This Stock Could 3X in the Next Bull Run & 4 Buy The Dip AI Plays

Hello and welcome to Being Exponential. We'll be covering our stocks of the week. All right, Luke, it looks like stocks are finally back. Uh so let's just kind of dive into stocks that are reporting earnings. Let's start with Palunteer. They've had a pretty big uh Q2. Uh looks like they are up 93% year-over-year in revenue alone. Uh let's start with that stock. >> Oh, we are we are so back, baby. We are so so back. Last week we talked about it being kind of like a a backup the truck moment if certain fundamental and technical signals were triggered. That happened and we're off in rally mode right now. Like the AI bull market is fully back. So it's this week's list of stocks are stocks that you should be buying on the rebound starting with Palunteer. So I kind of led with the headline there. You should be buying this bounce in Palunteer. The big tug of war on the stock has been SAS maged in fears versus you know organic AI software growth at Palanteer both commercial and government and this quarter sort of actually not sort of very solidly very emphatically unequivocally resolved that tugof-war in favor of the the bulls in favor of the AI software side. I mean, to your point, kind of just looking at the numbers here. Yeah, we got revenue growth of 93% year-over-year, but more impressively, that's 19% quarter over quarter. So, when you're a hyperrowth stock like Palanteer, big year-over-year numbers are great, but you want to see that quarterly ramp. You want this three months to be better than the previous three months, better than the previous three months, etc., etc. To grow 19% quarter over quarter is absolutely astounding. Commercial up 149% year-over-year, 28% quarter over-arter with government up 90% year-over-year, and 18% quarter over quarter. That commercial business is the big kahuna right there. We know the palunteers in bed with the government. We know the government uses their stuff. We know it's kind of like the allied forces AI platform. We know that the question mark has been how much penetration can they get into more costsensitive commercial organizations? And the answer to that is a lot of penetration. They're really increasing their presence in the commercial world. 28% quarter-over-quarter growth is absolutely stunning. That's the clearest evidence yet of an explosion enterprise AIdriven adoption or enterprise AI adoption and it's being driven by Palanteer. They're the the heartbeat of it. Net dollar retention 157%. That that's just stupid good. uh adjusted operating margin 62%, free cash flow margin 63% and the rule of 40 score is about 155%. So I mean there was nothing wrong with that report it was very very strong and the guide is very very strong. Um, when we kind of look at the can this growth persist? Well, I think it absolutely can. When you're growing 150% year-over-year in the commercial business, looking at the numbers now, now these are estimates before this quarter uh got included into the numbers as the analysts haven't had time to update their numbers yet, but we're looking at 48% growth next year, 42, 45, 46 in the end of the decade. So, 40% plus. I think all those numbers move up to 50% plus in the end of the decade. This is a 50% plus compounded revenue grower into the end of the decade. one of the best growth stories in the market right now. Gross margins, I think these estimates are pretty good in the high 80s, stable into the end of the decade. Evitha margins going from low 60s all the way up to mid80s. I think those are also pretty good. So, you're talking about maybe a 50% revenue grower and a 70 to 80% EVA grower. That's absolutely amazing. When you look at the valuation, the knock on the stock has always been valuation, but now we're only at 60 times forward. That's dirt cheap. As you can see, it's a it's a one-year low. Is it a two-year low? Pretty much a two-year low. And on a 5-year basis, it's near a 5-year low. So, we're essentially at a 2-year low valuation and very close to a 5year low valuation. 60x forward for what I just told you, it's probably going to be 70 80 90% compounded growth. I like when the multiple lower than the KGER. So, that's a really good set uh from my perspective. One thing I love to watch, we're incorporating into these videos now are estimates. This is the forward 12-month EPS estimate for Palanteer. As you can see, it's kind of done one thing. It goes up and to the right. So, the recent choppiness in the stock is really inconsistent with the forward EPS estimate trend, which means it's fundamentally inconsistent. And so, that's, you know, a potential buying opportunity when you layer in all the other factors, think it is a buying opportunity. And then when you look at the technicals here, we finally, remember, we've talked about the stock a couple times in the last few weeks, a few months even. And the thing for me was the technical signal I needed to see was a 200 day retake because we lost the 200 day back here in January. Then we got rejected. It became resistance. Got rejected in March. Resistance got rejected in later March. Resistance got rejected here in June. Resistance. So the 200 day which was support became resistance. Today that changed. Today we knifed right to the 200 day at 152. We're 159. That's