net share count over time, even after counting new shares issued for compensation or acquisitions.

Stock buybacks should act like gasoline on a fire, it should not be the only thing growing the EPS.

While a declining share count boosts EPS, the core business must also grow its net income. When organic growth is combined with a shrinking share count, the EPS compounds very quickly. Relying solely on buybacks to grow EPS without any real business growth is a bad long-term strategy.

Also, valuation discipline is a key rule for buyback success.

Repurchasing stock only makes sense if the shares are bought below their intrinsic value. If a company pays a ridiculous price for its own shares (like Hiims and Hers in Q4), it destroys cash that could be better spent elsewhere. Management must act like smart capital allocators and only buy when the stock is cheap, not only when they have cash.

Most importantly, a company must never underinvest in its core operations to pay for buybacks.

All reinvestment needs, like capex and R&D, must be fully covered before considering any buybacks. If a company underspends on R&D to buy back shares, it will lose its long-term competitiveness. Excellent cannibals can easily fund both technological innovation and massive buybacks.

Subscribe now

2. 10 Examples

The following 10 companies show how disciplined stock buybacks can build massive shareholder value over long periods.

2.1. Apple

Apple is the most famous share cannibal.

The company started its buyback program in 2012. At its peak in 2012, its outstanding share count stood at 26.47B. By 2025, Apple reduced its shares outstanding to 15.005B, a massive 43.3% decline.

Apple spends huge amounts of excess cash on repurchases. For example, in 2024, its net share repurchases totaled $94.9B, up 22.4% from 2023.

Apple did this while investing billions in R&D, releasing new highly successful products, and without hurting its product pipeline.

Let’s look at what results these buybacks have had on Apple’s income statement.

Since 2016, Apple has repurchased 31.3% of outstanding shares, reducing the share count by about 3.8% per year.

During this time, net income grew by 168% with a CAGR of 10.8%.

However, EPS grew by 297% with a CAGR of 15.3%.

This is a clear example of how buybacks work over a long period of time.

Total EPS growth rate was 77% higher than the net income growth, while the CAGR was 42% faster.

Essentially, had Apple not done these buybacks, EPS would have been $5.61, not $8.29 it is today.

Buybacks are much better than dividends because share repurchases are taxed more favorably and force the investor to reinvest more of their gains.

In the US, share repurchases are taxed at 1%, while dividends are taxed much higher, depending on the state and situation, at even 40%.

Furthermore, buybacks essentially force an investor to reinvest. If one receives dividends, they can be reinvested to compound for the long term, but most investors don’t do that.

Buybacks can also be viewed as the company essentially reinvesting your dividends in its own stock for you, so you don’t have to.

This is a tax-efficient way to amplify your returns.

2.2. AutoZone

AutoZone is an incredibly aggressive share cannibal.

It launched its repurchase program in 1998. Over 2 decades, it spent more than $36B to buy back almost 90% of its outstanding shares.

AutoZone’s annual shares outstanding dropped from 27.83M in 2017 to 16.52M in Q1 2026, a reduction of 40.7%.

Net income grew with a CAGR of 7.9% compared to 14.9% EPS CAGR.

2.3. NVR

NVR is a US homebuilder that has repurchased stock since 1994.

Its shares outstanding fell from 3.69M in 2017 to 2.63M in Q1 2026, down by 28.9%.

NVR’s buyback yield peaked in March 2026 at 10.5%.

Its average buyback yield from 2021 to 2025 was 7.1%.

Do you like the chart above?

FiscalAI makes managing investments smarter, faster, and stress-free.

• Visualizations

• AI-powered insights

• Financial data

• Earnings transcripts

• Portfolio analytics

All in one place. Instead of wasting hours digging through filings and spreadsheets, Fiscal.ai helps you get to the important information in minutes.

Save time, stay organized, and let Fiscal.ai handle the heavy lifting so you can focus on growth.

Join with my link below.

https://fiscal.ai/?via=global

Net income grew with a CAGR of 10.6% compared to 14.3% EPS CAGR.

The stock hasn’t done well in the last 5 years due to stagnation of the US new build housing market, because of rising inflation, and high interest rates.

However, the company continues buying back shares, spending $1.8B in 2025. Once the cycle turns and housing construction rebounds, investors will benefit from these buybacks.

2.4. O’Reilly Automotive

O’Reilly is an automotive part retailer that began its stock buyback program in 2011.

Since then, the company has spent over to $30B on share repurchases.

It has reduced its share count by 34.2% since 2017.

Net income grew with a CAGR of 10.6% compared to 16.8% EPS CAGR.

As you can see, the long-term EPS CAGR is 58% higher.

The longer the buybacks are done, the more they compound.

2.5. Booking

Booking is an online travel agency that has very low capex requirements.

In 2025, its capex was only $322M, while its OCF was a huge $9.4B.

This leaves almost all of its cash available for buybacks and dividends, a perfect combo to be a share cannibal.

It has reduced its share count by 35.6% since 2017. This is especially impressive considering the disruption the COVID-19 pandemic caused to its business in 2020 and 2021.

Booking’s position is so stable that the company paused share repurchases only for a single year in 2021, returning with a $6.6B buyback in 2022.

Net income grew with a CAGR of 12.4% compared to 18.3% EPS CAGR.

As you can see, the long-term EPS CAGR is 48% higher.

Do you like this report?

Become a Paid Premium member to see dozens of exclusive pay-walled equity research reports such as this.

Curious about which stock I own?

Full portfolio with all holdings, cost basis, and unrealised gains is visible to Premium members. I do weekly updates and detailed monthly reviews. Premium members are also notified of all sales and purchases using the pay-walled Substack Chat.

The annual plan is available for 50% cheaper per month than the monthly plan.

Subscribe now

2.6. Domino’s Pizza

Domino’s is the world’s largest pizza chain that has steadily bought back its stock.

Its shares outstanding fell from 42.9M in 2017 to 33.5M in Q1 2026, a reduction of 21.9%.

Net income grew with a CAGR of 9.6% compared to 13.7% EPS CAGR.

The long-term EPS CAGR is 43% higher.

2.7. Adobe

While historically, Adobe has not been a share cannibal, the company is positioning itself to become one.

Adobe has aggressively repurchased shares to fight off investor fears about AI disrupting its seat-based corporate subscription business.

Its shares outstanding fell from 491.26M in 2017 to 406M in Q1 2026, a reduction of 17.4%.

This might seem modest compared to other cannibals, but this is set to change. In the last 12 months, Adobe has spent $10.5B on share repurchases and only $2B on SBC, for a net buyback of $8B.

A market cap of $100B implies that Adobe is set to reduce its share count by a net 6-8% per year. If the valuation and buyback cadence remain the same, Adobe will repurchase 20-30% of its outstanding shares in the next 3-4 years.

So far, net income has grown with a CAGR of 19.2% compared to 21.6% EPS CAGR.

The long-term EPS CAGR is just 13% higher, but that will change rapidly in the next 3 years.

If AI doesn’t disrupt the business, Adobe will be a massive compounder.

2.8. Oracle

Oracle has historically been cannibal that has reduced its share count significantly over the last 15 years.

However, that trend stopped in 2022 as the company focused on building its AI cloud business.

Despite that, the share count is still 30.5% smaller today than it was in 2017.

As a result, net income has grown with a CAGR of 6.4% compared to 10.9% EPS CAGR.

So, the long-term EPS CAGR is 70% higher.

2.9. Hilton

Hilton has transformed from an asset-heavy hotel builder and developer into a capital-light franchise model that generates huge excess cash flow.

For instance, in 2025, the company returned $3.3B to its shareholders through buybacks and dividends.

Hilton’s shares outstanding dropped from 317.42M in 2017 to 228.33M in Q1 2026, a reduction of 28%.

As a result, net income has grown with a CAGR of 4.4% compared to 8.6% EPS CAGR.

So, the long-term EPS CAGR is an amazing 95% higher. This demonstrates the power of thoughtful buybacks executed at favorable market prices.

Similar to Booking, Hilton used the COVID rebound to repurchase $1.6B and $2.3B in shares in 2022 and 2023.

2.10. American Express

American Express is a prime example of how share buybacks benefit long-term investors like Warren Buffett.

Berkshire Hathaway has held about 151M shares since 1994, which is roughly 21% ownership in the company.

Berkshire has not bought new shares in years, but its ownership share keeps increasing because American Express constantly buys back its own stock.

Amex shares outstanding fell from 857.1M in 2017 to 682MM in Q1 2026, a reduction of 20.4%.

