On October 20, 2017, founder and CEO Forrest Li stood on the NYSE podium, waiting to ring the bell for Sea’s IPO.

Last week, exactly 9 years later, he sent his employees a memo that raised eyebrows in investing circles. The memo announced two key changes: Sea will sell its in-house cloud to other companies, and Monee, its fintech arm, could one day go public on its own. The stock dropped 9.1% that day to $80.43, and it has since fallen to $74.73 right now.

Since that jump on August 11, after the earnings, the stock has dropped 35.5%.

As you can see, the drop had already started before the announcement of this week. So, what has happened? Let’s first analyze the Q2 results, then the memo (on which I will share my opinion), and then look at the Quality Score and valuation to decide whether Sea (SE) is a BUY now.

Sea Limited Group Results

Let’s start with the group results, then focus on the company’s different arms.

Revenue came in at $7.79B, up 48.1% YoY and almost 10% above expectations. That’s exceptionally strong. Growth even accelerated after that strong 47% revenue growth in Q1.

Gross profit grew 47.3% to $3.55B, for a gross margin of 45.6%. That’s also great. Higher revenue resulted in similar growth in gross profit.

Operating income rose 33.3% to $650M.

Net income rose 10.6% to $458M, or $0.70 per diluted share, while analysts expected $0.83 to $0.86. That looks bad, but most of it comes from taxes. Income tax expense jumped 74% to $251M, with an effective tax rate of 35%, up from 25% a year ago. At last year’s rate, EPS would have been about $0.11 higher, so around $0.81.

The rest of the miss comes from Monee’s higher loss provisions and lower interest income. If you remember from NU or MELI, if a bank or fintech lends out money, it has to provide provisions for losses. If the loan book grows more than analysts expected, it means that the loss provisions are higher, and that eats into profitability. That’s accounting, and it’s also weird to see a company being punished for growing faster than expected.

All in all, strong results. This is an overview from the earnings slide deck.

Slide deck via Fiscal AI. Wanna try it? With this link, you get a 15% discount.

Stock-based compensation fell 18.5% to $132M, while Sea bought back 4.7M shares for $416.8M, more than 2.5 times as many as in Q1, at an average price of about $89. Buying more when the stock is cheaper is exactly what you want. Of course, the stock has dropped more, but you can’t easily foresee that. I don’t think Forrest Li let the stock drop on purpose to buy more shares, haha.

Guidance: Sea kept its target of around 25% GMV growth for 2026 (GMV = gross merchandise volume, the value of all goods sold on Shopee), though currency fluctuations could have some negative impact. Forrest Li is now “optimistic that Shopee will achieve the milestone of US$1 billion in adjusted EBITDA for the full year.“ Great.

Let’s go to the different branches.

The market has made up its mind about the memo. I took my time to think it through and came to my own conclusion.

Below: what a Monee IPO would mean for us as shareholders, my take on Sea Cloud, the accounting change that will confuse many investors next quarter, what Shopee’s Brazil numbers mean for Mercado Libre shareholders, the updated Quality Score, the full valuation and what I did with my own position this week.

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Global-e (GLBE) reported its Q2 2026 results on August 12. I expect Q3 earnings in a month or so. Before the earnings flood opens, I think this is a good time to review how Q2 went and what to watch for in Q3. I can already tell you you may be confused by Q3 if you don’t read this article for context.

In my Q1 article, I said that Global-e kept delivering but the stock didn’t respond to the good earnings. Well, that changed.

Just before the Q1 report in May, the stock traded around $27; when I wrote the Q1 analysis, it traded at $30.64, and I gave it a 9.5/10 Valuation Score and a STRONG BUY rating. Since then, the stock is up 35% from that day.

Is the stock still attractive now? Let’s find out.

If you’re new here, Global-e helps brands sell online in other countries as if they are a local shop.

Q2 earnings slide deck, via Fiscal

The shopper in the other country sees prices in their own language and currency, uses their usual payment method, and gets the package shipped to their door. For brands, Global-e takes care of the duties, taxes, translations, shipping and returns. In other words, it takes the annoying stuff off brands’ plates and does it for them. As a result, brands sell more and become more profitable. That’s always a strong selling argument.

It works with big international brands. This quarter, it added Ferrari as a customer. You'll know many more of its customers.

Let’s dive into the numbers.

The Numbers

• Revenue: $299M, up 39% YoY, $16M or 5.6% above the consensus. Very strong!

• Non-GAAP EPS: $0.37, up from $0.22.

• GAAP EPS: $0.27, up from $0.06 and $0.05 or 22.7% above expectations. So it wasn’t just revenue that was strong; earnings were, too.

• GMV (Gross Merchandise Value, the total value of everything sold through the platform): $2.09B, up 44%. Again, very strong.

• Gross profit: $135.4M, up 36%

• 45.3% gross margin versus 46.5% a year ago.

• Adjusted EBITDA: $62.4M, up 62%, a 20.9% margin, vs. 17.9% last year.

• GAAP net profit: $47.7M, up from $10.5M a year ago, up 354%.

• Free cash flow: $73.2M, a FCF margin of 24.5%.

If you add up the revenue growth (39%) to the FCF margin (24.5%) and you get 63.5. As a reminder, the Rule of 40 says a company like this is in great shape when that sum is above 40. Management likes to have a Rule of 50, and Q2 blew that goal out of the water.

Global-e’s FCF margins are very volatile from quarter to quarter because of seasonality, so let’s take the last-twelve-months numbers for that Rule of 40 calculation as well. Then we see 31.4% revenue growth and 26.2% FCF margin, which adds up to 57.6, still an elite score.

In May, I rated Global-e a STRONG BUY at $30.64. The stock is up 35% since. The question is now: after this jump, is it still interesting to buy? The answer may surprise you.

Below: why Q3 may confuse investors (and why you shouldn’t be one of them), the metric I stop watching from now on and what I watch instead, the Shopify story that could become a major growth driver, the Selling Rule I just removed (and the ones I kept, of course, the updated Quality Score, the valuation and my verdict after the 35% run. Don’t want to miss opportunities like this anymore?

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Adyen has been a disappointing stock, whether you look over the last year, the last three (up, but still underperforming the market), or the last five (down 65%).

There are basically three reactions you can have in such a situation and the most common should absolutely be avoided. Let’s start with that one.

Many investors look only at the stock price and conclude their investment thesis was wrong. But the stock price alone is a poor measure for that conclusion.

Many things can happen in the stock market. Very often, over stretches of time, sentiment is much more important than the fundamentals. That’s often reflected in valuations that contract simply because the market mood shifts. And that happened to Adyen.

Its valuation has dropped 80% in the last three years. Wow.

So, what are the two other possible behaviors?

Well, simple. The first is to do nothing. While often, that’s a good thing, people are very bad at doing nothing when a stock moves against them. You have the feeling you are just lazy or stupid. But also, your money is tied to that stock and maybe you can invest it in something better.

So, the best approach is to do deep research to evaluate if the market had good reasons to sell off the stock or not. That’s exactly what I will do in this article. That information can help you to make an informed decision on what to do: buy more, sell or just hold.

In February, Adyen (ADYEY) dropped 20% because its 2026 guidance came in not even 0.2% below consensus. That’s how ‘efficient’ the market is, y’all. On August 13, the day it reported its H1 2026 results, the stock closed 16.4% higher at about €1,059. But after that initial reaction, the stock sold off again without any real catalyst. It was down 7.3% from the pre-earnings price on September 24. Right now, it’s up a paltry 3.6%.

I was very happy to see co-founder and co-CEO Pieter van der Does back on the conference call for the Q&A.

And what he said made sense, a lot of sense:

But now consistent growth as we have delivered like the last 3 half year reports, always 21%, that’s the sort of boring numbers which we should bring forward.

In this case, boring is beautiful. Let’s look at those boring numbers.

The Numbers

• Net revenue: €1,302.9M, +19% YoY, +21% in constant currency

• Processed volume: €803.8B, +24%

• EBITDA: €641.5M, +18%, a 49% margin (50% excluding €6M in one-time acquisition costs)

• Net income: €544.1M, +13%, EPS €17.18

• Free cash flow: €553.4M, +17%, 86% conversion (87% a year ago)

• CapEx: €64.1M, 5% of revenue

• Take rate: 16.2 bps (16.8 bps in H1 2025)

Q2 was better than Q1. Q1 grew 20% in constant currency, so Q2 must have been around 22%. You could see that in the volume as well. In Q2, new volume was up €88 billion YoY, up from €67 billion in Q1. In-person volume (Adyen’s term for POS, or point-of-sale) grew even faster: 28% to €175.7 billion, now 22% of total volume. Adyen has 838,000 transacting terminals, 27% more than a year ago.

The slight EBITDA miss (0.87%) was a nothingburger. Bad debts and provisions went from €2.6M to €16.1M. Adyen says two isolated events caused this: an impairment on a single counterparty and a clean-up of old merchant accounts that were never closed. Without that extra €13.5M, EBITDA would have beaten expectations.

The 50% EBITDA margin is the same as in H1 2025. H2 is usually stronger. Last year, the EBITDA margin went from 50% in H1 to 55% in H2. These remain very high margins.

Net income grew slower than EBITDA because Adyen earned less interest on its cash at central banks (€95.5M instead of €100.3M) and because depreciation rose 27% with the new data centers (more on those later). Employee costs grew 15%, slower than revenue, even with 249 new hires.

The take rate fell from 0.168% to 0.162%, which shouldn’t surprise anyone who follows Adyen. Each and every time, though, people talk about ‘competition’ as the reason for this. Founder and CEO Pieter Van der Does about competition:

But if you look at our data, you don’t see it back in our data. Our existing merchants give us more and more volume and therefore, come to lower tiers, and that’s the only explanation behind the take rate development.

That’s tiered pricing: the more a merchant processes through Adyen, the lower the price per transaction. I’ve been saying this for years. This is just inherent to this industry. For every other player in this industry, it’s the same game. Even for Visa or Mastercard. Do they suffer from competition as well?

Sometimes, I hear that Adyen is too dependent on the big customers, and that’s why the take rate drops. Nope. Adyen actually depends less on a few big customers. Three years ago, 300 merchants brought in more than 70% of the growth. Now, this has dropped to about 60%.

Let’s look at some more numbers.

• Digital: €719.7M, +15% in constant currency, volume €427.9B (+17%)

• Unified Commerce: €417.7M, +27% in constant currency, volume €240.9B (+27%)

• Platforms: €165.5M, +40% in constant currency, volume €135.0B (+42%)

It’s good to see that Digital is growing faster again. In H2 2025, Digital grew just 10% in constant currency, now 15%. The biggest content and subscription customers shifted more of their payments to Adyen.

Unified Commerce and Platforms grew a bit slower: 27% and 40%, compared to 33% and 49% in H2 2025. Those are still very strong numbers, and together these two pillars now make up almost 45% of revenue.

Adyen now has 486 big customers that use Unified Commerce, so in their stores and online. ‘Big’ means at least €10M on both sides: POS and e-commerce, and more than €50M in total. That’s 19 more than six months ago.

In Platforms, 37 customers process more than €1 billion a year, up from 32 a year ago, and total active business customers grew 51% to 293,000. The growth came from what Adyen calls vertical SaaS. We know this better as VMS, the companies that Constellation Software, Topicus and Chapters Group buy. VMS in financial services and food & beverage were especially strong.

Let’s look at the regional numbers:

• North America: €358.1M, +30% in constant currency

• EMEA: €722.5M, +15%

• APAC: €136.9M, +26% in constant currency

• LatAm: €85.3M, +35% in constant currency (43% reported)

The best news was that North America is accelerating. From 20% in H1 2025 to 30% now. As you may know from my Selling Rules, that’s the region I watch most. It’s the biggest payments market in the world and the home market of Stripe, PayPal and Fiserv, just to name a few.

EMEA is the biggest market for Adyen, with 55% of revenue. It showed slower growth, down from 21% to 15%. Interim CFO Hwa Tsao explained that Adyen manages global merchants per customer, not per region. European merchants sell all over the world and US merchants sell into Europe, so the regional split doesn’t tell the full story. And the US investments of the last years are paying off now. That makes sense.

For almost twenty years, Adyen never bought a single company. This year, it bought two in less than two months. Something changed.

When I updated the Quality Score and valuation, I saw a something I had never seen before.

Below:

• What changed at Adyen

• The take rates

• The AI giant that just became a customer

• The number that shows how long the growth can go on

• My take on Adyen’s famous cash pile

• The full Quality Score, the valuation and my verdict.

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Hims & Hers (HIMS) reports its Q3 results on November 9. Before that, I want to go over Q2 and everything that happened since August 10, when they reported their Q2 numbers. The reason is not just that you will be well-prepared for the Q3 numbers, but also because a lot happened: an FTC lawsuit, the CEO on CNBC, penalties from Visa, the launch of both the Hims and the Hers brand in Australia and the potential legalization of peptides.