a pretty solid retake. Now that we've retaken the 200 day, this is the bounce you want to buy in Palanteer. This is the real deal one. So, that's my two cents on on this stock that I think is ready to get back into route. >> Excellent. Okay. Uh moving on to another uh company that just released earnings. We're going to talk about Caterpillar. So, we could think of it as a literal picks and shovels play for the AI buildout. They had a stellar report. Looks like the revenue rose 24% to 20.5 billion. Uh any more insight there, Luke? Um, I love Caterpillar. I think this is again five stocks this week. Buy the bounce stocks. This is one you want to buy the bounce in. Um, this is a prime supplier for the A infrastructure buildout because the AI infrastructure buildout needs a lot of stuff that Caterpillar builds. Whether it's prime and backup power or it's, you know, construction equipment or it's things of that nature. Caterpillar is kind of the industrial backbone, the industrial fiber of the AI infrastructure buildout. So we just got confirmation from the four hyperscalers that spending is not going to slow down anytime soon. All four of them hiked capex guidance for 2026. All four of them provided bullish commentary on 2027 capex plans. So the buildout is is continuing. That means Caterpillar will continue to win big orders and it means the numbers that we saw today are going to be the numbers we see for the next several quarters. This is not just kind of like a one-off thing or it's not just a trend that ends now. It's a trend that will persist for the next several quarters and as it does the stock will do really really well. So kind of looking at those numbers to your point revenue rose 24% to 20.5 billion. Adjusted EPS jumped 73% because adjusted operating margin expanded 430 basis points to 21.9%. So you got 20% plus revenue growth with operating margin expansion. And then the core of the AI story the machinery power and energy segment free cash flow there reached a record of 5.1 billion. And one of the reasons it's well processed is the backlog over at Caterpillar surged to 9.4 or surged $9.4 billion sequentially was up $9.4 4 billion quarter over quarter um to $72.1 billion. They got $72 billion of orders on their books that they have to fulfill over the next several quarters. So that's why this is a stock that's going to continue or company rather that's going to continue to put up really really big numbers. Let's look at the numbers themselves here. I think these estimates are way too low. 9% revenue growth this year expected 11 and 27 11 and 28 and then kind of falls down there in 29 and 30 but we just saw the company reported 25 24% revenue growth with a 72 billion backlog I think these estimates move higher I think this is a 15 to 20% compounded revenue grower into the end of the decade we we are seeing uh even that margin expansion I think that persists low 20s to high 20s seems right to me so we're 15 to 20% revenue growth and I think we're going to be 25% plus Eva growth and that is really attractive. So the growth profile here is 25% plus compounded EVA to growth and the valuation is just 22 times forward EVA for a really stable large not essentially high beta company right this is a this is a stable cash cow and so you're paying 22 times for 25% plus growth that's a really attractive valuation setup again looking at the estimates like I said I think they're going to keep going higher they have been going higher this is another I mean look at that line of estimates that that's absolutely ridiculous and it really makes the recent and selloff seem fundamentally in congruent. I mean, look at how these estimates just have raced higher since May and the stock has kind of dropped. So, I think we're now due for kind of a rubber band moment where this bounces back to the EPS trend line. And then the technicals here I think look really really attractive too. When you look at Caterpillar and what it's doing on the chart, we had a big draw down 20 what was that? Maxed out at 26% draw down. Boom. Lost the 50, lost the 100, but now V-shaped recovery. Retake the 100. So, didn't become resistance. Support is still support. We're bouncing back. Pretty much an oversold RSI bounce. This is the time to buy the bounce. I love Caterpillar here. >> Excellent. So, moving on to the next stock here. Uh, let's talk about Applied Opto Electronics. So, now analysts are saying be bullish on this stock if hyperscaler demand continues. And as we know, hyperscaler demand is continuing. So, uh, what what more do you have to say about AOI, Luke? >> You just said it for me, man. >> You just said it for me, right? A AOI is a leveraged vertically integrated pixels play on the AI networking boom. And that AI networking boom persists so long as the hyperscalers keep on spending. Now, AAOI, the reason I'm highlighting it this week is because it is of the players in the networking space, the highest growth player that I am aware of that is also like a good play. I think there are some smaller ones that may be growing more, but they're going from 1 million to 5 million, so who cares? This is a multiund million company that is growing at a triple digit clip. I mean, look at these growth rates. Now, I get these are estimates, so again, it all depends on if the spending will