Good morning. Futures +15bps after a set of solid earnings — this time it was internet and software which stole the show vs. semis. TWLO, TEAM beat handedly on the sw side while RDDT and ROKU both beat on the internet side (although RBLX was as bad as it gets). AAPL also helping after a much better product and GM guide. SNDK/WDC missed heightened expectations but not much in those prints to shake bulls. We go over everything below then get to the usual…

SNDK -4%: Big beat and raise vs street but missed heightened bogeys. Main discussion point around increasing LTAs and what that means going forward.

Street numbers move materially higher, but elevated buyside bogeys were above the June guide on EPS and GM. Mgmt sounded good on the call with the biggest incremental item the NBM/LTA disclosure: 5 signed deals, $42B minimum RPO from the first 3, >$11B financial guarantees across 5, and >1/3 of FY27 bits already committed. Debate overnight centered on the push and pull of the increasing amount of LTAs: one on hand they improve multiple durability but at the same time caps peak-cycle EPS/GM upside if NAND keeps ripping. Buyside numbers all over the place here, maybe tick down a nudge, but center around CY26 EPS $140 and CY27 $210+. Bulls will say 8-10x that while bears will say throw a trough 4-5x multiple as those numbers are near peak. We continue to like the structural and cyclical bull case on SNDK despite r/r not being as exciting as it was a month ago before it ramped 90%. The print doesn’t change our positive view here, although we have to give some thought to how and if the narrative dynamic shifts given LTA focus. What does stock do today? No strong view here although it’s SNDK: it could go from -6% to +6% and round trip it all a couple times, and you’d still be like “hmm, yeah that’s SNDK.”

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Overall, price action in AI semis (outside of NVDA — more on that below), continues to look strong. Charts that have pulled back bouncing nicely off their ST MAs (AVGO, LITE, AMD). Misses are beating bought up quickly (CLS, TER, GLW). Beats are following through (NOK, STX, WDC, TXN, VRT, INTC). KLAC decent price action today. However, still some mixed tea leaves to watch. NVDA is one failing to breakout. Neoclouds are another. NBIS break out to new highs and then below previous resistance and breaking below MAs:

AMAT similar on neg RSI divergence:

So not everything is up and to the right like it was for most of April, but overall will say things still feeling and acting pretty good out there despite lots of conversations about things being “extended.” We think the tea leaves will guide on when the right time to be aggressive in cutting back AI semis exposure will be, and we’re just not there in our view. As always, we remain on our toes and will listen to the market.

AI/SEMIS

• NVDA -4% the main underperformer today vs. SOX, underperforming by a whopping 6%. This tweet encapsulates why it was down today:

Lot of good discussion in TMTB Slack last night on the topic here:

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Capex roundup from last night:

MSFT: implying C2H26 capex at ~$59bn quarterly run-rate vs. F25 run-rate of ~$36bn +64% YoY
META: bump up capex from $125bn -> $135bn — +87% YoY
GOOGL: bump up capex from $180bn -> $185bn — +102% YoY…saying CY27 will be up significantly from 2027 (conversations overnight have buyside thinking $275B)
AMZN: no change at $200bn — +52% YoY

Trainium and TPU names catching a bid early….NVDA +1% / AMD +3%, the latter on a META mention.

We’re going to dive straight in since there’s a lot to get to…

We’ll hit GOOGL, AMZN, MSFT, META, KLAC, EQIX, Mediatek, and Samsung. Alright here we go…

GOOGL: Cleanest large-cap internet print of the night: Search and Cloud both beat, Cloud backlog/TPU disclosures supports bull narrative

Let’s start with the cleanest of the night. Overall, great numbers here with search growing 19% and GCP showing the 6-handle bulls wanted. YT inline-ish was only nit. Thought the call went very well with mgmt doing a great job describing why bulls love GOOGL: they’re only company that has silicon cloud and models and are top 3 in every category. Raised capex $5B and said 2027 capex would increase significantly to 2026. Bulls think this means ‘26 capex of $200B goes to $275B+, or 40% growth (significantly is a very wide band but commentary was very bullish around spend). Buyside numbers here going up to close to $16 in ‘27 EPS vs $15 previously. 25x = $400, which is less than 10% upside from here but bulls will make the case — and they have a good one - that this should trade closer to 30x in an “AI world” where GOOGL is arguably the best positioned hyperscaler. If GOOGL manages to accelerate search revs from 19% in the face of tougher comps the next few quarters (TBD) while GCP likely ramps into high 70s/80s, we think that 30x argument becomes even more credible. We love the narrative here and think it’s a must own in LT book, but think AMZN presents a higher upside bull case and better “rate of change” narrative (more below)…

The #s:

• Revenue was $109.896B, +21.8% y/y (+18.7% FXN; last q +18.0% y/y) vs Street ~$106.9–107.0B, +~18–19%.

• Search printed $60.399B, +19.1% y/y (last q +16.7%) vs Street ~$59.0B, +~16% and bogeys of 17-18%, while Cloud printed $20.028B, +63.4% y/y (last q +47.8%) vs Street ~$18.4B, +~50%. Backlog was $462B nearly double q/q. YouTube was the soft spot at $9.883B, +10.7% y/y vs Street ~$10.0B, +~12%, while GAAP OI was $39.696B, +29.7% y/y vs Street ~$36.2–36.4B.

• FY26 capex guide moved to $180–190B from $175–185B, and mgmt said FY27 capex will “significantly increase”; TPU revenue starts small in 2026 with the majority recognized in 2027

Key Takeaways:

• Search revenue accelerated to +19.1% y/y, the best growth in years, with mgmt saying queries are at an all-time high and AI Overviews / AI Mode are increasing usage rather than cannibalizing Search. AI is expanding query volume and helping monetize longer, more complex queries that were historically harder to serve ads against.

• Cloud revenue grew +63.4% y/y and beat Street by ~9–11% and inline with bogeys, but the bigger surprise was backlog of $462B, nearly doubling q/q, with just over 50% expected to convert to revenue in the next 24 months. Mgmt said enterprise AI solutions became Cloud’s primary growth driver for the first time, revenue from products built on GOOGL GenAI models grew ~800% y/y, new customer acquisition doubled, $100M–$1B deals doubled, and existing customers outpaced initial commitments by 45%

• OOGL will deliver TPU hardware to select customers in their own data centers, with a small revenue contribution later in 2026 and the majority in 2027. That supports the vertical-integration bull case and expands Cloud’s addressable market, but it also creates a bear pushback around the “quality” and comparability of Cloud revenue as GCP, Workspace, Wiz, and now TPU hardware become increasingly intermingled.

• Mgmt cited Retail, Finance and Health as key Search vertical contributors, said all major verticals contributed, and said demand for AI compute was “unprecedented” internally and externally.

• YouTube was not bad, but it was the “less clean” part of the print. YouTube ads grew +10.7% y/y vs Street around +12%, though mgmt highlighted living-room usage above 200M hours/day, 10M+ Shorts channels publishing daily, YouTube subscriptions growing faster than ads, and the strongest non-trial YouTube Music/Premium subscriber add quarter since launch.

