Results:

Intel added its network and edge segment to client compute and data center/AI last quarter. They offered reconciliation for Q1 2025 and Q2 2024. For Q2 2023, I estimated (based on how each segment was impacted following the change) that client compute would have been $400M higher and data center/AI would have been $900M higher. The data in the chart below reflects that, creating more fair 2-year demand comps.

Balance Sheet:

Guidance & Valuation:

For next quarter, revenue guidance beat estimates by 3.7%. Gross margin missed 37% estimates by a point, but gross profit dollars met expectations. $0.00 EPS guidance missed estimates by $0.04.

Intel trades for 77x forward EPS and 2x forward sales. EPS is expected to move from -$0.13 last year to $0.12 this year and grow by 500% the following year to $0.74. While that’s nice, it’s due to EPS sharply declining for three consecutive years (2022-2024). Revenue is expected to fall by 3.4% this year (5th straight year of declines) and grow by 4% the following year.

Results:

Balance Sheet:

Guidance & Valuation:

Deckers Q3 revenue guidance met expectations while EPS guidance beat $1.51 estimates by a penny. For the full year, they reiterated GPM contraction as expected and raised tariff impacts from $150M to $185M. This was related to Vietnam’s tariff rate rising from 10% to 20%.

Sales and EPS estimates for this year and next year both modestly rose following this report. That was thanks to the excellent Q1 results. DECK trades for 17x forward EPS. EPS is expected to be flat this year and grow by 9% next year.

Product Niche:

ServiceNow is one of the largest enterprise software firms in the world. It infuses layers of automation into productivity-enriching software and tech stacks. For this reason, it calls itself the “leading digital workflow company.” All products and services are neatly tied into its “Now Platform.” The firm describes this overarching ecosystem layer as a way to “optimize processes, connect silos and accelerate innovation on a single unifying platform.” That’s a fancy way of saying that it makes every piece of work more seamless and expedient. 

In terms of product organization, ServiceNow splits work by technology workflows, Customer Relationship Management (CRM), industry and core business workflows and creator workflows:

Product Innovation:

ServiceNow has been hard at work on GenAI innovation to bolster automation capabilities. Its Now Platform “Vancouver” release got the ball rolling by consolidating all GenAI model and app projects into an intuitive set of products. It built on that debut with Now Platform “Washington D.C.” and “Xanadu” releases. These are both essentially a large batch of GenAI-inspired upgrades to the Now platform. They add to the progress of the Vancouver release. Washington D.C. ties together NOW’s product categories to drive better interdepartmental work, data sharing, multi-step-and-department task completion and communication. It makes using all of its tools and capabilities across teams more intuitive and obvious. Xanadu focused on completing the Microsoft Copilot integration and infusing agentic AI (goal-oriented AI that you simply tell what to do) into the Now platform. More specifically, the release focused on two product categories. First, its security and threat management products. Xanadu uses models that are trained on a company’s own data, which has been shown to accelerate incident response. Automated threat triaging (prioritizing) helps too. Second, Xanadu adds new capabilities within financial and supply chain workflows – starting in sourcing and procurement.

ServiceNow also offers the “Workflow Studio” as a way to create intricate workflows via a wonderfully easy, no-code or low-code drag-and-drop process. It’s a unified workspace that taps into all of the automation and workflow performance analytics tools ServiceNow provides, without needing to be a talented developer to work with them. Various teams can easily access the studio, enabling seamless collaboration and better work. 

These platforms establish the foundation for its own GenAI apps used internally and sold to customers. A big example is “Now Assist AI.” This is ServiceNow’s GenAI assistant/companion app infused across most of its products. More GenAI product examples include:

“Plus SKUs” are how ServiceNow bundles all of its GenAI work into subscription packages. It up-charges clients for access to these SKUs, as its approach to GenAI monetization has been more aggressive than most. These Plus SKUs do things like automate customer service, expedite issue resolution and provide more conversational fetching/querying of a firm’s data.

Most Recent Product Innovation:

Most recently, ServiceNow debuted Yokohama as its latest batch of AI innovation. Like Xanadu, this focuses on agentic AI and more tightly connects Workflow Data Fabric – its unified data aggregation management tool – and Raptor DB to ensure models, apps and agents have access to all needed context. This seamlessly unlocks interoperable data scraping from a wide array of 3rd-party partners and 1st-party insight to enable more complex, goal oriented and automated work completion. One of the more interesting products is its new AI Agent Orchestrator. Because agentic reasoning models do need to collect signals from many different places, that clutter of information must be effectively organized in an actionable manner. Enter AI Agent Orchestrator.