In Q1 2026 alone, the company returned $2.3B to shareholders, including $1.7B in buybacks.

As a result, net income has grown with a CAGR of 18.6% compared to 22.5% EPS CAGR.

So, the long-term EPS CAGR is an 21% higher.

3. Failing Share Cannibal Examples

As I said earlier, buybacks alone do not guarantee compounding for investors.

Many companies buy back stock to hide structural decline.

These businesses show that stock repurchases are useless if the core model is eroding and management underinvests in new revenue sources.

Let’s look at 4 distinct examples:

• PayPal

• Charter

• Western Union

• General Motors

PayPal has spent billions on share repurchases, but this has failed to create long-term value.

Since 2020, the company has spent over $26B on buybacks.

Despite this, its stock has crashed by over 80% from its 2021 peak.

This collapse happened because PayPal’s core business is in decline. Their branded checkout growth has stalled, growing only 2% in Q1 2026 and 1% in Q4 2025. This branded checkout button is PayPal’s highest-margin product.

At the same time, the company is facing intense competition from Apple Pay, Stripe, and Adyen.

PayPal’s active accounts have slowed to 439M, and its ADJ operating margin fell from 20.7% to 18.4%.

Instead of investing in creating high-margin products, PayPal is growing in low-margin products like Venmo and unbranded processing, which cannot replace its lost high-margin revenue.

Buying back shares is useless when the core business model is eroding, and the company underinvests in building new revenue-generating products capable of replacing it.

Charter is another clear example of a failing cannibal.

The company does not pay dividends and focuses entirely on buying back its own stock.

Since 2017, Charter has spent close to $70B on buybacks.

Despite this, its stock has crashed by over 79% in the last 5 years.

This is because Charter is facing a terminal business decline.

Charter lost 120,000 customers in Q1 2026, worse than the 59,000 lost in Q1 2025, showing that its broadband cable subscriber losses are accelerating.

Its total revenue fell 1.0% to $13.6B in Q1 2026. This erosion is caused by fierce competition from fixed wireless providers like T-Mobile and AT&T, as well as new fiber networks.

To fight this competition, Charter is carrying out a massive capex cycle, spending $11.7B in 2025.

This heavy capex drains cash and reduces FCF. At the same time, Charter carries a very heavy debt load with a leverage ratio of over 4x EBITDA.

Spending billions in buybacks while carrying huge debt in a shrinking industry is plain stupid.

If subscriber losses continue, EBITDA will decline, and the leverage ratio will rise. This makes Charter’s buybacks a value trap rather than a wealth creator. It would have been more beneficial for the shareholders if Charter had invested these $70B to create new revenue-generating businesses.

Western Union has a long history of stock buybacks, but that doesn’t change the fact that the company is in structural decline.

Since 2016, the company has spent $3.3B on buybacks.

This has had no beneficial impact on its stock, which is down 66% in the last 5 years.

Its stock sits near multi-year lows, showing that buybacks don’t change business fundamentals.

Western Union’s business is in structural decline as its high-margin, cash-based retail remittance business is shrinking.

In 2025, its North American regional money-transfer revenues fell 11%.

This decline is driven by digital-first competitors like Wise, Remitly, and Revolut. These fintech rivals are growing at 30%+ and stealing market share by offering better service and lower fees. This has lowered Western Union’s average take rate and reduced pricing power.

Western Union is trying to build its own digital platform and stablecoin, but its digital growth is too slow to offset the retail drop.

Its digital platform also operates at much lower profit margins. Western Union’s ADJ operating margin dropped to 13% from 18-19% in Q1 2026. Operating cash flow fell 26% Y/Y in Q1 2026.

Repurchasing stock in a business facing structural decline and profit compression is a waste of capital, they should have invested these $3B in rebuilding its tech stack and releasing new neo-banking fintech products, expanding upmarket from being a simple money transmitter into a more developed fintech platform.

General Motors is a dying automotive dinosaur on its last legs that, instead of innovating, has focused heavily on outsourcing and share buybacks.

In 2025, the company repurchased $6B of stock. In Q1 2026, the board approved another $6B share repurchase authorization.

This aggressive buyback program helped lower its outstanding share count from 1.2B in 2023 to 904M in 2025.

Overall, since 2016, the company has spent close to $34B on share repurchases.

This is madness considering that General Motors is facing massive structural issues.

Its core internal combustion business is eroding under a highly challenging and chaotic EV transition. In late 2025, General Motors took massive impairment charges to shift its Orion assembly plant back from EV to ICE production.

It also discontinued its BrightDrop electric van and wrote off several other EV assets.

Meanwhile, its automotive OCF dropped 21.7% to $18.733B in 2025. Spending billions of dollars on share buybacks while cutting EV platforms and facing declining cash flows is a classic sign of artificial EPS boosting.

Tesla and the Chinese automakers are coming for General Motors.

The company is terribly run with incompetent leadership. If the US automotive market were open to Chinese EVs, GM would be bankrupt already. They are cheaper and better than anything GM can offer.

However, this is only a question of time, as eventually the transition will happen and GM won’t be part of it.

Leave a comment

Become a Premium Member!

Here is what my Premium Members can expect:

Portfolio Review - Each month, I will present the portfolio performance and discuss my stock watchlist and my best ideas.

• Recent developments.

• Unwarranted pullbacks.

• Insider activity.

• Potential catalysts.

Deep Dives – 8,000+ word detailed analysis of a company, delivered in 3 Parts.

• Part 1 – Brief History of the company and its Business Model.

• Part 2 – Management, Moats, Competitors, and Risks.

• Part 3 – Opportunities, Financial Analysis, and a Valuation Model.

You can expect a comprehensive research report that is educational, interesting, and provides actionable insights!

To see what you can expect, read my Palantir Deep Dive!

Members of the Premium service get access to my library of 13 Deep Dives and to all future Deep Dives, which will be released on semi-monthly basis.

Investment Cases – A short, concise report with actionable insights.

This report is about the size of a single part of a Deep Dive.

• Focused Investment Thesis

• Main drivers of the Bull Case

• Valuation Model

To see what you can expect, read my Oscar Health Investment Case!

Earnings Reviews and Updates – For companies that are of great interest to me and my readers, I will provide regular quarterly or semi-annual updates after earnings reports.

• Financial performance

• Business Update

• New developments

• Updated Valuation Model

To see what you can expect, read my Google Q2 2025 Earnings Review!

Equity Research Report List

1. SpaceX

2. Micron

3. Nebius

4. Meridian Holdings

5. Weight Watchers

6. Lumentum

7. Sivers Semiconductors

8. Klarna

9. Ondas

10. Cipher Digital

11. SanDisk

12. Novo Nordisk

13. Sofi Update

14. UiPath

15. Mercado Libre Update

16. Nu Update

17. QXO

18. ASTS

19. Pagaya

20. IREN

21. Rubrik

22. Oscar Update

23. Arteche

24. Nebius Update

25. WhiteFiber

26. Harrow Health

27. Root

28. Zeta Global

29. SentinelOne

30. Golden Matrix Group

31. ASML

32. AMD

33. UnitedHealth Group

34. AppLovin

35. Adyen

36. TransMedics

37. Evolution

38. Nebius

39. Oscar Health

40. SoFi

41. Dlocal

42. Sea Limited

43. Microsoft

44. TSMC

45. Hims and Hers

46. Meta

47. Nu Bank

48. High Tide

49. Tesla

50. Grab

51. Google

52. Amazon

53. Hello Fresh

54. Mercado Libre

55. Celsius

56. Robinhood

57. Palantir

58. Ferrari

You can follow me on Social Media below:

X(Twitter): TheRayMyers

Threads: @global_equity_briefing

LinkedIn: TheRayMyers

Disclaimer: Global Equity Briefing by Ray Myers

The information provided in the “Global Equity Briefing” newsletter is for informational purposes only and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. Ray Myers, as the author, is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented in this newsletter is based on publicly available information and sources believed to be reliable. However, Ray Myers does not guarantee the accuracy, completeness, or timeliness of the information provided. The author assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned in the “Global Equity Briefing” report. Any investment decisions made based on the information in this newsletter are at the sole discretion of the reader, and they assume full responsibility for their own investment activities.

I am Ray, a passionate investor and equity analyst. And today I am covering SpaceX.

Elon Musk is, without a doubt, the most successful and famous internet entrepreneur of the 2000s.

He made hundreds of millions during the internet boom when he sold PayPal. He didn’t retire to living a lavish life, as many dot-com founders who sold did.

Instead, he chose to invest that money into revolutionary and experimental businesses.

