TMTB Morning Wrap

Good morning. QQQs +67bps ahead of CPI as, wait, what’s that feeling? Could it be some HOT AI summer vibes finally beginning to perk up again this morning after a dormant month and a half as CRWV, LITE, SMCI, NBIS all put up solid results and trading well? Let’s see. Semis +2% early while Software -1% selling off as Neoclouds, Optical and memory leading the way higher (early action points to a positive momentum day.) SNDK analyst day is today.

Asia mixed overnight: Hang Seng -1.1%, HSCEI -1.09%, SHCOMP -0.82%, Shenzhen -0.46%, Taiwan TAIEX +0.43%, Korea KOSPI +0.73, but memory names strong with Samsung +7% and SK Hynix +6%

We’ll cover CRWV and LITE then move onto the usual…

Let’s get to it…

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CRWV +18%: A modest revenue beat but major op inc and capacity beat, better backlog, with record power additions, better new-deal economics and an across-the-board FY raise outweighing higher CapEx and a still-heavy Q4 margin ramp.

With sentiment/positioning mixed and concerns around CRWV’s back half weighted op profit ramp, CRWV finally came through with much better execution. Mgmt did a good job on the call directly addressing the biggest investor debates around execution, new-deal unit economics and GPU obsolescence, highlighting record power ramp, 5–10pts better contribution margins and an A100 contract extending through 2029 at attractive pricing.

Active power reached 1.5GW after the record ~500MW q/q addition, including >300MW in June, versus Street around 1.25GW, significantly derisking the Q4 profit inflection as these DC sites reach fully ramped state entering Q4. Revenue backlog was $104.2B, excluding >$25B of commitments signed in early Q3, which would also be much better than expectations

Q2 revenue was $2.575B, +112.3% y/y (last q +111.7% y/y) vs. Street $2.563B, +111.3%, while adj. operating income of $128M/5.0% nearly doubled Street $67M/2.6%; Capex of $9.4B vs bogeys of $8,5B

Q3 revenue guidance was above Street, but operating-profit guidance was below; FY26 revenue, operating income, exit ARR and active-power guidance all increased, alongside a much higher $37B CapEx midpoint.

Mgmt addressed the GPU-obsolesce and residual value bear case. Key quote:

“As an example, we recently signed an A100 contract that extends into 2029 at an attractive price. As a reminder, this SKU was introduced in 2020. … Increasingly, we are seeing longer utilization at higher prices, offering the potential for significant further upside.”

A couple other good ones:

“In Q2, the customer contracts we signed came with contribution margins we expect to be 5 to 10 percentage points above those added in recent quarters…This operating margin improvement came before our July pricing changes, which included an approximately 25% increase across SKUs in response to the current demand environment and the increasing ROI our customers are observing.”

“By enabling the financing market to support the contracts in 5.5, we’re able to go ahead and diversify our terms so that we’re able to support additional contracts. It opens up whole new markets for us. These clients want to buy compute for two years or three years, and that’s not a market that was easily accessible to us until we were able to bring DDTL 5.5 to market.

Pushback on the quarter from Josh S in TMTB Slack: