Watch Our Earnings Recap: Analyzing Expectations for Cisco, Cerebras, Applied Materials, and More

Welcome to our earnings watch on Friday, May 15th. We're excited to go over a few of the biggest companies this week reporting, as well as do a deep dive on the reverse DCF front. All right, I'm going to share my screen. This is our institutional membership. Here's how we create A portfolio. Let's see, earnings watch 2026-05-15. Bam. And then we, once it's created, we just, just paste the tickers and bam, there we go. Portfolio. And we'll go in descending order as we usually do. Cisco, I think you had a big week this week, right? A big, I think people got excited. Look at that, about its success and it's sort of becoming an AI stock. But I think, look, they're running out of AI stocks to go after. So I'm a little bit wary of how long this is going to stick. We're seeing a pretty significant melt-up. There's your 20% up. I think the earnings were good. I think they had beats mostly on new strong AI demand. Look, this is the stock we've liked. This is a great example of good company. But that stock, and this is where New Constructs is a little bit different. We're not going to chase these things when they get expensive. And we can do that and outperform because we're able to find other good cheap stocks as we do consistently. And so, we operate in, I think, in a much safer world where outperformance is not a function of getting lucky on a couple of moonshots. Our outperformance is a function of consistently finding the cheapest, most profitable, best stocks in the market. And just doing that consistently month after month for 59 straight months, if you will, to be ranked number 1 on SumZero. That's a special ability, I think, that allows us to have what I would probably call risk-adjusted performance that's really excellent because we're not dependent on a couple of moonshots. We're consistently grinding out really great stock picks and we don't have to chase these stocks and hope. Oh, maybe someday somebody's going to wake up and realize Cisco is an AI stock because we still need all this plumbing to allow data and compute to travel amongst places and people as fast as possible. And that was our original thesis on Cisco. If you look back when this was a long idea, I believe this might have been original report on Cisco. And I believe this was a great outperformer for us. And these long ideas, you got to keep in mind, I think we talk about all the time about how, what is it, 3.6% of all the stocks are responsible for 100% of the value creation in the stock market since 1927. And something like 3.8% of all stocks get a very attractive rating at New Constructs. 0.4% of all of our stocks get made a long idea in any given year. Cisco was one of them. Some other great stocks are among those, which is, again, that's why we're SumZero-rated so highly. It's not just about data, folks. We do a very sophisticated 40-point checklist, high-level, very stringent set of criteria after all the numbers, after all the screening to identify Tremendous stocks. And Cisco is one of them. It was a focus list stock, did really great. Thesis played out. And then we entered into— I don't know, I'm not going to call it a Twilight Zone, but a melt-up bubble-type rally. And look, it does even better. And look, if you want to take more risk than we're willing to take, then maybe you keep it as a core holding for longer. But for us, we were honest, it got expensive, and we said it's time to move on. And this is a classic good company, Bad stock. Now we've seen way more expensive. I think you guys have been to prior earnings watches. You've seen way more expensive, way worse stocks than Cisco in terms of valuation. But let's do a quick deep dive in terms of what we're talking about here with respect to why this is an expensive stock. So this is, if we were to come in on as an institutional client, I can click on this button here and it's going to take me to the model. for Cisco. And you can see we can look at different scenarios for performance. But most importantly, let's set up a new scenario for Cisco in terms of performance, and let's call it optimistic since we've got a neutral and a pessimistic. And this optimistic, why don't we go with revenue growth? Let's see, let's say with revenue growth way higher than consensus. Let's go 10%, 10%, 10%. For 5 years, and then we'll drop off to the normal. And then on the margin side, we can go in and look at margins have come down a bit because look, it's a competitive business. It is. There's some of the plumbing aspects, so we don't expect margins to be great. Let's keep it at 23. It's where they've been for the last year and where they are in the trailing 12 months. Let's just keep it at 23, see what happens. And what this model is going to allow us to do is understand the implied values per share. For the stock based on these forecasts, and we're going to be able to look at this forecast over multiple time periods. So we're not going to just say, oh, this is what the company's worth if it's around for four or five years. Because by the way, that's how not how the Wall Street DCF models work. The Wall Street DCF models assume the company's around forever. They have perpetual growth profitability, perpetual profitable growth, and. This, the, their valuations. So what we say is, you know, if they got profitable growth for 5 years, here's the value. If they can do it for 21 years, here's the value. Sometimes the market price implies more than 100 years of profitable growth. We are transparent about that. That's, I think, the one thing we do better than anyone else is that we will actually show you exactly what the implied values are for a variety of forecast periods. All right. So Let's go to optimistic. So even at that much higher growth rate, we're still only getting around $70 a share. So here's where we get into $10, 10% seems way above. Let's go and put in the highest margins we've got in here for Cisco going back to the tech bubble, right? 27%, 27.2%, 28.8%.