Tesla became a highly successful electric vehicle, renewable energy, autonomous driving, and robotics company with revenues nearing $100B and a market cap of $1.3T.

For a long time, Tesla was Elon’s most successful business, but that could change with the upcoming IPO of SpaceX.

SpaceX is the developer of rockets and satellites, responsible for handling the vast majority of payloads going into orbit.

The space economy is booming, as the world looks to use the vast resources of the galaxy to deliver services that previously were only seen in science fiction movies.

For many years, Elon fans were eagerly waiting and hoping for a SpaceX IPO so they could invest in Elon’s dreams of the stars.

That is finally happening, as the company plans to list its shares on the Nasdaq under the ticker symbol SPCX on June 12, 2026.

The offering aims to raise roughly $75B at a $2T valuation.

However, this is not the SpaceX of old that is going public, as during the last few years, Elon has transformed the company from largely a space technology business into a conglomerate consisting of:

• Space

• Satellite Internet

• AI

• Social Media

The company is justifying this valuation by citing a mind-boggling $28.5T global total addressable market! This is looking like the IPO of the century.

However, does it make sense for investors to enter at this valuation?

What is SpaceX’s actual business?

How are individual segments performing?

How much money does SpaceX actually make?

Is the balance sheet strong?

What are the opportunities for growth?

In this SpaceX Deep Dive, I will answer all of these questions.

Let’s begin.

1. Brief History

2. SpaceX

3. Starlink

4. X/Twitter

5. xAI

6. Competitors

7. Risks

8. Finances

9. Valuation

10. Opportunities

11. Conclusion

1. Brief History

Elon Musk has been a famous billionaire for seemingly forever, but that wasn’t always the case.

He made his early fortune through PayPal.

The 2002 $1.5B sale of PayPal generated hundreds of millions of dollars for Elon, providing the seed capital for his subsequent ventures.

He founded SpaceX in 2002 with the goal of building reusable rocket systems to make life multiplanetary.

Simultaneously, he financed Tesla, an electric vehicle pioneer, serving as its chief executive officer and driving its valuation to massive levels.

In October 2022, Musk purchased Twitter for $44B.

Next, seeking to compete with OpenAI and build a “truth-seeking” alternative to existing AI models, he founded xAI in March 2023.

For years, these businesses operated separately until they were merged into a single mega company.

In March, 2025, Elon decided to consolidate its AI and social media businesses with XAI, acquiring X in an all-stock deal valuing X at $33B.

Next, just a few months ago, in February 2026, SpaceX acquired xAI in an all-stock deal valuing SpaceX at $1T and xAI at $250B, for a combined total of $1.25T.

This created a vertically integrated company combining rocketry, satellite internet, social media, and AI.

2. SpaceX

The space and rocket division of SpaceX is reported as the Space segment in the S-1 filing.

It handles the design, manufacturing, and launch of rockets for commercial and government clients.

In 2025, the Space segment generated $4.1B in revenue, a modest 7.6% Y/Y increase.

However, the segment posted an operating loss of $657M for the full year of 2025, compared to the $21M profit generated in 2024.

The business is very R&D intensive, with $3B, an increase of 63.7% Y/Y, about 74% of revenues spent on this category.

This unprofitability continued in Q1 2026, with the Space segment generating $619M in revenue but reporting an operating loss of $662M.

This operating loss is driven by high investment in Starship and launch pads, showing that the launch business is highly capital-intensive and relies on Starlink to provide cash.

Furthermore, this business is not very stable and predictable, as revenues declined 28.4% Y/Y.

Growth is highly dependent on launch cadence and new government and private contracts.

Subscribe now

2.1. Reusability

SpaceX has reshaped the economics of space by demonstrating that orbital boosters can be used multiple times.

The Falcon 9 is a 2-stage rocket where the 1st stage booster can return and land on ground pads or drone ships in the ocean.

This allows SpaceX to fly the booster multiple times, reducing the cost of space launches.

Meanwhile, Starship represents the next-generation, fully reusable heavy-lift platform designed to transport over 100 tons of cargo into orbit

It consists of the Super Heavy booster (powered by 33 engines) and the Starship upper stage (powered by 6 Raptor engines, including 3 standard and 3 vacuum engines). Starship’s 10th flight test took place on August 26, 2025.

The Starship program is highly capital-intensive, costing approximately $4M per day to develop, with total R&D costs expected to reach $10B.

SpaceX spent approximately $3B on Starship development in 2025 alone, being a massive drag on cash flow.

This program is extremely important for the company because full reusability is required to make the economics of lunar and Mars cargo flights commercially viable at scale.

We have yet to see a successful launch.

2.2. Launch Services

SpaceX holds a near-monopoly on Western commercial launches, accounting for over 80% to 90% of global payloads launched annually.

In 2025, the company completed 170 launches, an increase of 23.2% Y/Y and 73.4% over 2 years.

The 2026 launch cadence has been steady, having 40 launches in Q1 2026 compared to 38 last year.

While the number of launches grew by 23.2% in 2025, the mass of those launches grew by 30.3%, to 2,213 tons.

The same trend continued in Q1 2026, with mass growing by 23.6%, despite just 5.3% launch growth,

This indicates that SpaceX is able to launch more satellites into orbit with each launch, thanks to its larger Falcon Heavy rocket.

This is reducing the cost per launch and further solidifying SpaceX’s position as the leading space launch company.

A major customer for these services is the US federal government. SpaceX has secured over $6B in contracts from NASA, the US Department of War, and other agencies over the last 5 years.

In 2025, US government contracts accounted for 20% of SpaceX’s total revenue.

2.3. Moon and Mars

SpaceX has become the most important hardware provider for NASA’s Artemis program.

In April 2021, NASA awarded SpaceX a $2.89B contract to build Starship HLS, a lunar lander variant of Starship designed to land astronauts on the Moon.

To reach the Moon, Starship HLS must refuel in space.

This is an insanely complicated engineering problem that requires a propellant depot in Earth orbit and roughly 10 Starship tanker flights to carry propellant. The Artemis III mission has been delayed to late 2027, and the actual crewed landing has been pushed to Artemis IV in 2028.

For Mars, Musk intends to build a permanent human colony with at least 1M residents.

The S-1 details an incentive package where Musk receives 15 tranches of 66,666,665 shares, amounting to 1B shares, worth roughly $600B at today’s valuation.

These shares only vest if SpaceX reaches a market valuation of $7.5T and establishes a self-sustaining Mars colony of 1M residents while Musk remains employed by the company.

Very ambitious to say the least.

3. Starlink

Starlink is the satellite telecommunications division of SpaceX!

Historically, space-based internet was slow and very expensive, because there were few satellites that were very far from the Earth.

To fix this, the company is utilizing a massive low Earth orbit satellite constellation of thousands of satellites that deliver high-speed, low-latency broadband internet globally.

Read more

While the S&P 500 has largely recovered, many promising businesses are still available at a discount.

And today I am buying 2 such businesses.

1 of the stocks I bought today is an extremely cheap small-cap in a very unique situation.

This is a turnaround play on a company that’s going through a painful transition. If my thesis is correct, this transition will end this year, enabling the company’s stock to rise rapidly. In such a case, the stock could be 2-3x just this year.

If my thesis is correct, and this company successfully turns around its business, this is a 5-10x stock in the next 5 years.

The other stock I am buying is a less risky bet on an undervalued, fast-growing, yet very misunderstood company that is hated by the market.

If my thesis is correct, this stock could 2-3x in the next 2-3 years as the market realizes its mistake.

To raise capital for this trade, I sold a stock that was 4.6% of my portfolio.

Normally, I prefer to hold stocks for longer, but I believe these 2 other stocks have more upside in the next 1-2 years.

Read more

I am Ray, a passionate investor and equity analyst. And today I am covering IREN.

By now, everyone and their grandmother knows that the world is experiencing a once-in-a-century AI-driven technological revolution. However, if we want AI to be able to do more than just create silly cat videos, it needs to be properly trained on lots of high-quality data.

Furthermore, for this data to be processed, the world needs to build more data centers than it has ever built before!

Researchers at McKinsey forecast that by 2030, cumulative data center capex will reach $7T and data center capacity will almost triple to 219 GW!

To meet this insatiable demand for computing power, capacity will come from clever and previously overlooked places. And increasingly, a trend has emerged of bitcoin mining companies turning into AI data center businesses.

For years, aspiring crypto entrepreneurs built ever larger and more sophisticated bitcoin mining operations. These bitcoin farms went from small basement servers to dedicated data centers with thousands of GPUs, custom-designed cooling equipment, and access to cheap energy.

