At the end of May 2024 my portfolio is,
Super Micro (SMCI) - 19.2%
AppLovin (APP) - 17.6%
Nvidia (NVDA) - 17.1%
Elf (ELF) - 15.4%
Hims & Hers Health (HIMS) - 15.2%
Transmedics (TMDX) - 13.8%
Celsius (CELH) - 1.6%
The biggest changes I made were to increase my position in HIMS and APP, and concentrate my holdings into my top six positions. I sold AXON and mostly sold CELH.
I discovered a great book on investing this month called Common Stocks and Uncommon Profits by Philip A. Fisher. It’s a surprisingly timeless book because a huge portion of the book is about finding companies with superior R&D and superior sales teams, there was a lot of great information on how to determine if a company has a superior research team. One of the key takeaways was that you want to find companies which can keep innovating past their current product lines.
Another interesting aspect of this book was lengthy discussions about the semiconductor industries. This is a quite old book and he was writing about companies such as Texas Instruments and why he liked this company. He even wrote something along the lines of I expect there to be another semiconductor boom in the late 1980s that will pale in comparison to the current one. And here we are today in the midst of another semiconductor boom cycle that looks to surpass all the previous ones.
Reviewing the companies I own,
Super Micro - 19.2%
I wrote some thoughts about the JP Morgan technology conference and their latest earnings.
While the stock was down a bit after their earnings I thought this was a great report and they raised their next quarter’s revenue guidance by 400M. The more I learn about this company the more I like. They have very deep and long standing relationships with Nvidia, AMD, and Intel. Interestingly both Nvidia and Supermicro were founded in 1993 and both Jensen and Charles Liang are immigrants from Taiwan and their friendship predates the founding of the companies. Supermicro’s Youtube channel has interviews with AMD CEO and with Intel’s CEO. I’m pleased to see how deep these relationships are with the key players in the industry.
I recently learned that Supermicro actually already has a manufacturing plant in Asia in Taiwan, one in Netherlands, and one is Silicon Valley. This is in addition the new Malaysia facility which comes online soon. The following square footage of the facilities gives some idea of the capacity of the factories,
Taiwan - 2M sqft
Netherlands - 800k sqft
Silicon Valley - 2M sqft
Malaysia - unknown
Another thing which has given me confidence on this position is the incredible amount of research the company publishes and puts on their website through webinars and white papers.
Something key I learned from one of the webinars is that future Hopper and Blackwell designs from Nvidia will almost certainly require liquid cooling. For example many air cooled Hopper racks are already up to 40W which many data centers cannot handle. Nvidia is also releasing a CPU which is claimed to be twice as energy efficient as Intel CPUs. It seems the industry is heading towards energy efficiency and liquid cooling. Supermicro is a leader in rack-space liquid cooling and as they say in their presentations “rack is the new unit of compute”.
AppLovin - 17.6%
I wrote up my thoughts on their last earnings which I was impressed by. They are now growing 48% year over year and this last quarter was over a billion in revenue. EBITDA was 453M and their AXON-2 system has something like 70-80% EBITDA pull through, or almost all profit on any revenue! As they say if a customer can spend $1 and get $2 back, that customer will try and do that spending as many times are possible.
They are in the free to play games business which I believe the market doesn’t take seriously. However, this industry of free to play games has a massive secular tailwind with many companies looking to add free to play games after seeing the success of other companies doing this to drive traffic.
When I compare this to other software companies AppLovin appears undervalued. For example Crowdstrike is a 75B company which is the top tier of SaaS companies has 845M revenue and 60M in EBITDA, this compares to AppLovin with 1058M and 453M of EBITDA. I know some would argue AppLovin isn’t SaaS and their is no guarantee their customers will return. What the company and results show is that the customers are clamoring to spend as much as they can because the ROI is big, instant, and attributable.
AppLovin has ambitions to get into other aspects of AdTech specifically CTV, and they say their AI platform can be applied to other industries fairly seamlessly.