Bull vs. Bear Debate:

The bull case is that GOOGL is now proving AI is not a threat to Search, but a demand and monetization accelerator while they own the full AI stack. The core Search business grew +19% y/y, queries are at all-time highs, AI Overviews and AI Mode are increasing usage, and Gemini is expanding the monetizable surface area by understanding intent in longer and more complex queries. Bulls also point to AI-enabled campaigns already representing more than 30% of customer Search spend, which supports the idea that AI is improving advertiser ROI rather than compressing it. The agentic commerce and UCP commentary adds another leg to the story: GOOGL is not just defending Search, it is trying to collapse discovery, comparison, checkout, and post-purchase flows into Search / AI Mode / Gemini.

The second bull leg is Cloud and infrastructure. Cloud revenue accelerated to +63% y/y, backlog nearly doubled to $462B, and enterprise AI solutions became the primary growth driver. Bulls see this as evidence that GOOGL’s vertically integrated stack, models, TPUs, security, data, Workspace, and GCP, is becoming a durable competitive advantage against AWS, Azure, and AI-native infrastructure platforms. TPU hardware sales to external customers are especially important because they could turn a historically internal advantage into a merchant-silicon-like revenue stream while increasing scale benefits across GOOGL’s AI infrastructure.

The bear case not very strong and is not that the quarter was weak; it is that the market may already be capitalizing a lot of the AI upside while underestimating the capex, depreciation, and FCF drag required to sustain it. FY26 capex is now $180–190B, FY27 is expected to “significantly increase,” and buyside conversations are moving toward numbers like ~$280B. That creates a real duration problem for FCF, especially with FCF down ~47% y/y in Q1 and no share repurchases during the quarter. Bears will argue that AI demand looks outstanding today, but if demand normalizes or pricing weakens, the fixed-cost base, depreciation, power, and data center operating costs could pressure margins faster than consensus expects.

The second bear argument is competition and revenue quality. AI-native products from OpenAI, Anthropic, Perplexity and others still represent long-term risk to Search distribution and commercial queries, especially if consumer agentic workflows move away from classic search pages. Bears will also argue that Cloud’s reported number is becoming harder to parse as Workspace, Wiz, GCP, AI infrastructure, and TPU hardware are all in the same segment. TPU revenue may be attractive, but it could also make Cloud growth lumpier, lower-quality, and less comparable to hosted cloud revenue. YouTube and Network were also reminders that not every ad bucket is accelerating.

AMZN: 1Q26 #s looked solid despite AWS +28% coming in slightly below bulls hopes for a 3-handle. Stock narrative continue to flip from “AWS AI laggard / capex drag” toward “AWS AI demand, Trainium visibility, and margins better than feared.”

Overall, solid set of numbers and call commentary was bullish helping stock reverse from -3% to +3%. Q2 EBIT guide of $24B at the high end better than fears of lower and AWS margins near 38% upticked q/q vs. concerns that the Anthropic ramp would eat into that.

Call also had some pretty bullish points: 1) $225bn+ in rev commitments for Trainium. Mgmt said they see potential to sell Trainium racks externally “very much a possibility” over the next few years; 2) 1Q backlog $364bn (+49% q-q), and is exclusive the $100bn+ from Anthropic last week. Mgmt also called out accelerating customer conversations of on-prem to cloud migration due to supply chain inflation.

Numbers maybe going up slightly here, but don’t get sense they are moving much with bulls still at $13 for ‘27 GAAP EPS. While GOOGL has cleanest narrative, AMZN continues to have the biggest “rate of change” narrative (meaning, most exiting) among the 4 and also the most upside as bulls hope EBITDA gets back in the 15x+ range with an AWS accel getting close to a 4-handle later this year. Stay the course long here.

The #s:

• Revenue was $181.5B, +16.6% y/y, +15% FXN, versus Street $177.2B, +~13.9%; OI was $23.9B, +29.6% y/y, 13.1% margin, versus Street $20.8B, 11.7%.

• AWS was the center of the print: revenue $37.6B, +28.4% y/y, versus Street $36.7B, +~25.3%, with AWS OI margin 37.7% versus Street ~33.9%.

• 2Q revenue guide of $194-$199B was above Street $189.9B; 2Q OI guide of $20-$24B bracketed Street, with the $24B high end better than feared despite SBC, fuel, and Leo headwinds.

Key Takeaways:

• AWS OI was $14.2B, +22.6% y/y, with margin 37.7% versus Street ~33.9%. Investors had worried AI workloads, Anthropic ramp, GPU dependence, and depreciation would push AWS toward low/mid-30s margins. Instead, the quarter showed AWS can absorb heavy AI investment while still printing high-30s margins, though hearing some on buyside still assuming a low-30s steady-state.

• Mgmt disclosed the chips business is now >$20B annual revenue run rate and growing triple-digit y/y, or ~$50B if treated like a standalone chip vendor selling to AWS and third parties. Trainium2 is largely sold out, Trainium3 is nearly fully subscribed, and much of Trainium4 is already reserved roughly 18 months ahead of broad availability. Mgmt also said selling Trainium racks externally over the next couple years is “very much a possibility.”

• Mgmt cited AI revenue run rate of >$15B, Bedrock customer spend +170% q/q, Bedrock processing more tokens in 1Q than in all prior years combined, and 125k+ Bedrock customers. The broader IT spend point was also constructive: AI spend is pulling through core AWS demand, and memory/storage inflation is pushing some on-prem customers faster into cloud migration.

• Retail demand looked resilient. Units grew +15% y/y, the strongest since the tail end of COVID lockdowns. Mgmt cited strong 3P seller performance in the U.S., Europe, and Brazil, plus grocery and same-day perishables as frequency drivers. Customers using same-day perishables add nearly 3x as many items and spend >80% more than those who do not, which supports the bull view that grocery can increase retail frequency even if near-term mix can be lower margin.

• Ads revenue was $17.2B, +23.9% reported and +22% FXN, versus Street $16.9B. Rufus monthly active users were up >115% y/y and engagement nearly +400% y/y. Mgmt pushed back on agentic-commerce disintermediation risk, arguing that multi-turn shopping conversations create more opportunities to surface relevant organic and sponsored products.

Bull vs. Bear Debate

The bull case is that AMZN has moved from being perceived as an AI infrastructure laggard to one of the clearest AI beneficiaries in mega-cap tech. AWS reaccelerated to +28.4% y/y on a $150B annualized run-rate base, AI revenue is already at a >$15B run rate, and backlog has stepped up to $364B before including the latest >$100B Anthropic deal. The quarter also showed that AI demand is not purely a GPU capacity story. Mgmt’s pitch is that AI workloads pull through core AWS services, CPU demand, storage, security, databases, and analytics, and AMZN’s integrated Trainium plus Graviton stack can deliver differentiated economics. That matters because the biggest historical bear case was not “AI demand will not exist,” but “AMZN will spend heavily and earn lower returns.” This quarter gave bulls data points against that: high-30s AWS margins, accelerating AWS growth, very large Trainium commitments, and better visibility into the revenue pipeline.

