DK Street Journal

Seven American companies that supply the least visible layers of artificial-intelligence hardware reported results within four days of each other in early August, and the prints pulled them in opposite directions. They make compound-semiconductor wafers, industrial and military lasers, photomasks — the quartz stencils every chip fab uses to print circuits — and the power switches and passive components that condition electricity inside data-centre racks and cars.

Grouped together they look calm; individually they are not. Over the three months to 7 August six of the seven fell, an average of roughly 21%, and all seven remain between 34% and 55% below their highs of this year. Then in the seven sessions around earnings they spread across a 145-point range, from AXT up sharply to nLIGHT down. Any single average across these names describes none of them.

Substrate scarcity is real; the price already assumes it

AXT, a Fremont, California maker of indium-phosphide, gallium-arsenide and germanium wafers on which the lasers inside optical transceivers are grown, reported record second-quarter revenue of $47.6m, up 164% year on year, with indium-phosphide revenue of $30.7m and non-GAAP gross margin of 45.0% against 8.2% a year earlier. Backlog exceeds $100m and is growing faster than shipments; management guided the current quarter to about $66m. Three customers have prepaid for capacity, including a Lumentum agreement signed 29 July reserving minimum annual wafer volumes through 2031 against two $43.5m deposits. An April share sale left $749m of cash against $123m in March.

The business CONFIRMS the move. The valuation does not follow: 20.6x forward sales and 103x forward earnings, against consensus that already has revenue quintupling to $677m by 2028. That is a STRETCHED multiple — the two-year ramp is in the price.

The clearest gap between order book and tape

Vishay Intertechnology, a Pennsylvania maker of power transistors, diodes, resistors and capacitors for industrial, automotive and telecom customers, is the group's sharpest divergence. Second-quarter bookings ran at 1.32 times shipments, backlog rose 18% sequentially to $1.9bn — 6.1 months of shipments — and the company guided the current quarter to a 21.4% revenue increase with 24% gross margin, hitting its own target a quarter early. Distributor inventories fell to 18 weeks from 20 while sell-through grew 20.5%, which points to consumption rather than stockpiling. Yet the stock trades 29% below the $50 at which it sold 17.25m shares on 1 July for $830m net, at 1.35x forward sales and 6.5x forward gross profit — the cheapest in the group. The 42.9x forward price-to-earnings ratio reflects trough margins, not normal ones; the company earned a 12.3% net margin in 2022. Business CONFIRMS, tape CONTRADICTS. The offset: $400–440m of capital spending this year, half on a German 12-inch fab, means negative free cash flow in 2026.

Lasers: one recovering, one tripped by export rules

IPG Photonics, the Massachusetts fiber-laser maker used for cutting and welding, has now posted three straight quarters of double-digit growth after a two-year slump. Second-quarter revenue rose 11% to $278.6m with adjusted earnings of $0.58 a share against $0.35 expected, gross margin up 310 basis points to 40.4%. At 1.80x book and 8.9x forward gross profit against a 47.7% peak-cycle gross margin, the recovery is not priced; the 77x forward earnings multiple is an artefact of depressed margins. INCONCLUSIVE, leaning constructive.

nLIGHT, which makes fiber and directed-energy lasers and won a Department of War contract with a $627m ceiling, grew revenue 33.8% to $82.6m with record defence sales of $57.3m — then fell about a quarter in one session after warning that China-linked supply disruption would hit the current quarter. Roughly $17m of product revenue slipped out of the third quarter; guidance implies flat year-on-year sales and gross margin down to 24–30%. Business CONTRADICTS the prior uptrend, at least for two quarters.

Silicon carbide, photomasks and a pre-revenue option

Wolfspeed, which emerged from a prepackaged bankruptcy in September 2025 having cut debt from about $6.7bn to $2bn, reported revenue down 19% with a negative 26.6% gross margin, and consensus expects fiscal 2027 revenue to fall another 14.8%. It rose 19% in a session on a partnership with LITEON qualifying its silicon carbide for 800-volt data-centre power systems — a qualification, not an order. At 2.65x forward sales and 1.68x book with negative free cash flow, business CONTRADICTS.

Photronics, the Connecticut photomask supplier, saw revenue flat and gross margin compress 560 basis points; its shares fell 36% in a single May session on a miss and a cut outlook. At 4.4x trailing enterprise value to EBITDA and a 5.0% free-cash-flow yield it is the cheapest here, but its 17.6x forward earnings multiple sits above a 12.0x trailing one — consensus expects profits to fall. A justified de-rating. POET Technologies, a Toronto designer of optical interposer chips with 80 employees, booked $503,389 of revenue last quarter against a $17.9m operating loss; at 130x forward sales no fundamental verdict is possible.

The thread, and the tape

One policy binds them. China has licensed indium exports since February 2025 and added 14 European entities to its control list on 24 July, several working on gallium-arsenide and indium-phosphide epitaxy. The same regime is AXT's scarcity engine and nLIGHT's $17m deferral.

A note on the charts below: the moving-average trend labels for these names flipped four times in the fortnight to 7 August, and each was followed by the opposite move — nLIGHT marked into an uptrend the day it fell a quarter, IPG marked down the day it rose on its beat. They lag earnings and should not be read as forecasts here.

The setup

Where it stands — Order books at Vishay and IPG are improving while their shares fall; AXT's numbers confirm the boom but its multiple already assumes it.

Would confirm — Vishay third-quarter revenue landing in the guided $945–975m range with gross margin at or above 24%.

Would invalidate — Vishay book-to-bill falling below 1.0, or backlog declining from $1.9bn, in the next quarterly report.

Watch next — AXT's third quarter against its ~$66m guide, and nLIGHT's, which must show the deferred $17m returning.

Valuation — Vishay 1.35x forward sales and 6.5x forward gross profit, the group's lowest; AXT 20.6x forward sales, 103x forward earnings.