It so happens that an AI data center also needs thousands of GPUs, cooling, and cheap energy!

Thus, many of these clever crypto mining entrepreneurs are taking their crypto mines and retrofitting them into AI data centers.

One of these crypto miners turned AI data center operators is Iren.

Thanks to strong AI-driven demand for their services, Iren’s stock has risen 490% in the last 12 months.

Furthermore, just a few weeks ago, the company signed a 5-year $3.4B AI Cloud customer deal and a potential $2.1B investment deal with Nvidia. This is a transformational agreement that the company aims to use as a stepping stone towards the AI big leagues.

In this report, I will look at their business model, data centers under construction, capex requirements, valuation, and finish off with a 2030 valuation model.

Let’s begin.

1. Business Model

2. Mirantis Acquisition

3. Data Centers

4. Customer Contracts

5. Competitors

6. Risks

7. Opportunities

8. Finances

9. Valuation

10. Valuation Model

11. Conclusion

1. Business Model

The company was founded in 2018 by Australian brothers Daniel and William Roberts with the idea to build efficient, high-performance bitcoin mining data centers that would incur lower operating costs than competitors.

However, after the AI boom began, it became apparent that AI data centers presented a significantly larger opportunity, so the company changed direction.

1.1. Shift from Bitcoin

As of calendar year Q3 2025, Iren had an installed Bitcoin mining capacity of 50EH/s, with plans to increase that to 52EH/s.

However, these plans for further expansion were cancelled to focus on the AI business.

Bitcoin miners use EH/s to measure mining capacity, which stands for exahash per second. The Bitcoin mining process works by performing complicated computations that solve digital cryptographic puzzles. These steps are needed to validate Bitcoin transactions and ensure the security of the network.

As a reward for this task, miners are given newly minted Bitcoins!

With this capacity, Iren was able to mine 2,039 Bitcoins in Q3 2025, generating $233M in revenues!

That was the peak for the bitcoin business.

Since Q3 2025, bitcoin revenues have fallen by 52% as Iren retrofits Bitcoin mining locations in Canada into AI data centers.

In calendar year 2026, Iren stopped disclosing Bitcoin mining hash rate, the number of bitcoins mined, and the cost per bitcoin.

This is a transitioning business, however, it still gives us important insights into the company’s expertise.

In real mineral mining, the type and purity of the end mineral determine the final price. However, in crypto mining, there is no differentiation, as a Bitcoin is a Bitcoin, Ethereum is Ethereum, etc. As there is no differentiation in the final product, all miners sell their bitcoin for the same price.

This means that costs ultimately determine a miner’s profitability!

That is why crypto miners have a lot of experience in not only finding the location with the cheapest electricity but also designing energy-efficient data centers. A key metric used to measure the efficiency of a Bitcoin miner is joules per terahash (J/TH), which essentially shows how much electricity a miner uses to complete Bitcoin mining puzzles.

As we can see in the table above, Iren’s data centers have an efficiency of 15 J/TH, which compares quite favorably to its bitcoin mining peers.

In Bitcoin mining, they use J/TH to measure the energy efficiency, but in data centers, PUE is used.

PUE stands for power usage effectiveness and is calculated by dividing the total capacity of a facility by the power actually used by IT equipment. A low PUE indicates that a smaller share of the total energy capacity is dedicated to overhead tasks, such as lighting, cooling, and others.

Essentially, a data center with low PUE uses a larger share of its electricity on revenue-generating GPUs.

Iren’s data centers are some of the most efficient in the business, with a PUE of 1.1. This means that for each KW used by IT equipment, only 0.1KW is used by the overhead. This compares favorably to other operators whose PUE ranges from 1.2 to 1.8.

This clearly shows that the company has the skills to build some of the most efficient data centers in the world!

1.2. AI Cloud vs Bare Metal vs Colocation

AI requires fundamentally different infrastructure than general-purpose cloud infrastructure.

Simply put, AI data centers use a higher number of powerful GPUs that “eat” a lot of electricity, requiring meaningful grid upgrades. Additionally, these GPUs generate more heat than a conventional data center, demanding improved cooling systems. This means that, unfortunately, using existing general-purpose data centers for AI workloads is just not economically viable.

This is why we are witnessing this extreme data center buildout boom!

However, not all AI data center companies are the same, as there are 3 key ways in which they earn revenue.

• Colocation

• Bare Metal

• AI Cloud

In a colocation model, a company such as Iren builds the data center, secures energy, and equips it with cooling, networking, and other equipment. Then they secure a customer who signs a long-term lease agreement of 5+ years and brings their own GPUs to the facility. This model has the lowest value added and thus has the worst economics, generating the lowest price per MW.

Meanwhile, in a bare metal model, the owner of the data center is responsible for fully equipping the facility with all equipment, including GPUs. It then finds a customer who negotiates access to a pre-agreed number of GPUs for a set per-hour rental price. Bare metal customers use their own software to run AI workloads on these GPUs. As the data center operator provides the GPUs, the bare metal model has a higher value added than colocation, and thus has better economics, generating a higher price per MW.

However, the most profitable AI data center model is the AI cloud provider!

In this model, the data center operator provides advanced AI training and inference software. Purpose-built AI training clusters, model hosting, managed inference services, AI APIs, storage, networking, developer support, and more. An AI cloud doesn’t simply rent out space, like colocation, or rent out GPUs like in bare metal. An AI cloud is essentially an AI development, optimization, inference, and deployment partner for AI start-ups and large enterprises.

As revenues are software-driven, this model has the highest value added and thus generates the highest price per MW of capacity!

Iren operates using the colocation and bare metal model, with some early signs that it is looking to add software offerings to its platform.

Each of the operating models has its own advantages and disadvantages.

In colocation, the data center operator is essentially a landlord, and such a model can be highly profitable if operated well. The key advantage is that it requires less capital to start, is easier to operate, and generates a more stable and predictable rental income from a small number of key tenants.

A bare metal is similar to colocation. But, if we use the analogy of a rental apartment, colocation is comparable to renting an apartment without any furniture, whilst bare metal is a fully furnished apartment. Meanwhile, an AI cloud could be comparable to a fully serviced apartment, with furniture, maids, a personal chef, nanny, tutor, and chauffeur.

An AI cloud might have the highest margins in theory, but it is also the most difficult model to operate. Companies must employ highly skilled software engineers to build the digital environment that AI start-ups need. This requires a lot of upfront capital and years of research and development. Furthermore, AI clouds must have big sales and customer management teams that manage a large number of small customers.

Most importantly, this area of the industry is highly competitive, filled with highly skilled start-ups such as Nebius, and it is led by hyperscaler clouds with hundreds of billions of dollars at their disposal, such as Google, Amazon, and Microsoft.

Historically, Iren stated that they don’t wish to compete with Hyperscalers on software. Their core competency is not AI software, but

1. Finding locations with cheap energy.

2. Building energy-efficient data centers.

However, with its recent acquisition of Mirantis, Iren seems to have changed its mind.

2. Mirantis

On May 5, 2026, Iren announced that it had agreed to buy a company called Mirantis for about $625M in an all-stock deal.

Mirantis is an expert in cloud software and Kubernetes, which is a tool used to manage and organize 1,000s GPUs working together.

This acquisition is designed to give Iren the first software tool it needs to become a full-stack provider of AI services.

This is a divergence from their previous pure bare metal strategy. A reminder that in bare metal, the client comes with their own software stack and only pays for the usage of the equipment.

This has lower margins than AI cloud software services, so with this move, Iren is moving upmarket, with the goal of increasing margins and revenues from its existing capacity.

The main goal of buying Mirantis is to make it easier for customers to use the massive power of Iren’s GPUs.

In the AI computing industry, there is often a gap where companies have the hardware but struggle to set up the software correctly to use all the GPU power.

Mirantis helps bridge this gap with its technical expertise and its AI platform, which manages AI workloads across different types of servers and environments.

Mirantis will operate as a separate subsidiary, but its software will be integrated into Iren’s AI Cloud platform. This will help the company serve a wider range of customers who need more complex AI setups.

By providing a larger share of the software layer, Iren hopes to make its relationships with customers stickier, driving long-term retention.

3. Data Centers

As of calendar year Q1 2026, Iren has 7 data center projects under development with a total contracted capacity of 5GW!

Let’s expand on them:

3.1. British Columbia, Canada

The company is currently working to upgrade the British Columbia sites to support AI workloads instead of bitcoin mining.