Okay.

Let's go with 29, like we did here in the pessimistic. By the way, pessimistic doesn't have to be pessimistic. I'm just trying to look at different scenarios. We're going to put in the best margin ever with growth that's close to double consensus or more than double consensus over the next 5 years. And let's see what that does. These are big models. They take a while to run. And we've also been noticing that Amazon, they're not being so fair to us. Some days our systems go really fast and some days they put us on a good machine. Some days they put us on a bad machine and stuff goes way slower. So we honestly, we have a complaint into them and maybe they're running out. Maybe Amazon's having a hard time being profitable in the AWS business. I don't know. But if you've been looking at our AI winners and losers reports, Amazon is, we think they're in the hurt, they're in the hurt locker with respect to cash flow and trying to keep up with the spending of their more profitable rivals. And one of the big misnomers. or misunderstandings in the business is that Amazon is not that— is not as profitable as people think. All right, let's go here. Let's check out this optimistic scenario. So even in this optimistic scenario, best-ever margins, growth rates way better than we've ever seen, we can't get to a stock price really above— what are we getting to here? $67, $68 a share. And the stock's at $115. So this is really, this is a great analysis, folks. This is okay. What does expensive mean?

Right?

This right there, right now, what this is showing you is that even in this best-case scenario, 10% growth, best-ever margins, the value of the stock, even if it grows for 100 years, is around $70. So let's do this one more time. And let's go in here and let's put in, let's go 20. 20, 15. And then let's, let's go best ever. Let's go better than ever. Let's go with 31. And I'm like, yeah, I'm picking numbers out here. You can do this. We do this 100 different times. We do it as many times as we want. And the idea is not that you got to be exactly right about this stuff. That's the beauty of this model, is it relieves you of any burden or any expectation that you've got to predict the future exactly. It relieves you of that. All you got to do is be able to use a tool like this and throw in some wild numbers. Sometimes we throw in crazy numbers and get back results that we're like, oh my gosh, it still looks cheap even if we assume this incredibly pessimistic scenario, or it still looks expensive even when we assume this incredibly optimistic scenario. The great thing about a tool like this is that you can, in a matter of seconds, get answers to very complex valuation questions that you could otherwise never get an answer to. Nobody else in the business has models like this. Or at least nobody else in the business shares the results of models like this. It's the most sophisticated valuation model in the world, driven by the best data in the world, which is why we have the best research in the world. All right. So let's take a look at this new optimistic scenario. All right. We finally got something to show up. We don't need 100 years. 36 years. of profit growth. Now, the CAGR is not as high as 10% because that 20% and 15% growth was just for the first 3 or 4 years because I would think that's what they're going to get here. And then, but over time, the CAGR gets lower. But you can see that you got margins and return on capital versus cost of capital nearly double what it's ever done before. And another interesting thing to do here is let's compare what the future Revenue and profits need to be. Put both of these optimistic. Let's compare what the future free cash flow has to be compared to what it's been in the past. So the problem with this chart, unfortunately, right now is that the scale is way off because they had such a huge negative number here. Let's see if we go with Notepad. Yeah, here we go. This is what's been in the past, and this is what it's got to be in the future. You can see the super steep here when the growth is faster, right? This is dwarfing. This is $81, $82 billion compared to $13 billion. Pretty big growth there. So this was a special reverse DCF analysis for you guys to give you a sense of when we say the stock's looking expensive, that's what we mean. These guys got to go grow 2 or 3 times as fast as consensus with margins better than they've ever had before. That's what's priced into the stock today. So for you to believe from a fundamental perspective that the stock's going to go up from here, you need to believe that the fundamentals will be even better than what's already priced into the stock, which is that 5% compounded annual CAGR with a return on capital versus cost of capital spread that is nearly double what it's ever done. And that maintained for 36 years. That's what's priced into the stock. Any questions about any of that, folks? Anybody questions about how a reverse DCF model works?

We do have one question in the chat, David.