The week the bill arrived

On 6 August, Datadog — the New York company whose software monitors cloud applications for crashes, slowdowns and intrusions, and bills by the volume of data ingested rather than by the user — told investors its largest customer had renewed its contract and would then reduce usage starting in the third quarter. Management described it only as a significant artificial-intelligence company on a nine-figure deal using 17 products, and declined to name it on the call; Wall Street widely assumes OpenAI. The shares fell 20.4%, the largest single-day decline in the company's history, exceeding the drop of March 2020.

The quarter underneath was strong. Revenue of $1.121bn grew 35.6% year on year, an acceleration from 32.2%, 29.2% and 28.4% in the three prior quarters, and the full-year revenue midpoint went up $140m to $4.45–4.47bn. The problem is the shape of the next one: third-quarter guidance implies deceleration to roughly 29%. This is the exact hazard of consumption pricing: the same model that lets an AI customer's spend explode lets it be dialled back at renewal.

One week, not one month

The group's month looks like a steady climb only in aggregate. Between 8 and 22 July these seven names were flat to falling — MongoDB down 15%, Palantir down 5.8%. From 22 July to 7 August they averaged +22.4%, more than the entire 30-day figure, and most of that landed in four sessions. Palantir reported on 3 August; Fastly and Amplitude on 5 August; Datadog on 6 August. Palantir's print acted as a rising tide for data and infrastructure peers including Snowflake and MongoDB, neither of which had reported anything. The tidy "rotation out of chips into software" explanation does not survive inspection either: semiconductors rebounded sharply into 30 July, rising alongside software rather than funding it.

The businesses: CONFIRMS

Every member that reported beat and raised. Palantir, the Denver builder of data platforms for defence agencies and large corporations, grew revenue 92.8% to $1.935bn with a 47.1% operating margin, net dollar retention of 157% and U.S. commercial revenue up 149%, and delivered its largest-ever full-year raise. Fastly, a San Francisco content-delivery and edge-security provider, grew 23.3% — its fastest in four years — with gross margin at a record 65.8% versus 51.3% a year earlier. Amplitude, which sells product-analytics software, grew 21.2% to annual recurring revenue of $410m.

The two consumption names that have not yet reported were accelerating at last print: Snowflake, whose Data Cloud consolidates scattered corporate data for analysis, grew 33.5%; MongoDB, whose Atlas database service underpins developer applications, grew 25.2%. Elastic — the search and vector-database company behind Elasticsearch — is the laggard at 16.0% and decelerating, and lost its chief product officer in a resignation effective 17 July.

Datadog's own counter-evidence matters: non-AI revenue growth reached the high-20s, a fifth straight quarter of acceleration from 18%; the $100,000-plus customer base grew to 4,720 from 3,850 and supplies 91% of recurring revenue; agent tool calls rose fourfold sequentially. Bank of America kept a $305 target, arguing one account is being read as a company-wide problem.

The multiples: CONTRADICTS

Growth is real; the re-rating outran it. Snowflake's trailing price-to-sales was 11.4x in May and 18.6x a year ago; it is 22.8x now, 18.8x forward, and on the fairer cross-group measure — price to gross profit, since Snowflake's 66.6% gross margin is the thinnest here against Datadog's 78.6% — it is 33.9x. Datadog is 21.0x trailing sales after the crash, against 16.1x last August and 11.6x in February: the top of its own range. MongoDB has gone 8.3x to 12.3x on 25% growth; Fastly 2.0x to 5.2x, the largest re-rating in the group.

Two exceptions. Elastic trades at 4.49x sales versus 5.12x a year ago, 23.2x forward earnings and a 4.1% free-cash-flow yield — roughly triple Datadog's 1.4% or Snowflake's 1.0%. And Palantir has genuinely de-rated, from 121.6x sales to 64.2x, because revenue nearly doubled while the stock fell 5.6% over twelve months — it remains the most expensive software name by a distance.

One arithmetic warning: Palantir is 62% of the group's combined $638bn market value, and Fastly, a $3.6bn business, supplies roughly 30 of the 57 equal-weighted percentage points of twelve-month gain. Read either way, the "group" is two stories wearing one coat.

The setup

Where it stands — Business momentum broadly confirms the rally; the multiples on the consumption names mostly do not. Would confirm — Datadog's non-AI revenue growth stays in the high-20s in the third quarter, with the customer cut already in guidance. Would invalidate — Snowflake or MongoDB report product-revenue deceleration, signalling optimisation is spreading beyond one Datadog account. Watch next — Snowflake and MongoDB report their July quarters late August–early September; Datadog's Q3 guide implies ~29%. Valuation — Snowflake 22.8x trailing / 18.8x forward sales versus 11.4x in May; Datadog 21.0x / 19.0x versus 11.6x in February.

These five companies sell the same underlying thing in different wrappers: other people's work. Concentrix, based in Fremont, California, runs outsourced customer-service and back-office operations with 455,000 employees. Genpact, spun out of General Electric and now registered in Bermuda, runs finance, procurement and supply-chain operations for large corporates with 145,000 staff. ExlService handles claims, underwriting and analytics for insurers and healthcare payers. NIQ Global Intelligence sells consumer-measurement and shopper-panel data to brands. Innodata, the outlier, labels and curates the training data that large language models are built on — it is paid to build the software that could eventually delete the seats the other four bill for.

The gain has a date stamp

Almost the entire monthly move landed between 22 and 29 July. Concentrix rose 11.9% on 27 July; Genpact rose 15.3% into 28 July and 6.1% more the next day; NIQ rose 6.1% on 27 July; ExlService went from $28.56 to $35.71 in two sessions. The trigger was not company news. Jefferies upgraded Indian information-technology services from underweight to neutral on 27 July on explicitly tactical grounds, still forecasting only low-to-mid single-digit revenue growth through fiscal 2028. In the same month India's Nifty IT index gained 16.7% while the Philadelphia semiconductor index fell 21%, the widest monthly gap since 1999, as funds rotated out of crowded artificial-intelligence chip positions. Since 29 July the group has given ground: Genpact −6.6%, NIQ −2.4%, ExlService −2.3%, Concentrix −2.1%.