As a result of this transition to AI, Iren took a $140.4M impairment charge in Q1 2025.

At the Prince George site, which has 50MW of power, Iren has already delivered the necessary GPUs and is in the process of setting them up. Once this is done, the entire site will be dedicated to AI.

The Mackenzie site has 80MW of capacity that is ready for new chips to be installed in the second half of 2026.

At Canal Flats, the company plans to change all 30 MW of its power over to AI services.

This work is happening while the provincial government is making new rules for how data centers use power.

In 2025 and 2026, the province is setting limits on power for AI and requiring companies to compete for new connections. Iren has said it will keep working and growing in the region by following these new rules.

3.1. Spain

In May 2026, Iren entered the European market by buying data center developer Nostrum Group.

The company paid EUR 165M, with 65% in cash and 35% in stock.

This deal gave Iren 490MW of power capacity in Spain that is already contracted to the grid. This is not a single large data center, but rather a collection of smaller data centers.

Spain is highly attractive for AI data centers due to its abundant and low-cost renewable energy, particularly solar and wind.

Its strategic geographic location offers excellent undersea cable connectivity to Africa, the Americas, and the rest of Europe, turning the country into a vital global data hub. Additionally, Spain boasts a massive pipeline of secured power capacity and favorable government initiatives that streamline the development of large-scale infrastructure.

Depending on how fast the construction goes, these projects likely will come online in 2028.

3.2. Childress, Texas

The Childress site in Texas is the biggest focus for the company right now.

The Horizon 1-4 project is a key part of the current build-out at the site. This project involves 300 MW of data center space that uses liquid cooling.

The company is currently commissioning the GPUs for Horizon 1, which will be handed over to Microsoft for its use in Q3 2026.

The other three phases, Horizons 2 through 4, are on track to be finished by the end of 2026.

This is a major milestone because it shows the company can build and launch a large-scale, high-tech site for a major customer on a very tight schedule.

Construction is also moving forward on two more phases, Horizons 5 and 6, which are part of the plan to reach over 1.2GW of capacity by 2027.

3.3. Oklahoma

Iren is developing a new 1.6GW AI Data Center in Oklahoma!

At $10M ARR, this facility has the potential to generate $12-14B in annual revenues, depending on PUE. And Iren plans to begin energizing it in 2028, with first revenues likely coming in 2029-30.

This certainly means that Iren will issue more convertible notes to finance the development of this data center.

3.4. Sweetwater, Texas

On May 1, 2026, Iren reached a crucial goal at its Sweetwater site in Texas by energizing the first substation.

This substation has a massive capacity of 1.4GW and is now connected to the Texas ERCOT power grid.

This connection is a huge advantage because getting power from the grid is often the biggest delay in building a data center.

The whole Sweetwater campus is designed to eventually support 2GW of total power.

The first phase of building the actual data halls is underway, and this site will be a major part of the company’s growth through 2027 and 2028.

By finishing the substation first, the company can now build and turn on new data halls one after another as they are finished.

4. Customer Contracts

Read more

I am Ray, a passionate investor and equity analyst. And today I am covering Dlocal.

On Thursday, Dlocal released its Q1 2026 results, which showed strong payment volume and top-line growth but weaker profitability.

The market continues to pay too much attention to the short term, missing the forest for the trees, as the stock fell 8% and is now down 20% in the past month.

The market had such a negative reaction largely because of two reasons:

1. Missing earnings estimate.

2. Falling take rate.

Analysts forecast that ADJ EBITDA will come at $72M, but came significantly lower at $60.5M.

At the same time, DLocal continues to decrease as the company attracts payment volumes with structurally lower take rates.

Revenue take-rate decreased from 2.67% in Q1 2025 to 2.39% this quarter, while gross profit take-rate decreased from 1.05% in to 0.84%. While certainly a negative development, this is a clear overreaction to a metric that is a bit volatile and ignores the fact that these new volumes are profitable, despite the lower take rate.

In my opinion, the same as with Nu, Dlocal’s stock price is suffering from the FOMO trade.

Sell quality to buy AI stocks!

As a result, Dlocal trades for a FWD P/E of 11, despite strong fundamentals and fast profitable growth.

In this report, I will look at the results of the quarter and build a new valuation model that reflects the upside potential I believe Dlocal has.

Let’s begin.

1. Financial Summary

2. Payment Volumes

3. Take-Rate

4. Retention

5. Valuation

6. Valuation Model

7. Conclusion

1. Financial Summary

• Total Payment Volumes: $14.1B +73% Y/Y, +7% Q/Q.

• Revenue: $336M +55% Y/Y, -1% Q/Q. (Estimate of $331M)

• Gross profit: $119M +40% Y/Y, +2% Q/Q.

• Operating profit: $53M +15% Y/Y, -16% Q/Q. (Estimate of $57M)

• Net Income: $42M -10% Y/Y, -25% Q/Q.

• EPS: $0.14, -10% Y/Y, -23% Q/Q, (Estimate of $0.17)

• ADJ FCF: $15M, -63% Y/Y, -77% Q/Q.

Dlocal delivered very strong top-line results, beating analyst expectations by $5M, around 1.5%.

And while analysts focus on the falling take rate, they completely ignore the operating leverage that is being built in the business!

While operating profit declined 16% Q/Q, it was because of a one-time $9.7M tax adjustments that relate to last year, if not for this tax impact, operating profit would have grown by 25% Y/Y, not 15%.

Furthermore, the profitability was also weaker due to Dlocal continuing to invest in the business.

Employee count increased by 15% Y/Y, and this had an impact on opex. The company expects to achieve higher operating leverage in the second half of the year.

Gross profit per employee now sits at $91K, flat compared to Q4 2025, but up 21% from $75K in Q1 2025.

Meanwhile, net income grew 11% Y/Y if ignoring these one-time tax adjustments.

But even without this adjustment, 11% net income growth is quite weak.

This is due to Dlocal being in a strong investment period, with operating expenses growing by 58% Y/Y to $66M. You would expect a scalable, high-quality tech business to grow operating expenses slower than revenues and gross profit.

That is not the case now, as Dlocal invests to build new products for its customers and grow in Asia and Africa.

This is also what contributed to the sell-off, as investors do not seem to believe the management when they promise lower operating expense growth and higher profits in the second half of the year.

1.1. Guidance

Dlocal left its 2026 guidance unchanged!

The company expects 50-60% TPV growth, 22.5-27.5% gross profit growth, and 27.5-32.5%

In this market, not increasing guidance is seen as a miss, so this likely contributed to the sell-off.

Subscribe now

2. Payment Volumes

For a payments fintech, payment volumes are the most important metric that investors must track. Simply put, the more money that goes through Dlocal’s rails, the more money the company keeps for itself.

In Q1 2026, Dlocal grew payment volumes by an exceptionally strong 73.4% Y/Y, reaching $14.1B!

As we can see in the graph above, it was the best growth rate in a while and the 8^th quarter in a row of accelerating payment volume growth.

Furthermore, as we can see in the picture below, payment volumes grew strongly across most of its core verticals!

E-commerce, the largest and most important vertical, decreased by 6% Q/Q due to seasonality, as Q4 is always the strongest due to holiday shopping. Comparing Q1 2026 to Q1 2024, we see that this segment has grown by 186% in 2 years.

This is an exceptionally strong growth that demonstrates the potential of this segment. Let’s remember that e-commerce penetration is still lower in emerging markets compared to developed ones, providing Dlocal with a strong opportunity to scale.

Another outstanding performance came from the travel vertical, which grew 38% Q/Q, driven by Dlocal’s many customers, including Booking.com, Trip.com, and Klook.

In the above picture, we see 2-year TPV volume growth for key verticals.

All are demonstrating strong growth, except for Advertising.

Growth would have been even better if not for slower growth in Africa and Asia.

Dlocal didn’t disclose the TPV mix per region, but judging by the revenue growth of 36% (vs 55% for total revenue growth), these regions are ramping slower than I would have liked. These regions should grow faster than Latam, as they have a much lower base.

However, despite this slower growth, Pedro Arnt believes there is a huge opportunity in Asia and that he believes Dlocal is still early.

“We think that our strategy and the key success factors that have led us to be very successful in Africa and Latin America actually are applicable to Asia as we cross-sell our growing Asian capabilities to our global merchants.

The second, I think, myth we’ve dispelled is that Asia necessarily was a lower take rate market for the enterprise segment. From what we’re seeing in our current Asian operations as it scales out, that doesn’t seem to be the case either.