Okay. Every investor reserves the right to say they got a different set of expectations. That's the beauty of the model. I'm not here to tell you what the— exactly what kind of operationally the market's expecting. I am here to say that the cash flow expectations are really high, and I would think that at this level of cash flow expectations so high, look, look, when we put in the normal, a more normal number like that, like that pessimistic number with the 39, with the 29% margin, remember that wasn't that different? Or even if we go with neutral, right? There's a huge gap here. Huge. So Absolutely. We got to have something that, that pretty big. And I would venture to say even that's priced in because this sort of normal conservative extrapolation of the existing business gets us to around $68 a share. We got to have something major come in here to get us up to $115 a share. And then if you want $125 a share to make it have some upside, Maybe you need a couple major things to happen. So great question, Sam. I love to always bring this back to real business operations. So Sam's question, I think, had nothing to do with Cisco. I guess you're referring to Amazon. Yeah, look, I think that's what you're referring to. I would venture to say that Amazon's expectations have that baked into it already as well, 100%, because it's got bait. I think we did the Amazon expectations analysis a couple years ago. was baking in something like, I don't know, Kyle, do you remember? 1.5 times as big as Walmart or something like that. It's definitely baking in domination in retail.

Yeah, sounds correct, but the exact number, not off the top of my head, but it was definitely in that direction.

All right, uh, Applied Materials. Yeah, not as good a company, expensive stock. And I can tell you folks, this 5.6 Is a big number. We saw what a 3.4 price-to-economic book value meant to Cisco's valuation and the difference between what the company effectively is doing now around consensus and an optimistic scenario for the business. Then we had— you saw how optimistic we had to get in order to provide expectations or future cash flow scenario to justify a 3.4 Price to economic book value, 5.6, even worse. How did AMAT do this week? Not great. Is it one of the unstoppable AI stocks to buy now? They had a beat and guidance up and tops estimates. Interesting. Perhaps that guidance wasn't maybe as, as strong as people expected because the stock is down in an up market. Also, it's expensive. And I think we saw this with a stock a couple weeks ago in one of our earnings calls where it was a beat and the stock still went down. It was a big name. I don't know, maybe if you remember which one, Kyle, but it was a pretty strong— it was a double beat and it still went down. It was Palantir. It was a double beat. The stock still went down because expectations were so high. Look, folks, the difference between New Constructs and everyone else is that we're talking about expectations for the future Cash flow lifecycle of the company, not just this quarter. It's way more robust analysis. All right, we're going to go to PBR, my favorite ticker. Here we go. We got a lot of here suspended because it— okay, the new 6-K is coming in. Credit rating was upgraded from neutral. US GAAP is standard used for 2001 to '10, so they aren't using that anymore. We got a new 6K. Oh yeah, so we were pending a new 6K and we got a new forecast in here. And then focus list long. We like this stock. Economics not so great. Valuation cheap. It's in the energy business. What can I say, friends? I think we've been right about energy for a long time. That's a big part of our focus list. Look, energy demand. It's not going down, my friends. Before data centers, it was not going down. Now, is this super demand going to force adoption of other forms of energy? Yeah. But we've got, I think, an increasingly wealthy society. And that just— a lot of that just is the wealthier civilizations get, the more energy they consume. That's right. These people with data centers and AI stuff, they're using a lot of energy as opposed to people Living in the woods and cooking on stoves. So yeah, PBR doing well. Yeah, up 67% year to date. It's a pretty good long idea, pretty good focus list idea. Earnings, revenue, and stronger balance sheet post higher Q1. What did they do over the last 5 days? Ah, I guess not quite as good as people expected. Interesting. We did have them as a miss. That means that maybe they're— the numbers aren't quite as strong as Expected, but we still are very bullish on this one long-term. Tim, you can see all the reasons here as an institutional client, all the reasons it's suspended right here. Cause, a pending 6-K.

Yep.

Yeah. So great. We like this business. We're not worried about this profitability. It's, yeah, this is a time for energy companies to be very profitable. All right, we're gonna run out of time here. Let's get to BN. Brookfield Corp. We chose this because one of the bigger cap names. We got a new filing, so suspended because we're waiting on a 6-K for this guy too. Foreign— another foreign filing. The last one was a 40-F, and looks like maybe these guys might be annual, semiannual filers because shoot, we got that in 20— Who knows when we got it? This actually for 2025 might have been parsed in April, and then we're going to get a new— to your point, Kyle, getting a quarterly filing coming soon thereafter. Okay, so this is interesting. Hey man, that was great. Maybe not. So that's what I'm looking at here. Big up, big down. Maybe people are doing their work and parsing the financials a little more closely, or maybe it's because they had to do a $750 million debt offering. Oh, looking to merge with insurance arm and simplification push. So durable momentum. Yeah, I think the, the takeaway here for Brookfield is it's just mediocre. At -0.1, it's expensive. We don't— this is not something— not a lot to like here. All right, Kyle, who's our People's Choice Award winner? Who, who's— what stock got the most votes?