Two businesses are confirming

ExlService is the cleanest. Revenue growth has accelerated four straight quarters — 12.2%, 12.7%, 13.8%, 15.6% — to $594.8m, gross profit grew faster than revenue at 16.4%, and management raised full-year guidance to $2.39–2.415bn with data- and AI-led services at 61% of revenue. The blemish: operating margin fell from 15.77% to 14.68% and net income declined 2.3%. At 14.96x forward earnings against 21.53x trailing — and roughly 27.6x trailing at the end of 2025 — the de-rating is real. Business verdict: CONFIRMS. Valuation: CONFIRMS.

Genpact is the divergence. Second-quarter revenue rose 7.1% to $1.343bn, adjusted earnings per share 13.6%, and Advanced Technology Solutions revenue 24.1% to 27% of the total, with full-year growth guidance for that unit lifted to at least 25% from at least 20%. Gross margin widened to 36.50% from 35.88%. The stock fell 5.17% the following session. It trades at 8.42x forward and 10.09x trailing earnings, 7.52x enterprise value to EBITDA, with a 9.8% free-cash-flow yield — against roughly 14.9x trailing at the end of 2025, on higher earnings. Business verdict: CONFIRMS; the tape does not.

Two are contradicting, in opposite directions

Concentrix bounced 20% on deteriorating numbers. Revenue growth decelerated to 1.9%, gross profit fell 2.9%, operating income fell 35.7% and operating margin halved to 3.88%. Management cut full-year adjusted earnings guidance to $10.83–11.18 from $11.48–12.07, citing a three-point revenue drag from clients moving work offshore faster than planned. It carries a $1,523.3m goodwill write-off against the $4.8bn Webhelp acquisition and 3.2x leverage. At 2.27x forward earnings, 0.56x book and a 33.7% free-cash-flow yield, the market is priced for terminal decline; the quarter did not refute it. Business: CONTRADICTS.

Innodata is the inverse. Second-quarter revenue rose 58% to a record $92.1m with 49% adjusted gross margin and adjusted EBITDA up 92%, full-year growth guidance of 40%-plus reiterated, and largest-customer concentration down to 37% from 56%, alongside an announced chief-executive transition. The shares are down roughly 49% from their 4 June peak. At 58.6x forward earnings and 5.79x forward sales, the de-rating is of the multiple, not the business.

NIQ is unresolved: first-quarter revenue grew 1.3% with a $90.1m net loss, $3.2bn net debt at 3.4x leverage and reaffirmed 5.0–5.3% organic growth guidance. Second-quarter results are due after the close on 10 August. INCONCLUSIVE.

On the tape, ExlService and NIQ cleared their downtrends on 28 July and Genpact on 3 August, its 50-day average turning up. Concentrix never repaired — it remains in its steepest downtrend despite the bounce — and Innodata was downgraded twice, on 10 and 28 July.

The setup

Where it stands — A late-July rotation lifted all five; only ExlService and Genpact have earnings that match the move. Would confirm — Genpact recovering the 5.17% post-earnings drop and holding above its 50-day average through September. Would invalidate — Concentrix's next quarter showing revenue growth below 1.9% or further cuts to $10.83–11.18 guidance. Watch next — NIQ's second-quarter results after the close on 10 August 2026, against 5.0–5.3% organic growth guidance. Valuation — Genpact 8.42x forward vs 10.09x trailing and ~14.9x at end-2025; Innodata 58.6x forward.

Independent power producers own generating plants and sell the electricity into wholesale markets at prices nobody guarantees them — unlike a regulated utility, which earns an approved return. That is why they became the listed proxy for artificial-intelligence electricity demand, and why they fall together when Texas changes the rules. On 3 August the state paused new large-load interconnections pending an audit by the Public Utility Commission and the grid operator ERCOT, facing 474 gigawatts of requests — roughly five times the state's record peak demand, about 90% of it data centres. The order requires developers to disclose tax incentives, self-generation plans and water use before proceeding.

One label, five unrelated situations

Treating these five as a single falling trade is the error. Over the past 30 days to 7 August they ran from Constellation +10.4% to NRG -14.1% — a 24.5-point spread, and an equal-weighted average near -3.6% that describes none of them. Over twelve months the four genuine merchants average about -20%, but the range is wide: Vistra -31.6%, NRG -22.9%, Constellation -19.8%, Talen -7.4%. Drawdowns from 52-week closing peaks are deeper still — Vistra -35.5%, NRG -35.8%, Constellation -33.2%.

AES, the fifth, is not a merchant generator and not an equity story at all: a consortium led by Global Infrastructure Partners and EQT agreed to buy it for $15.00 a share in cash, approved by shareholders in June. It closed at $14.73 — a 1.8% spread to the deal price. Its steadiness is arbitrage, not power fundamentals, and it flatters any average it sits in.

The fuel leg of the bear case is also inverted. Gas costs are not squeezing these plants: Henry Hub futures fell nearly 15% through July to $2.75 per million British thermal units. The pressure is on the power side in Texas, where supply timing, not fuel, set prices. In the mid-Atlantic the opposite holds: PJM's capacity auction for 2028/29 cleared at the $325 per megawatt-day cap and still came up 6,831 MW short of its reliability requirement.

Where the businesses actually stand

Constellation Energy, the Baltimore owner of 32,400 MW led by the largest unregulated US nuclear fleet, raised 2026 adjusted operating earnings guidance to $11.50-12.50 from $11-12 on second-quarter earnings of $2.55 a share, up $0.64. It added roughly 920 MW of nuclear supply contracts at an 18.5-year average tenor — including 176 MW to Walmart, a retailer's first — putting about 30% of its clean baseload under contract, and sold a 606 MW Texas gas plant for $860m, about $1,420 per kilowatt. It is leading the group. Business verdict: CONTRADICTS the de-rating.