I think you will see us increasingly build out capabilities in Asia, and ideally, Asia over a multi-year period becomes quite relevant to our overall P&L.

That really could be trajectory-changing, just because when you look at the size of the total market, Asia still dwarfs LATAM and Africa.

Encouraging initial steps.” Pedro Arnt, Dlocal CEO

This quarter’s pay-ins grew faster than pay-outs, changing the previous trend of pay-outs having a larger share in the mix.

Pay-outs are now 28% of TPV, a decrease from 30% in Q4 2025 and 33% in Q1 2025. This could be due to the weakness in the remittances vertical, which this quarter only grew 3% Q/Q. Similar to e-commerce, Dlocal explained this by seasonality.

As Dlocal has barely scratched the surface in the remittances vertical, and it is growing strongly in ride-hailing and delivery, the share of pay-outs will likely continue increasing in the future. This will have a negative effect on the take rate. These activities have lower fees, but we will discuss that in the take-rate section.

Share

3. Take-Rate

Dlocal defines its take rate as gross profit divided by total payment volumes.

In Q1 2026, Dlocal reported a take rate of 0.84%, a significant decrease from 0.88% in the prior quarter and 1.05% in Q1 2025!

As we can see in the graph above, there is a clear downtrend of falling take rates, with the take rate more than halving in 4 years.

Every quarter, the street panics over the take rate, and this quarter is a perfect example.

The thought process is very simple, if Dlocal keeps less money for itself from every dollar it processes, its growth suffers.

However, this is a very simplistic thinking that ignores all other factors that also drive earnings growth.

Essentially, 3 factors largely determine a take rate, and each of them might have a larger effect in a particular quarter.

First, the financial terms under which the company has agreed to process payments for a merchant. A large customer renegotiating financial terms could have an outsized impact on the take rate.

Second, transaction processing costs. Dlocal operates a payment aggregator business where it handles the front-facing relationship with a merchant, whilst it integrates services from other payment acquirers, merchant banks, FX services, and more. Sometimes they earn higher FX fees, allowing the take rate to increase, whilst at other times the company incurs higher processing costs, reducing the take rate.

Third, payment volume mix shift. Fewer credit cards, more local payment methods, fewer pay-ins, more pay-outs.

Dlocal simplifies the payout processes for e-commerce, ride-hailing, and travel companies. However, these transactions are less complex and usually happen in batches, thus Dlocal charges lower fees to merchants for handling them.

This quarter, we saw a mix of all 3.

I really love the above chart from Dlocal, where the company easily bridges the difference in take rate from Q4 2025 to Q1 2026, explaining how Dlocal lost 4 basis points in take rate. I would love all payment companies to disclose so much.

As we can see, a 1.39 basis point gain in take rate was due to a larger share of pay-ins. Pay-outs are 28% of TPV, and as their share increases, they will continue putting downward pressure on the take-rate. This is largely due to seasonality, and I expect the share of pay-outs to put more downward pressure on the take-rate in the next few quarters.

Another 1.22 basis point gain came from a higher share of SaaS and other higher take-rate verticals in the TPV mix. 1.49 basis points were gained from processing more transactions with higher take rates, and 2.87 basis points came from other reasons.

This is where take rate gains end, as 0.9 were lost due to a higher share of local vs cross-border payments. Cross-border payments have higher take-rates.

1.58 basis points were lost due to lower volumes in smaller frontier markets that have higher take rates, such as Bolivia, Pakistan, and South Africa. Another 2.45 basis points were lost due to lower FX spreads in Egypt and elsewhere.

However, most of the 4-basis point take rate decline was caused by seasonality and “volume tier upgrades”.

Simply put, Dlocal is likely giving meaningful discounts to its largest merchants, such as Uber, Netflix, and Didi, to retain them and keep driving volume growth. This is a standard strategy in payments, because without such discounts, some merchants would move volumes. It is cheaper to give a large merchant a discount than to lose it and then try to acquire payment volumes from another merchant to replace the lost volumes.

The bigger picture is that payment volumes are growing incredibly quickly across verticals and geographies!

Dlocal might keep a smaller share of each dollar processed because of the nature of and economics of these money flows changes, but that doesn’t matter, as each dollar they process is still quite profitable.

As we can see in the graph above, despite the take rate falling by 66% from 2019 to 2026 (blue line), Dlocal’s EPS grew by 1,000% (purple line).

I know which metric I care about!

4. Retention

Dlocal retention is simply incredible!

Revenue retention was 152%.

This means that had Dlocal not found new customers, revenue would have grown by 52%. So only 3% of the 55% revenue growth came from new merchants. That is certainly low, but this is because of Dlocal’s land and expansion strategy. In payments, customers always try out processing providers in a few use cases before giving the processor more volume.

The revenue share of the top 10 merchants has remained at around 62%. This means that despite strong revenue growth, other non-top 10 merchants grow fast enough for the concentration not to increase.

So, despite strong growth by the top merchants, concentration is not increasing!

This quarter, they didn’t disclose TPV retention, but it must be even higher, likely at 170%. This is due to falling take-rates.

Here are a few examples from Dlocal’s presentation that demonstrate why the retention is so high.

A ride-hailing merchant (likely Uber or Didi) that was acquired in 2016, went from a single country in 2016 to 14 in 2023 and 18 in 2025. TPV is up 5x in 3 years, and Q1 2026 volumes grew 250% Y/Y.

A SaaS merchant went from a single country in 2019 to 19 in 2030 to 40 in 2025, with TPV growing by 6x in 3 years and 110% in Q1 2026.

An e-commerce merchant went from a single country in 2023 to 16 in 2024 and 21 in 2025, with TPV growing by 94x in 3 years and 70% in Q1 2026.

Overall, there is a clear trend of accelerated growth, with newer cohorts expanding faster than earlier ones.

5. Valuation

As a result of Dlocal falling 20% in the past month, it now has a market cap of $3.3B.

I see a clear disconnect between the strong execution and the stock price!

The company now trades for a TTM P/E of 17, which is just an unbelievable entry point for such a strong growth company.

Analysts expect Dlocal to grow revenues by 40% and 27% in 2026 and 2027, leading to revenues being 89% higher in 2028 than in the last 12 months.

But most importantly, they expect Dlocal to meaningfully improve profitability, with EBIT growing 96% by 2028, and EPS 82%.

Furthermore, the company has a shareholder return plan, with about $300M to be spent on share repurchases, reducing share count by potentially 10%. Additionally, the company pays a dividend, which could end up being about 1.8% dividend yield.

Taking analyst growth expectations into account, the 2028 P/E is just 9.

Simply put, even if the multiple remains the same as it is today, Dlocal stock should increase by 82% in the next 2 and a half years!

However, I find analyst estimates to be on the low side, and there is a potential for the multiple to increase.

Let’s model that.

6. Valuation Model

Since I made the previous Dlocal valuation model back in November, I have increased my confidence in the business, thus, I will upgrade my assumptions.

First, with the pace of innovation continuing and Dlocal signing new partnerships continuously, I have increased my 2030 TPV estimate from $131B to $178B!

Due to the take rate performance of this quarter, I have reduced my revenue take rate to 1.9%. That would be a decrease of 30% from the 2.7% revenue take rate of Q3 2025.

That would lead to revenues of $3.3B in 2030, an increase from $2.6B in the previous model!

Next, I model the operating margin increasing from around 21% the company has today to 27% in 2030.

Tax and other expenses of 21%.

The result of these assumptions is a net income $697M, an increase from $561M in the previous model.

Buyback of 15% over the next 5 years.

With an exit multiple of 17, we get a $47.48 stock, an upside of 325% from today!

Discounting that back at 18% per year, we get a fair value per share of $20.75, implying that today’s price of $11.16 is 46% below fair value.

However, if the market assigns the company a better multiple of 25-30, the upside increases to 525-651%!

Dlocal is a clear opportunity that is underappreciated by the Mr. Market, but with time, strong execution will force Mr. Market to appreciate it.

7. Conclusion

The long-term thesis for DLocal is still extremely favorable.

The company is uniquely positioned to benefit from the digitization of emerging markets, driving massive adoption of digital services.

E-commerce, streaming services, ride-hailing, food delivery, SaaS, travel, and financial services are undergoing a once-in-a-generation shift!

With its comprehensive and improving platform, DLocal is taking an increasing slice of the emerging markets digital payments pie.

Thanks to the quality of their services, DLocal has built strong relationships with some of the world’s largest and fastest-growing digital companies. Just by servicing the likes of Amazon, Meta, and Google well and upselling new products, DLocal can grow immensely.