The stock is still extremely volatile. It dropped after the earnings but then, on August 19, it jumped 13.5% after founder and CEO Andrew Dudum gave an interview on CNBC. Then it dropped again but shot up on October 15, on the news that peptides may be legalized. Meanwhile, it remains one of the most shorted stocks. Consistently, more than a quarter of the float is sold short. That’s one reason for the high volatility. Today, the stock closed at $29.21, 22.5% higher than when I published my previous earnings analysis ($23.85) and I gave it a 9/10 Valuation Score. So, what is it now? Is the stock attractive right now? We will find out at the end of this article.

Let’s find out what happened.

The Numbers

Revenue: $753M, up 38% YoY, beating the conservative guidance of $680-700M and beating the consensus of $730M by $23M or 3.15%. Very strong.

US revenue: $622M, up 16% YoY.

International: $131M, up 17x or 1,700% YoY.

Subscribers: 2.89M, up 19% YoY, more than 300K added in Q2.

Monthly ARPU: $92, up from $76 a year ago. (ARPU = average revenue per user)

Gross margin: 64%, down from 76%. More about this later, obviously.

Adjusted EBITDA: $60M, an 8% margin, down from $82M and 15% in Q2 2025, but up from $44M and 7% in Q1.

GAAP net income: -$86M, versus +$42.5M last year. EPS of -$0.37 versus -$0.05 expected. In other words, a miss and that’s what the market probably reacted to.

Free cash flow: -$68M

Guidance Q3: revenue $880-900M (+47% to 50% YoY), adjusted EBITDA $75-95M.

Guidance

FY2026: revenue raised to $3.1-3.3B (from $2.8-3.0B), adjusted EBITDA lowered at the top to $275-325M (from $275-350M).

2030 target: reaffirmed $6.5B+ revenue and $1.3B+ adjusted EBITDA.

I’m happy to see these numbers. Don’t forget, in Q1 revenue growth was just 4%. 38% is a totally different world. Subscriber growth also doubled.

From the Q2 slide deck, through Fiscal

The market focused on other things: the gross margin dropped, the top of the EBITDA guidance came down and free cash flow turned negative. That’s why the stock fell after earnings. But as always, context matters.

In my Q1 article, I told you the acceleration would come and it came, even more than management expected. The stock is up 22.5% since that analysis. That’s what you get as a Multi: the analysis before the market figures it out.

Below this line: more than 4,750 words of analysis you won’t find anywhere else.

With a full analysis, a clear catalyst for 2027, the Selling Rules, the updated Quality Score and the valuation, including a reverse DCF (next to the correct ratios to look at). And my clear answer: buy, hold or sell before the Q3 earnings on November 9.

That’s 19 days from now. Free readers will know what I think after the stock moves. Paying Multis know now.

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Datadog (DDOG) reported its Q2 2026 results on August 6. The stock dropped 26% in the three weeks that followed but the stock climbed back up and last week, the price was even up 3.6% from the pre-earnings level. The sell-off of the last week turned that around again and now the stock is down 12.8%.

This is another example of how fickle the market is and how volatile Potential Multibaggers can be.

So, is the stock attractive already? We will find out in this article. Let’s first take a deeper look at the earnings.

The Numbers

Datadog’s Q2 revenue came in at $1.121B, up 36% YoY. The company had guided for $1.07B to $1.08B, and analysts expected about $1.078B. So, that’s a $43M beat. Strong.

Revenue grew $115M QoQ, a record “by a significant margin,” according to CFO David Obstler. If we look at the revenue, we see that Datadog has accelerated its revenue growth considerably since Q1 2025.

That’s exceptional for a company this mature already. The main driver isn’t new customers, but existing customers spending more. You can see that in these charts from the earnings call slides.

Non-GAAP EPS came in at $0.65, $0.07 above the consensus. The non-GAAP operating margin rose to 23%, from 20% a year ago. Free cash flow was $279M, a solid 25% margin. Very strong again.

This gives a good overview. This is not from the quarter but on a trailing-twelve-month basis.

So, very strong numbers.

For a while, the big fear was that AI would make most cloud software obsolete. But Datadog’s non-AI customers, the banks, retailers, insurers and software companies are doing very well. Founder and CEO Olivier Pomel on the Q2 call:

Revenue growth for our non-AI customers also accelerated again this quarter to the high 20s percent YoY, up from the mid-20s last quarter and 18% in the year ago quarter.

From 18% to the high 20s in one year in the segment AI was supposed to annihilate.

But only looking at existing customers and ignoring new customers would be a mistake as well. New customers accounted for about 30% of revenue growth, up from 25% in Q1, and the bookings of new customers in enterprise more than doubled.

And the runway is long. Founder and CEO Olivier Pomel said at the Citi Global TMT Conference in September that Datadog has about 13% to 14% of the observability market, a market growing at 15% to 30% a year. And then Olivier Pomel said something we love to hear as Multis:

And so you do not have to have a lot of imagination to understand how we can grow 5 or 10x from that.

So, non-AI customers doing well, new customers strong, how about AI customers? Datadog now has over 750 AI customers and 31 spend more than $1M a year, up from 22 last quarter. 8 spend more than $10M, 3 more than last quarter. All of the top 10 AI leaders are Datadog customers. From Datadog’s Investor Day slides:

So, you can say without hesitation that Datadog is firing on all cylinders and the company is accelerating more and more.

So the business is accelerating on all fronts. And still, the stock dropped quite a bit initially, then slowly regained the lost territory and is now down again. The reason for the drop was one small detail from the earnings call.

By the way, last quarter I wrote that 2026 growth would end above 30%, when the guidance still said 25% to 27%. Guidance is now 30%.

Below: All the crucial data about Datadog you need to know, its new AI launches, an update of the Quality Score and the valuation.

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Ah, Cloudflare (NET). I’m always happy to write an article about it. Matthew Prince is one of my favorite CEOs and of course, the fact that it’s a Potential Multibaggers stock since it traded at $39 in 2020, also helps. It’s at $360 now, so it’s getting pretty close to being a tenbagger.

The company reported its Q2 2026 results on August 6. I was still on holiday then and when I got home, I prioritized more urgent earnings first. But in a month or so, the company will release its Q3 results and the price has surged 23% since the earnings. Year to date, the stock is up 84%.

(Seriously, why don’t you have a Fiscal subscription yet? With this link, you get a 15% discount.)

That’s why I wanted to write this article now. Of course, near the end of this article, as always, we will look at the valuation, but first the fundamentals.

On September 9, CFO Thomas Seifert spoke at the Goldman Sachs technology conference and I listened to that interview as well. And, in the week that it’s my birthday, the last week of September, Cloudflare always holds its Birthday Week. We will mention a few things from that event as well. So, there’s a lot to cover. Let’s go.

The Numbers

• Revenue: $696.1M, +36% YoY, another revenue growth acceleration, after 34% growth in Q1. It beat the consensus by $29.75M.

• Non-GAAP EPS: $0.29, $0.02 above the consensus.

• Free cash flow: $56.4M, 8% of revenue, up from $33.3M a year ago.

• RPO: $2.732B, +38% YoY. RPO is the remaining performance obligation, revenue that’s under contract but not booked yet.

• DBNRR: 120%, up from 118% in Q1. Dollar-based net retention shows what customers from a year ago spend now, including churn.

• Large customers (over $100K a year): 4,698, +27% YoY, up from 25% growth in Q1. These big customers bring in 73% of revenue.

• Paying customers: more than 80,000 added in the quarter, +74% YoY.

• U.S. revenue: +41% YoY, 51% of the total.

Cloudflare added 986 large customers over the past year, the most in its history, and every tier from $100K to more than $5M set a record. The acceleration is also clear in new customer bookings, which grew at the fastest rate in more than five years.

Guidance also did better than expectations. For Q3, Cloudflare expects revenue of $736M to $737M, or 31% growth. For the full year, revenue guidance rose from $2.805B-$2.813B to $2.864B-$2.870B (32% growth), and EPS guidance rose from $1.19-$1.20 to $1.25-$1.26. A lot of numbers, I know, but they are all good and rising.

In my Q1 article, I wrote that I was pretty confident that Q2 would come in higher than the guidance of $664M to $665M. It came in about $31M higher. The full-year raise is about $58M at the midpoint, so management also lifted its expectations for the second half by roughly $26M. And I’m confident that they will beat that guidance again.

More Than Half Of The Traffic Is No Longer Human

In Q2, for the first time, more than half of the traffic on Cloudflare’s network didn’t come from humans.

Source: Q2 2026 earnings slides found on Fiscal.

In the call, Matthew Prince said (my bold):

I think it’s a pretty wild time.

I was asked at the end of 2025, in November of 2025, when I thought that non-human traffic would pass human traffic. We pulled all the data, we ran all the numbers, and we were pretty confident that it was going to be the second half of 2027.

I was asked the same question again in March of 2026, and we did the same exercise, and we were surprised to see that it had moved up, that it would cross in the first half of 2027.

I was quite surprised when, in May of this year, our team came to me and said, “You won’t believe it, but non-human traffic has now passed human traffic online.”

To give you a sense of how this trend is playing out, and with the big caveat that I have called it wrong at every point along the way, if the current trends continue, we think in five years, non-human traffic will be as much as 1,000 times as much as human traffic.

It’s not just AI agents, to be sure. There are also hackers and scrapers. Cloudflare blocks those without charging its customers extra, living up to its mission statement:

to help build a better Internet

So more traffic doesn’t automatically mean more revenue. Cloudflare earns on the traffic its customers want, not on what they don’t want.

Most software is sold per seat, which means you pay for every employee who uses it. That’s a problem when companies need fewer people to do the same work because AI agents can do it. Cloudflare was never a seat business, but it wasn’t a consumption business either: most customers pay a fixed subscription for a usage tier. What’s changing is that a growing part of revenue is billed on what customers use: requests, compute and storage. Agents produce far more of those than people do, so that’s why Cloudflare’s revenue is accelerating.

In the Q1 article, I wrote about the T-shirt sizes: customers commit to a usage level and move up a size when they outgrow it. That means that revenue follows usage with a delay. Many large customers also have a pool of funds, a set amount they can spend on any Cloudflare product. In Q2, they used up those commitments faster than Cloudflare had forecast. CFO Seifert:

If it is a pool of funds contract, people burn through their commitments way faster. We renew mid-quarter.

And during Birthday Week, Cloudflare announced that three usage-based products start billing in Q4: Artifacts (code repositories built for agents), AI Search and the observability tools.

So what about the Q3 guidance of 31% growth, after 36% in Q2? That looks like a slowdown. But don’t forget that management guided 30% revenue growth for Q2 and came in at 36%.

Cloudflare ended the quarter with more than 7.4 million developers, up from 5.5 million three months earlier. Pretty impressive.

Matthew Prince was surprised as well:

I made the team triple-check the developer numbers because we added more developers in a quarter than we did in all of last year, and we thought last year was pretty good.

Many of these new developers never wrote code before. Prince gave an example from his own office:

My EA is using some of the vibe coding platforms in order to build tools in order to run things around her house, and she’s writing code and deploying it to Cloudflare, and that’s really remarkable.

Platforms like Lovable, Replit and Base44 let anyone build an app by describing it. A lot of that code runs on Cloudflare.

For years, management said that Workers, the developer platform, was about adoption and that revenue would come later. Prince now says this “has tipped“ and that Workers has become a meaningful contributor to revenue.

I also like how durable this revenue is. A customer who builds their product on Workers keeps paying for as long as that product is active. CFO Thomas Seifert said it’s still the fastest-growing part of the company, followed by the Zero Trust security products.

In June, Cloudflare bought VoidZero, the company behind Vite, one of the most-used tools for building web applications. We already mentioned that in the Overview Of The Week at the time.

Vite stays free and open source. Developers and their coding agents already build their apps with it, and Cloudflare wants to make its own platform the easiest place to run those apps.

Something else happened after the quarter closed. Five days after the earnings, Cloudflare issued $2.175B of convertible notes due 2031 at 0% interest. These notes only convert into shares above about $497, a 60% premium to the share price in August. Older notes of about $1.29B were due on August 15, so much of this is refinancing. But if you can borrow more than $2B for five years without paying interest, you would be stupid not to do it in this environment of rising rates. The company will invest in capex in H2 of this year.

If you remember, in Q1, Cloudflare let some people go. The restructuring cost more than planned. Cloudflare booked $151M in Q2 and now expects up to $165M for the year, up from $140M to $150M. CFO Seifert said the company chose speed, especially outside the US, so Cloudflare can stay focused on execution.

The $56.4M of free cash flow in Q2 came after $99M in severance payments. Without those, it would have been about $155M, or 22% of revenue.

Below:
> why more than half of the internet is no longer human (and why that makes Cloudflare more money, not less),
> the new Cloudflare plan that only works if the company builds something 1,000 times bigger than Visa,
> the $2 billion it just borrowed at 0% interest

So the numbers are outstanding again. But what to do with the stock?