From their results AppLovin is the only software company I have seen which has had a dramatic improvements of results because of AI. I keep seeing other software companies talking about the benefits of AI, but it doesn’t show up in their results the same way it does for AppLovin.
Nvidia - 17.1%
I wrote up some quick thoughts on the Nvidia quarter. Everything seems on track here with EPS growing 629%! I’m impressed by the promise of Blackwell being 30x faster and 25x more energy efficient than Hopper.
Jensen says they sales cycle will take 4-5 years before Hoppers start getting replaced. I expect this secular AI boom in semiconductors to go on many years and Nvidia is the clear leader.
Elf - 15.4%
I wrote up my thoughts on the earnings. The quarter was an absolute blowout and the concerns about Ulta mid quarter were clearly overblown. I was disappointed with the CFOs guidance of 20-22%. After hours I saw the price of ELF go as low as $138, and then it went up to over $190 in the next few days. I get that CFO’s manipulate the guidance game, but this CFO seems to playing the game particularly poorly. This is evidenced by the entire call being dominated by questions on guidance rather than questions on the business.
Overall, I kept my position as I see the business on track and confirmed there has been a repeated history of yearly guides that make zero sense. I see this as a strong brand that has potential to grow into a company that is the size of the larger makeup brands. The company is just ramping for international and it seems like an outstanding success so far, particularly in Italy and Netherlands.
Hims and Hers Health - 15.2%
I increased my position after this latest earnings significantly and wrote up some thoughts. I was really fortunate to increase after the report as the company announced they will be able to offer a GLP-1 injectable soon and the stock shot up 30% in one day! The share price was $12.5 at the start of May and is now $19.4
When I initially wrote up an intro for HIMS many of the critiques were that the sequential revenue ads were flat, basically they were adding 15-20M per quarter. However, this quarter was 31M of revenue added and they added a record 170k new customers to go from 1.5M → 1.7M customers. Additionally they mention Hers, the woman’s side of the business is growing incredibly fast.
Another critique in the initial write up was that growth seemed to be dropping off fast. Their previous quarters of revenue growth were 88% → 83% → 57% → 48%, but this quarter came in at 46% and they guided for future 40%+ growth.
The brand is getting more recognition and taking market share. I believe this company has an interesting loop hole for offering new products is the best way to describe it. There’s an FDA regulation 503B that allows HIMS or others to produce “compounded” drugs if there is a shortage of drugs. For example, Ozempic and Wegovy the weight loss drugs are in shortage so the FDA has given HIMS the approval to produce a GLP-1. While it’s not technically and FDA approved drug it has the explicit approval of the FDA to be sold. The best part is the underlying ingredients are sourced from the FDA and sent to pharmacies which HIMS owns in the USA. HIMS has two “affiliated pharmacies” which is a term I believe doesn’t accurately describe what is it - they completely own the pharmacies and production.
Lastly, this business seems undervalued to me. Comparing to the other consumer I own of ELF and CELH, HIMS has a much lower P/S ratio and they are becoming increasingly profitable.
Transmedics - 13.8%
I wrote up my thoughts on their earnings. It was a great report and profitability came in much higher than expected. Analysts expected them to be about break even and they earned close to 12M! I haven’t done a lot of research since the earnings but this is still a moderately high conviction stock for me.
Celsius - 1.6%
I sold off almost all of Celsius, although I’m still bullish on the company. I really didn’t understand how much leverage their distributors have over their inventory especially Pepsi, and that’s some concern to me that they may not control their destiny here.
Another somewhat concerning thing to me was they plan to quadruple their sales staff but haven’t really explained in depth why. My guess is it’s all for international, but I do wonder if this may hurt their bottom line in the near term before revenue starts to ramp up.
One of the main reasons I sold is when I compare Celsius side by side with ELF and HIMS. Celsius is a market cap of 18B, ELF 10B, and HIMS 5B. They are all roughly in the same ballpark of revenue with ELF and CELH slightly above HIMS, but I’d rather have my money in HIMS and ELF right now. I may end up adding some if the price comes down much and looks like a good opportunity.