The current short-term take-rate concerns are overblown, and Dlocal is well-positioned to have a strong, thriving, and highly profitable business.

Dlocal has built a capital-light, high-margin business that trades for a reasonable valuation.

As the valuation model shows, with reasonable assumptions, investors could see 325% upside by 2030!

With more aggressive assumptions, investors could even experience 7x returns by 2030.

Furthermore, Dlocal’s share price has suffered from the FOMO trade, with investors selling high-quality assets to buy speculative AI stocks.

I don’t believe that this is a profitable trade. Selling quality companies at such depressed levels to buy hype stocks is a recipe for disaster.

I believe that this trade will end soon, as fintechs such as Nu, DLocal, Klarna, and Sofi are trading at unsustainably low valuations.

Companies with strong balance sheets, increasing TAM, and 30-40% topline growth don’t deserve to trade for sub-20 FWD P/E. Dlocal trading for a FWD P/E of 11, despite such strong growth and quality characteristics, is objectively unbelievable.

Eventually, the market will return to wanting profits, as it did in 2022 after the 2021 EV/SaaS bubble burst.

Leave a comment

Become a Premium Member!

Here is what my Premium Members can expect:

Portfolio Review - Each month, I will present the portfolio performance and discuss my stock watchlist and my best ideas.

• Recent developments.

• Unwarranted pullbacks.

• Insider activity.

• Potential catalysts.

Deep Dives – 8,000+ word detailed analysis of a company, delivered in 3 Parts.

• Part 1 – Brief History of the company and its Business Model.

• Part 2 – Management, Moats, Competitors, and Risks.

• Part 3 – Opportunities, Financial Analysis, and a Valuation Model.

You can expect a comprehensive research report that is educational, interesting, and provides actionable insights!

To see what you can expect, read my Palantir Deep Dive!

Members of the Premium service get access to my library of 12 Deep Dives and to all future Deep Dives, which will be released on semi-monthly basis.

Investment Cases – A short, concise report with actionable insights.

This report is about the size of a single part of a Deep Dive.

• Focused Investment Thesis

• Main drivers of the Bull Case

• Valuation Model

To see what you can expect, read my Oscar Health Investment Case!

Earnings Reviews and Updates – For companies that are of great interest to me and my readers, I will provide regular quarterly or semi-annual updates after earnings reports.

• Financial performance

• Business Update

• New developments

• Updated Valuation Model

To see what you can expect, read my Google Q2 2025 Earnings Review!

Equity Research Report List

1. Micron

2. Nebius

3. Meridian Holdings

4. Weight Watchers

5. Lumentum

6. Sivers Semiconductors

7. Klarna

8. Ondas

9. Cipher Digital

10. SanDisk

11. Novo Nordisk

12. Sofi Update

13. UiPath

14. Mercado Libre Update

15. Nu Update

16. QXO

17. ASTS

18. Pagaya

19. IREN

20. Rubrik

21. Oscar Update

22. Arteche

23. Nebius Update

24. WhiteFiber

25. Harrow Health

26. Root

27. Zeta Global

28. SentinelOne

29. Golden Matrix Group

30. ASML

31. AMD

32. UnitedHealth Group

33. AppLovin

34. Adyen

35. TransMedics

36. Evolution

37. Nebius

38. Oscar Health

39. SoFi

40. Dlocal

41. Sea Limited

42. Microsoft

43. TSMC

44. Hims and Hers

45. Meta

46. Nu Bank

47. High Tide

48. Tesla

49. Grab

50. Google

51. Amazon

52. Hello Fresh

53. Mercado Libre

54. Celsius

55. Robinhood

56. Palantir

57. Ferrari

You can follow me on Social Media below:

X(Twitter): TheRayMyers

Threads: @global_equity_briefing

LinkedIn: TheRayMyers

Disclaimer: Global Equity Briefing by Ray Myers

The information provided in the “Global Equity Briefing” newsletter is for informational purposes only and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. Ray Myers, as the author, is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented in this newsletter is based on publicly available information and sources believed to be reliable. However, Ray Myers does not guarantee the accuracy, completeness, or timeliness of the information provided. The author assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned in the “Global Equity Briefing” report. Any investment decisions made based on the information in this newsletter are at the sole discretion of the reader, and they assume full responsibility for their own investment activities.

I am Ray, a passionate investor and equity analyst. And today I am covering Nu.

On Thursday, Nu Holdings reported earnings, and they were again excellent!

Yet the market continues to focus on short-term narratives instead of fundamentals and long-term execution.

Nu’s stock is now down 21% over the past month, despite accelerating revenue growth, strong profitability, and the prospects of US and global expansion.

It is clear that we are witnessing a FOMO trade in real time.

Sell quality to buy AI stocks!

As a result, Nu trades at just 14x FWD P/E.

I find this valuation to be extremely attractive for long-term-minded investors, especially considering Nu posted such strong financial results:

• Total revenues $5B +53%

• Net income $872M +56.5%

• EPS $0.18+ 63.6%, slightly missing analyst estimate of $0.19

• ARPU $15.9 +42%

• Cost per ARPU increased from $0.7 to $1 Y/Y.

• The total number of customers increased by 4.2M to 135.2M, +14%

Let’s look at the quarter in more detail to see what Wall Street liked and what they didn’t.

1. Customer Level Results

2. Brazil

3. Mexico

4. Colombia

5. Deposits and Loan Portfolio

6. Revenue

7. Profitability

8. Conclusion

1. Customer Level Results

Nu continues to gain customers at an incredible pace.

The number of customers grew by 14% Y/Y and 3.2% Q/Q to 136.2M, an increase of 4.2M over Q4 2025!

In the above graph you can see how the growth has decreased significantly in the 2 years, this is understandable. You can’t grow customers at 30% per year once you already have over 130M customers.

However, interestingly, the growth rate has plateaued in the last few quarters and appears not to be decreasing as fast as some expected. Simply put, Nu continues to acquire new customers, as the total addressable market is vast.

Moreover, 83% of these customers are monthly active customers, the same as last year. In fact, the activity rate has remained unchanged for 4 years, which is remarkable given the rapid growth.

One could expect a slight decrease in activity rate after expanding into two new countries and adding tens of millions of new customers.

Above we see Nu’s share of adult populations in its core markets as of Q4 2025. They didn’t include such a slide this quarter, but it is clear that these ratios have only increased.

• 62% of Adults in Brazil.

• 15% in Mexico.

• 11% in Colombia.

Overall, each active customer generated $15.9 monthly ARPU in Q1, an increase of 42% Y/Y, and 6% Q/Q!

This is incredible growth.

In the graph above, we can see a strong acceleration from Q1 2025, when the company posted a decrease in ARPU by 1.8%. This fall in ARPU caused quite a lot of panic in the Nu investor base, as ARPU growth is a key bull thesis for the company.

This was largely driven by Nu gaining a lot of new, and temporarily under-monetized customers in Mexico and Colombia!

This is what I said last year during the Q1 2025 review:

“As Nu develops Mexico and Colombia, ARPU is likely to increase later in the year, especially as Nu releases new products in Mexico after receiving a full banking license. “ Global Equity Briefing

This quarter, we saw the continuation of that trend as significant growth in both countries directly contributed to the recovery of the ARPU.

On an FX-neutral basis, ARPU actually grew 24% Y/Y, so the company benefited from a weaker USD.

Per the above graph, it takes Nu between 60-72 months to get a new customer to the $15.9 ARPU.

Understanding customer cohorts is incredibly important for Nu investors.

A customer who’s been with Nu for 8 years generates $30.8 in monthly revenues, which is double the average Nu customer, 6x the 1-year-old customer, and 4x the 2-year-old customer.

This is because Nu is very good at upselling customers new products.

A customer goes from using a bank account and a debit card in the first year, to a credit card, savings account, children’s account, investment account, insurance, and a personal loan in year 6.

In the last 3 years, Nu acquired 60M customers that are on average using a few products and generating ARPU of below $10, likely the average is around $6. In the next 5 years, this cohort will get millions of credit cards, put billions in the investment accounts, and borrow billions.

So, doing some back-of-the-napkin math, we get 60M people going from $6 ARPU to $30.8 in 5 years, that’s $17.9B in additional revenue.

That’s about what Nu made in the last 4 quarters. So just by upselling this cohort of users’ existing products, Nu can double its revenues in the next 5 years. We are not even talking about increasing revenues of year 5-8 cohorts, about releasing new products, entering new countries, or acquiring users in existing countries.

This company has incredible opportunities for growth!