The second bull argument is that retail, ads, and services mix are doing more work than investors appreciate. Units +15% y/y, 3P services +13.9%, ads +23.9%, and NA OI margin of 7.9% all point to operating leverage outside AWS. Grocery and same-day perishables increase purchase frequency, Rufus can raise conversion and create new sponsored ad inventory, and the service mix shift toward AWS, Ads, Subscriptions, and 3P is structurally margin accretive. Bulls also like the optionality from Leo, Alexa+, Health AI, and Zoox, although Leo is the one that is starting to become more visible as both a cost drag and a potential medium-term revenue platform.

The bear case is that the quarter did not eliminate the two hardest questions: whether AWS can keep accelerating enough to justify the capex cycle, and whether AWS margins can stay near high-30s as AI capacity, depreciation, and large AI customer commitments ramp. AWS growth of +28.4% was strong, but the setup into the print had some investors looking for ~30% in 1Q and mid-30s in 2Q. The 2Q revenue guide can be interpreted as low-30s AWS growth if the Prime Day contribution is small, but it is not an unambiguous mid-30s signal. Bears also note that Azure and Google Cloud are still growing faster in AI-related workloads in several comparisons, and that AMZN remains in a catch-up phase after a period when the market viewed it as capacity constrained.

The second bear argument is that FCF and capital intensity are still deteriorating. Q1 FCF was negative $17.2B and cash capex was $43.2B. Even if mgmt says investments will monetize 6-24 months later, investors still have to underwrite hundreds of billions of dollars of capex with a long lag before cash returns. Leo, Zoox, and other long-duration bets add complexity, and Q2 OI guidance embeds another ~$1B of Leo cost, a seasonal SBC step-up, and fuel inflation. Bears also worry that retail growth mix may be less profitable if grocery, perishables, and 1P everyday essentials grow faster, while tariffs, fuel, memory inflation, and macro pressure could erode consumer or infrastructure margins. Agentic commerce is another theoretical risk if third-party agents weaken AMZN’s control over the shopping journey, even though mgmt pushed back strongly on that.

Yup the bulls have it…

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Q1 2026:
Revenue $109.9B, +22% y/y (last Q +18% y/y) vs Street $107.1B BEAT (+2.3%)
EPS $5.11, +82% y/y (last Q +24% y/y) vs Street $2.81 BEAT (+81.6%)
Google Search Revenue $60.4B, +19% y/y vs. bogeys of 18% and expects of 16%
YouTube Ads Revenue $9.9B, +11% y/y, a little light
Google Cloud Revenue $20.0B, +63% y/y, hit the 6 handle that bogeys wanted.

AMZN -2%: A bit mixed. AWS missed bogeys at 28% vs 3 handle expectations, but overall revs and Q2 top line guidance very solid. Q2 OI inc guide slightly below street as expected. All comes down to how Jassy sounds on fwd AWS growth on the call

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Some big moves in semi land following earnings with STX +16%, NXPI +19%, BE +20%. STX helping WDC +10% and the memory names ahead of SNDK earnings (SNDK +7%; MU +5%).

Big night tonight with META, MSFT, AMZN, GOOGL on the docket…should be a fun time in TMTB Slack.

We’ll touch on earnings first then get to the usual…

EARNINGS

STX +16%: Big and broad beat/raise, as narrative continues to shift further toward “structural AI storage growth + pricing power + HAMR margin expansion.” GMs the standout

Not much to pick at here. A stellar print by STX and mgmt sounded bullish as usual on the call. Buyside numbers here shifting to the bull case which is Low to mid 60s GMs and close to $45 in EPS for CY27. Bulls will say high teens/20x+ multiple on that given higher for longer structural growth, better pricing/margin, and better industry dynamics (two players with rationale supply)

The #s:

• FQ3 revenue was $3.112B, +44.1% y/y (last q +21.5% y/y) vs Street $2.956B, +~36.9% y/y, with non-GAAP EPS $4.10 vs Street $3.50-$3.51 and non-GAAP GM 47.0% vs Street ~44.3-44.6%.

• FQ4 guide was revenue $3.45B, +~41% y/y vs Street ~$3.15-$3.16B, +~29% y/y, with EPS $5.00 vs Street ~$3.96-$3.99 and low-40s OM vs Street ~36%. Implied GMs 50% vs street in high 40s.

• Annual revenue growth target raised to minimum 20%, nearline capacity nearly allocated through CY27, build-to-order contracts through FY27, Mozaic 4+ ramping, and FCF approaching $1B.

Key takeaways:

• Mgmt highlighted $/TB or $/EB moving higher, noting the largest HDD price increase per EB in over a decade. The durability of the pricing story rests on nearline capacity being nearly allocated through CY27, build-to-order deals through FY27, and conversations extending into CY28. Mgmt emphasized no change in pricing strategy, but demand continues to exceed supply.

• Mozaic 4+ is qualified at two of the world’s largest CSPs, began revenue shipments in late March, and is expected to represent the majority of HAMR exabytes exiting CY26. Mgmt said qualification timelines were in line with PMR, which is important because it reduces concern that HAMR adoption will be slow, costly, or unreliable. Mozaic 5 at 50TB remains targeted for qualification shipments in late CY27

• Mgmt reiterated STX is not adding unit capacity, and exabyte growth is being driven by areal density, not unit growth. That helps support the “rational duopoly / constrained supply” thesis.

• Data center revenue was $2.5B, +55% y/y and +12% q/q vs Street around $2.37B, and data center was 80% of revenue. Mgmt cited AI inference, agentic AI, video, physical AI, sovereign cloud, neocloud, and enterprise tiered architectures as drivers.

• The callback noted mechanical parts were sufficient, memory was short and more expensive, but HDDs require limited memory and STX expects internal yield/cost actions to offset

• On the callback, mgmt also remained confident in pricing improvement for at least the next four quarters, with build-to-order contracts in place through FY27, nearline EB supply allocated through CY27, and planning discussions extending into CY28. Mozaic 4+ volumes were still small in March but expected to ramp in June and more in 2H FY26, with two qualified cloud customers consuming most of the ramp near term.

• OpEx dollars are expected to be flattish for the next 3-4 quarters, while mechanical supply is sufficient and memory tightness is manageable given low memory content per HDD.

• FCF deployment remains debt reduction first, especially remaining converts, followed by a greater focus on buybacks, with mgmt reiterating a 75% FCF return framework.