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On Monday, September 14, Topicus (TOI:CA) (TOITF) sent out a short press release. Robin van Poelje retires as CEO on October 1, “for personal reasons.” After Mark Leonard, he’s the second fantastic CEO in the Constellation Software universe to step down. In my Quality Score, he got a 10/10 for management quality. So, I was pretty shocked that this happened and I needed some time to think about it.

I also still owed you an article about the Topicus Q2 2026 results. So, we’ll start with the numbers, then the situation with Robin van Poelje stepping down. As usual, we will also update The Selling Rules, the Quality Score and the valuation.

The Numbers

Revenue came in at €437.3M, up 17.5% from €372.0M. For the first half of the year, it was €872.9M, up 20%.

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That 17.5% is the slowest growth since Q1 2025. But actually, it’s pretty strong because of the tough comps. Last year in Q2, Topicus spent €210M on acquisitions, with Cipal Schaubroeck as the big one.

On top of that, the largest investment since then, a bit more than €400M for the stake in Asseco Poland, doesn’t add a single euro of revenue. Topicus owns 23% of Asseco, not a majority, so what it earns there is not in revenue. In that context, I think this 17.5% is still pretty strong.

Organic growth (growth without acquisitions) was 4%. It has been 4% or 5% in 8 of the 9 quarters.

Maintenance and other recurring revenue grew 6% organically. Here the consistency is even bigger, with 6% or 7% in all of the last 9 quarters.

If you look at Constellation without Topicus and Lumine, it had 0% organic growth in Q2, and Lumine 1%. Topicus did 4%. If you see this as a family, the European child is growing fastest. Great to see.

Operating profit before amortization was €103.4M, up 17% YoY. Net income rose 14% to €47.3M, €0.36 per share. In H1, net income was down 8%, but I already explained that in the Q1 article. H1 2025 had a one-off paper gain of €32.8M on the first Asseco shares. If you take that out, pre-tax income was up 26%.

Just a reminder: Q1 is always a strong quarter for Topicus. Usually, maintenance invoices are sent in that quarter and that means a lot of money comes in that quarter. Q2 is usually the weakest quarter. That’s why you will see negative operating cash flow of €12.7M this quarter. It is better than last year’s Q2, which was minus €14.9M. In H1, this was €267.8M, up 4%. That money is great, because it can be redeployed into new businesses.

But the number that really matters for Topicus is free cash flow available to shareholders, or FCFA2S. Like Constellation Software, Topicus reports this every quarter. It’s the cash left for shareholders after interest, leases, equipment, and the minority partners’ share. In other words, despite the many adjustments, it’s actually the clearest number. It was €14.6M in the quarter, much better than the negative €16.7M in Q2 2025. In H1, it came in at €180.1M, up 24% YoY.

I have always said you shouldn’t look at a single quarter for Topicus (and Constellation Software), so here is what it looks like over the last twelve months.

That looks great but it’s a bit distorted. From the MD&A:

The increase in FCFA2S is primarily due to a dividend in the amount of €59.0M that was received from Asseco in Q2 2026 as compared to €7.7M in Q2 2025.

If you ignore the dividend in both years, you get €229.2M, compared to €223.0M. That’s 3% growth, not much better than the 2% of Q1. Of course, the Asseco deal is worth something, but still, you want to see some more growth.

So, is something wrong with it growing so slowly? I don’t think so. Operating profit before amortization is up 24% in H1, so the businesses are doing well. Timing is the main reason for the meager growth. Working capital brought in €71.3M, down from €93M last year. That seems alarming, but it’s not. This has nothing to do with the operations of the company. Customers brought in 14% more prepayments. But cash taxes were 55% higher than last year.

But back to the Asseco dividend. Topicus borrowed to buy that stake, and the interest on that debt is fully deducted from FCFA2S. So, that has a negative influence. That’s why throwing out the Asseco dividend is not fair. And it’s not as if Asseco will stop paying dividends. Just don’t expect the dividend to be that high every year.

This year, Asseco paid out triple last year’s dividend. Only 40% of this very high dividend was from last year’s earnings. The rest came from cash on the balance sheet. If you dive a bit deeper, there’s actually a funny detail.

Topicus bought the largest part of its stake directly from Asseco, the so-called treasury shares, shares a company holds in itself. Topicus paid 1.05B zloty. And how much has Asseco paid out in dividends? You guessed it, 1.05B zloty. It’s probably a coincidence, but still, it says something. The money that Topicus invested was already paid back in dividends for 23.14% in year one. Because that’s how big Topicus’ stake in Asseco is.

Now, as often with Topicus, you have to adjust things. The Asseco dividend is not in Topicus’ profit. The dividend lowers the value of the stake on Topicus’ balance sheet. On top of that, Asseco’s stock also dropped YTD, by about 28%.

Topicus has €323.3M in cash and €467.7M in debt. This Fiscal chart shows €561.6M because, in total debt, lease obligations are also included.

We will go with the numbers Topicus gives, because these are more about the operating part of the business, and they show you a crucial element. With Topicus’ numbers, net debt is €144.4M, down from €365.9M at the end of 2025. Over the past twelve months, Topicus generated €424M in operating cash flow. That means net debt is about a third of one year’s cash flow. That’s extremely conservative for a serial acquirer, especially if you know that Topicus has spent a record amount buying new businesses.

Topicus has €700M in a revolving credit facility, but it has used only €110M so far. If you add the cash, it means that Topicus could put more than €900M to work without needing any other form of financing.

The MD&A states this in the company’s typical matter-of-fact tone:

Management anticipates that it can continue to grow the business organically without any additional funding.

This is the internal flywheel that I find very attractive. Many private equity companies that often compete with Topicus are leveraged over their ears and are therefore very risky investments. Topicus is extremely conservatively managed and it can easily weather any storm. No, I should rephrase that. It is anti-fragile, as Nassim Nicholas Taleb described it in his great book with the same title.

The subtitle of the book says it all: “Things that gain from disorder.” If there is a crisis, Topicus will gain strength, while its competitors will suffer or even go out of business.

But that also means that Topicus’ acquisitions come in at an irregular pace. Last year was a record year for cash deployment, this year is slow up to now.

In the second quarter, Topicus closed acquisitions for €31.2M in cash, or €40.2M including milestone earnouts. That means €62.7M this year so far. Last year, in H1, that was €249.7M in cash for businesses plus €168M for the first Asseco shares (Topicus bought its stake in two times).

Of course, 2025 was a record year, a true outlier. But good deals that meet Topicus’ hurdle rate come at an irregular pace. For example, since the quarter ended, Topicus has completed or committed to deals worth €56.1M. That’s almost as much as the rest of the year combined. I see this as prudent and consistent with why I bought the stock. Topicus doesn’t lower its bar to just show growth. It waits patiently until it sees a good opportunity that meets the hurdle and only then it deploys money. That’s what sets it apart.

And there was a very public showcase of the attitude Topicus has. At the end of May, it made a public offer of 247M Australian dollars for ReadyTech, an Australian software company. ReadyTech’s Board refused the offer. As far as I know, Topicus has not put in a higher bid. But it shows that Topicus is ready to write a check €100M+ if it sees an opportunity. Probably, a higher price would not meet the hurdle rate. Or put differently, Topicus thinks its returns would not be high enough for a higher bid to make sense.

So the business is doing fine. But what about the CEO suddenly stepping down? Why so fast, after sixteen years? Why no explanation? And is it a coincidence that a second key person left at almost the same time?

I dug into it, and I found more than the press release tells you.

Below: what’s really behind the CEO change, the second departure few talked about, the three numbers that would show AI damage first, the two scores I just cut, the valuation at a level I have never seen before, and my rating.

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In my last article on Nu Holdings (NU), “Whole Lotta Noisy,” the stock was down 35% from its January high and the bears had a lot to feast on: Provisions up, NPLs up, risk-adjusted NIM down. I told you most of it was seasonality and accounting, and that management had promised margins would return in the second half of the year.

On August 13, Nu reported its Q2 2026 results. The next day, the stock jumped more than 10% and in early September, it was up 15%. Then, on September 10, Nu officially launched in the United States, in a stadium now carrying its own name in Miami. It’s also Lionel Messi’s home stadium.

Source

By the way, I think this is a good investment, as the first target group, Brazilians and other Latin American people living in the US are often as crazy about soccer as the people in their native countries.

But the stock? It went down. Today, it’s flat from before the earnings.

But the stock can be fickle, as we all know. What about the fundamentals? Was Q2 as good as that initial stock jump suggested, or did investors find something more negative in the earnings as time passed? And what should we think of Nu in America?

There’s a lot to cover and that’s why this will be the longest earnings analysis article I have ever written because there’s a lot to unpack: the insights from the quarterly earnings (and there are many), the bear arguments (some sound convincing), what Mexico is really worth for NU, of course, the US launch, and at the end, as always, the Selling Rules, the Quality Score, the Valuation and my Buy-Hold-Sell rating.

But first, the numbers.

The Numbers

(FXN = FX-neutral, the growth without currency effects.)

• Revenue: $5.88B, +39% YoY FXN, beating the consensus by $390M.

• EPS: $0.24, beating the consensus by $0.04.

• Net income: $1.06B, +49% YoY FXN, +17% QoQ. The first billion-dollar quarter in Nu’s history. Hooray!

• Gross profit: $2.44B, +43% YoY FXN, +25% QoQ.

• Customers: 138.9M, +13% YoY, 4 million net adds in the quarter.

• Activity rate (monthly active customers divided by total customers; a customer is active if they generated revenue for Nu in the last 30 days): 83.5%, and in Brazil more than 86%.

• ARPAC (Average Revenue Per Active Customer): $17.1 per month, +22% YoY FXN.

• Cost to serve: $1.0 per active customer per month, +14% YoY FXN.

• Credit portfolio: $39.4B, +37% YoY FXN, +5% QoQ.

• Deposits: $45.3B, +18% YoY FXN, +6% QoQ.

• NIM (net interest margin): 22.9%, up from 21.1% in Q1.

• Risk-adjusted NIM: 12.4%, from 9.5% in Q1 and 9.9% a year ago.

• Efficiency ratio (operating expenses divided by net revenue, so lower is better): 19.5%, from 17.6% in Q1 and 21.3% a year ago. That means Nu spends $19.5 to earn $100 in net revenue. Very strong, especially if you know that traditional Brazilian banks are between 40% and 50%.

• ROE (return on equity): 33%, a record high, together with Q4 2025.

• NPL 15-90 (loans 15 to 90 days late): 4.8%, down from 5.0% in Q1.

• NPL 90+: 6.9%, from 6.5% in Q1 and last year.

Here, Nu sums up key metrics. It’s impressive: 4 years ago, Nu lost $30M in Q2; now it has earned $1.061B. That’s impressive growth. In the same period, the efficiency ratio went from 50% to 20%.

On the call, JPMorgan analyst Yuri Fernandes pointed out that the retail operation of Itaú Unibanco, the biggest and probably best-run incumbent bank in Brazil, makes around $1.1 billion per quarter. Nu is almost there already.

In Q1, risk-adjusted NIM (net interest margin) dropped to 9.5%. Risk-adjusted NIM is the margin Nu makes in interest, after subtracting funding costs and credit losses. Management promised it would move back toward the levels of the second half of 2025, which means 10.5% to 10.8%, “over the coming quarters.” So, it was one of the first things I looked at.

And what did we see this quarter? Risk-adjusted NIM at a whopping 12.4%. In one quarter. That’s crushing it and blowing past all the expectations.

In my Q1 analysis, I explained the IFRS accounting rule that caused the Q1 dip: when a bank writes a new loan, it has to book the expected lifetime loss on that loan immediately, before it earns a single dollar of interest. Nu grew very fast in Q1, so it took the losses upfront. In Q2, the interest income on the loans from Q1 started coming in.

The efficiency ratio went from 17.6% to 19.5%. That’s still very impressive, but it’s a bit worse than in Q1. But in Q1, management already said that two-thirds was timing that wouldn’t last. Full-year guidance for efficiency ratio remains 20%, including the investments in the US.

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On Wednesday, August 5, Axon reported its Q2 earnings. I was on holiday in Sardinia then, but of course, I want to know what’s going on with the companies you and I hold in our portfolios. That’s also because, as you probably know, I add money to my portfolio every two weeks and that’s why I want to know if the stock is attractive to add to my position. Here we go!

The Numbers

• Revenue: $904 million, up 35% YoY, beating the consensus by $28 million, a beat of 3.2%, which is pretty significant for such a big and widely followed company. It’s also the tenth consecutive quarter with revenue growth of more than 30%.

• Software & Services revenue: $398 million, up 36% YoY.

• Connected Devices revenue: $507 million, up 35% YoY. Within that category, Platform Solutions (in-car video, fixed cameras, drones, counter-drone, VR hardware) grew to $150 million, up 123% YoY.

• Dedrone: passed $100 million in revenue in a single quarter for the first time.

• Annual recurring revenue: $1.639 billion, up 39%.

• Net revenue retention: 126%, versus 124% a year ago.