Vistra, the Irving, Texas generator with 38,700 MW and 4.3m retail customers, lifted adjusted EBITDA 31% to $1.767bn, with generation up 68%, and reaffirmed 2026 guidance of $6.8-7.6bn and its 2027 range of $7.4-7.8bn — excluding the pending Cogentrix acquisition and a Meta nuclear supply deal worth roughly $700m more. Reported revenue fell 5.5%, but operating margin widened to 13.8% from 12.1%: hedged generation. Verdict: CONTRADICTS.

NRG Energy, the Houston retail-and-generation group serving six million customers, is the exception. Adjusted EBITDA rose 34% to $1.2bn almost entirely on the LS Power acquisition, while adjusted earnings per share fell to $1.49 from $1.73, sending the shares to a 52-week low. Gross margin narrowed to 14.5% from 16.5%. It has aligned on terms for a 1.2 GW gas plant for an unnamed hyperscaler — $3.2bn of capex, $500m of annual EBITDA — but it is pre-final-investment-decision, and growth spending pushes its leverage target from 2028 to 2029. Verdict: CONFIRMS.

Talen Energy, a 10.7 GW Houston producer built around the Susquehanna nuclear station, lost $92m in the quarter and has not reported since the Texas freeze. Verdict: INCONCLUSIVE.

Valuation

Vistra is the dislocation: 6.96x trailing enterprise value to EBITDA, the cheapest here against Constellation's 14.2x, NRG's 11.4x and Talen's 31.6x, and 15.5x forward earnings against 59.8x trailing, on consensus 2026 earnings of $9.06 (+90%). Constellation has compressed from 41.3x trailing earnings in May to 26.2x now against 23.0x forward — below the ~35x forward premium logged as a risk earlier this year. NRG at 13.3x forward is cheap but with deteriorating earnings attached — closer to a justified de-rating. Talen, on negative trailing earnings and the richest EBITDA multiple, is the least de-rated, not the safest.

The tape agrees only with NRG. Vistra and NRG both saw their 50-day averages cross below their 200-day on 4 August — the same session, the day after the freeze, when NRG fell 15.5% and Vistra 8.2%. Constellation's chart still reads bearish while the price has risen 10.4% in a month; Talen only turned negative on 6 August.

The setup

Where it stands — One policy shock, four different businesses: two raising or holding guidance, one missing, one silent. Would confirm — NRG's Texas segment stabilising with Houston power back above its $52/MWh planning assumption. Would invalidate — Vistra cutting its $7.4-7.8bn 2027 range at the third-quarter update after Cogentrix closes. Watch next — Talen's next results, its first commentary since the 3 August Texas freeze. Valuation — Vistra 6.96x trailing EV/EBITDA and 15.5x forward earnings; Constellation 26.2x trailing, 23.0x forward, versus 41.3x in May.

Between 22 and 28 July, every one of the seven publicly traded companies that sell software for winning, marketing to and servicing customers rose together — between 6% and 16.2% — with no company news behind most of it. That was money leaving semiconductors. The iShares Semiconductor exchange-traded fund is up roughly 80% for the year but has fallen by a double-digit percentage over the past seven weeks as investors returned to software names made cheap by fears that artificial intelligence would destroy them.

The week of 3-7 August is where the information is. The same seven names ranged from -12.3% to +22.5%, and the dispersion tracks how each one charges for its product.

The usage-priced side delivered

Twilio, which sells programming tools that let developers embed voice, text and email into their own apps and bills by volume, reported second-quarter revenue of $1.499bn, up 22% and a fourth consecutive quarter of acceleration. Organic growth was 17%, dollar-based net expansion reached 116%, and full-year organic guidance went to 13-13.5% from 9.5-10.5%. Non-GAAP earnings of $1.47 a share beat roughly $1.32 expected, and BTIG raised its target to $285 from $245 while Needham went to $280 from $250. The business CONFIRMS the move. The valuation does not: price-to-gross-profit has gone from 8.69x on 3 May to 13.54x, a 56% re-rating while organic growth moved 16% to 17%, and Twilio's own third-quarter guide steps organic growth back down to 11-12%. Ten of the 28 points of messaging growth were carrier pass-through fees, which carry no margin — gross margin fell 160 basis points to 49.1%.

Zeta Global, which runs a marketing platform that predicts consumer intent from opted-in data and charges on consumption, grew revenue 43.5% to $442.8m, 28% organically, its twentieth straight beat-and-raise. Its largest customers grew 17% in number to 197 and 17% in spend to $1.8m each. It also disclosed a multiyear agreement with Gap in which Zeta becomes the system of record, replacing Salesforce and three other vendors, with full-year revenue guidance raised to a $1.818bn midpoint. At 27.5x forward earnings against consensus for 41% revenue growth, valuation is INCONCLUSIVE rather than stretched.

The seat-priced side broke — except where it didn't

HubSpot, which bundles marketing, sales and service software for mid-market businesses on a per-seat and contact-tier basis, beat on revenue and earnings but guided third-quarter revenue about 1.8% below consensus, citing budget sensitivity. It cut quarterly customer additions to 5,000-6,000 from 7,000, blaming larger buying committees and longer sales cycles; Bernstein, Oppenheimer and Piper Sandler all downgraded, Bernstein to a $220 target from $381. Revenue growth decelerated to 19.8% from 23.4%. At 3.75x gross profit — down from 4.44x in May, the cheapest in the group — the de-rating CONFIRMS the fundamentals.

Pegasystems, which sells workflow and customer-decisioning software to banks, insurers and governments, missed on earnings at $0.35 against $0.43 expected, with annual contract value growth halving to 7%. Management called it a "max confusion moment" caused by unprecedented uncertainty over AI pricing, said the first half significantly underachieved and that recovery "will be very difficult." Operating margin fell to 4.0%. Its share price has been below trend since 30 January; the business justifies it.