persist. And we just got confirmation that the spending will persist. If it does, this is what this growth trajectory looks like. 125% revenue growth this year, 160% the year after that, and then 56% the year after that. I think this number goes up and does triple digits as well. There's not a lot of uh estimates out here in 2028 yet, but I think this is a triple digit 100% plus compounded revenue grower on the top line for the next three plus years. That's the highest growth name in optics. That's one reason I really like this. Then look at the margin profile. We go from 32% uh gross margin this year to 38%. And then on Ebbit, we go from 13%, there's no estimate out to 28, but I think we're going to be at 25 30% ebon margin. So you have tripledigit revenue growth here with the potential for Ebon margins to go from low teens to high 20s in the next two to three years. That is the again the biggest growth story and arguably the highest growth vertical of the AI infrastructure buildout. So in terms of high beta returns, this is this is your name and that's exactly what the we're not going to look at the valuation or the estimates and we can look at the estimates on this one. Um the estimates here are just really attractive and I just want to show people how fundamentally in congruent the sell-off was. I mean this is this is a real sharp divergence. You can see blue line EPS estimates. They did have some chop here in around liberation day, but look at this. There's no chop right now. These estimates are going up and to the right and the stock is nose dive. So there's his potential for a really really massive rebound rally. This is a stock that it got hit hardest in the selloff or was one of the hardest hit names in that July AI selloff and now will probably one of the biggest rebounders, right? This is a name that dropped 60% plus 65% 66% July 29th peak draw down. But look at this really strong recovery rally. Reto the 200 day. Now just soaring right above the 200 day. Little death cross here at the 50 below the 100. That's okay because we're going to retake both the 50 and the 100 probably this week and we're just going to keep on soaring. This is the bounce I really really like. I this again this is the high beta play for AI infrastructure. If you're looking for a name that's going to double in a couple months, this this is the sort of name you want to play. >> Excellent. I love those high beta plays. All right. Uh, next up is a stock that both of us enjoy. I actually just bought a little bit of it this morning. Uh, let's talk about Nebius. Uh, I know you're bullish on Nebius, but I I want to bear in mind that AWS, Azour, and Google Cloud are increasing their their cloud business. So, are you still really bullish on Nebus? >> Yeah, because the reason they're increasing their cloud businesses is because we are so compute short. And so the bull thesis on Nebus is we are compute short. So Nebius has to provide more compute. So the launching of new cloud businesses from uh you know AWS and Google cloud and even Meta getting into this game um that emphasizes or reinforces the core reason you want to own Debius. Now I get there's some competitive dynamics and stuff that are going on here but I think that's second order. First order is we are just so short compute supply that any supplier of that compute is going to see massive demand and have massive leverage in contract negotiations with pricing lot of pricing power and what that's going to lead to so long as that dynamic persists is very large revenue growth and very large margin expansion and again like AOI is the highest growth player in the networking segment ment of the AA infrastructure buildout. Nebus is the highest growth player in the Neocloud segment of the AI infrastructure buildout. The growth rates here actually make AOI look small, believe it or not. 521% revenue growth expected this year. Revenue is expected to jump from 530 million in 2025 to 3.3 billion in 2026. There is not a higher growth company out there right now. Then they're expected to triple next year, more than triple, 230% revenue growth to $10.8 billion and then essentially double the next year to basically $20 billion and then 50% revenue growth the year after that and 40% the year after that. This is a massive growth story where revenues are just starting to take off from trailing 12 month $878 million to $40 billion over the next five years. Let's call it one to 40. That's 40x growth in revenues in the next 5 years. That that's that's absurd. That's stupendous. I think that growth profile is correct. Then look at margins, right? We talked about one of the biggest things to like about this company is the margin profile. 