• Future contracted bookings: $15.1 billion, up 41%.

• Adjusted gross margin: 62.9%, down from 63.3% a year ago, up from 61.6% last quarter.

• Adjusted EBITDA: $242 million, a 26.8% margin, up more than 40%.

• Operating income: $47 million, versus a loss of $1 million a year ago.

• Non-GAAP EPS: $1.88, versus $2.18.

• Free cash flow: negative $1 million, versus negative $115 million.

Axon also raised full-year revenue guidance from 30-32% to 32-34%, the second raise this year, and held the adjusted EBITDA margin guide at 25.5%.

This is an overview in the company’s earnings slide deck.

Earnings per share dropped while revenue grew 35%. That looks awful, right? It isn’t.

In Q2 2025, Axon’s pre-tax income was negative $38.9M. But it reported positive net income of $36.1M, because it booked a $75M tax benefit that quarter. So, you can’t really compare the quarters on this basis. This quarter, pre-tax income was $32.7 million, so much better than last year’s Q2 numbers.

You can also see the improvement in operating income. It came in at $47M this quarter, while there was still a $1M loss in Q2 2025.

I also like to see operating leverage. If you grow revenue by 35%, as Axon did, but the costs grow faster, you are not doing better with scale. But that’s not the case. SG&A (Selling, General and Administrative) grew 20% and R&D (Research and Development) 28%. So, there is operating leverage. President Josh Isner on the call:

A little over a year ago, we began flattening the organization to empower people closest to the work, reducing layers of friction and moving faster. We paired that organizational change with disciplined investment in AI tools for our teams. We didn’t rush to deploy every tool or ask people to use AI for the sake of using AI. We rolled it out deliberately, and we focused on where it can make our people more effective.

I like that, of course. Empowering the people closest to the work is a recipe for success.

In the last quarter, GAAP net income came in at $169M. But that was because of $189M of rising value of Axon’s investments. That’s a distortion, because the company doesn’t sell, but it has to adapt to the market value of its investments every quarter. Shopify is another company that has this.

Axon gives revenue per product line, but I prefer the Fiscal chart.

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As you can see, the two legacy products, TASERS and body cameras (personal sensors) grew the least, at 21% (still very strong) and 3% respectively.

Software and services, mostly Evidence. com, was up 36% to almost $400M, and Platform Solutions was up a whopping 123% to $150M.

Last quarter I wrote “34% Growth Before Optionality.” What I meant was that Axon grew 34% while the new products contributed almost nothing. This quarter the optionality showed up just in time to offset the slowdown in body cameras.

But the body cameras are only in a temporary dip. Q1 is the worst quarter for new bookings for body cameras. As these are shipped a quarter later, that’s the effect you see. President John Isner said to expect camera shipments to grow by 20% to 30% QoQ in Q3 and probably closer to 30%.

The story is not that much different for TASER. Even if growth is still 21%, very respectable, it would have been higher without the seasonally weak Q1. In Q3, Axon booked the highest TASER unit volume ever. It also signed its biggest TASER order ever. President John Isner on the call:

That may sound crazy for a product category that has been around for three decades. Well, it’s real, and it speaks to how much opportunity remains.

I also want to talk about free cash flow because the company seems to be at a turning point there as well. It was still negative, $1M, but that was a negative $115M last year. That’s already a big improvement, but COO and CFO . It was negative $1 million against negative $115 million a year ago. A big improvement, and COO and CFO Brittany Bagley reaffirmed the full-year target of $450 million in free cash flow.

We are two quarters into the year and the mid-term score is negative $56M. In other words, for that $450 million target, Axon has to generate $506 million in free cash flow in the second half of the year. That’s a big acceleration. Q4 is seasonally Axon’s best quarter each year, so that won’t be different this year. Management also said that the inventory investments it made with the tariffs will moderate after this year.

In the first half of the year, Axon spent $145M to build out its inventory. That depressed FCF, but it was not even the biggest contributor. The biggest drain on FCF was receivables and contract assets, with $257M. Receivables are when the invoice is already out, but not paid yet. Contract assets are customers paying over the years they take the subscription for both hardware and software, for example. In both cases, Axon has already spent to deliver the goods, but it hasn’t received payment yet. FCF is, therefore, systemically suppressed.

So the numbers are excellent. But the most interesting stories of this quarter are not in the numbers.

Below: the protest movement that’s smashing cameras in 460 American cities (and why I think it’s actually good news for Axon), my Selling Rules, my proprietary Quality Score and Valuation. Don’t want to miss these? Subscribe now!

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TransMedics (TMDX) reported Q2 2026 on August 4. I was on holiday so I couldn’t do the analysis back then. That’s why I’m doing this article now. But sometimes, often, actually, some delay is good. It cuts out the noise and highlights the really important things.

The stock initially fell, but recovered and now it’s up about 10% since the earnings.

In my last update, in May, I gave a Valuation Score of 10/10 and I called it a STRONG BUY at $64. Since then, the stock is up more than 40%.

So, is it still a buy today? Let’s find out.

The Numbers

• Revenue: $189.9 million, +20.7% YoY, +9.2% QoQ.

• Product revenue: $111.2 million, +15.7% YoY, +3.0% QoQ.

• Service revenue: $78.8 million, +28.6% YoY, +19.4% QoQ.

• Gross margin: 59.6%, up 140bps QoQ.

• Adjusted operating margin: 13.6%, up from 10.4% in Q1, down from 23.2% a year ago.

• Adjusted EPS: $0.44 versus consensus of about $0.48.

• Cash: $472.7 million.

• Guidance: low end raised, now $737-757 million, 22-25% growth.

Here you have an overview from the Q2 2026 earnings call slide deck.

Source: Fiscal AI. You can find all transcripts there, earnings slides, the consensus estimates, financial data, charts, and so much more. Get a 15% discount through this link.

The Main Reason?

In the Q1 article, adjusted margins were 18.5%, or $112.2 million of adjusted operating income on $605 million of revenue. In May, the company guided for gross margins of about 16%, because of the investments it was making. But those margins are now seen as lower. CFO Gerardo Hernandez on the Q2 earnings call:

We now expect full-year adjusted operating margin, excluding the impact of PAD Aviation, of approximately 12.5%-14%. The range primarily reflects potential variability in revenue performance, while the reduction from our prior expectation primarily reflects the higher planned investment in OCS Kidney.

So margins went from 18.5% last year to a guidance of 16% for the whole year in May, and now to a guidance of about 13% for the whole year. The market doesn’t like that.

At Canaccord Genuity’s 46th Annual Global Growth Conference, CFO Gerardo Hernandez gave more context:

The way we should see or expect for the future years is we should not see an increase in operating expenses similar to the one that we had in 2026. This year was really the step up. In 2027, we will see some increase, probably more around the low teens, which certainly will help us to continue to expand our operating margin.

Hernandez added that there will be margin improvement next year, combined with a growth acceleration. On top of that, both Hernandez and founder and CEO Waleed Hassanein repeated their long-term goal of the old promise of about 30% operating margin at 10,000 transplants. To remind you, that goal has been set by management for the end of 2028 and it’s one of the Selling Rules I set.

In other words: 2026 is the investment year, but then it should get better next year and thereafter.

It may look like a detail, but TransMedics’ management raised the low end of the guidance. That detail is more important than you might think, because it points to a reacceleration in revenue growth. Let’s do the math together. In the first half of this year, revenue came in at $363.9 million. The guidance range of $737-757 million means that in the second half, the company has to have revenue of $373 to 393 million. If you know that in the second half of 2025, revenue was $304.6 million, that implies revenue growth of 22.5% to 29%. In the first half of this year, it was ‘just’ 20.9%. It’s good to see this, but management shouldn’t be shy about sharing this.

In my last update, I called TransMedics a STRONG BUY at $64. The stock is up more than 40% since.

Below: the numbers management shared about the company’s biggest potential market, why I’m removing a Selling Rule for the first time ever, why margins jumped when I expected them to fall, and whether the stock is still a buy after the run. Don’t want to miss the valuable insights? Subscribe now!

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As one of the last Potential Multibaggers, Rubrik (RBRK) reported its Q2 results on August 27. The company beat every single guided metric, raised full-year guidance for revenue, ARR, earnings, and free cash flow, and posted its first operating profit as a public company. But the stock is down 18.5% since the earnings.

To be honest, I’m a bit confused at this moment. It could be a buy-the-rumor, sell-the-event thing, based on my superficial look at the earnings. But that’s why I love this work so much. Together with you, I can find out what is really going on. Of course, we know that in the short term, the market is very fickle. Over the long term, the results matter and that’s what I want to assess. Is there real weakness here or not?

Let’s find out together.

Rubrik’s logo, source: the company

The Numbers

• Subscription ARR (annual recurring revenue): $1.661 billion, up 33% YoY. Net new subscription ARR of about $96 million, up 35% YoY.

• Subscription revenue: $407.2 million, up 37%.

• Total revenue: $427.3 million, up 38%, beating consensus by $31.3 million, or 7.5%. Very strong.

• Non-GAAP EPS: $0.20, much better than the consensus of $0.04.

• Subscription NRR: over 119%.

• Customers with $100K+ in subscription ARR: 3,084, up 23%. These customers now make up 88% of subscription ARR. Customers spending over $1 million grew more than 57%.

• Non-GAAP gross margin: 81%, versus 81.6% a year ago.

• Non-GAAP operating income: $33.5 million, or 8% of revenue, against a $4.4 million loss a year ago.

• Free cash flow: $65.7 million, up from $57.5 million, a 15% margin.

• Cash: $1.75 billion, against $1.13 billion of convertible debt.

Revenue growth of 38% is great and much better than the consensus. But as I already explained last quarter, it even understates things.

Rubrik used to be a hardware company, although it always intended to switch, but it was just easier to start.

Customers who gave up their right to a free hardware refresh received cloud credit as compensation, and when they use that credit, it appears as a one-time revenue bump. Rubrik calls this “material rights.” This compensation negatively affects revenue, of course, because those customers use credits they got for free. If you exclude the material rights, revenue grew 43%. That’s the third quarter in a row at 43%.

Source: Rubrik’s Q2 earnings slide deck

You can see the reported growth sliding from 51% at the peak last year, but the normalized line, excluding material rights, has been at 43% for three quarters. Very strong.

Net new subscription ARR accelerated to 35% growth. At $1.66 billion of ARR. Founder and CEO Bipul Sinha called it the tenth consecutive quarter of beating guidance since the IPO, and he was very proud of the acceleration:

And this quarter, we accelerated, yes, let me repeat, accelerated net new subscription ARR growth.

He’s right, although the acceleration is minimal, as you can see on this chart.

Rubrik had an operating profit for the first time as a public company. Non-GAAP operating income was $33.5 million, or 8% of revenue.

There were several contributors to this: non-GAAP sales and marketing dropped from 49% of revenue to 44%, R&D from 22% to 21% and general and administrative even dropped in absolute dollars, from $37.4 million to $34.6 million. If revenue then grows by 38%, you know that there’s operating leverage. Management also put this in the slides deck.

Free cash flow was $65.7 million, up 14% YoY. The margin came down from 19% to 15%. But the quarters differ quite a bit and so does the timing of big contracts, so let’s look at the first six months to smooth that out already a bit more. The H1 margin was 17%, up from 15% a year ago. The full-year guidance of $323 to $333 million of FCF means 36% to 40% growth in FCF.

I think you know by now I also like the Rule of 40. If you add FCF margin and revenue growth and it’s above 40, you have a good company. For Rubrik, you add up 15% FCF margin and 38% revenue growth, you get 53%. Without the material rights, that would even be at least 58%. Very strong, in other words.

All in all, very strong results overall. Which leads us to the next question.

Why Did The Stock Drop?

In the earnings slides deck, there’s a chart of cloud net new ARR.

The left panel shows the calculated cloud net new ARR sliding from $101 million in Q1 to $89 million this quarter, with year-over-year growth at minus 4%. Ouch, right? No, not really.

Rubrik has been migrating its legacy self-hosted customers to the cloud platform. Those customers were already paying Rubrik, but the moment they were switched to the cloud, their money got counted as new cloud ARR. That means it boosted the cloud new ARR for a long time.

But that migration is done now and therefore, the numbers look bad. In the right panel, the same two quarters with the migrations removed from both years show the real numbers: 20% growth, just like last quarter.

Cloud ARR is 89% of subscription ARR, exactly where it was last quarter. CFO Kiran Choudary said at the Analyst Day in June that it would stay around 90%.

The non-cloud business, which had been shrinking for years, is growing again. That’s good for margins. Founder and CEO Bipul Sinha explained where the demand comes from:

Given the geopolitics and given all the things that we are seeing around the world in terms of security, every country is now concerned about containing their supply chain and economic infrastructure. And as you can imagine, digital infrastructure and AI infrastructure is an important economic infrastructure. And that’s why folks are working on digital embassies and containing data, containing infrastructure in their own sovereign realm.