Bull vs. Bear Debate

Bulls see STX as undergoing a structural business-model upgrade, not just a cyclical HDD upturn. The core argument is that AI is turning data into a strategic asset, which creates more demand for low-cost, power-efficient mass capacity storage across training, inference, agentic workflows, video, autonomous systems, sovereign cloud, and enterprise tiered architectures. This quarter strengthened that argument because mgmt raised the annual revenue growth target to at least 20%, reported the 10th consecutive quarter of cloud revenue growth, and said nearline capacity is nearly allocated through CY27, with planning already reaching into CY28. Bulls also like that demand is not being chased through unit additions, which supports supply discipline and pricing power.

Bulls also see HAMR as the unlock for both revenue and margin. Mozaic 4+ gives STX up to 44TB drives with >30% more capacity versus first-gen Mozaic using largely the same number of disks/heads and minimal BOM change. If STX can add exabytes through density rather than units, the company gets more output, better customer TCO, and falling cost/TB without flooding the market. This quarter de-risked HAMR because two of the largest CSPs are qualified on Mozaic 4+, qualification timelines matched PMR, and Mozaic 4+ should become the majority of HAMR exabytes exiting CY26. Bulls will point to FQ3 GM at 47%, FQ4 implied GM around 50% as proof that the margin bridge is ahead of plan.

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STX +18% after a nice beat and raise guiding revs 9% above street, EPS 25% above street, which is better than the LDD beat buyside was expecting ($5, $20 annualized) and implied GMs ~50%, above the whispers in the high 40s — all these numbers, especially the GMs speaks to the margin expansion bull case. Expecting commentary on the call to go well, talking up LTAs and pricing.

NXPI +10% following the stellar analog printsfrom TXN and STM last week with revs of $3.18B vs street at $3.15B, with all end markets beat slightly with 57.1% GMs vs street at 57%. Guiding revs $3.45B at midpoint (+8% q/q vs street +4%) and guiding GMs to 58% at the midpoint vs street and bogeys in mid to highs 57s. Mgmt highlighting strength in industrial, autos (unexpected), and physical AI and saying positive momentum expected to accelerate through the rest of CY26. This has been a big funding short (and least owned among LOs) given small DC exposure and large auto exposure, so while beat smaller than TXN/STM, it should bode well

From PR, “The momentum we have built is expected to accelerate through the remainder of 2026, with progress increasingly extending across the core of our business. We remain committed to disciplined investment, margin expansion, and portfolio optimization to deliver sustainable, long-term value for our shareholders,” said Rafael Sotomayor, NXP President and Chief Executive Officer.”

BE +15% on a nice beat and raise with Revenue $751M, +130% y/y (last Q +36% y/y) vs Street $533M. Better GMs as well beating by 130bps. FY 2026: Revenue $3.4B vs Street $3.2B. FY 2026: Gross Margin 34.0% vs Street 31.9%. FY 2026: EPS $1.85-$2.25 vs Street $1.40. Call going well so far:

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Key quote from WSJ:

Board of directors have also more closely examined the company’s data-center deals in recent months and questioned Chief Executive Sam Altman’s efforts to secure even more computing power despite the business slowdown, the people said.

The spending scrutiny is constraining Altman’s once-boundless ambitions ahead of a potential initial public offering that could take place by the end of the year. Friar and other executives are now seeking to control costs and instill more discipline in the business, at times putting them at odds with their CEO.

A lot of this does seem backward looking and before OAI pivoted to enterprise and the Codex ramp, but with Oil +5% encouraging a risk off morning, semis having had a huge run MTD, froth reading near highs, along with some weaker earnings from RMBS/CLS, all combining to have the group down early. OAI complex getting hit the most: Softbank was down 10% overnight. ORCL -8%. AMD -6%. CRWV -7% NVDA -3% although MSFT -1% hanging in fine (I guess severing some ties with OAI yesterday now works in their favor ;) ). Good discussion in TMTB Slack here on the news.

Asia mostly saw losses, but there were a few pockets of green: TPX +0.99%, NKY -1.02%, Hang Seng -0.95%, HSCEI -1.27%, SHCOMP -0.19%, Shenzhen -1.07%, Taiwan TAIEX -0.24%, Korea KOSPI +0.39%.

We’ll cover SPOT, CDNS, RMBS, and CLS first, then onto the usual.

Let’s get to it…

SPOT -10%: Not enough as Q1/Q2 Premium subs miss and OI guided lower

Call ongoing…

The Prem miss will likely embolden bears who will were already saying sub growth was saturated and will point to elevated churn as being evidence of a mature weighted product. Now you have a heavily weighted 2H guide with limited visibility. Other nits here: advertising missed (biddable ads creating ST headwind for LT gain)and OI guide is weaker — mgmt had kind of telegraphed lower OI increase in 2H of the year, but this again will have bears pointing to a step function higher in AI-related expenses (and fears around competitive environment increasing).

1Q Premium Subscriber Adds: 3M vs bogey 4M vs guide 3M
2Q Premium Subscriber Add Guide: 6M vs bogey 6M vs Street 7.5M
1Q Revenue: EUR 4.5B vs bogey EUR 4.6B vs guide EUR 4.5B
2Q Revenue Guide: EUR 4.8B vs bogey EUR 4.8B
1Q OI: 715M vs bogey 715M
2Q OI Guide: 630M vs bogey 700M+
1Q GM: 33% vs bogey 33%+ vs guide 32.8%
2Q GM: 33.1% vs bogey/street 33.1%

CDNS -2%: Clean beat-and-raise, but the stock debate remains whether agentic AI changes the EDA growth curve rather than whether Q1 was good.

The #s:

• 1Q Revenue was $1.474B, +18.7% y/y (last q +6.2% y/y) vs Street $1.450B, +~17%; EPS was $1.96 vs Street $1.88; non-GAAP OM was 44.7% vs Street 44.0%. Bookings ahead with record backlog of $8B vs. $7.8B ;last q

• Q2 guidance was meaningfully above Street: revenue midpoint $1.575B, +23.5% y/y vs Street $1.491B, +~17%, EPS midpoint $2.05 vs Street $1.84, and non-GAAP OM midpoint 45.0% vs Street 42.7%.

• FY26 revenue guide moved to $6.125-6.225B, midpoint $6.175B, +16.6% y/y vs Street $6.132B, +15.8%, with $160M from Hexagon and a $65M organic raise; FY26 EPS guide went down optically to $7.85-7.95 due to $0.28 Hexagon dilution, but organic EPS was raised $0.08.

Key Takeaways:

• Mgmt positioned AgentStack, ChipStack, ViraStack and InnoStack as a new product category, not just feature upgrades. The key investor point is two-fold: new subscription-plus-consumption revenue from agentic tools, plus higher base-tool consumption as agents run more simulations, verification and optimization loops.

• Pricing: Mgmt said the pricing environment improved, tied agentic AI value capture to customer productivity, and framed labor-to-automation spend shifts as “likely to be irreversible.” This matters because one long-standing bear critique of EDA has been that large customers capture too much of the value through volume discounts.

• Demand/Macro: Mgmt said the environment is healthy across system companies and semi companies, with hyperscalers and AI semi already strong and memory plus analog/mixed-signal improving over the last 3-6 months. Chip shortages are not restricting design activity in their view; if anything, customers may design across multiple foundries/nodes to secure capacity, which drives more design activity.