Meanwhile, the cost to serve an active customer increased by 42.8% Y/Y, 19% on FXN basis. I will expand in the profitability section on the causes, but in short, Nu is investing and preparing for the next leg of growth.

Despite this increase, if we compare the cost to serve an active customer to ARPU, we see that after about 2 months, a customer is already at break-even in servicing costs!

If we assume a linear growth in ARPU from month 1 to 12, in the first year, an active customer will generate Nu $35.40 in revenue, but it would cost only $12 to service.

This leaves a lot of room for Nu to utilize marketing as organic customer growth slows down when they begin reaching maturity in certain markets.

There is significant potential to increase ARPU.

“I think a couple of our opportunities really on the revenue side, and as a reminder, our ARPAC is $15 today and our incumbent competitors are something like 40, so we have a significant opportunity to increase ARPAC, is around new cross-sale and new products that we can be delivering to the very significant consumer base that we have. I think everything around cross-sale, everything about using the data that we already have to offer new products and services, it’s a big opportunity, and AI is an enabler.” David Velez Nu Q4 2025 Earnings Call

Subscribe now

2. Brazil

Brazil, as Nu’s home and Latin America’s largest country by population and GDP, remains the most important market today.

As of Q1 2026, Nu has around 115.5M customers in Brazil, an increase of 10.4% Y/Y.

This quarter, Nu added 2.8M customers, an increase of 200K from the 2.6M it added in Q4 2025.

It is quite remarkable that they can add so many customers in a quarter, despite already having 62% of the adult population as customers.

At such a scale, it is becoming harder and harder to acquire new customers, as realistically, it would be crazy if the share of the adult population surpassed 70%. For a single bank to have 70% of the country as customers would be insane.

Thus, it is quite clear that the focus in the future will shift from user growth to user monetization.

Total revenue in Brazil grew 53.3% Y/Y, to $3.6B!

Please note that total revenue doesn’t match the sum of the geographic revenue, as some of the corporate HQ revenue is not allocated to a specific geography.

Unfortunately, as in the last quarter, Nu did not disclose detailed loan origination statistics for Brazil. My guess is that since expansion in Mexico and Colombia is going steadily, the company wants to emphasize its business as a portfolio of loans, rather than just Brazil.

However, they did disclose Brazil’s lending unit economics!

Brazil’s credit card portfolio achieved a return on assets of 8.9%. For context, global bank credit card portfolios generally have an ROA of 3-5% and Brazil’s 8-14%, making Nu’s 8.9% a really strong result.

Because the average duration is so low, just 3 months, Nu can turn over capital 4 times in a year. This enables Nu to generate 28.3% in net interest revenue, and 8.5% in fee and transaction revenue, for a total credit card margin of 36.8%. Accounting for funding costs and losses, we get to a net credit card margin of 19.9%.

Meanwhile, the unsecured lending portfolio generated a return on assets of 15.8%.

Nu was able to generate a 62.2% interest revenues, and after taking into account 12.2% in funding costs and 22% in losses, it had a net lending margin of 28%.

For anyone familiar with US or European interest rates, such returns seem absurd, but that is normal in Brazil, as the country deals with chronically high interest rates.

The Banco Central do Brasil’s interest rate is now at 14.5% compared to 2.15% in the EU and 3.75% in the US.

As you can see in the chart above, Brazil’s central bank rate has been above 8% for more than 4 years now.

When your asset yields are so high that you can absorb 16.6% credit card losses and 22.0% lending losses and still walk away with an 8.9% and 15.8% ROA, you are operating a highly resilient lending machine. Competitors globally simply do not have the spread environment, nor do domestic incumbents have the low cost-to-serve, to match these specific cohort returns.

This is also a key bear case for Nu: “What if interest rates go down, reducing lending spreads?”

Look at the chart above, from 2019 to 2022, interest rates were low, and Nu thrived, and they will thrive if that happens again.

Here is what will happen if interest rates go down:

1. Loan volumes will increase as cheaper loans increase demand. More loans mean more interest income, compensating somewhat for the lower spreads.

2. Lower defaults will reduce losses as cheaper loans lead to fewer customers unable to repay them.

3. Nu will increase fees, driving fee income. Nu fee income has been growing more slowly than net interest income for years. I will expand on this in the revenue section of this report.

4. More transaction income, as low interest rates lead to more transactions.

So lower interest rates would certainly be a headwind for net interest income, but Nu would find other means of filling in the gap, reducing the net loss from lower spreads.

Moving on to deposits, Brazil showed weak growth, attracting $500M in new deposits to reach a balance of $33.7B!

This was an increase of 38% Y/Y, but just 1.5% Q/Q, with net deposits decreasing by 62% compared to Q1 2025.

The management explained that slower deposit growth is due to seasonality, as Q1 is historically weaker. Another explanation was that Nu has a large enough deposit base to fund its loans. So they don’t believe there is a need to be more aggressive with their deposit interest rates to attract more deposits.

They can always increase deposit yields and run promotions if they see that additional capital is required to fund lending.

This quarter, the company revealed that they only have a 7% gross profit market share in Brazil, despite having over 62% of the adult population as customers.

A large share of this industry profit pool is generated by high-income customers, so Nu is working to attract these customers.

“Out of the high income, we now have about two out of every five high-income Brazilians are customers of Nubank. The customer base has grown by about 24% year-over-year ….. With Nu monthly credit card, kind of, volumes up 42% year-over-year. Assets are under custody by like 36%. We are seeing lots of traction there.” Guilherme Lago, Nu CFO

The Nu CFO said that the company is focused on attracting and serving what they describe as “Super Core” segment, which consists of people earning BRL 5-12K per month, about $1-2K. The number of customers in this category is up 24% Y/Y, compared to 10% overall growth in Brazil.

Share

3. Mexico

As of Q1 2026, Nu Mexico has 15M customers, around 15% of the adult population.

This is an increase of 36.5% Y/Y and 127% in just 2 years!

While I doubt that Nu can reach as high a penetration as Brazil’s 60%, I am confident there is still a lot of growth left in Mexico.

A reminder that Nu received a full Mexican banking license just last year. Previously, they operated under a non-bank financial institution license (SOFIPO), which is a special Mexican regulatory framework that allows FinTechs to provide some banking services, but with a lot of limitations.

A full banking license enables Nu to offer more services to its clients. This helps it to attract more customers and increase wallet share with existing customers.

Deposit balance fell to $5.9B, down 6.3% Q/Q, but still up 9% Y/Y.

Similar to Brazil, the leading explanations for slow deposit growth are seasonality and a focus on lower-cost capital funding means.

Next, revenue in Mexico grew by 96.5% to $289M.

The same as with Brazil revenue, this is an accounting and classification issue. In Q4 2024, a lot of revenues were classified as originating in Mexico and fewer from the HQ. Ignoring that spike, we see a clear trend line of revenue going up at a steady pace.

This quarter, Nu disclosed some new and interesting KPI’s for the Mexican business.

Nu revealed that Mexico is now at net income break-even, compared to a $37M loss in Q1 2025!

This is why Nu didn’t want to overpay for deposits, as then they would not have been profitable. Now that they are, deposits will likely grow in the second half of the year.

Most importantly, we see that the efficiency ratio fell to 42% from 120% in 2022.

Simply put, in 2022, it cost Nu $1.2 to generate $1 of revenue in Mexico, but today it costs $0.42.

ARPU is up to $12.4, double the $6.5 the company was making in 2022.

Compared to Brazil, Nu’s runaway in Mexico is even longer.

The company only has a 1% market share, despite having about 15% of the adult population as customers.

4. Colombia

In Q1 2026, Nu Colombia added 500K customers, reaching 4.7M.

This compares favorably to 400K added in Q4 2025.

This is an increase of 62.1% Y/Y and 422% in just 2 years!

Nu Colombia has already onboarded 11% of the adult population, quite impressive considering they only began operations 5 years ago.

This quarter, Nu Colombia reached $2.8B in deposits, an increase of 56% Y/Y and 12% Q/Q!

As we can see in the graph, this is a 10x growth in the deposit base in just a year and a half!

Nu didn’t disclose anything else about Colombia, as the business is still small.

I will be paying close attention to see how Colombia develops. So far, user and deposit growth have been stronger than in Mexico and Brazil at this age in the market.

5. Deposits and Loan Portfolio

Total Nu deposit balance grew 34% Y/Y to $42.4B.

On an FX-neutral basis, deposits grew 22% Y/Y.

Net deposits were $500M, which was an 81% Y/Y decrease and 84% Q/Q decrease.