Various Earning Reviews
Nvidia, Sigma and the final confirmations we needed
We are ending a really strong earnings season, at least the most important part of it although next week will be special as many SaaS report and we’ll have to keep an eye on market’s reactions to confirm - or not, the last few days of optimism on the sector.
For now, I’ll stay out, but let’s see.
Nvidia
Today’s report will be short but important as the king reported this week, with another banger, which shouldn’t be a surprise. I’m not sure who had bearish expectations to be honest, after everything we’ve heard these last weeks...
The most important data this quarter is what I’ve been highlighting for weeks now: as inference arrives, GPUs aren’t the heart of AI demand anymore, networking is - and everything that can help GPUs achieve their task without idle time.
Data Center compute revenue was a record $60.4 billion, up 77% from a year ago and up 18% sequentially. Data Center networking revenue was a record $14.8 billion, up 199% from a year ago and up 35% sequentially.
Data center networking revenue of $15B nearly tripled year over year. InfiniBand has had a very strong quarter growing more than 4x year over year driven by deployments of our next-generation XDR technology. Spectrum-X, our end-to-end Ethernet platform purpose-built for AI, is now larger than all Ethernet network peers combined."
That was the thesis on AsteraLabs a months ago and it played out wonderfully as the stock is now ripping at new highs, and is the actual reason for buying Arista last week on the W50 retest, as shared in the Substack chat. Those two companies are at the heart of the networking demand and leaders in their products, so as Nvidia confirms the direction of hyperscalers’ spending, it also confirms my thesis on both.
The bottom line is always the same but I’ll repeat it: inference requires more than raw compute, it requires a complete optimization and that comes from other constructors; this is the narrative behind photonics, Silicom, and so many others.
This earnings season proved this. Nvidia confirmed it. And analysts don't see it stopping any time soon.
With analysts now forecasting hyperscale CapEx to exceed $1 trillion in 2027 and agentic AI beginning to proliferate all industries, AI infrastructure spending is on track to reach $3 trillion-$4 trillion annually by the end of this decade.
I have covered everything you needed to be convinced on this narrative which remains the strongest today and you guys now my view on the subject: extremely bullish, as long as the market loves the sector.
Small note on SaaS: as agentic AI scales, their products also will. I’ve been patient enough for long but any switch in sentiment on those stocks will have to be bought because this is where the next round of performance will be - this and robotics.
Since the advent of ChatGPT, we have witnessed mainstream AI transition from one-shot inference to reasoning and to now agentic. AI is no longer a nice to have. AI is now a necessity for enhancing productivity across all industries and roles.
Tokens are now profitable, so model makers are in a race to produce more.
Sigma Lithium
Sigma reported earnings late last week; the thesis continues to play out. The most important information being the repayment of 21% of their debt and the confirmation of their credit line and pre-payments to fund their expansion. This is what makes the play so interesting as financials improve, so more confirmations are valuable for the market and its perception.
We have repaid 75% of our short-term bank trade debt in the last year. Those were the trade finance lines that we used to finance our operations throughout the last two years. They've gone from $90 million down to $13 million only. That is a staggering 75% reduction. Not just that, in the last quarter alone, we managed to decrease these lines by 46%. That's a quantification of our ability to generate cash.
Everything was good, with healthy growth, improving margins and cash generation partially due to an increasing commodity price as I expected when I wrote the thesis. Demand is growing and their ESG product is attracting demand at a higher price point while having a lower production point than competition. Management confirmed their guidance of 240,000t/year for 2026. And that’s before they triple their production by the end of 2027.
We had one more great news as Sigma developed a “new” business: lithium fines. Fines are smaller lithium particles whose sizes do not meet the threshold to be manufactured into cells. Most of the times, those are thrown away, but Sigma figured out a way to purify them and… sell them, thanks to their high qualit. This is a net increase in revenues at no added cost as the mining is already done, which yielded $21M this quarter - not negligible, helping to improve margins and growth. This wasn’t a one-off as there is demand for up to 350,000 tons from their buyers.
On the stock itself, the market sold the stock for two reasons, in my opinion.
It ran a lot and this quarter “only” confirmed the core case - more the bull case to me well. The stock got expensive, traders took profits, end of story. No big deal.
A preliminary demand was filed by a local judge against Sigma’s operations, which he considers “a massive violation of human dignity” due to the potential impacts it has on neighboring cities - noise, tremors, waste piles... This is just a demand, not a ruling, and management released a statement saying they will defend their case and are operating within all regulatory frameworks. Noise.
This was a good moment for traders to deleverage and give the stock the retest it needed, right onto my entry point as shared in the chat. This quarter was in line with my thesis and as demand for lithium isn’t slowing down, especially not “cheap” ESG compliant lithium, I continue to be bullish on the company and am glad to be in.
Disclaimer: I am not a licensed financial advisor, analyst, or broker. This content reflects my personal opinions and investment decisions for informational and educational purposes only. I hold positions in securities discussed and may buy or sell without notice. Nothing here constitutes a recommendation to buy, sell, or hold any security. Past performance does not guarantee future results.
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