Then Salesforce, which sells the industry's largest per-seat customer-relationship suite. Its reported revenue growth has accelerated three quarters running — 8.6%, 12.1%, 13.3% — with current remaining performance obligations of $33.6bn up 14%, Agentforce annual recurring revenue past $1bn and AI and data revenue at $3.4bn, on a record 34.8% non-GAAP operating margin, up 250 basis points. Its multiple has not moved through the rebound: 4.60x gross profit in May, 4.75x now, 13.6x forward earnings, a 9.3% free-cash-flow yield, shares down 20% over twelve months, and its price only crossed above its downtrend line on 4 August. This is the group's clearest divergence between business and tape — a POSSIBLE DISLOCATION, with the caveat that the seat-count risk is real: Klarna publicly abandoned Salesforce for an AI-assembled stack.

Freshworks, which sells support and IT-service software to companies under about 20,000 employees, is the quiet counterexample: net dollar retention steady at 105%, employee-experience recurring revenue of $567m up 24% against customer-experience revenue of $400m up 4%, more than 7,000 customers paying for its AI product, and management reporting no sales-cycle damage at all. Braze, which orchestrates marketing messages for consumer brands, is the one name with no catalyst — it last reported on 27 May, grew 30.2% but remains GAAP-unprofitable at a -13.0% operating margin, and its 5.13x-to-5.71x multiple expansion is rotation alone.

The setup

Where it stands — Usage-priced Twilio and Zeta beat and raised; seat-priced HubSpot and Pegasystems cut; Salesforce accelerated without re-rating.

Would confirm — Twilio's Q3 organic growth printing above its own 11-12% guide, and Salesforce cRPO growth holding at or above 14%.

Would invalidate — HubSpot restoring 7,000 quarterly customer adds, or Pegasystems annual contract value growth returning to double digits.

Watch next — Salesforce reports fiscal Q2 in early September; Braze reports fiscal Q2 in late September.

Valuation — Salesforce 22.2x trailing, 13.6x forward earnings; Twilio 32.1x trailing, 42.2x forward; HubSpot 3.75x gross profit, cohort-low.

Six beat-and-raises in six weeks

The companies in this group do not design chips or sell software. They take other people's designs — a Broadcom accelerator, an Nvidia board, a hyperscaler's rack specification — and build, test, cable and ship the finished hardware at assembly margins in the mid single digits. Between 17 June and 30 July, every one of them told investors demand was running ahead of plan.

Celestica, a Toronto-based builder of switches, data-centre interconnects and custom server racks for hyperscale cloud operators, grew revenue 62% year over year in the June quarter with operating margin at 9.75%, and raised 2026 guidance to $20.5bn of revenue and $11.30 of earnings per share, citing custom racks for OpenAI, a design-and-build role on AMD's Helios interconnect, and ten active 1.6-terabit networking programmes.

Sanmina, the San Jose maker of printed circuit boards, backplanes and precision enclosures that bought ZT Systems' data-centre manufacturing arm from AMD for up to $3bn, grew revenue 70% to $3.46bn with operating margin at 6.43% against 4.70%. Its cloud and AI end market is now 62% of the company at $2.15bn, up 173%, while its industrial, medical and defence book grew 4.8% — the clearest illustration of what is actually driving the group.

Flex, the Singapore-founded manufacturer of power components, switchgear and busway for server halls, reported net sales of $7.9bn, up 21%, with its Cloud and Power Infrastructure unit up 35% and a tax-free spin-off of that unit targeted for the first quarter of calendar 2027. Jabil, the Florida manufacturing-services group, was the growth outlier — revenue up 11.8%, decelerating from 23.1% — but still lifted its AI-related revenue guidance to roughly $13.6bn, 50% growth with gross margin expanding to 9.46%. Plexus, the Wisconsin builder of medical, aerospace and industrial electronics, grew 28% and reported a record $4.5bn sales funnel with about $0.5bn of it in data-centre power and cooling. Benchmark Electronics, the smallest at a $3.0bn market value, grew 17.7% with its advanced-computing segment up 71%.

Verdict A on the business: CONTRADICTS the move. Revenue growth accelerated at five of six and operating margins widened at five of six. Nothing in the order book explains a softening tape.

What changed is the cash, not the orders

Winning rack-scale programmes means buying factories and financing inventory before payment arrives. Celestica's June-quarter capital spending was 5.6% of revenue against 1.1% a year earlier, with a $1bn 2026 budget and a $1.5bn placeholder for 2027. Flex guided to $1.5–1.6bn of capex and cut its free-cash-flow conversion target to about 40% from 60%. Sanmina told investors working capital would build as its accelerated-compute programme ramps.

Then the bill came due in public: Celestica priced 9.68m shares at $310 on 5 August for $3bn of gross proceeds — below the prior close of $362.76, roughly 8.3% dilution, earmarked for working capital and capex — and the stock fell 14.8% the next session on twelve times normal volume.

The cash divide inside the group is now wide: trailing free-cash-flow yields of 9.5% at Sanmina and 4.2% at Jabil against 2.4% at Flex, 1.4% at Celestica and 0.9% at Plexus.

The backdrop is sector-wide, and these names are following rather than leading. Alphabet's free cash flow turned negative in the June quarter for the first time since 2004, chip and AI-hardware stocks shed more than $1 trillion of value in late July, and credit-default swaps on Oracle, Alphabet, Amazon and Meta hit record highs in early August. The question the market is asking is who funds the buildout, not whether it happens.