• Mgmt said hardware had its best quarter ever, led by AI/HPC with rising automotive and robotics demand. Palladium Z3 drove competitive displacements, and mgmt argued its ASIC-based hardware lead should widen versus FPGA-based alternatives.

• Mgmt described IP as entering a third year of strong growth, helped by better PPA, expanding portfolio breadth in HBM/UCIe and other interface/memory IP, and foundry proliferation. The large foundry deal was not Intel; mgmt nevertheless sounded positive on Intel 18A and especially 14A enablement.

• Hexagon is a near-term EPS/OM headwind, but bulls see physical AI optionality. FY26 includes ~$160M of Hexagon revenue, a 5-10% margin profile, and ~$0.28 EPS dilution from integration and financing effects. Mgmt expects accretion in 2027, likening the integration path to BETA CAE.

Bull vs. Bear Debate

Bulls think CDNS is one of the cleanest picks-and-shovels beneficiaries of AI silicon complexity. The traditional bull case is that EDA is mission-critical, sticky, consolidated among a small number of vendors, and levered to long-duration semi R&D rather than near-term chip unit volatility. This quarter strengthened that case because bookings were ahead of expectations, backlog reached a record $8B, hardware demand accelerated, and the company raised FY26 revenue organically by $65M after only one quarter. Bulls also like that mgmt said EDA’s share of customer R&D has already moved from ~7% historically to ~11%, and that agentic AI could push that higher as customers try to solve the engineering talent bottleneck with more automation.

The more aggressive bull case is that agentic AI creates a new EDA monetization layer. CDNS is not just adding AI features to existing tools; it is selling new products for previously manual work like RTL generation, verification planning, analog design and implementation. The most important change is that these tools can be priced with subscription-plus-consumption while also increasing usage of the underlying base tools. Bulls also point to physical AI and Hexagon as a second TAM expansion path: simulation for robotics, autonomous systems, cars and 3D-IC, plus more silicon design as physical AI proliferates.

On valuation/growth, bulls generally underwrite CDNS as a mid-teens compounder with upside if agentic AI moves monetization faster than the normal contract-cycle cadence. A reasonable bull path is FY26 revenue growth of ~16-17% including Hexagon, FY27 growth in the mid-teens if hardware, IP, agentic AI add-ons and SD&A momentum continue, and EPS reaccelerating toward high-teens/20% growth once Hexagon dilution flips to accretion. At 40x EPS of $9.5, you get a $400+ stock. That valuation is rich, but bulls argue it is justified if agentic AI raises long-term EDA growth from low/mid-teens toward a structurally higher consumption model.

Bears agree Q1 was strong, but they argue it does not yet prove the agentic AI upside is in the numbers. The reported FY26 revenue raise included $160M from Hexagon, while the organic raise was closer to $65M. FY26 EPS guidance was cut by $0.20 at the midpoint because Hexagon is dilutive in year one, and FY26 OM guidance moved down. Bears also point out that upfront revenue grew much faster than recurring revenue, which makes current growth feel more hardware/upfront-weighted than pure recurring software. That matters because the stock trades like a scarce, high-quality software compounder.

The deeper bear case is that AI is not obviously only a benefit. Bears worry that hyperscalers, semi customers or startups could use AI to reduce dependence on incumbent EDA workflows over time, or that CDNS will have to invest heavily to defend its moat. Mgmt directly pushed back on this, but bears will want proof in renewals, attach rates and sustained organic growth. The other bear issues are familiar: China/export-control and tariff risk, hardware supply constraints, gross margin pressure from hardware and acquisitions, SBC/amortization exclusions, and a valuation that leaves little room for disappointment. On valuation, bears will say 40x is very expensive and if CDNS is not clearly an AI growth stock, the current multiple is even more difficult to defend

RMBS -18%: in-line print vs a high bar; demand/AI narrative intact, but supply tightness, a product guide shy of elevated expectations limited upside, and weaker OM hitting the stock.

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In Tech land, semis broke their 18-day win streak although plenty of names were green on my screen. The early morning semi swoon was catalyzed by a POET -50% blow up early morning, one of retail’s favorite “undiscovered” optical plays after MRVL pulled a purchase order. That caused ome froth to out of some other names which have rallied significantly MTD, but didn’t stop memory (SNDK +8% / MU +5%) from ripping ahead of SNDK’s earnings this week. NVDA 4%, one of the last AI semi names not to be hitting 52wk highs, finally broke through today. It’s been a long 6 months of range-bound purgatory for NVDA longs, but they’re finally being rewarded.

From a factor perspective, Megacap led the way higher, helped by GOOGL/NVDA outperforming.

Somewhat of a slow news day today ahead of the big earnings vortex we are about to head into the next 3 days. Should be a fun week.

Let’s dive in…

AI/SEMIS

• NVDA +4% the name everyone’s eyes were on today. Why the rip today? When it’s time, it’s time, as we’ve been writing for a couple weeks now. Being helped by more positive OpenAI sentiment following Chatgpt 5.5. NVDA is also playing catchup after rest of the space has ripped last month and finally hit 52wk highs. Lastly, the POET blow up probably helped on the margins as there was a bid to larger cap names in semis. News out of Asia that TSM’s 3nm capacity now seen at 180k wpm vs 160k previously, which bodes well for NVDA to meet demand. BofA was also out saying a shift towards higher dividends and buybacks can drive a re-rating higher (we agree). Funda.ai was out with a good piece saying Deepseek’s V4 is starting to co-optimize with non-NVDA AI hardware which means they’re moving away from models running on Chinese chips to models redesigned for Chinese chips, and this could weaken CUDA lock-in over time….from a chart perspective, this move targeting 235-240 here. 3 weeks ago we wrote we thought it was NVDA’s time to finally shine and break out to new highs — the stock is up 18% since then. The SOX Is up 22% in that same time period as well, but we’ll take it as a win nonetheless.

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I hope everyone rested up this weekend because we have a big week of earnings ahead of us:

Let’s get straight to it…

AAPL -2% /QCOM +13%: OpenAI Set to Redefine Smartphones

Ming-Chi-kuo:

OpenAI is working with MediaTek and Qualcomm to develop smartphone processors, with Luxshare as the exclusive system co-design and manufacturing partner. Mass production is expected in 2028.

• MediaTek and Qualcomm are processor co-development partners and could benefit from long-term replacement demand:
1. Specifications and suppliers are expected to be finalized by late 2026 or 1Q27.
2. Taking MediaTek × Google TPU Zebrafish as an example, the revenue contribution of a single chip is roughly equivalent to 30–40 AI agent smartphone processors. If the initial target is the global high-end smartphone segment, which ships about 300–400 million units per year, the replacement cycle could become another major growth driver.