41% expected this year, 56% expected uh 27, 65% 28, 76% 29, 82% 2030. If you were like, you know, people like play basketball guy here. So people play like NBA 2K and they like create a player and it's like seven foot six and can shoot threes and has the best handles in the world and is like it's just like this created fantasy player that is the best at everything. If I could like create a stock like if there was like Wall Street 2K and I could like manufacture a stock to have certain growth metrics and it's the perfect stock, a perfect company, that's Nebius, right? Triple digit revenue growth, 70% plus gross margins. He put their margin expansion profile from 40% to 80%. It does not get better than that. So that's one of the reasons I really, really, really like this company. And then the stock when you look at the valuation against that, again, this is my Wall Street 2K stock and it's only trading at 13 times forward. Like is that a joke? Is is that an absolute joke? It's trading at 13 times forward for this type of growth. I mean, that is a joke. And then the chart is just I mean the chart is ridiculously pretty in my opinion. It's total textbook long-term winner. Had a short-term selloff that is now turning into a short-term bounce. And the long-term rally is is coming back. Got hit hard. 40% draw down. But look what it did. Dropped right to the 200 day. Bounced right off the 200 day. Retook the 100 day. The trend of lower highs and lower lows is over. Retaking the 50. Very compelling bounce. is a bounce you want to buy. So, this is one of my favorite stocks in the market at this current moment. >> Yeah, you really love to see it. All right. Um, so let's move on to the last stock, Fabernet. Not a stock we've talked about too much on this podcast. They are a manufacturing partner for optical networking and highspeeds communications equipment. So, a picks and shovels place. So, what what do what do you have to say about uh FN Luke? Yeah, I mean Fabernet is not uh a name we've talked about before, but it's a name I've liked for a long time. They um I mean the bullies here is that AI as AI clusters scale uh the bandwidth requirements for those clusters are driving the rap a rapid adoption of you know 800G 1.6T 6T transceivers uh data center interconnect silicon photonics uh and eventually co-ackage optics and stuff like that and Fabernet is a supplier of that stuff which is difficult to replicate um in terms of the manufacturing expertise for all that stuff more or less. So just kind of a clean pick and shovels play on the AM structure buildout. The stocks been hit really hard and I think it's a very attractive buying opportunity uh in FN. If we kind of look at the growth profile on the stock, there there's nothing wrong with it. This is a very very uh strong stock. 35% revenue growth this year, 24 next year, 20 year after that, 24. So 25% plus pretty much compounded revenue grower. Gross margins uh margins 12% 12% 13% 13%. So if you want to knock something on, this is the lack of margin expansion potential. But with 25% compounded revenue growth, you're still going to get 25% plus 30% plus EBIT growth on this name. And the valuation against that backdrop I find highly attractive. FN stock is trading at just 25 times for estimates, which as you can see pretty much a one-year low or fell to a one-year low and is now bouncing back. It's also kind of in line with a two-year average. So pretty attractive valuation there on FN. The estimates show the recent sell-off is fundamentally in congruent. When you kind of look at the FN chart, I mean, look at that. These estimates are super pretty up and to the right. That's all they do. And the stock selloff is kind of this big detachment, very much like Liberation Day, right? You had this uh Liberation Day selloff in FN stock. The estimates didn't move. The stock came roaring back. So, I think we're due for a similar stock crashed. Estimates haven't moved. Stock comes roaring back. Then you look at the chart. We lost the 200. But as of today, one of the reasons I'm bringing it up is because we are retaking that 200 day. You see, one of the things I don't like is when you turn support into resistance, and that happened here July 21st, we hit our head in the 200 day on FN, and we fell, made a new low, but now we are running back up to it. I think we we have retaken it 533, 531. I think we close above it and I think we eventually, you know, so we've retaken the 200 day moving average. And not to mention, we have ended this thing of high of lower lows, lower highs, lower lows. It's been the trend. Nope, no longer the trend. This is a nice reversal. I think this is a name that is ready to get back into action. I love the dip buying opportunity or rather the bounce buying opportunity, I should say, in Fabernet. >> Love it, Luke. All right. So, uh there is a big meta topic that we will be discussing in our macro episode, the situational awareness. uh topic. However, it does look like the knives are no longer falling. Is that safe to say Luke? >> Yes, that's exactly where we are. You know, we don't like to catch falling knives. That's not our strategy. Our strategy is to buy bouncing tennis balls. And now the tennis balls are bouncing. So, buy the bounce back, right? Like the real back of the truck moment was not after situational awareness blew up, but after Amazon confirmed earnings. So, we had the situation awareness blow up Wednesday. We've got Amazon confirmed earnings on Thursday. That was on that Friday of last week was the true backup of the truck moment and I think it's continuing this week. So, I think we're kind of in that back of the truck window. This is the time to get aggressive. I love all five games this week. >> Excellent. Love it. Yep. I already stocked up on a little bit of each of them. All right. Uh that's it for this week. We will see you on Thursday for our macro episode. Take care. Let's do [music] it.