Valuation: one name is the exception

Celestica trades at 32.7x trailing and 27.9x forward earnings, down from 45–50x trailing as recently as May; Flex at 46.9x trailing and 25.8x forward, against 62x in May. Jabil is at 42.1x trailing, 26.8x forward and 18.0x enterprise value to EBITDA — the cheapest on that measure. Sanmina is the cheapest outright at 16.8x forward and 0.77x forward sales. Benchmark's 55.6x trailing collapses to 27.8x forward off a depressed 2025 earnings base.

Plexus is the exception: 31.5x forward earnings and 29.0x trailing enterprise value to EBITDA on consensus revenue growth of 13.8% next fiscal year, the slowest in the group. Verdict B on valuation: CONTRADICTS the pullback for five names — earnings, not multiple expansion, carried the last leg — and CONFIRMS caution only at Plexus. The ceiling is set elsewhere: Taiwanese assemblers Foxconn, Quanta, Wistron and Inventec hold most AI server rack share at 5.3–8.3% margins.

The tape

All six shifted from their strongest uptrend classification to a milder one between 30 June and 22 July — 50-day averages still above 200-day, but the gap narrowing — and shares fell an average 5.5% over the following month. In the most recent week five of the six rebounded 3–9%; only Celestica, absorbing its share sale, fell further.

The setup

Where it stands — Six contract manufacturers raised guidance into a falling tape; the pressure is on funding and dilution, not demand. Would confirm — Celestica delivering its $600m 2026 free-cash-flow target while 2027 capex stays near the $1.5bn placeholder. Would invalidate — Any of the six trimming full-year revenue guidance, or a second equity raise in the group. Watch next — Jabil's fiscal fourth-quarter results in late September, the first report after the July selloff. Valuation — Celestica 32.7x trailing and 27.9x forward, versus 45–50x trailing in May; Sanmina 16.8x forward, the group's floor.

American employers cut 23,000 jobs in July and revisions erased another 103,000 from May and June, a report that sent stocks higher on 7 August as traders scaled back bets on a rate rise. The ten-year Treasury yield fell seven basis points to 4.6% and odds of a September Federal Reserve hike dropped to 42% from 58%. Inside the group of seventeen financial firms that fund the artificial-intelligence (AI) data-centre buildout, that single macro print flipped the leadership board.

Over the two sessions to 7 August, the yield-paying lenders rose — Hannon Armstrong, which finances clean-energy and efficiency projects, +6.5%; Main Street Capital +5.1%; Ares Capital +3.9%; Golub Capital +3.5% — while every bank fell: Goldman Sachs -3.1%, Citigroup -2.4%, Morgan Stanley -1.5%, JPMorgan -0.9%. That is a rates trade, not a data-centre trade.

The half that got paid, and the half that got marked down

Over twelve months the split was clean. The banks and capital-markets names rose — Hannon Armstrong +66.9%, Morgan Stanley +53.5%, Citigroup +48.0%, Goldman +44.4%, Brookfield Infrastructure +29.0%, JPMorgan +24.6% — while every alternative asset manager and every lender that holds loans on balance sheet fell: Blue Owl -37.3%, KKR -27.7%, Ares Management -26.8%, Blackstone -18.2%, Ares Capital, Golub and Hercules each about -11%.

The past month inverted it. Blue Owl +28.5%, Ares Management +16.0%, Blackstone +15.6%, Main Street +15.5%, Brookfield Asset Management +15.4%, against Goldman +1.0%, Morgan Stanley -0.8% and Citigroup -1.7%. This is the marked-down credit half bouncing off the roughly $265bn drawdown the private-credit complex suffered earlier this year, not the financing story broadening.

What the loan books actually reported

Business development companies are listed lenders to mid-sized private businesses — the layer that literally holds the paper. Ares Capital, a $14.4bn lender writing $10m-$400m loans to companies with up to $250m of operating profit, reported core earnings of $0.47 a share, flat, with net asset value down $0.24 to $19.35 and non-accruing loans at 1.4% of fair value, below its own ten-year 3% average. Golub Capital BDC, a $3.4bn lender making first-lien loans to private-equity-owned businesses, covered its $0.33 distribution with $0.34 of adjusted net investment income and bought back 1.1m shares at about a 10% discount to book — though it also moved five borrowers to non-accrual, including cloud file-management firm Panzura. Main Street Capital, which supplies both debt and equity to smaller companies, posted record book value of $33.92 and a 18.9% return on equity but guided third-quarter distributable income to at least $0.97 from $1.08, citing weaker one-off income and costlier refinancing.

On business momentum the verdict for this half is CONTRADICTS: earnings are flat to down while the shares run. The counterpoint is pricing power. Ares Capital says new senior loan spreads are 20 basis points wider than late 2025 with upfront fees 50 basis points higher; Golub reports 25-50 basis points wider in what it called a shift "from borrower-friendly to lender-friendly." The AI credit strain visible elsewhere — CoreWeave's five-year default-swap spread blew past 855 basis points in late July, forcing 100-125 basis points of extra spread and maintenance covenants on a $2.6bn facility — reaches these books as better terms, not losses. Direct exposure is small and disclosed: under 50 basis points of Ares Capital's portfolio in higher-risk software, under 3% of Golub's software book flagged by an outside re-underwrite.

Valuation: three different situations

Golub is the only member below book at 0.93x, on 9.6x forward earnings against 23.9x trailing — but consensus has revenue down 12.1% this year and 3.7% next. Ares Capital sits at 1.03x book and 10.5x forward, with consensus earnings down 4.5% to $1.91 this year. Main Street trades at 1.71x book with a forward multiple (15.4x) above its trailing (12.4x) — consensus models earnings falling 4.9%. Blue Owl, the alternative manager whose direct-lending and sale-leaseback funds saw $4.7bn of redemption requests in the second quarter, trades at 4.09x book and 99x trailing earnings with revenue growth decelerating to 7.1% from 21.2%. Verdict on valuation: INCONCLUSIVE — the discounts are real but so are the falling estimates, and the sector-wide roughly 20% average discount to net asset value reflects redemption pressure separate from loan performance.