AMD: Northland Downgrades to Market Perform, Cuts PT to $260 on Rising Competition and AI Growth Risks

The firm says increasing competitive pressure from INTC and NVDA, alongside TSMC allocation dynamics, is likely to constrain AMD’s share gains and margin expansion. The analyst notes CY27 expectations appear too high with risk of a reset, as AI infrastructure demand growth slows and hyperscaler capex faces constraints. The firm adds elevated R&D spend and supply advantages favoring NVDA limit near-term upside despite solid execution. Northland downgrades to Market Perform, citing a more challenged competitive and demand backdrop.

AMD: Citi is closing their positive catalyst watch on AMD give recent rally

META: China Bans Meta’s Acquisition of Manus on National Security Grounds

According to WSJ, China’s National Development and Reform Commission has ordered Meta Platforms to unwind its $2.5 billion acquisition of AI startup Manus on national security grounds, citing concerns that the deal would encourage other Chinese firms to relocate without approval. Manus developed an AI agent capable of sophisticated tasks and was originally founded in China before relocating most operations to Singapore with Meta’s investment in December. Chinese authorities have detained the company’s co-founders and are concerned about the precedent of Chinese technology companies moving abroad, reflecting Beijing’s broader efforts to protect its AI capabilities amid intensifying U.S.-China tech competition.

ADBE: Mizuho Downgrades to Neutral, Cuts PT to $270 on AI Monetization Concerns and Rising Risk

The firm says weakening estimate conviction and increasing competitive pressure from AI-native tools are raising risks to ADBE’s long-term growth and margins. The analyst notes monetization of generative AI remains limited (~2% ARR contribution), while demand is shifting from content creation toward editing, pressuring the Creative Cloud value proposition. The firm adds growth remains stuck in HSD with FY26 guide implying ~9–10% revenue growth, while incremental AI investment could weigh on margins. Mizuho downgrades to Neutral, citing a more balanced risk/reward and limited near-term upside.

TSM: Fubon/Jefferies See 2027 Foundry Shortage Driving Aggressive Wafer Price Upside

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NVIDIA & GPU Market

Stock & Multiple Dynamics:

“NVDA is Apple is my biggest concern.... as in it is the #1 mcap, and margins are slightly down etc. I think it’s hard for multiple expansion, and it will grind on the multiple as it continues to grow VERY meaningfully. Share loss does cap multiple but EPS will work from here. AAPL got out of it by LBO’ing the company, I don’t think Jensen will do the same.”

“Realistically NVDA is now the new AAPL, and I don’t know what makes the multiple go up like it used to.”

Market Share:

“Honest guys I don’t know if that matters. Most supply in the world is Nvidia’s, and it was bound to go from 95% share to not that. I still believe they will be 60-70% share.”

CUDA Moat:

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A few off the cuff thoughts before we dive into the hyperscaler previews:

• The past couple of weeks have really cemented how the investing environment/research discovery process has changed this year. This is what the late 90s must have felt like. Everyone has their eye on semis. Software and Internet have just become derivatives of the latest AI product announcement. Substacks and finance influencers on X have r…

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Asia flattish: TPX +0.01%, NKY +0.97%, Hang Seng +0.24%, HSCEI +0.49%, SHCOMP -0.33%, Shenzhen -0.6%, Taiwan TAIEX +3.23% , Korea KOSPI flat. TSM +4% overnight after limits were eased on the amount of money local funds can invest in a single stock.

We’ll hit up INTC and SAP first then dive into the usual.

INTC +27%: Broad beat and raise, with AI-agentic driven server CPU demand and better supply/yield execution along with better GMs and commentary inflects the narrative. Bullish call by LBT. Nits: PC softness and 18A/input-cost margin headwinds, but irrelevant in face of much better top line/GM/commentary.

Narrative inflecting print on multiple fronts with much CPU numbers putting them directly in line of fire of one of hottest themes in market and commentary around yields and packaging commentary much better. We sold our INTC before the print and went to bed wanting to buy it +20% after we read the call. We moved our feet way too slow, but we think this keeps going higher and see if we can get a good entry point. Valuation framework is a bit murky for us, but #s/narrative should continue to improve.

Key quotes:

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Post-close, INTC +13% with much better GMs while beating and raising on all segments and calling out strength in CPUs

“The next wave of AI will bring intelligence closer to the end user, moving from foundational models to inference to agentic. This shift is significantly increasing the need for Intel’s CPUs and wafer and advanced packaging offerings,” said Lip-Bu Tan, Intel CEO. “With a solid foundation in place, we are addressing this opportunity by listening to our customers and driving their success with our technical expertise and differentiated IP. This deliberate reset to how we operate drove a sixth consecutive quarter of revenue above our expectations, as well as new and deepened relationships with strategic partners.”

“We delivered robust Q1 results, reflecting the growing and essential role of he CPU in the AI era and unprecedented demand for silicon, as well as our disciplined execution to expand available supply,” said David Zinsner, Intel CFO. “We remain focused on maximizing our factory network to improve available supply and meet our customers’ needs throughout the year.”

SAP +4% as well with CCB cc +25% better than buyside expects. A bit better than feared following NOW and after CEO was in FT talking about “short-term pain” Reit total rev growth accel in ‘27. Stock fading a bit as ‘26 seems like it was tweaked down a bit.

“Constant currencies total revenue growth in 2026 to remain at similar levels as in 2025 and to accelerate in 2027. The previous outlook assumed constant currencies total revenue growth to accelerate through 2027."

Lots of good discussion popping off for both names in TMTB Slack in #earnings channel

Chatgpt5.5 out in the wild. Benchmarks look solid - looks much better than Opus but slightly worse than Mythos. Model was “co-designed for, trained with, and served on NVIDIA GB200 and GB300 NVL72 systems”

AI/SEMIS

• TXN +18% with a very solid beat-and-raise. We’ve totally whiffed on the whole analog rally, and we get sense many investors felt similar and many were chasing today as sector remains one of least owned in semis (outside of handsets). The TXN beat came on the back on several weeks of positive checks form Edgew/Clev and excitement building over the power theme. TXN sounded super bullish in DC and Industrial while consumer was fine. Bulls will say that TXN is finally lining up all the pieces bulls have wanted for the last two years: industrial is broadening beyond a narrow set of verticals, data center and AI power are becoming large enough to matter, pricing has stopped declining, and the company is moving out of its heaviest capex phase. Bulls will say 30x+ $12 gets you $350+, still 25% upside for a best-in-class analog co. as get into the DC power ramp in 2H 26 and 27.

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If you have more questions or theses to test, feel free to email research@apptopia.com. Apptopia is also offering a free trial of Apptopia to TMT Breakout subscribers here.

Below is a chart storm on some of the more interesting topics we covered:

GenAI:

RBLX:

Social Media

“When we look at Social Media time spent, we focus on ages 17-25 bc we understand that is the highest eCPM demo (happy to be corrected on that, though). Below is a chart of share of time spent on social vs all mobile time spent by age category. 17-25 is the highest but actually has been flattish since Jan 2025, and has taken a dip in 1Q26. Basically, people ages 17-25 are no longer increasing their time spent on Social”

RDDT DAUs

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Token Economics & Demand Explosion

“We’re spending $7 million a year on Claude Code at the current rate versus our salary expense being in the neighborhood of $25 million. We’re north of 25% of spend on Claude Code as a percentage of salary. If this trajectory continues, we’ll spend more than 100% by the end of the year.”