Let me recapitulate: the migrations ended, which looks optically bad, but it’s not. The growth that came on top of that, has a better margin and comes from governments, defense and regulated industries. Non-cloud is guided to contribute only low- to mid-single-digit net new subscription ARR in the second half, so this isn’t a meaningful growth engine but the higher margins are good.

So the first reason for the drop is superficial, not a structural weakness. But there’s a second reason. We also dive deeper into Rubrik’s unique position in cybersecurity and why AI is such a tailwind.

You also get my proprietary Potential Multibaggers Quality Score and the valuation and then you know if the stock is a buy or not.

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Tempus AI (TEM) reported its Q2 2026 results on July 30.

The stock climbed steadily over the next two and a half weeks and was up about 24% by August 17. A week earlier, it was even up almost 35%.

Then, on Wednesday, it jumped again. This time, the reason was that Moderna and Merck published outstanding phase-3 data on their personalized cancer vaccine. We’ll see how Tempus is involved later in this article. This second jump means that Tempus AI’s stock is now up 47% since the earnings.

At the same time, it’s still down 35% from its high set in October 2025.

That’s why I prioritized this analysis. I want to know if Tempus AI’s stock is still attractive at this point or not. When it traded at $46.18 a few months ago, I gave it a 9/10 Valuation Score. The uncertainty was the only reason I didn’t give it the maximum score. How about now? Is the stock still attractive for long-term investors?

Let me go through the quarter first. At the end of the article, we’ll look at the Moderna breakthrough. Of course, we will also look at the Selling Rules, the PM Quality Score update and the stock’s valuation to decide if Tempus is still attractive now or if it is time to take profits after this move. So, first to the results.

The Numbers

Revenue: $382.5M, +21.6% YoY, beating the consensus by about $3M.

Diagnostics: $289.3M, +20%.

Data and Applications: $93.2M, +28%, with Insights, Tempus AI’s data licensing and AI modeling division, up 36%.

Hereditary: $107.4M, +5%.

Gross profit: $246.5M, +26%, a margin of 64.4%, up from 62% in Q2 2025.

Non-GAAP EPS: -$0.04, an $0.11 beat, up from -$0.22.

GAAP net income: $5.6M, versus a $42.8M loss a year ago. It was the first positive GAAP quarter ever.

Adjusted EBITDA: $8M, versus -$5.6M in Q2 last year.

Oncology volume: about 96,500 tests, +31%, accelerating from 28% in Q1.

MRD volume: about 9,000 tests, +38% QoQ.

Guidance: full-year guidance raised to $1.595-1.605B, which means about 25% growth YoY.

Here’s a summary from the earnings slides.

Tempus had its first quarter with a GAAP profit but I think you should ignore it, as it’s only a paper profit. Fair value changes accounted for $97.4M. Tempus already owned about 20% of Personalis and then announced that it will buy the company. The stock shot up because of that and the paper gains of the existing position have to be counted for GAAP. But this is not real profitability.

Loss from operations was -$75.9M, worse than -$61.8M a year ago, mostly because of stock-based compensation. If you strip that out and also the acquisition costs and amortization of intangibles, the non-GAAP loss from operations was -$2.7M versus -$17M last year. So, there is improvement, but with a big asterisk. Non-GAAP net loss was -$7.7M, versus -$37.3M last year.

Hereditary

Hereditary testing looks for cancer risks you were born with, not for a tumor you already have. For example, it can look for a BRCA mutation, which raises the chances of breast and ovarian cancer a lot and healthy women can be screened earlier if they know they have this mutation. Tempus got the biggest part of Hereditary with its Ambry Genetics acquisition in 2025.

But just like last quarter, this section is not doing great. It grew just 5% YoY to $107.4M. CEO Eric Lefkofsky said last quarter mid-teens growth would return in the back half of the year. The explanation is that Q2 2025 was abnormally strong, so the comps are very tough.

Tempus also launched two new tests in the hereditary branch. xH reads the entire genomes of patients with blood cancers such as leukemia and lymphoma. Rare Whole Genome does the same for people with rare diseases that are extremely hard to find. Often, those people already got many tests, and this genome test can finally give them the diagnosis they have been looking for.

Both have just launched and won’t fix the slow revenue growth in Hereditary soon. But they are promising nonetheless.

The ASP Boost

ASP means average selling price: what Tempus actually gets per test from insurers and Medicare. It’s now $1,850, up from around $1,740 in Q1.

There were two important developments this quarter. The first is that the FDA approved xT CDx in its tumor-only version. A tumor-only test reads the cancer alone, without also sequencing the patient’s healthy DNA to compare with. Tempus already had approval for the version that does the test that does both readings.

With this approval, now every solid-tumor test Tempus has can be sold as an FDA-approved test. The result is that Medicare used to pay $2,900 but now pays $4,500. That’s theory, because in reality, not every test gets the full price. Founder and CEO Eric Lefkofsky said you should expect an increase of about $200 per test, or roughly $85 million a year, starting in 2027.

The second development is the expected boost from xF. That is a liquid biopsy test that reads tumor DNA in the blood when you can’t use tissue. The FDA is now assessing the xF test, and CFO Jim Rogers said the company wants to set the price at $7,500 once approved. CEO Eric Lefkofsky explained the reasoning for this price:

And look, it’s an evolving market. Our assay is most comparable in terms of size, like literally size like megabases and size totality to Guardant’s recent assay that they got approved. And I believe their ADLT pricing is something like $8,300 or $8,400. And so we -- it would be very hard for us to go to the market with a almost identical, at least in terms of like size and complexity assay that’s radically less expensive.

Guardant Health’s similar test sets the reference price for other companies. That’s how it often goes in healthcare.

So, you can see that the ASP is currently $1,850. If you add $200 from xT CDx and $550 from xF, then you get $2,600. In other words, that’s 40% more revenue from tests Tempus already has.

I think this is why the stock jumped after the earnings release. Higher profits on the same tests cost almost nothing extra, and that means more gross profit. Right now, Tempus has about 386,000 oncology tests a year. $750 more per test means $290M of extra revenue even if there are no additional tests, which is very unlikely. The number of tests grew over 30% and that’s why management projects about $400 million extra revenue in 2028.

xF isn’t approved yet, though. Lefkofsky expects it in the market in the second half of 2027.

The Data Business

This is the most interesting division of the company.

A few months ago, I gave Tempus a 9/10 Valuation Score at $46.18. The stock is at $72.69 now, up 57%.

Below: how Tempus is connected to the Moderna cancer vaccine breakthrough everyone talked about this week, the reason pharma giants almost can’t leave Tempus anymore, the AstraZeneca test that was passed and if Tempus AI’s stock is still a buy after the jump.

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Today, just before the market closed, I added to the Forever Portfolio.

For newer Multis, that’s the portfolio with my real money.

This is a short article about what I bought and why. I already announced most of what I would buy in the Best Buys Now article, and I’m not going to write all the same things again here. As always, I put my money where my mouth is and I buy the Best Buys Now.

Let’s go over them one by one.

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Celsius Holdings (CELH) reported its Q2 2026 results on August 6, and the stock fell about 20% into the low $20s.

It recovered a big part of the losses, though.

But at the same time, the stock is still down more than 70% from its 2023 highs (when I didn’t own it yet).

I wrote about the Q1 results in June. The Celsius brand grew 6% then, and I explained why that number was better than it looked at first sight. Management was removing regional flavors to create a single national assortment within the PepsiCo distribution network. Every removal costs revenue, but the core 12-ounce cans were still growing double digits in convenience stores.

Before we look at the analysis of this quarter, it’s good to know what we’re talking about, so let’s check the numbers.

The Numbers

• Revenue: $817.9M, up 11% YoY, missing the consensus by about $52M. That’s a big miss of 6%.

• Adjusted EPS: $0.36, down 23% YoY, missing the consensus by $0.06. The biggest reason was a distributor termination charge, which is nothing to worry about.

• GAAP EPS: $0.14, down from $0.33 a year ago.

• North America revenue: $790.7M, up 11%.

• International revenue: $27.2M, up 10%, and down from $35.3M in Q1.

• Brand split: Celsius $387.0M (down 12% YoY), Alani Nu $364.4M (up 21%), Rockstar $66.5M.

• Gross margin: 48.1%, down from 51.5% a year ago and roughly flat versus the 48.3% in Q1.

• GAAP net income: $55.3M, down 45%. Net income attributable to common shareholders: $36.4M, down 57%. (The difference is that Pepsi owns a part of Celsius).

• Adjusted EBITDA: $184.2M, down 12%, a 22.5% margin against 28.4% last year and 25% last quarter.

The Celsius Brand Is Now Shrinking

The Celsius brand had $387M in net sales, down 12% year over year. Next to the earnings miss, it’s probably the reason the stock got hit so hard.

CFO Jarrod Langhans gave more insight:

Starting with brand CELSIUS, net sales were down approximately 12% year-over-year, while retail sales in tracked channels were down 2% in the second quarter.

I’m going to discuss those 2 numbers separately because they are telling you 2 different things. The scanner number, down 2%, is the consumer...

The gap to reported net sales came from 3 things: shipment timing related to inventory rebalancing, increased trade and promotional investment, and softness in the club channel.

Scanner data measures what shoppers really bought at the store, not what Celsius shipped. That distinction is important.

The revenue bridge in the deck breaks the 12% down: scanner growth was minus 2%, contra revenue took a 3% hit (contra revenue is the money that never reaches the top line, things like promotional spending and discounts), the gap between orders and scans was 7%, non-ready-to-drink energy products dropped 2%, and international added 2%.

The 7% orders-versus-scan difference is inventory rebalancing in the PepsiCo distribution system. As SKUs come out (a SKU is a single item, one specific flavor in one specific size), distributors buy more inventory, but then buy less a while later. That goes in cycles.

The 2% drop is the real Celsius brand slowdown. And, of course, that’s not great.

When asked whether the SKU rationalization was the right call and what he’d do differently, CEO John Fieldly said:

We went too deep on the CELSIUS rationalization. I think when you look at we’re entering the year, we could have done a much lighter job on that. But then there’s also puts and takes. The integration on Alani could have been further challenged, and Rockstar. Looking back, I definitely would have not cut as many SKUs within the organization through these commercial plans.

I like the honesty, and I think it’s worth more than superficial marketing answers you often get. Adjusting the course is the best thing you can do for any business and acknowledging you were wrong so fast after implementing the rationalization is a strength.

There’s a second self-inflicted wound that has consequences for revenue growth. CEO John Fieldly said they deliberately held back innovation on the Celsius brand while integrating Alani Nu and Rockstar, and that means the brand is now lapping six innovations from last year with nothing new to replace them. It’s normal you don’t do great then.

There’s a number that remains very positive, though: dollars per point of distribution rose about 16% from Q1 to Q2, despite about 7% fewer points of distribution.

CEO John Fieldly expects Q3 to look a lot like Q2 for the Celsius brand, with a return to growth in Q4. So, if you care about the short term, don’t expect Celsius to move anytime soon. The weird thing is that the analysts don’t see an acceleration in Q4 or Q1 2027 in their forecasts.

We also have to talk about Costco. In June I wrote that Costco’s Kirkland energy drink was scaring the market more than it was hurting the business, and I estimated the total damage at maybe 1% to 2% of sales. I still think that argument is mostly right. Over 60% of energy drink sales happen in convenience stores and gas stations where people buy one cold can, and nobody drives to Costco for a single drink.

But management has now named club softness as one of the three reasons the flagship brand fell 12%. That doesn't prove Kirkland caused it, and club channel weakness can come from a lot of places, including Celsius pulling its own SKUs. But it's still remarkable.

If the scanner number for the Celsius brand stays negative once the innovation returns in 2027, private label is probably doing real damage.

Below: the real Alani Nu growth number (it’s better than the reported number), the Selling Rules, Quality Score and Valuation Score.
And also what I’m doing with the stock now. Don’t want to miss this?

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Last quarter I wrote an article called “Is This The Explanation?” I put forward a hypothesis: that the high growth in Joint Business Plans and the weakness in headline revenue could be two different sides of the same coin, that The Trade Desk (TTD) was circumventing the ad agencies to the brands themselves, and that this explained both the numbers and Jeff Green’s uncharacteristic silence.

I have to take that thesis back today. Not because the quarter was bad, though it was awful, but because Green himself said the opposite during this of what I thought could be the reason.

The stock fell about 22.5% after the results were announced and kept sliding.

In July 2024, I gave The Trade Desk a Valuation Score of 3/10. Since then, the stock is down 86%, even though it initially continued to go up.

From the absolute top, it’s down even more, 90%. In the last two quarters, I was very critical of the company, and on top of that, the Quality Score deteriorated substantially. Unfortunately, this quarter is even worse.

The Numbers

Revenue came in at $715.1 million, up just 3% year over year, against a consensus of $751.4 million. That’s a miss by 5%, which is a lot for a revenue miss. And don’t forget that the consensus was already down because of the weak guidance in Q1.