The banks are the opposite case, and there the verdict is CONFIRMS. Goldman grew June-quarter revenue 22.9% with operating income up 132%, and trades at 14.9x forward against 15.8x trailing — last year's advance was earnings, not repricing. Management flagged its supplementary leverage ratio at 4.3%, lowest among peers, as the constraint on carrying more financing, with client demand outstripping its willingness to deploy. Morgan Stanley has overtaken Goldman as the top arranger of AI debt in 2026, on more than $40bn of deals and $2.3bn of fees, and data-centre securitisation outstanding has grown from $4bn in 2020 to $61bn so far this year. The funding channel is open.

On the tape, Goldman has held its uptrend on 112 sessions this year and Morgan Stanley on 106, while Main Street, Ares Capital and Hercules all sat in outright downtrends for four to eight weeks through midsummer — the base this month's bounce comes off.

The setup

Where it stands — Lenders holding private-credit loans bounced 15-28% in a month on rate expectations while their reported earnings were flat to lower. Would confirm — Ares Capital core earnings rising above $0.47 and Main Street's third-quarter distributable income printing above the $0.97 guided floor. Would invalidate — Non-accruals rising above the 3% ten-year average at Ares Capital, or Golub's book value falling again next quarter. Watch next — Third-quarter results from all four lenders in late October and early November 2026. Valuation — Golub 0.93x book and 9.6x forward vs 23.9x trailing; Main Street 1.71x book, forward 15.4x above trailing 12.4x.

A regulatory catalyst, not an earnings one

The optical layer of the artificial-intelligence build-out — the fibre, connectors and laser modules that move data between server racks — got a policy jolt in early August. Bloomberg reported on 5 August that the US is drafting a ban on imports of some Chinese data-centre components, knocking Zhongji Innolight down as much as 14% in Shenzhen and Eoptolink 11%. American suppliers moved the other way: on 4 August, Applied Optoelectronics closed up 17%, Coherent 10% and Lumentum 9% on expectations that cloud operators would shift procurement home. Corning was named among the beneficiaries. The research firm Counterpoint countered that a ban would worsen a supply bottleneck US firms cannot currently relieve — the tension the trade now rests on.

It landed on a group that had just been broken. Corning, which makes optical fibre, cable and connectors for telecom and data-centre customers alongside display glass, Gorilla Glass and ceramic auto substrates, reported June-quarter core earnings of $0.78 against $0.76 expected — and fell 18% on 28 July, its worst day since 2002, because September-quarter revenue guidance of $4.9–5.0bn sat at or below the $5bn consensus. Marvell, Lumentum, AXT and Coherent all fell more than 10% the same day, and Alphabet's capital-spending disclosure that afternoon triggered a broader sell-off in AI infrastructure names. Peak to trough, Corning lost 51.5% in a month; it has since recovered a third of the way back.

Corning: the business improved while the price fell

CONFIRMS. Group revenue rose 16.6% to $4.505bn with operating income up 21.8% — operating leverage, not just volume. Optical Communications sales rose 32% to $2.07bn, enterprise revenue 65% to $1.27bn, and AI data-centre sales nearly doubled; segment net income rose 77% to a record 21% margin. Management has named its customers: roughly $6bn of multi-year Meta business, a commercial partnership with Nvidia, and a multi-billion-dollar Amazon agreement. Its long-range "Springboard" plan was raised to $20bn annualised sales by end-2026, $30bn by 2028 and $40bn by 2030. The drag is the consumer side — glass innovations grew 1%, with handset units expected down mid-teens on rising memory prices. The demand pool is real: the four largest cloud buyers plan roughly $725bn of 2026 capital spending, up about 77%.

Valuation: INCONCLUSIVE. The de-rating did rational work without making the stock cheap. Corning trades at 75.0x trailing and 50.7x forward earnings, 42.6x enterprise value to EBITDA and 23.2x gross profit — below this desk's own May anchor of 87.7x earnings, but only on 2027 consensus of $4.30 a share does it reach 38.5x.

The other two are not in the same business

LightPath Technologies, an Orlando maker of moulded glass and infrared lenses for defence and industrial customers, is the cohort's genuine growth story and its riskiest. March-quarter revenue doubled to $19.15m, gross margin went from 29.1% to 36.3%, and the operating loss narrowed to 4.5% of sales from 36.3%. Backlog reached about $110.6m, up 196%, with roughly 70% of the $103m defence portion shipping this calendar year; China's germanium export curbs have pushed customers toward its in-house chalcogenide glass, worth up to $40m of added bookings. But it still loses money, diluted shares are up 48% since September 2024, and it raised about $47m net at $14.00 a share on 1 June — the stock now sits 6.7% below that price at 13.1x trailing sales. CONFIRMS the business, CONTRADICTS the drawdown.

Universal Display, which licenses organic light-emitting-diode patents and sells the emitter chemicals that colour phone and tablet screens, has no data-centre exposure whatsoever. June-quarter revenue fell 11.4% to $152.2m, materials sales fell 26%, operating margin compressed to 35.3% from 39.9%, and full-year revenue was guided to the low end of $630–670m on weak smartphone units and Chinese panel-maker pressure. At 22.0x trailing and 21.7x forward earnings — essentially no gap, meaning no growth is priced — with $855m of cash equal to 20.4% of its market value, its de-rating is far advanced and entirely deserved. Grouping it with fibre is measuring two different cycles.

What the tape did

The trend labels that turned negative in late July were stamped at the bottom: Corning's moving-average trend flipped down on 29 July and LightPath's on 30 July, the two lowest closes of the year, after which both rallied 33–39%. The same downgrade hit Applied Optoelectronics, Ciena, Credo and Fabrinet in the same window — a group event, not a company one.

