a. Portfolio Changes
As telegraphed in last night’s article, I sold 40% of my SentinelOne stake this morning. Consistent, multi-quarter excuses to explain underwhelming results don’t sit well with me. That’s especially true when worsening macro is cited as this quarter’s culprit, while CrowdStrike, Zscaler & Palo Alto “magically” don’t see that same worsening unfold. SentinelOne has been placed on my do not add list and I plan on cutting the remaining position if they don’t deliver a strong, clean Q2.
I used some of the proceeds to boost my PayPal stake by 6%. They continue to consistently execute under Chriss. We know their quarter is going well as of last week (section 2). Branded checkout has been modernized; Fastlane, ads and omnichannel are all ramping; Venmo monetization is inflecting; Braintree’s negative profit margin days are over; value-added services are being effectively cross-sold; the regulatory backdrop for tap-to-pay is brightening. And? At 14x forward EPS (without adding back stock comp) with an expected 2-year EPS CAGR of 10%, I think there’s a lot to like at a highly compelling price tag. I also expect upward revisions to profit forecasts to make the deal look even better. This stock has been a dud since I’ve owned it. If the company keep executing, I’ll stay patient.
I used another small piece of the proceeds to boost my Alphabet stake by 9%. I think my coverage of the IO Event (section 2) depicts where my optimism comes from on the AI innovation side of things. They’re not falling behind; they’re leading. Waymo is quickly scaling while YouTube, Google Cloud and its subscription businesses are all thriving. I expect it to keep losing modest market share in search, but I also expect AI to vastly expand the pie and for Google to keep steadily compounding as far as the eye can see. Rapid Gemini user growth, powerful engagement boosts from AI Overviews and several new IO announcements all pull from world-class models and all show great promise. I’d love to see the Wiz Security deal close to augment its product suite and give its cloud business a large new cross-selling toy — but we’ll have to see if regulators allow it to happen. I don’t expect the final anti-trust decisions to break up this business. But? If that happens, I think we’ll get a nice premium on a Google Chrome sale and Alphabet will be just fine. At 18x forward EPS and a roughly 13% 2-year EPS CAGR expected, I think there’s a lot to fundamentally like at a great price tag (just like PayPal).
The rest of the proceeds will remain in cash for now.
b. Updated Holdings
The two charts below are the same. The primary source is just hard to read, so I include the other one.
c. Updated Performance vs. the S&P 500