For Q3, subscription revenue guidance beat estimates by 1.7%. Estimates for the quarter haven’t moved, considering the beat was modest and sell-siders generally expect NOW to beat their targets. Q3 30.5% EBIT margin guidance missed roughly 31.3% estimates. When paired with the subscription revenue beat, Q3 EBIT dollar estimates fell by about 5% following the fall. It also guided to 18% Y/Y FXN cRPO growth for Q3.

For the full year, NOW raised subscription revenue guidance by 1% and raised FXN growth guidance from 19.5% to 19.75%, showing the strength wasn’t solely related to currency favorability. Total revenue estimates (NOW doesn’t guide to that number) rose very modestly.

following the call, indicating that this guide was slightly above consensus. It reiterated EBIT and FCF margin guidance, which met estimates. When paired with the very modest revenue outperformance, profit estimates should subtly tick higher.

NOW trades for 46x forward FCF. FCF is expected to compound at a 20% clip for the next two years. It also trades for 56x forward EPS. EPS is expected to compound at a 20% clip for the next two years.

Product Innovation:

Product announcements during the quarter centered on AI and agent-based innovation. First, NOW debuted the AI Control Tower. This offers a holistic view or “command center” to maintain and optimize AI agents. It makes AI work triage intuitive to show enterprises how to maximize return on investment and boost AI efficiency “from project inception to retirement.” NOW has a bevy of 1st and 3rd-party model, data and agent assets for its customers to use. This more clearly organizes all of that potential, removes agent maintenance silos and steers users in an optimal direction. Standard Chartered and the North Carolina Department of Transportation are early users of this (and RaptorDB), and generally speaking, ACV passed 2025 goals in the first 60 days this was available.

“Without ServiceNow, we run the real risk of a new generation of pain, this time with AI agents scattered around like spare parts. We have no intention, ladies and gentlemen, of allowing that to happen.” – CEO Bill McDermott

Second is AI Agent Fabric. This streamlines and augments communication between models, agents and other AI assets. Per leadership, this stands out from the competition via breadth of use cases. It can connect AI agents, one agent to an app and broad agentic systems with model context protocol (MCP) and also agent-to-agent protocol (A2A). This is one way NOW can leverage its data and customer network effects. Agents and agentic workflows must pull needed context from a wide array of sources and constantly communicate. Creating a framework for that, with broad integrations from Accenture, Adobe, Google, Microsoft, Cisco, and its ServiceNow Marketplace participants, is a great way to facilitate this.

Other product launches include:

Platform Play Driving Broad Product Uptake:

ServiceNow continues to be the obvious AI workflow platform play. Its ability to integrate full application and tech stacks, as well as virtually any data source, means developers have access to anything they could need in one place. It unleashes this consolidated access to automate workflows across a massive roster of use cases with your own data and ample 3rd-party data access. More recently, it has greatly augmented its automation ceiling by building and deploying AI agents to reduce manual labor within complex, muilti-step, goal-oriented tasks. This means customers don’t just have access to their own digital assets in one place, but can openly communicate with integrated partners to retrieve more 3rd-party signals. So with NOW, customers have interoperable access to their digital assets… can use all of those assets to unlock seamless workflow automation… and can tap into AI agents to ensure these automated workflows can leverage as many data-rich vendors as possible.

Now, time for some numbers to make this reality crystal clear. It signed 89 $1M+ net net average contract value (NNACV) deals. 11 of these were worth more than $5M, while $20M ACV customers rose 30% Y/Y. Core tech workflow products like ITSM, ITOM and ITAM (all already defined) were in 15 or more of its 20 largest deals. CRM, industry and core business workflows were in 16+ of its 20 largest deals. And this isn’t just coming from existing customer expansion. It signed 11 brand new deals worth over $1M in NNACV and grew NNACV from new logos by 100% Y/Y.

Its combination of data and workflow services is also driving great cross-selling momentum and platform-wide adoption. Its Workflow Data Fabric product was in 17 of its 20 largest deals as “customers recognize the value of combining data, analytics and AI.” RaptorDB also “beat expectations in every major region.” That combination naturally lowers data transfer costs and drives interoperability-based efficiency for customers.

For Now Assist AI momentum, net new ACV was comfortably ahead of expectations, with its Plus package ACV rising 50% Q/Q and that bundle included in 18 of its 20 largest deals. Now Assist deal volume and size both kept rapidly rising and it signed its first $20M+ deal for that product as well. 21 total deals included Now Assist integrations with 5 or more core products, as products like Now Assist for ITAM, creators and Security Operations rose by 6x Q/Q, 4x Q/Q and 2x Q/Q, respectively. This historically successful product launch continues to march to $1B in ACV by next year. To keep this AI momentum humming, it’s working on equipping its engineering teams with tools that expedite customer onboarding.