The setup

Where it stands — Corning's optical business is compounding above 30% while the shares sit 35% below their June high. Would confirm — September-quarter core sales landing at or above the guided $4.9–5.0bn with optical growth held above 25%. Would invalidate — Optical Communications growth decelerating below the mid-teens, or hyperscaler capital-spending plans being trimmed. Watch next — Corning's third-quarter report in late October; any formal rulemaking on Chinese transceiver imports before then. Valuation — 75.0x trailing and 50.7x forward earnings, against this desk's 87.7x May anchor and 38.5x on 2027 consensus.

Investors spent the past year selling the software that runs corporate back offices — payroll runs, expense approvals, IT tickets, contract signatures — on a single premise: these products are priced per employee, and artificial-intelligence agents will mean fewer employees. Twelve months on, that trade has cost holders 22% on average, and two names, Intuit and monday.com, are still more than 57% below their highs.

Then, in late July, Nvidia chief executive Jensen Huang told the Computex computing trade show in Taipei that it is an "incredible time" to be a software company, describing AI agents as a "tool user" of existing software rather than its executioner — "the world is no longer limited by the number of people." The S&P 500 software sector gained 6.4% in a session, its best day since early 2025. Money rotated out of semiconductors and into software, with the iShares software exchange-traded fund up about 7% over eight sessions while its semiconductor equivalent fell 8.5%.

The month is four days

Between 8 July and 7 August, the nine names averaged +24.5% equally weighted. Weight them by market value and the figure drops to +19.2%: the two biggest, ServiceNow and ADP, were among the three weakest. Strip out the four sessions from 23 to 29 July — worth 18.7 points on their own — and the nine average +4.9%. Strip out Paycom, whose 6 August results drove a 23.8% single session, and the remaining eight average +2.0%, with ServiceNow (−4.5%) and monday.com (−5.9%) negative.

That the move was sector-wide rather than company-specific is visible in the names outside the group: Paylocity rose 20.1%, Dropbox 16.8% and Zoom 7.7% in the same four sessions. The sharpest tell is ServiceNow, which sells cloud workflow software routing IT, HR and security requests for large enterprises. It fell 6.5% on its own 22 July results day despite beating on revenue, then rose 21.3% over the following six sessions on someone else's narrative. Workday, which sells per-employee HR and finance software to large employers, fell 6.2% the same day and rose 26.9% in the same window.

The seat is not disappearing — but nothing is accelerating

On the headcount question, the data cut against the bears. ADP, the largest payroll processor, reported US pays per control up 1% for the June quarter and fiscal 2026, guided to 0–1% for fiscal 2027, with client retention at a record 92.1% and bookings up 6%. Paycom, which sells a single-database HR platform to small and mid-sized US employers, told investors client employment growth is stable and consistent with historical levels. ServiceNow renewed 98% of contracts, grew current remaining performance obligations 21.5% to $13.2bn, and disclosed that roughly half its new business is now sold on non-seat pricing — its unit of sale is migrating, not vanishing.

What is missing is re-acceleration. Workday reiterated, rather than raised, fiscal 2027 subscription revenue of $9.925–9.950bn while lifting margin guidance to 30.5%; its story is cost discipline plus Elliott Management's $2bn stake and a $5bn buyback. monday.com, the smallest member, sells per-seat work-management software and guided second-quarter growth to 18–19% from 24% reported, with net dollar retention at 110% and expected to slip further. Intuit, owner of QuickBooks accounting and TurboTax, decelerated to 10.4% from 17.4%. ServiceNow's own GAAP operating income fell 55% year over year to $162m on AI infrastructure and acquisition costs.

Verdict on the business: CONTRADICTS. The rally was not earned by the quarter it followed.

Valuation splits five ways

Stretched: ServiceNow's trailing price-to-sales went 6.69 in May, 7.76 on 29 July, 8.76 now — a 31% expansion against a $15m raise to a $15.77bn subscription guide. When Abby Joseph Cohen flagged it in mid-July, 2027 consensus earnings of about $5.00 implied roughly 20x; the same estimate now implies 24.9x.

Supported: Paycom grew revenue 9.8% (up from 7.8%), expanded operating margin to 31.7% from 23.2%, raised guidance and cut its share count 20% this year; it trades at 18.0x forward earnings and 13.9x trailing enterprise value to EBITDA, the cohort's cheapest. Workday sits at 16.7x forward earnings with a 6.3% free-cash-flow yield; DocuSign, the e-signature vendor now pushing into contract management, at 13.3x with a 9.7% yield on 8.7% growth.

Cheapest and least repaired: Intuit, at 11.9x forward earnings and an 8.7% free-cash-flow yield, is the only member whose price-to-sales sits below its May level.

Structural exception: Veeva, which sells clinical, regulatory and commercial software only to drugmakers, has grown 16–16.7% for five straight quarters while annual operating margin went 18.2% → 25.2% → 28.7%. It also carries the richest multiple, 10.3x forward sales.

Agreeing on the downside: monday.com, and Bill.com — which automates supplier payments for small businesses — turned GAAP-profitable only last quarter, at a 1.1% margin.

The tape has repaired faster than the fundamentals: ADP and Paycom now trade above rising 50- and 200-day averages, ServiceNow, Workday, Bill.com and DocuSign crossed into uptrends within the last seven sessions, and Intuit and monday.com have not. Ninety days ago every one of them except Bill.com was in a downtrend.

The setup

Where it stands — A sector-wide narrative rally, concentrated in four sessions, has lifted multiples ahead of any measurable change in billings.

Would confirm — ADP pays per control printing above 1% and Workday raising, not reiterating, fiscal 2027 subscription revenue.

Would invalidate — monday.com's net dollar retention falling below 110%, or ServiceNow's current remaining performance obligation growth slipping under 20%.

Watch next — Workday's fiscal Q2 results and monday.com's Q2 report, both due within weeks.

Valuation — ServiceNow 30.7x forward earnings versus 77.6x trailing; Intuit 11.9x forward against 19.7x trailing, the cohort's cheapest.