But the consensus is not the number that matters the most here. The Trade Desk itself guided for “at least $750 million” three months ago, when Q2 was already well underway. They came in $35 million below their own minimum. That big revenue miss is a big part of the big price drop and I understand the market.

Profitability was not better. Non-GAAP EPS came in at $0.34, missing by $0.06. GAAP net income was $64.4 million, or $0.14 per diluted share, down 28.6% from $90.1 million. Income from operations fell 13%, from $116.8 million to $101.6 million.

Adjusted EBITDA was $241.3 million, a 33.7% margin, down from $270.8 million and 39% a year ago. So EBITDA declined 11% in absolute dollars, not just as a percentage. All these numbers look really bad.

The hit to profitability came partly from taxes. The company paid $48.7 million in taxes on $113.1 million of pretax income. That means a tax rate of 43%, against 32% a year ago.

Total operating expenses were $613.5 million, up 6% but excluding SBC, up 12%. This was mainly driven by platform operations, which were up 22% to $184.3 million. That is the data center and AI infrastructure build-out that has been going on for a few quarters now.

The Trade Desk repurchased $78 million of stock in Q2, with $269 million left on the authorization. That is about half the $164 million they bought in Q1. I don’t find this very confidence-inspiring. In the quarter the stock collapsed, with $1.5 billion in the bank and a lot of the buyback program left, they cut the buyback in half. Is this because of the new CFO or just because the company lost its faith in its own stock?

The company guided for revenue of “at least” $650 million. While the results were very weak, guidance was even worse. The consensus stood at $806.5 million. That’s a miss by a whopping 24%. For revenue, this is almost unprecedented. Adjusted EBITDA is seen at about $160 million.

In Q3, revenue came in at $739.4 million, so with guidance of $650 million that’s a YoY decline of about 12% and 9% below the quarter the company just reported. I can’t say anything else than that this guidance stinks. Very, very bad and disappointing.

Look at this list:

• Q1 2025: 25.4%.

• Q2 2025: 18.7%.

• Q3 2025: 17.7%.

• Q4 2025: 14.3%.

• Q1 2026: 11.7%.

• Q2 2026: 3.0%.

• Q3 2026 guidance: -12%.

This is just horrible.

And there is a detail that makes the 3% of this quarter even worse. The new CFO (another one), Nate Olmstead, said this on the call:

We also benefited from political spending related to the U.S. midterm elections during Q2.

So, this quarter, the 3% includes a midterm tailwind that did not exist a year ago. In other words, normally, it would have been even worse than 3%.

There is one more way to see how much has changed: the Rule of 40, revenue growth plus margin. A year ago this quarter, that was roughly 19 plus 39, or 58. This quarter, 3 plus 33.7, or about 37. On the Q3 guidance, it implies something in the low teens. Growth and margin used to be communicating vessels. Sometimes, there was more growth and that impacted the margins a bit and sometimes, there was a bit less growth, but then margins were generally better. Now, both go down together. Again, a very bad look.

Management leaned hard on macro. The word was used 14 times during the earnings call. There is definitely some truth in the macro comments. But in the same quarter, Magnite grew its revenue by 17% with CTV up 36%, Meta’s advertising revenue grew 27%, and Amazon’s ad services grew 26%.

I have argued before that Amazon and Meta are not the same as The Trade Desk. But it shows that digital advertising did not slow down to low single digits for everyone. Macro can explain why The Trade Desk is under pressure. It cannot, on its own, explain why The Trade Desk is under so much more pressure than the industry it operates in. Last quarter, Jeff Green explained that most of the company’s revenue comes from Fortune 500 brands that respond differently to macro shocks. That was a reasonable answer for a quarter with 12% growth. It’s not for 3% growth (including extra money from the midterms) and definitely not for the 12% drop guidance.

Customer retention stayed above 95%. It always does. And yet revenue grew 3% and is guided to fall 12%. Retention at The Trade Desk counts the number of companies, not dollars. It is not a dollar-based net retention rate.

There are three explanations for the lower spending:

One: clients cut their total advertising budgets, so spending on the platform fell along with everything else. That is cyclical and it means it will recover.

Two: clients kept their budgets but moved a smaller share of them through The Trade Desk.

Three: gross spend held up reasonably but take rate or revenue mix weakened, so less of that spend converted into revenue.

Management gave us no way to judge on what it is. Gross spend and take rate are only disclosed once a year.

Jeff Green said CPG (consumer packaged goods) and autos together are about 25% of the business and that roughly half of those clients are growing well. He also said the majority of the top 100 accounts are growing double digits, that clients outside the top 500 grew over 50% year to date, and that EMEA and APAC each grew almost 30%.

If you put that together, it looks very bad. If roughly 12% of revenue is the troubled part and the other 88% is genuinely growing at double digits, that troubled 12% has to be down something like 45% to 50% YoY to drag the total down to 3%. That is not cyclical softness but a total collapse. The alternative is that the healthy 88% is not really growing at double digits. One half of the story has to give.

Green said some version of “don’t overstate this” at least four times on the call:

This is more a cyclical issue with a handful of customers, and it’s not hard to look at their earnings and see that they’ve had some challenges. (...) please don’t walk away from this thinking that that’s affecting everyone. It’s actually just a couple of them.

When a CEO tells you four times not to worry, that’s pretty worrying in itself.

Below: I look deeper into the earnings, to understand all details, see a worrying trend that The Trade Desk is not responsible for, update the Quality Score and Valuation Score and ultimately tell you what I'm doing with my position: holding, adding or selling.

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When I picked Axon (AXON) in early April, I wrote that I didn’t want the stock price to skyrocket soon, so I could build out my position calmly. Well, the market didn’t listen. The stock is up about 35% since the pick. But fortunately, I didn’t follow up my own advice, as you could see in my buys for the PM Forever Portfolio. I bought faster than I’m used to because I saw the opportunity.

I’m happy for every Multi who started buying with me. But a 35% paper gain in three months says nothing about whether the thesis is right. Stocks move on sentiment over the short term and on fundamentals over the long term. And the long term can feel really long. Sometimes, it’s 3 years, sometimes 5 or even 7.

And on May 6, Axon released its Q1 2026 earnings, the first quarter it reports as a Potential Multibagger.

In the weeks after the earnings, management also spoke at the William Blair, TD Cowen and J.P. Morgan conferences, and hosted a webinar with three police chiefs.

I went through all of the material. That’s why this is just the first article this week. It was a lot to go through. This article is the result of all the material. I’ll try to give you the best insights from all of the sources in this article.

Let’s start with the numbers.

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The Numbers

• Revenue: $807 million, up 34% YoY, beating the consensus by $27.7 million, or 3.6%. This was the ninth consecutive quarter of 30%+ growth.

• Software & Services revenue: $355 million, up 35%.

• Connected Devices revenue: $453 million, up 33%. Within Connected Devices, Platform Solutions (counter-drone, fixed cameras, drones, VR) was the strongest grower with 95% YoY growth.

• AI product revenue: up more than 700% YoY (from a small base, but still great growth). AI bookings up 140%.

• Dedrone: revenue up over 300% for hardware and software. Bookings up 500%.

• Annual recurring revenue: $1.5 billion, up 35%.

• Net revenue retention: 125%, up from 123% a year ago and the fifth straight year of Q1 improvement.

• Future contracted bookings: $14.3 billion, up 44%.

• International revenue: up more than 100%, now 20% of total revenue for the second quarter in a row.

• Non-GAAP EPS: $1.61 versus $1.47 last year, a beat by $0.01.

• Adjusted EBITDA: $201.6 million. 25% EBITDA margin.

• Adjusted gross margin: 61.6%, down from 63.6% a year ago.

• Free cash flow: negative $54.6 million, versus roughly break-even last year.

You can see some of the numbers on this earnings slide.

You probably noticed two ugly ducklings in that list: the negative free cash flow and the falling gross margin. Don’t worry, we will get back to this. But first, something in the income statement that most coverage of this quarter got wrong in the other direction: net income.

GAAP net income was $169.3 million, versus $88 million in Q1 last year. Almost a double. Great quarter for profitability, you’d think, right? But if you go to the reconciliation tables in the appendix, you see a line called “Other (income) loss, net” of $189 million. That’s mostly gains on Axon’s investments, so the stakes it holds in other companies. In other words, more than the entire GAAP net income this quarter came from investments going up in value.

The best profitability numbers are the $201.6 million in adjusted EBITDA at a 25% margin and the 75.8% adjusted gross margin in software. Those are earned by the business, not the company’s investments.

Non-GAAP EPS grew only 10% while revenue grew 34%. Interest expense jumped from $7.8 million to $28.6 million because of the $1.8 billion in senior notes raised for the Carbyne and Prepared acquisitions. That’s a conscious move and I don’t care too much about this. The acquisitions were worth it for the long term, in my opinion. I just wanted to point it out.

Free cash flow was negative $54.6 million. That looks bad, but it isn’t.

Q1 is always Axon’s weakest cash quarter because of bonuses, sales commissions, and one of the two semiannual interest payments are all reasons. But the biggest driver was an inventory buildout. CFO Brittany Bagley said that without the inventory investments, free cash flow would have been positive even with all those Q1 payments. president Josh Isner explained the logic behind the buildout on the call:

Given the expanding geopolitical risks, the competition for key components and the growing demand of our products worldwide, we are investing in inventory with durability in mind. We never want inventory to be the reason we cannot maximize our growth and impact.

When hardware companies start to pile up inventory, investors often get nervous but with Axon, it’s safe: its products don’t go obsolete. TASER life cycles are 15 years or so, body cameras definitely more than 5 years, and president Josh Isner mentioned at the J.P. Morgan conference that TASERs launched in 2010 still sell today. This proves that this inventory buildout is not a risk.

Axon said it didn’t suffer from the high memory costs because it had already bought before. This shows the power of having inventory. CFO Brittany Bagley said that the memory impact on gross margin is not even meaningful enough to mention it separately.

On top of that, the full-year free cash flow guidance stayed at approximately $450 million.

Guidance

Axon raised its full-year revenue guidance from 27-30% growth to 30-32%.

The adjusted EBITDA margin guidance stayed at 25.5%, versus 25% in Q1, so management expects operating leverage in the second half of the year.

I also liked that the capex guidance went down, from $185-215 million to $160-190 million. So Axon guides for faster growth and lower spending at the same time. That also makes the free cash flow target of around $450 million attainable, despite the inventory buildout.

Future contracted bookings grew 44% to $14.3 billion. Management expects to recognize 20% to 25% of that as revenue over the next twelve months. That’s $2.9 to $3.6 billion of revenue that’s already signed, against a full-year guidance of roughly $3.6 billion. In other words, most of this year is already under contract. As long as bookings grow more or less in line with revenue, the 30%+ growth can go on for years and I love to see that. It was another part of my investment thesis.

The AI Era Plan: From Curiosity To Default

In Part 1 of my deep dive, I called Draft One the crown jewel of Axon’s AI. And this shows. Revenue grew more than 700%, AI bookings grew 140%, and Josh Isner said that nearly all large domestic law enforcement agencies now include AI in their purchases.

Founder and CEO Rick Smith on the call:

Just yesterday, I hosted a collection of chiefs in San Francisco. Two years ago, when I queried the room who used AI, it was almost 0. Today, it’s 100% are using AI tools in their personal lives daily, but they know those tools can’t be used on government data.

So, every chief now uses AI privately but they are not allowed to use ChatGPT or other LLMs for evidence. But they can use Axon’s AI, as that has all the necessary compliance. That’s why these deals are getting bigger and bigger. There were mentions of contracts of $50 million, $150 milllon and even $200 million with big cities.

The economics of the AI bundle are great. The original Officer Safety Plan from 2017 cost $99 per officer per month, the OSP 10 Premium costs $370 and with the AI Era Plan on top, it’s $569. That means that the revenue per officer is up almost six times over the years. But still, the customers feel like the winners because new products like Axon Vision are added to the plan automatically. That’s how you get NRR of 125%.

It has to be mentioned, though, that adoption is not completely frictionless. In a customer webinar Axon hosted in June, Chief Darrell Lowe of Redmond, Washington said his prosecutor’s office simply won’t accept AI-generated reports, which makes Draft One unusable for his department. But that’s the kind of resistance that should be expected.

That same webinar also gave a strong data point to support Axon. Chief Doreen Jokerst of Overland Park, Kansas, said that her drone-as-first-responder program gets to scenes 26% faster than her officers.

And how does management think about its own position in this race? Josh Isner, in his typical style:

The Kentucky Derby was last week, the Belmont is in a few weeks, we look at ourselves like Secretariat at the Belmont. We want to be accelerating ahead of everybody in AI.

For the non-horse-racing readers: Secretariat won the 1973 Belmont by 31 lengths, still the record. Modesty is not Isner’s biggest talent. Execution is, fortunately.

I picked Axon in April. The stock is up 32% since then. I’m happy for every Multi who bought with me. If you didn’t, the big question is, of course, if it’s too late now.