“AI is the new UI, and that's why the software industrial complex of the 21st century is converging into ServiceNow as the extensible AI operating system for the agentic enterprise.”

CEO Bill McDermott

Broken record alert: Monetizing the software layer of AI has been a big challenge for the vast majority of companies. Palantir has been the best at monetizing this type of innovation because its product introductions have created so much value. When looking around public markets, this is clearly the 2nd best in terms of turning these investments and this focus into tangible financial momentum. Why? Because these products actually create value.

Wins:

Partnerships:

More on its CRM Push:

NOW continues to push aggressively into CRM workflows. It knows customers of other vendors are consistently dissatisfied with competing offerings, and it’s determined to fill that void. Logik.ai, with help from its “configure, price and quote” (CPQ) tool, is a big part of that push. In essence, this puts sales teams on steroids by identifying high-value prospects and nudging best practices for each interaction. The CPQ tool already has landed ServiceNow large deals, including a large building supply company and the California State Government.

“The addition of Logik.ai is already driving explosive growth in CPQ with 9 deals closed in June alone.”

CFO Gina Mastantuono

Other Notes:

Another really good quarter… but what else is new for this elite company? While parts of the outperformance were driven by timing items like early renewals and marketing spend, the performance was still excellent regardless. More 20%+ revenue compounding with expanding margins. The company continues to enjoy fantastic cross-selling traction and platform adoption momentum within core offerings as well as newer AI products. It is at the front of the pack in terms of monetizing AI, as it actually creates tangible, usable value.

This is my favorite company that is not currently in the portfolio. I could very easily see starting a new position if Mr. Market takes a breather, this name corrects a bit and I can buy my initial shares closer to 40x forward FCF. Bill McDermott is a superstar and this is one of the highest quality companies in enterprise software. This quarter simply provided more evidence of their consistently excellent execution.

PayPal launched its “PayPal World” platform this week. This is a global, interoperable payment platform that blazes connections between PayPal and other payment giants. To start, the digital wallet partner roster includes Venmo (shocker), Tencent’s TenPay Global, NPCI International Payments (massive in India) and Mercado Pago in Latin America. All in all, initial launch partners represent two billion consumers across the globe with more partners launching in the future. This paves the way for some pretty exciting value creation.

First, Paypal World vastly simplifies international money transfers by making cross-border peer-to-peer payments as easy as sending a text. Generally speaking, this creates a far more cohesive and united base of global customers for convenient peer-to-peer payments.

Second, it makes omni-channel shopping with local digital wallets across the globe much more convenient. No longer will travelers need to download dedicated international payment methods when they travel abroad. PayPal and partner customers can easily use a domestic wallet to transact abroad. Examples in the investor materials included using Tencent QR codes in China to checkout with PayPal or a UPI customer in India checking out with PayPal on a U.S. merchant’s site with their UPI profile. Consumers will enjoy much more merchant acceptance across the globe from their familiar and comfortable digital wallets. And they’ll be able to transact in their local currency for more convenience. That’s a win for consumers and merchants that can now provide shoppers easier access to their products. Better international transactions, with fewer clicks, fewer apps and broader, aggregated merchant access should be a powerful tailwind for conversion rates for PayPal and partners.

Beyond all of this, PayPal World’s digital wallet bundle will make it easier for merchants to add other payment options. Now, PayPal World’s roster of merchants (basically all of the merchants in the combined partner network) will be able to rapidly add these compelling payment options, providing a directly positive impact on conversion rates... No longer will they be forced to slowly, expensively add one option at a time and stitch together a checkout offering piece by piece. PayPal will make it intuitive to add all eligible partners a merchant wants. Yet another reason for merchants to be PayPal clients.

Now onto another exciting piece of this news. PayPal and Venmo will finally be interoperable. The user bases will be able to transfer funds back and forth, creating unique value for these scaled platforms vs. smaller, siloed competitors. And more excitingly, next year, Venmo users will be able to checkout with the PayPal button. Venmo checkout is rapidly gaining merchant adoption, but the PayPal button still has far more of it. For context, PayPal is available in 80%+ of the USA’s largest merchant sites; Venmo is approaching 5% and roughly half of its users do not have a PayPal account. This is a great way to give them immediate access to the rest of PayPal’s reach. Finally, PayPal and Mercado Libre are now collaborating on more cross-border products and TenPay is “deepening its PayPal collaboration” as well.

 PayPal has great assets to offer partners… 400M total accounts across every demographic, best-in-class U.S. merchant checkout adoption… leading market share in countries like Germany… a scaled white label payments platform. It has the right to be the unifying force for digital wallets across the globe. This in turn ensures it’s the one facilitating broader access for every single stakeholder, maximizing usability of its own products and inserting itself into transactions more frequently. That should be highly positive for overall PayPal volume growth and should support all other participants as well.