Companies I sold,
AXON
My main thesis behind this investment was that Taser10 was going to be an absolute game changer because of it’s increased capacity, 10 rounds versus 2, and increased range. I no longer really believe this to be the case. Additionally I have very low confidence in management which has shown a history of unethical behavior in recent years. That’s in addition to having invested in this company many years ago in the 2000s and being burned by the same CEO’s profligate spendings.
I’m concerned about the CEO’s focus on drones. In September 2023 the entire Axon ethics board resigned after the CEO bypassed the board to try and go ahead creating an autonomous drone equipped with Tasers that would chase down the sounds of gunshots and tase in that area. The company recently acquired SkyHero after this, and then realized after acquiring it they wouldn’t have FAA approval to use this product.
The company is responsible for promoting a medical condition called excited delirium and the wikipedia page on this condition is heavily associated with Axon. The company paid medical doctors to reclassify Taser related deaths as a new condition to hide the fact that Tasers are lethal some of the time. The wikipedia page links to Washington Post story about “excited delirium” may be a cover for police brutality, and in may cases officers are trigger happy to use a taser.
A Reuters report emphasized the toxic workplace that Axon promotes including trying to get employees to get Axon tattoos, being tased at the workplace, and setting up living places at Axon headquarters to employees would basically live at the company. The idea of getting a company branded tattoo at a time when company loyalty to employees is at an all time low seems insane to me.
Going back to 2006 or so when I first started investing in this company as the company started losing business the two founders, both brothers increasing the spending to out of control levels including buying multiple private jets, retina scanners to enter the building, and marble flooring. They claimed they needed all these items to impress customers.
On the recent quarter they mentioned they are “cautious on EBITDA” and introduced a new metric adjusted gross margin to take out SBC. Devices were lighter than expected and Taser10 was supply blocked from producing enough. However, software and ARR came in very strong which carried the quarter.
There was a comment on selling Taser to Australia and went I looked into this T7 was previously sold to all nine Australian airports, but it doesn’t sound like the airports have decided to buy T10 yet which gives me a lot of concern.
Lastly I believe this company is looking to do M&A for the sake of it rather than adding strategically. They say they will look to do M&A more aggressively and it makes me wonder why this engineering work is not done in house. The AXON Body-4 grew 14% year over year and this product has had some issues with them occasionally catching on fire.
Overall I believe this company’s ethical lapses by the CEO will eventually catch up with them, and it may be part of the reason there seems to be little traction on T10 sales internationally when this product seems like it would the perfect fit for countries like Australia and the UK.
ARM
I started a medium size position in ARM and then sold only after two days. Wrote up my full thoughts on in it in this thread.
Companies I looked into,
Sarepeta Therapeutics (SRPT)
They made genetic medicines for rare diseases with muscular conditions. They have 63% revenue growth, positive EBITDA and net income. Ultimately the conditions they treat are rare and I have some questions if the market is big enough.
Sportradar (SRAD)
They provide sports metrics data for other companies to consume. Revenue is only growing 28%, but their US based business is growing 60%. Founded in Norway and HQ is in Switzerland. They’ve proven their product works internationally to start with which I like. I have this one on a close watchlist to see if the next quarter can get to 30%+ revenue and I could start a position potentially.
Aspen Aerogels (ASPN)
Wrote up my thoughts on their last quarter I just didn’t feel I have a good enough grasp on this product to start a position but I’m interested in this company.
Tidewater (TDW)
Provides offshore service vehicles and marine support services. Financials look great and it’s the second or third time I’ve looked into the company but just cannot get ramped up enough on the product to be comfortable.
Celestica (CLS)
Canadian competitor to Supermicro, smaller and worse margins but they have some big contracts with hyper-scalers. P/E is 20 or so and they have a lot of legacy business but their AI business is growing ~60%. Feels like a second rate Supermicro but I’m interested to see if revenue can pick up from here.