“Anthropic has gone from $9 billion in revenue to $35–40 billion now. Probably by the time this airs, $40–45 billion. Their compute has not grown to the same degree. Even if you assume all incremental compute went to inference, their margins are at a floor of 72%. At the start of the year, leaked funding docs showed 30-something percent gross margins. Where on earth does a business grow margins like that?”

“A 4.6 Opus tier model — let’s just take diffusion of this technology, ignoring models getting better. By end of year, the economy would spend $100 billion on that tier of model. That’s a linear extrapolation, not exponential. To get the exponential, you need the better models.”

“Anthropic could double their pricing on Opus and I would continue to pay, and I bet most users would continue to pay.”

“Current 4.6 Opus tier models — a year from now, my spend for the same quality would probably be like $70K. I bet it’ll be 100x cheaper. But that’s irrelevant, because I’m going to be using a way better model which can do way better things.”

On Memory Prices

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Asia mixed overnight: TPX -0.76%, NKY -0.75%, Hang Seng -0.95%, HSCEI -0.79%, SHCOMP -0.32%, Shenzhen -1.05%, Taiwan TAIEX -0.43%, Korea KOSPI +0.9%. Softbank +4%; Hynix flat after reporting results.

TXN +11% up big after a beat and raise, NOW -12% on weaker organic growth and margin guide; IBM -7% on a software decel getting dragged down by weakness in sw.

We’ll cover earnings first then get to the usual….

EARNINGS

NOW -13%: Decent Q1 with stronger AI, but the stock weaker on muddier organic growth optics because of “Middle East deal slippage”, acquisition noise, and lower near-term margin guidance. Bill with a sub-par performance on the call trying to explain away weakness

Subscription revenue was $3.671B, +22.2% y/y, +19.3% cc (last q +20.9% y/y, +19.5% cc) vs Street $3.653B, +~21.6% y/y; cRPO was $12.64B, +22.5% y/y, +21.0% cc (last q +25.0% y/y, +21.0% cc) vs Street $12.56B, +~21.8% y/y

The real issue was the guide. Q2 cRPO of +19.5% cc (below bogey of 20%) and FY26 subscription revenue growth of +20.5% to +21.0% cc both include 125 bps from Armis, so the organic read looked flat to down depending on which adjustments investors make, while Q2 operating margin of 26.5% and FY26 operating/FCF margins of 31.5%/35.0% came in below Street. Mgmt said Q2 and FY26 margin guides stepped down because of Armis dilution, Knowledge timing, and other integration/investment costs. Mgmt’s message was that the FY26 pressure is temporary and that margin expansion should normalize again in FY27

Offsetting that, NOW raised its 2026 Now Assist target to about $1.5B from $1B, said customers are moving from experimentation into broader enterprise deployment, and argued there was no broad demand deterioration outside timing-related Middle East disruption. Mgmt said pipelines remain healthy, public sector outperformed, large deals were strong, and customers are spending, but the environment is more complicated because enterprises are trying to sort out AI priorities and the Middle East conflict delayed several on-prem deals that hit revenue upfront. On the callback, mgmt said the cRPO beat was execution-driven rather than early-renewal-driven, that core enterprise renewals stayed solid, and that one of the slipped Middle East on-prem deals had already closed in Q2.

Bull vs. Bear Debate

The bull case is that this quarter did not break the long-term NOW story at all; it just made the bridge harder to see. Bulls will say the core platform remains one of the strongest large-cap software assets in the market, with real mission-critical status in IT workflows, expansion into CRM, employee, creator, security, and a new AI governance/control layer that is landing at exactly the right moment. The call was consistent with that view: mgmt framed AI as a tailwind, not a threat, argued that enterprise AI increases complexity and makes NOW more important, and highlighted differentiators like Context Engine, Workflow Data Fabric, AI Control Tower, and the hybrid pricing model. On top of that, the acquisitions are strategically coherent, not random. Armis adds visibility, Veza adds identity governance, and Moveworks strengthens the front door, all of which feed the same “control and compound” narrative.

Bulls will say they have enough quarter-specific proof points to stay constructive. Large-deal activity was strong, new logo ACV accelerated more than 50% y/y, CRM NNACV grew more than 5x y/y, AI Control Tower deal size more than doubled q/q, and customers spending more than $1M on Now Assist grew more than 130% y/y. In other words, bulls see the disappointing read-through as mostly optics, not evidence that demand or competitive positioning is cracking. They would also point to 50% of net new business now coming from non-seat-based pricing, which matters because it reduces the simplistic “AI kills seats, therefore NOW’s model is impaired” argument

The bear case is that the quarter confirmed exactly what skeptics feared: AI enthusiasm is real, but it is not yet showing up cleanly in underlying organic growth, and the M&A strategy may be masking a slower core. Bears will say the strongest datapoint for that view is not Q1 itself, but what happened to the organic setup once Armis, Moveworks, Veza, and Pyramid are stripped out. The FY26 guide looks basically flat organically at best, slightly down at worst depending on adjustments, and the Q2 organic cRPO read was below bogeys. For a stock that needed a clean organic re-acceleration, that’s a big hurdle to overcome. If the AI target went up by $500M, but the core guide did not go up with it, bears will ask whether AI is mostly incremental packaging optics today rather than material revenue acceleration.

Bears also have enough smaller negatives to keep pressure on the narrative. Q1 subscription beat magnitude was the weakest in years, renewal rate dipped to 97%, FCF missed, and margin guidance stepped down meaningfully. The company is also asking investors to look through a lot at once: a geopolitical issue in the Middle East, multiple acquisitions, termination-for-convenience contract treatment, lower profitability in acquired businesses, and a future analyst day where the long-term bridge will supposedly become clearer. That can work eventually, but in the near term it invites skepticism. Bears will also argue that while NOW clearly has strong AI products, it still has to prove that those products can outrun the Anthropic will eat software noise.

TXN +10%: Solid beat-and-raise, with the narrative shifting more clearly toward a broad industrial recovery, accelerating AI/data-center power content, and a much better FCF setup as capex rolls down.

All around solid print and bullish call. Revenue was $4.825B, +18.6% y/y (last q +10.4%) vs Street about $4.52B, +~11%; EPS was $1.68 vs Street $1.36; GM was 58.0% vs Street about 56.2%; and 2Q guidance was $5.20B at the midpoint, +16.9% y/y vs Street about $4.85B, +~9%, with midpoint EPS of $1.91 vs Street $1.57. The beat was driven by industrial and data center, while auto held flat sequentially and personal electronics was better than feared.