Funnily enough, all stocks got the same amount of votes. There was no winner, so I put them in a randomizer and we'll go with ticker NU.

N-U. We got here financial new holdings. All right, suspended. We're getting a lot of filings right now. We've probably been through— we just been through another filing season. We've probably been through, I don't know, probably 2,000 Ks and Qs. We're close to the end, probably 2,500 since we're that close to the end. But yeah, this is good profitability, valuation not quite where we want it. Folks, we're very selective at New Constructs. If there's one thing you want to take away about how New Constructs operates, we are super selective and super disciplined. We do it the right way and we set rules about what's good and what's bad and we stick to it. We don't let ourselves get swayed by prevailing narratives or new narratives. Oh, this time is different. We should hold on to this a little bit longer. It would be fun to do that, but it's a dangerous game. It's a tightrope. Yeah, you can make tons of money doing that. You can also lose everything you made. So what do we do? We stick to, I think, where ideally anybody would want to stick— the super cheap, super profitable, where you can be really confident that it's got just a significant amount of a price appreciation. When it gets through that, You let it go. Because guess what? We're always finding more we can put in there. That's the benefit of our system, the ability to screen through the entire market and find the best and the worst. And if you've ever read any of our long ideas, we just ran a special promotion. We gave away a free copy of a long idea to help people understand that as part of access to our Discovery membership where you get access to the screener. And look, reading those long ideas, you're going to see there's an amazing amount of analysis. I'm a former Wall Street hedge fund manager. A Wall Street equity research analyst, wrote lots of reports. I know how to put together a thesis. Kyle's been writing, I don't know how many, how many long idea reports, Kyle, and danger zone reports do you think you've written over the last 10 years?

Put me on the spot. Yeah, let's say hundreds.

Yeah, we've written hundreds. I've been around maybe thousands of these things. I've been studying it for 30 years. We have a 40-point checklist that goes on top of screening through The 13% of all companies that get a very attractive or attractive rating. Less than 0.4% in any given year stocks get picked to be long ideas, folks. So the work is super sophisticated, and that's why we're ranked number 1 on SubZero. And here's New, good company, mediocre rating here. Not a lot else to say. Not so great credit rating. Looks pretty strong. We're going here looking through. You can see how reported earnings compared to economic earnings, shares outstanding. The thoroughness of our research is unrivaled. Return on invested capital getting better. I like the economics of this business. It's looking good. Margins, capital returns getting better. Free cash flow negative, positive, negative. Not ideal, but at least you got some positive there. It's better than a lot of these tech stocks. And yeah, interesting. All right, let's, yeah, we can, let's, I got a good question here. We'll do one more. Cerebras. Yeah, folks, we did this. We covered this before the IPO. You want to talk about expensive? This baby is crazy expensive before the IPO pop. So we could do, we, this one actually might be able to, we could run pretty fast because it's got not a lot of history. Let's go in here. All right. Consensus margins are highly negative. So let's give it, let's give it like, let's give it like Facebook-level margins. And we'll leave the revenue growth numbers the same. See if that does it. Smaller models run faster. All right. That gets us to, oh, negative $34 a share. We can't even get a positive value per share on this business. At a 14% margin? How's that? What's going on there? So the debt's just huge?

That's weird.

Let's go take a look at the model.

What's going on here?

Okay. Oh my gosh, huge option liabilities and a ton of preferred capital. So yeah, you've got all these option liabilities down here, folks. I know it's small, but between option liabilities and preferred cap, you're dealing with over $10 billion. Of cash flows, cash flow value that's got to get paid off before you see anything. So, let's go. Let's double margins and see how that does it. Still not there. Still negative. Okay. Let's go. Let's say they can do 75% revenue growth for 5 years. And then it drops off to 20% and to 10%. While margins also go from terribly negative to totally positive. All right. If they can do 22% compounded annually for 23 years, while also seeing their margins go from terribly negative to strongly positive at 40%, the stock is worth $350. Actually, it's right at $345, right in that spot, $350. So, again, really high expectations, really high expectations baked in here. We would caution against it. All right, I think that's all we got for the day. Thanks for the questions. Thanks for the interaction. You all have a great weekend.