The program will debut this fall, with PayPal and Venmo immediately integrating directly into all launch partner ecosystems. Eventually stablecoins and personalized checkout buttons (custom promotions and checkout button displays by customer) will be part of this initiative.

In a new note, Bank of America called out rising demand for hiring developers, which should support usage of Datadog’s platform. They maintained an outperform rating.

Citi sees Amazon beating expectations and AWS accelerating through the end of the year. They reiterated their outperform rating. Needham was similarly excited about the upcoming Amazon quarter, as AWS looks strong, tariff risks are waning and labor productivity gains are rising. They raised their estimates for the year to in-line with street consensus.

Needham cited positive outcome luck for DraftKings and Flutter leading to positive estimate revisions. They raised 2025 revenue estimates by 2% and think this luck will fully offset tax headwinds from the quarter. For 2026 and 2027, they raised revenue numbers by 2.6% and 3.4% for those years, respectively. Flutter estimates were raised by similar amounts. Bernstein came out with a nearly identical note for both companies. They’re seeing great momentum, but left their estimates unchanged due to uncertain tax headwinds offsetting that momentum. Both analysts have outperform ratings on both names.

Morgan Stanley channel checks points to resilient software demand for Q2. They don’t think there will be large upward revisions following these reports, and think share price reactions will be muted.

Truist sees a strong SoFi quarter, but the stock shrugging off that success due to the recently explosive share price appreciation. They think revenue for 2025 will come in slightly ahead of consensus estimates. I think it will come in materially higher than that. TD Cowen envisions SoFi profitability being in line with expectations. They continue to see 2025 revenue a few percent ahead of street consensus and GAAP EPS of $0.29 vs. $0.28 consensus expectations. They reiterated their hold rating.

Citi forecasts a beat-and-raise quarter coming for The Trade Desk. Their channel checks are pointing to competitive concerns being overblown. They reiterated their outperform rating.

Keybanc raised Shopify GMV and revenue estimates by 2% for Q2 and now believes results will be slightly ahead of consensus. Macro fared better than expected. They reiterated their outperform rating.

Wells Fargo calls Alphabet and Amazon their best long ideas for Q2.

Wells Fargo thinks Uber will have an in-line quarter and above-consensus guidance. Bernstein also sees compelling stability in Uber’s financial trends. They think Q2 will come in around as expected and guidance will drive positive estimate revisions for the year. Piper Sandler also sees an in-line quarter and strong guidance leading to upward estimate revisions. Consumers have been resilient, FX headwinds are shrinking and Uber is executing. They’re all bullish on the name.

Guggenheim offered a sell rating on Cloudflare due to valuation concerns. They think Q2 results will slightly beat, but 2025 guidance could modestly miss expectations.

Keybanc’s channel checks point to a reasonably strong quarter for Microsoft next week. They maintained an equal weight rating. Wedbush also expects Microsoft and Azure to deliver a strong quarter and guide.

Keybanc raised their estimates for Airbnb for next quarter by 1% thanks to currency favorability. They see modestly outperforming results across the board for Q2. They also raised overall 2025 estimates but slightly cut 2026 numbers. They maintained an equal weight rating.

Oppenheimer is concerned that Starbucks could struggle to deliver the expected same store sales growth acceleration the street expected for fiscal year 2026. They talked about potential structural demand issues from competition and troubled margins due to investments to fix the business. For this upcoming quarter, they believe that revenue will modestly beat and profit will be in line. RBC expects that the coffee giant’s same store sales will also modestly beat expectations, and they’re more bullish on the turnaround Brian Niccol is creating.

Stifel is bullish heading into Meta’s Q2 results. They see modest upside vs. consensus estimates. Roth sees strong performance for Meta in Q2, but some softness in cost per impression so far in Q3. That could be related to Threads and WhatsApp rolling out ads.

Loop Capital downgraded Shopify due to valuation. Pretty fair, in my opinion. This is probably a bit ahead of itself at this point.

Rumors swirled that Palo Alto was exploring a purchase of SentinelOne. These were quickly denied by Palo Alto.

Meta continues to rapidly pull AI talent from other leading competitors. They clawed 3 researchers away from Google Deepmind & just named the co-creator of GPT-4 as their new Chief Scientist of the Superintelligence Labs. 

SoFi is now beta testing its cash coach product. This will offer recommendations for how a customer can maximize cash yield or when they should use excess funds to pay down debt etc.

Amazon is buying a small AI wearables company called Bee.

Cava launched its first store in Michigan.

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