Below: my answer, the growth engine almost nobody talks about yet, my proprietary Quality Score for Axon, and much more.

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Rubrik (RBRK) reported its fiscal Q1 2027 results (yes, they are a year ahead of the calendar) on June 4, but I hadn’t written about them yet. The stock dropped after the earnings, but that was not that surprising. It had already run up close to 90% from the April lows before the earnings.

Six days later, management held its first Analyst Day in Las Vegas, and after that, the market reacted positively. Of course, I include the additional insight I got from that day in this article.

Let’s start with the results.

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The Numbers

• Subscription ARR (annual recurring revenue): $1.57 billion, up 32% YoY. Net new subscription ARR of $103 million.

• Subscription revenue: $374 million, up 41%.

• Total revenue: $387.1 million, up 39% and beating the consensus by $20.75 million. That’s 5.7%, strong for a revenue beat.

• Non-GAAP EPS: $0.16, versus the consensus of -$0.03.

• Subscription NRR: approximately 120%.

• Customers with $100K+ in subscription ARR: 2,946, up 24%. Larger customers now make up 88% of subscription ARR. Customers spending $1 million or more grew over 50%.

• Cloud ARR: $1.39 billion, up 43%, now 89% of subscription ARR.

• Non-GAAP gross margin: 82.9%, up from 80.5% a year ago.

• Free cash flow: $74 million, more than double last year’s $33 million. FCF margin came in around 19%, up from 12%.

For companies growing so fast, it’s always good to look at the Rule of 40. If you add revenue growth and FCF margin together, the sum should be above 40 to be a strong company. Rubrik has a Rule of 58. That’s very strong.

Rubrik started as a backup and recovery company, first with hardware, then in the cloud. When you were attacked by ransomware, you can simply turn back the clock to the second before the hack. From there, it also expanded into identity security and, more recently, into securing the AI agents that enterprises use on their own systems.

With its new offerings, Rubrik is positioned where it should be: at the intersection of cybersecurity and agentic AI. A while ago, some believed that Anthropic’s Mythos model would end the company, but that’s definitely not the case.

But back to the past, because there’s something you should understand there. Rubrik used to sell physical boxes bundled with software. Customers got a free hardware upgrade every few years as part of the deal. Rubrik has been moving away from that for a while now, toward selling pure cloud software subscription, Rubrik Security Cloud, or RSC.

The old hardware bundles left behind a small accounting trace, though. Customers who gave up their right to a free hardware refresh got a cloud credit instead, and when they use that credit, it shows up as a one-time bump in revenue. Rubrik calls this “material rights.”

Material rights are shrinking fast, from $13.4 million a year ago to $8.5 million this quarter, and that shrinkage makes the reported revenue growth look softer than it really is. If you leave it out, then revenue grew 43%, not 39%. That’s even stronger.

At the Analyst Day, CFO Kiran Choudary said cloud ARR is now 89% of subscription ARR, up from roughly 60% a couple of years back, and much higher than the 80% long-term target Rubrik gave at its IPO.

He expects it to reach around 90% within four to six quarters and then to stay stable. For regulated and self-hosting customers, the legacy solution is still the best way to secure their data.

Source Analyst Day slides

I heard some investors claim that rising prices for servers, HDDs, flash, and DRAM are a problem for Rubrik. Founder and CEO Bipul Sinha denied this on the earnings call:

Rubrik has no real impact from the hardware market dynamics... the enterprise data protection part of our business is a relatively smaller part of our business now.

Rubrik doesn’t own the servers in a customer’s data center, nor does it own the cloud infrastructure. It mostly sells software. This reminds me of Cloudflare. Just like Cloudflare, Rubrik stays asset-light, without the huge capex spending. In these times, this is an overlooked competitive advantage.

The gross margin has now gone up five years in a row: 70% in FY23, then 77%, 78%, 82%, and 83% this quarter. And free cash flow margin nearly doubled in a year, from 12% to 19%.

This shows that the growth is combined with efficiency.

On the Analyst Day, the company also gave long-term targets.

These look all very good, although the “low single digits” for share dilution is a bit too vague for me.

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“The Cybersecurity Industry Is Dead”

That title is a direct quote from founder and CEO Bipul Sinha on the Analyst Day. His logic is that the old industry was built to prevent and detect attacks from human hackers using human identities. That world doesn’t exist anymore. Attackers use AI models that find vulnerabilities at machine speed, and a growing number of the “employees” in companies are AI agents, not humans. That means that a compromised agent isn’t a stolen password; it’s an insider attack. So:

You can’t respond by human speed, which is at best 10 bits per second, to an AI attacker, which is going million to billion bits per second. You will be out of business.

For a few weeks, the story was that this powerful model would kill the cybersecurity industry. But that’s very uninformed. It will definitely kill companies that still work in the old way, but the best have already adapted to AI and they will not be obsolete, but even more crucial.

Rubrik turned its own platform into an agent called Rubrik AI. It continuously monitors, builds a recovery runbook before an attack happens, and only brings in a human for the final yes or no. Chief Product Officer Anneka Gupta demoed this live at Capital Market Day, walking through a fictional ransomware attack in a Microsoft 365 environment in which the recovery plan was already built by the time the IT admin logged in.

Obviously, the cybersecurity market is not dead. Management put a $125 billion 2029 TAM (total addressable market) on the table for Rubrik.

Big TAM numbers often make me sigh deeply, but in this case, I think this is not outlandish.

Rubrik’s track record of how quickly each new product category has scaled after launch is also convincing.

Co-founder and CTO Arvind Nithrakashyap calls this the platform’s “complementary network effect”: each new product makes the existing ones more valuable, so the adoption compounds.

This is the breakdown of the revenue.

Chief Business Officer Mike Tornincasa runs the incubation team internally called Rubrik X. Products that came out of his team have grown at roughly 100% CAGR over five years, versus around 50% for the company overall, and now make up more than 40% of total company ARR.

To me, this also answers the question of how Rubrik can continue to grow so fast. At this scale, most slow down. Rubrik doesn’t.

The newest product from the Rubrik X team is Rubrik Flex. It’s a single contract that gives a customer access to the whole platform, and they can spend their commitment across whatever products they want. Announced at the Analyst Day. We have seen similar products at CrowdStrike (Falcon Flex).

The first Flex deal was a Global 2000 insurer that signed a contract for $6 million per year and over $30 million in total over five years. They started with three products and have room to grow into the rest.

Below:

The $50 million business Rubrik built from scratch in barely a year (and how it recovers customers 100x faster than Microsoft!)

Why "AI controlling AI agents" is the answer to the Mythos bear case

Five Selling Rules for Rubrik,

If the stock is still a buy after running 90% from the April lows.

And of course, much more.

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A few weeks ago, Topicus (TOI:CA) (TOITF) reported its Q1 2026 results. I started the earnings analysis last week, but I couldn't get it out and so, I'm finishing it on the plane on my way to Vail, Colorado.

As you probably know, I have a second service called Best Anchor Stocks, mostly run by Leandro. He is a Topicus shareholder and wrote a short earnings analysis for Best Anchor Stocks subscribers. This article took Leandro’s article as a basis, but I added some context, a different angle here and there, and a couple of extra things from the filings.

And as always, I’ll update the Selling Rules, the Quality Score and the valuation at the end.

The Numbers

Topicus grew revenue 23% year-over-year to €435.7 million, up from €355.6 million. This acceleration came with EBITA margin expansion, as expenses grew less than revenue, at 20% YoY.

Organic growth (growth that doesn’t come from acquisitions) was 5%, the average since Topicus became a public company.

Maintenance and other recurring revenue grew 7% organically this quarter, the median over all quarters.

You can see a more detailed breakout here.

That recurring revenue accounts for €316 million of the €436 million, or about 72.5% of revenue. It is the sticky, predictable, high-margin business. The fact that this grew by 7% organically is an indication that there is no negative impact from AI so far.

Licenses came in at €11.5 million (+23%), and hardware and other were €9.9 million (+35%), but those are not really meaningful for revenue. Professional services generated €98.2 million (+19%). Organic growth was slightly negative here, but I have no problem with that, because services are always the lowest-quality part of any VMS business.

Net income dropped by 21.4% to €55.1 million from €70.1 million a year ago, and diluted EPS dropped from €0.54 to €0.41.

This sounds like a problem, right? But it isn’t. It’s just accounting noise.

Topicus’ Q1 2025 net income was inflated by a €32.8 million non-cash gain on its Asseco shares. The company bought a large stake in Asseco in January 2025 at 85 PLN per share, but the stock was already trading higher than that, so it booked a paper gain. That’s what causes this drop, which is only accounting.

If you exclude that, pre-tax net income this quarter was €64.4 million, versus €47 million of underlying pre-tax income last year (after removing that €32.8 million). So, the normalized growth is 36%.

This is exactly why, with Topicus, you can’t just read the headlines. The cash flows are another example. The metric that matters most for Topicus is free cash flow available to shareholders (FCFA2S). That’s the cash Topicus can give to shareholders if it stopped with acquisitions after taking out everything that goes to minority partners and to Constellation, the parent. It’s the cleanest number on what the business actually earns and I’m happy the company always provides it.

Operating cash flow rose 3% to €280.5 million, and FCFA2S 2% to €165.4 million. After a 23% revenue quarter with expanding margins, you’d expect more than 2-3% cash growth, right? So why did it grow so little? There are two main reasons.

Behind the paywall, I look at that, Topicus’ enormous acquisition firepower, the three numbers that challenge the AI bear case, the hidden value in Asseco and, most importantly, whether a stock down 51.6% is now genuinely cheap. As always, I also update the Selling Rules, the PM Quality Score, the valuation and my Buy-Hold-Sell rating.

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Wow, what a trip this has been so far.

I picked CrowdStrike (CRWD) as a Potential Multibagger on June 29, 2020, almost six years ago exactly, at $98.10. That means it is almost a 7-bagger. But in typical Potential Multibaggers style, it has been very volatile and, I’m sure, will remain so.

This is how multibaggers go. Everyone wants to celebrate a multibagger, but very few have the stomach to hold on to stocks through the ups and downs.

Don’t be mistaken in thinking that CrowdStrike was an easy hold. It first became a threebagger in a relatively short time and then went back to square 1 in January 2023.

That means the stock was down 65% from the top. Of course, as always, the cynics were ready to chime in: to get back to even, the stock has to almost triple.

There are two problems with that.

The first false assumption is that everyone picked the absolute top. If you picked the absolute bottom, everyone would accuse you of cherry-picking, and they would be right. But if someone cherry-picks negatively, it just passes as if that’s normal. My irritation about this is one of my pet peeves.

Secondly, the percentages make it seem impossible. To be exact, the stock would have to win 186% to get back to the top. Including the stock price, that’s almost a triple. Sounds hard, right? But the stock just has to regain the lost dollar amount. Math is somewhat misleading here. Not factual, of course, but psychological. It makes it sound almost impossible or very hard. But if you look at the bottom, this often happens and usually very quickly.

Just look at what CrowdStrike did from January 2023.

As you can see, the stock is more than a 7-bagger from that point. I looked at when it exceeded its previous top. The poetic beauty of the facts is that it was exactly a year after that bottom.

As long as a company keeps performing fundamentally, the stock return will come. Sometimes it goes swiftly, sometimes you have to exercise years of patience. That’s the entrance ticket for outsized returns.

This is what Charlie Munger said about this.

But enough musings. It’s time for action. And Zack will help me. He will analyze the earnings, although I also contributed a few elements. Even when someone else writes, I still analyze, so I don’t lose touch with the stock.

After the analysis, I take over again for the Selling Rules, the PM Quality Score update and the Valuation to see if CrowdStrike is still attractive at this price, or if it would be wise to sell or trim. Take it away, Zack.

Hi Multis

Leading up to earnings, CrowdStrike went on a generational run, more than doubling from the AI-fear lows set earlier in the year.

The sentiment on X went from “CrowdStrike is going to be replaced by Claude!” to “CrowdStrike is overvalued!” in a matter of months.

CrowdStrike stock run(Fiscal.ai)

So what happened in the past 4 months? Did something fundamental change? Read on to find out.

Headline Numbers

Let’s first dive into the numbers.

Revenue grew to $1.39B, 26% increase year-over-year, exceeding estimates by 1.7%.

Annual Recurring Revenue (’ARR’) grew to $5.51B, growing 24% year-over-year.

As a reminder, for SaaS companies, ARR is often a better indicator than revenue because it more accurately reflects current and future obligations due to the nature of GAAP revenue recognition.

Net New ARR which came in at $256M, up 32% year-over-year indicating continual expansion of contracted revenue with existing and new business. A related note: both SGNL and Seraphic closed in Q1, contributing $7.8M of acquired net new ARR to this quarter.