The key message from mgmt was that pricing did not drive 1Q, but the pricing backdrop is now better and could become a 2H tailwind if demand stays firm. Mgmt sounded bullish, but still conservative on calling the 2H too early, explicitly referencing last year’s false start and the broader macro/geopolitical backdrop.

Key takeaways:

• Industrial was the biggest positive surprise. Mgmt described growth as broad across sectors, geographies, and customer sizes, not just a narrow recovery in a few hot pockets. With industrial still roughly 15% below the prior peak, matters for bull case

• DC Revenue grew about 90% y/y and more than 25% q/q, and mgmt sounded increasingly confident that application-specific AI power sockets start layering in more meaningfully in 2H26 and into 2027.

• Margins improved faster than expected. GM at 58.0% beat Street by roughly 180-190 bps, and the 2Q guide implies roughly 59.5-60.0%, supported by better mix, operating leverage, and a pricing environment that is no longer drifting down

• Pricing was not the reason for the 1Q beat, but it is now an upside lever. Mgmt said price was flat in 1Q and should look similar in 2Q, but also acknowledged the analog pricing backdrop has improved and prices may rise in 2H if demand remains strong

• Q1 auto was flat q/q, with China down and rest of world up. Mgmt framed auto as steady near peak levels and still supported by secular content growth

• Inventory days fell to 209, lead times stayed stable, and mgmt repeatedly emphasized having enough inventory and Phase 3 analog capacity to serve demand and take share if competitors are constrained

Gets an upgrade at BofA

Bull vs. Bear debate

The bull case is that TXN is finally lining up all the pieces bulls have wanted for the last two years: industrial is broadening beyond a narrow set of verticals, data center and AI power are becoming large enough to matter, pricing has stopped declining, and the company is moving out of its heaviest capex phase. Bulls will say 1Q beat was not just a restocking quarter. It was the first clean look at a model where better mix, better loadings, lower capex, and share gains can happen together. The added bull twist this quarter is that data center is no longer just a vague AI adjacency. Mgmt talked explicitly about general-purpose rack content, Stage 1 and Stage 2 power conversion, VRMs, GaN, advanced BCD, and application-specific sockets ramping in 2H26 and into 2027. Bulls can now argue for roughly 11-15% revenue CAGR from 2025 through 2028, with a much steeper EPS and FCF inflection than street had embedded before the print, which means something like $11-13 of EPS power over the next few years and desreves a premium multiple of 30x +

The bear case is that this still looks like TXN at the early stage of an analog upcycle, which is exactly where false starts and over-extrapolation often happen. Mgmt itself kept coming back to caution, explicitly noting that 2025 also started strong before cooling, and that it wants to see 2Q play out before getting more confident on the second half. Auto is steady but not accelerating, China within auto was down in 1Q, personal electronics has not yet fully reflected the possible knock-on effects from higher memory costs, and inventory days at 209 are still elevated in absolute terms even if the direction is better. Bears will also argue that industrial can look deceptively strong in the early innings because distributor and customer replenishment can masquerade as durable end demand. And while margins improved sharply, bears can still point to depreciation, inventory, and utilization as variables that can cap upside if growth softens again. Bears will say 30x is too high a multiple for a cyclical analog and deserves closer to ~25x

TSLA -3%: Headline beat, but the stock is weaker as nits are 1Q quality was helped by one-timers while Elon raised Capex to $25B, FCF neg for the year, pushed back back AI5 chip / robotaxi monetization while Optimus and Semi ramps expect to slow

TSLA reported Revenue $22.387B, +15.8% y/y (last q -3.1% y/y) vs Street $21.417B, +~10.8% y/y; Non-GAAP EPS $0.41, +51.9% y/y vs Street $0.33.
Auto GM ex-credits was 19.2% vs Street 15.4%, but that included roughly $230M of warranty benefit plus some tariff relief;
Energy GM was 39.5%, but also included more than $250M of tariff recognition benefits.
FCF was $1.444B vs Street -$1.575B, helped in part by capex of just $2.493B vs Street roughly $4.109B.

FY26 capex now expected above $25B with negative FCF for the rest of the year

Key Takeaways:

• Mgmt raised FY26 capex to >$25B from >$20B, framed 2026 as the start of a multi-year heavy investment cycle, and explicitly said FCF should be negative for the rest of the year. The spend is going into six factories, AI infrastructure, the Austin research chip fab, solar equipment, Cybercab, Semi, Optimus, and battery/manufacturing capacity

• Mgmt said EMEA rebounded strongly, with France and Germany up more than 150% q/q in deliveries, APAC improved in South Korea and Japan, the U.S. was modestly up q/q, and the quarter ended with the highest Q1 order backlog in over two years. Mgmt also emphasized that the order-rate improvement started before the recent rise in gas prices, implying the demand improvement was not purely a commodity-price bounce

• Mgmt said tariffs and sustained high rates continue to pressure automotive costs via financing subvention, and the energy business remains especially exposed because many cells are sourced from China. On top of that, several analysts in the pack still frame 2026 as a slower EV demand year with tougher competition and reduced subsidy support.

• Said FSD customers reached roughly 1.28M to 1.3M, bulk growth came from subscriptions, churn is falling, and mgmt said it now markets FSD as the product with the vehicle acting as the delivery mechanism. The Netherlands approval set up a potential EU-wide supervised rollout later in 2Q, while China approval is targeted for 3Q.

• The most important incremental negative from the call was the HW3 admission. Mgmt said Hardware 3 cars cannot achieve unsupervised FSD, which means discounted trade-ins, computer/camera retrofits, and potentially a new cost burden via local retrofit “micro-factories.”

• Unsupervised service is now in Austin, Dallas and Houston; mgmt still targets roughly a dozen states by year-end; and it said there have been zero injuries or fatalities so far. But mgmt also said robotaxi revenue will not be super material this year, with more meaningful revenue only next year.

• Cybercab, Semi, Megapack 3, and Optimus all remain “on track,” but the common theme was slow initial ramps. Cybercab and Semi have started or are about to start production, but mgmt repeatedly described the normal new-product S-curve and warned initial output would be very slow. Optimus production is now framed around a late July/August start in Fremont, with no real unit guide for this year and a second factory only next summer

Bull vs. Bear Debate

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QQQs +1.7% to more ATHs as the HOT AI SPRING SUMMER vibes continue with no shortage of AI names hitting ATHs. Semis led the way higher +3% but software +2% continued to hang in (that might change tomorrow following NOW and IBM’s miss). From a factor perspective, animal spirits continue to come through with Nuclear +8% and non profitable tech leading the way higher.

Post-close, TXN +10% better #s and guide better - what I’ve read from the call sounds really good so far. NOW -12% didn’t look so hot with worse cRPO guide and worse margins calling out “Middle East impact.” Quotes I’ve read from the call not great. IBM -6% won’t help things in sw as well as dceel in sw going from 11% to 8% this quarter. Just catching up now, so haven’t gone through these in detail — will have full recaps tomorrow morning.

Let’s get to the good stuff from today…

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