Charting ARR over the past few quarters, we see the reacceleration of revenue continue after an initial slowdown in the quarters prior:

The growing ARR is also reflected in the increased module adoption that continues to march up and to the right:

ARR and adoption charts(Fiscal.ai)

There’s one more forward-looking number worth paying attention to: RPO or Remaining Performance Obligations. That’s revenue that is already under contract but that can’t be booked as revenue yet because CrowdStrike still has to deliver the services. RPO came in at $8.8B, up 29% year-over-year. That’s growing even faster than ARR and revenue. Probably, that’s a result of the bigger and longer contracts that CrowdStrike can sign.

Subscription Gross Margin came in at 78%, or 81% on a non-GAAP basis. Both were up by 1% compared to their respective quarterly numbers from last year.

Operating Income (Loss) was ($30.6M) compared to ($118.7M) in FY 2026. Non-GAAP income was $325M compared to $201M in FY2026. The biggest contributors to the swing in income were a reduction in expenses related to the July 19th incident (damages from the big outage), which dropped over 50% compared with last year, and reduced SBC (stock-based compensation) as a percentage of revenue.

While operating income is still in the negative on a GAAP basis (mostly due to SBC), we see that Operating Cash Flow continues to grow every quarter, reaching a record high of $591M, growing 54% year-over-year.

Net Income (Loss) was $27.8M compared to ($104.3M) in Q1 FY2026. Non-GAAP net income was $283.4M compared to $184.7M in Q1 FY2026. GAAP net income got an $18M boost from gains on strategic investments. CrowdStrike has a venture fund, the Falcon Fund, and probably one or a few of those investments did very well.

Earnings Per Share (diluted) on a GAAP basis was $0.11 compared to a loss of $0.42 in Q1 FY2026. Non-GAAP Earnings Per Share (diluted) was $1.10 compared to $0.73 in Q1 FY2026.

Free Cash Flow was $468.5M compared to $279.4M in FY2026 while maintaining a stellar 34% free cash flow margin.

Cash and cash equivalents stood at $4.55B. This rock-solid balance sheet continues to provide security and massive optionality via future acquisitions or buybacks.

In Q1, CrowdStrike repurchased $176 million in shares at an average price of $365.63, leaving approximately $1.3 billion remaining under their current authorization. Management noted they will remain opportunistic in returning capital while staying focused on capturing the significant growth opportunities ahead.

CrowdStrike also announced a 4-for-1 stock split, the company’s first as a public company. While stock splits are purely cosmetic, they can increase liquidity for both shares and options. Shares will begin trading on a split-adjusted basis on July 2, 2026.

Guidance

For Q2 FY2027, management guided:

• ARR: $5.793B – $5.795B (24% YoY growth),

• Net new ARR: $284M – $286M (28 – 29% YoY growth)

• Revenue: $1.436B – $1.442B (23% YoY growth)

For the full year FY2027:

• ARR: $6.531B – $6.556B (25% YoY growth); a slight raise.

• Net New ARR growth: raised to 27.7% at the midpoint which is a 520 basis point increase from prior guidance, implying $1.279B – $1.303B of net new ARR. This is a meaningful revision and signals that management sees future business expansion in the pipeline.

• Revenue: $5.915B – $5.959B (23 – 24% YoY growth); a slight raise.

• Free cash flow margin: At least 30% for the full year

Overall, these were incredibly solid numbers across the board, showing clear signs of top-line reacceleration and improving operational leverage as they shake off the final impacts of the July 2024 incident.

Now let’s move on to what CEO George Kurtz referred to as the “Mythos inflection moment”.

The Mythos Moment

First, a quick recap of what transpired over the past few months:

A shift began at the RSA Conference in late March 2026, slightly before Mythos was even announced. Founder and CEO George Kurtz mentions that every meeting he had that week boiled down to the same thing:

Every meeting was literally the same meeting all over. Help us protect these AI workloads that are running on the endpoints. All the developers are running it, marketing is running it, accounting is running it. We heard just crazy stories about AI run amok.

Organizations want to move faster in adopting AI without compromising security.

Then, in April 2026, more fuel was added to the fire with Anthropic releasing a new frontier model referred to as “Mythos,” which demonstrated an ability to identify software vulnerabilities and construct sophisticated cyberattacks at an unprecedented speed and scale.

Claude Mythos(Anthropic)

Source: Anthropic

Now, any reasonably technical person or AI agent can potentially conduct serious cyberattacks against enterprise infrastructure, and cybersecurity’s role in the enterprise has evolved overnight. Founder and CEO George Kurtz:

For the first time in my career, the market’s view of cybersecurity’s role has shifted from being viewed primarily through the lens of risk management, compliance, and protection to being recognized as a strategic accelerator and a critical enabler of AI adoption.

The funny thing is that if you have been following CrowdStrike for a few years, George Kurtz has said this forever. So, it was with pride that he said this. Cybersecurity is now a necessity for enterprises that want to leverage and accelerate AI quickly, as deploying AI across an organization without proper security controls is too risky. Secondly, on the defensive end, frontier AI models (e.g. Mythos) have increased the attack surface and lowered the barrier for adversaries, increasing the security gap enterprises were already facing.

In response to this potential threat, new programs were created: Anthropic’s Project Glasswing and OpenAI’s Trusted Access for Cyber (’TAC’).

CrowdStrike was the only cybersecurity company selected for both, underscoring its leadership in this space. These programs gave enterprise companies early access to frontier models to ensure that necessary cybersecurity guardrails were in place before the models were released to the public.

This quarter, CrowdStrike also took the initiative in launching Project QuiltWorks.

Source: CrowdStrike

This is an industry-wide coalition of the world’s top AI companies, consulting firms, and cyber insurance companies, all under one roof, with the goal of providing auditing services with the CrowdStrike platform to identify vulnerabilities within companies.

As you can imagine, all of this serves as a new marketing and sales pipeline for the business, positioning CrowdStrike as the thought leader and best-of-breed in this space.

It’s ironic how what initially started as a threat to the CrowdStrike business is now a sales generator. I mentioned that in last quarter’s analysis of the “AI Threat” and it looks like it’s playing out exactly as I saw it then:

To flip the script, rather than a threat, AI and the “agentic workforce” represent a massive new market for CrowdStrike. AI adoption means a new attack surface that must be secured. As it grows, CrowdStrike becomes an even more necessary layer of protection for the AI stack. We are already seeing this reflected in the growth of the modules (Identity, Endpoint, AI-DR, etc.) mentioned earlier in this article. CrowdStrike is set to benefit from this AI revolution, not be replaced by it.

This entire pivot was further proof to me of just how much the market is driven entirely by narratives. Especially in an environment with volatile price action, you can clearly see how negative narratives drive down prices, which then fuels an even more negative narrative. The cycle repeats endlessly until the story finally turns. Keep in mind, this whole roller coaster happened despite zero evidence of fundamental weakness.

So the narrative flipped, the fundamentals are stronger than ever, and the stock just doubled in four months. I bought back then, based on the valuation, which is in the paid part below.

Below: the customer behavior that proves how sticky this platform is, the AI giants that are now building on top of CrowdStrike, the exact price I’d buy more of this stock at, and what I’m doing with my position after a 7-bagger.

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Cloudflare (NET) reported its Q1 2026 results on May 7. I didn’t find the time to cover them right away and then I saw that it had its annual Investor Day on June 9. I waited a bit so I could cover both in one article. And here it is.

We’ve owned Cloudflare since I picked it at $39 in 2020, and that definitely helped me to unpack everything and put certain things in perspective.

Let’s walk through the numbers first.

The Numbers

• Revenue: $639.8M, +34% YoY. That’s the same growth as Q4. It beat the consensus of around $622M by about $17M or 2.7%.

• Non-GAAP EPS: $0.25

• Non-GAAP operating income: $73.1M, or 11.4% of revenue, up from $56.0M a year ago.

• Free cash flow: $84.1M, up from $52.9M in Q1 last year.

• Free cash flow margin: 13%

• RPO: $2.543B, +36% YoY. RPO is the remaining performance obligation. That’s revenue already under contract but not yet booked because the service still has to be delivered.

• DBNRR: 1118%. (dollar-based net retention, how much customers Cloudflare had a year ago are spending now, including the churn of customers that stopped).

• Large customers (over $100K a year): 4,416, +25% YoY. This is now 72% of revenue, up from 69% last year, and grew by 38%.

• Very large customers: deals over $1M grew 73% YoY. Cloudflare added as many $5M+ customers in this quarter as it did in all of last year.

Cloudflare has said on multiple occasions that investors should not focus on the DBNRR, but I still read a lot of takes saying it was bearish that DBNRR dropped from 120% in Q4 to 118%.

Cloudflare said that its sales teams focused on new businesses, and not as much on the expansion of existing customers. But still, retention was great.

Founder and CEO Matthew Prince on the call:

Our quarterly gross retention reached its highest level in four years, reinforcing that customers understand Cloudflare is a must-have rather than a nice-to-have.

Gross retention is different from dollar-based net retention. It looks at what you had in revenue from your customers last year and you withdraw all the churn of customers who left, but you don’t count what they spent more. So, the maximum is 100%. The highest gross retention in four years means very few customers are leaving.

The focus on new customers paid off. New business grew at its fastest rate since 2023.

Guidance went up as well. Management raised the full-year guidance to $2.805 billion to $2.813 billion, about 30% growth at the midpoint. For Q2, Cloudflare guided to $664 million to $665 million, also around 30%. I’m pretty confident the real result will be higher.

Also important: network capex is expected to be 14% to 15% of revenue for the year, which is still almost nothing compared to the tens of billions the hyperscalers are investing into data centers. And knowing this team, they’ll probably beat all of it.

The 20% Layoff

On the same day it reported this quarter, Cloudflare also announced it was letting go of about 1,100 people, about 20% of the company. That’s the news that made all the headlines, and I understand why it shocked people.

A company growing 34% laying off a fifth of its employees sounds bad. But when you look at what Cloudflare said about this, and at what it has been doing internally, it’s a very different story.

The cuts hit every function and every part of the world, with one exception: the salespeople who carry a quota and sit in front of customers. Those were barely touched, and management still expects its sales capacity to grow this year. The whole reorganization will cost $140 million to $150 million (about $40 million of that non-cash), mostly in the second quarter, and it should be done by the end of the third. The free cash flow targets for the year didn’t change.

So why do this now, when things seem to be going well? Because Cloudflare has ramped up the use of its own AI tools internally for the last six months. The results convinced management to act.

Cloudflare has been pretty cautious with AI internally, but that changed in November. Since then, people suddenly got much more productive, in some cases two times, ten times, even a hundred times as productive. Matthew Prince described it in his typical colorful language:

It was like going from a manual to an electric screwdriver.

The numbers the company shared were impressive. Cloudflare’s use of AI is up more than 600% in three months. In engineering, 97% of the team now uses AI coding tools, all of them running on Cloudflare’s Workers platform. People in finance, HR, and marketing all use AI intensely. That’s on an internal system the company built and calls Cloudflare OS. On the Investor Day, a few interesting examples were given.

The layoff is the consequence of that. Prince was clear about what it was and wasn’t:

This isn’t a cost-cutting exercise or an assessment of individuals’ performance.

To me, this is a clear signal that the second AI wave has begun. The first wave of the AI boom rewarded the companies that built the data centers, the chipmakers and memory suppliers. A lot of that (but maybe not everything) is now priced in. The next wave will reward the companies that take all that AI and turn it into real earnings by changing how they operate. Cloudflare is one of the first to do that systematically.

It also helps to compare this to the other layoffs we’ve seen this year. Plenty of big technology companies have cut staff, but most did so because they had to. Often, that was to compensate for their enormous data center investments. Cloudflare cut while growing 34% and raising its guidance. That’s a very different situation. And it’s actually a very good thing to do.

The other thing I appreciated was the honesty. Cloudflare paired the layoff with what it called industry-leading severance, and instead of hiding behind the usual corporate language, Prince called it a hard day and said the people leaving will go on to build great things. He also made clear this isn’t a company shrinking. He expects to have more employees in 2027 than at any point in 2026. When an analyst asked why he would do this right after such a strong quarter, he put it like this:

We’re the fittest we’ve ever been, but we’re gonna get even fitter to win the next chapter.

I respect this move a lot. I’m sure Cloudflare will take on many more employees once the new system is in place. Right now, there’s overcapacity. But the companies that will win over the long term are those that can leverage the efficiency gains at a larger scale and I think Matthew Prince knows this better than anyone else.

Sales productivity went up year-over-year for the ninth quarter in a row. Hiring of new salespeople grew at its fastest pace since 2023. We already saw that customer bookings grew the fastest since 2023. They also filled the pipeline at the fastest pace in five years and beat their internal plan for the quarter by more than they have in any first quarter since 2021, during that crazy COVID peak.

The customers keep getting bigger, too. Large customers now make up 72% of revenue, up from the high 50s a few years ago.

The Agentic Internet, Cloudflare’s Biggest Tailwind

Below: Cloudflare’s premium role in the agent traffic, why OpenAI and Anthropic both build on Cloudflare, the "Google Zero" problem of the internet and how Cloudflare seems to be the only one working on a solution, why the dropping gross margin is actually good news. And of course much more, like the valuation.

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