My Top 2026 Stock Pick for the AI Boom

Posted on February 27, 2026June 30, 2026 by io-fund

The market is fixated on when Big Tech will generate economic value from the $650 billion+ being poured into AI data center expansion annually. The market is missing the point. Monetization has never been Big Tech’s weakness as explosive revenue growth and high margins have defined their businesses for decades. While execution risk always exists, these companies remain the world’s most reliable operators at scale.

Instead, the real risk to the AI economy lies in the physical constraints of scaling these AI ambitions — not in compute availability from companies like Nvidia or Broadcom, and certainly not in Big Tech’s software capabilities, but in power availability, thermal management, and infrastructure that were never designed for this magnitude of demand.

Nvidia’s GPU road map is bringing about an immediate need to overhaul data centers as most data centers today are incapable of powering the kilowatts required for rack-scale systems. Blackwell power requirements of 120 kW for the GB200s and 140 kW for the GB300s represents a 2X increase from the H200s 70kWs. As we look out over the next 1-2 years, it’s expected Nvidia will ship rack-scale systems requiring 300-600 kW – or a 5X increase from what was needed per system in the first half of 2025.

Therefore, it is not enough to say the AI economy needs more power, but rather it needs power urgently. These are two entirely different matters; for example, the first could be supported by the expansion of nuclear power and the electrical grid, but the latter cannot. In fact, combining these two is something very few companies can do.

This leads me to my Top Pick for 2026 – Bloom Energy.

Bloom Energy offers onsite power generation through solid oxide fuel cells that are behind the meter to reduce dependency on the grid. By providing behind-the-meter generation, Bloom reduces reliance on utility infrastructure and accelerates time-to-power for customers. An added benefit is the United States is the largest producer of natural gas, therefore, Bloom does not struggle to secure supply given the United States has large, well-developed gas supplies and pipeline infrastructure.

The I/O Fund’s History on Bloom Energy

We first covered the surging power demand from AI data centers in our June 2024 newsletter, AI Power Consumption: Rapidly Becoming Mission-Critical, with Bloom Energy quickly rising to the top of our list for its ability to solve the critical time-to-power constraint. From there, we drilled deep into this stock in early 2025 yet used technical analysis to hold off and wait for the April lows for our first entries.

We made our initial buys at $16.64 and $17.04 in April 2025, helping position the stock as our biggest winner of 2025. During 2025, we held the position at allocations as high as 15%, with real-time trade alerts sent to our Members throughout the year. Today, the stock trades at $160.90, while many of Wall Street’s most renowned firms followed later in 2025 and entered at significantly higher prices.

With that said, it requires strong conviction in not only Bloom Energy’s positioning but also the sheer pressure from AI’s primary bottleneck to believe the stock could see a repeat year of strong performance. Below, I lay out why I believe Bloom Energy is setting up to do exactly that.

Chart showing Bloom Energy (BE) the I/O Fund's 2025 buy and trim actions, with green arrows labeled ‘Started Our Position’ and ‘Bought,’ and red arrows labeled ‘Trimmed’ during upward price movements.

Power is the #1 Constraint for AI Data Centers

Before we drill deeper into Bloom Energy’s unique positioning, it’s well worth the time to revisit the mounting pressure in the AI energy bottleneck. Consider that companies like Microsoft and Meta are spending hundreds of billions annually on AI, with tens of billions allocated to Nvidia’s Blackwell GPUs.

Any delay in powering these systems deepens both risk and market perception, as it not only pushes out revenue and profits but also extends the period in which Big Tech remains underwater on capex returns. A long timeline for power availability increases both timing risk and financial leverage.

Competitively speaking, power availability is also an advantage as providers that can energize and deploy GPUs faster will have a meaningful head start over competitors stalled by power constraints. While the concept is straightforward, the stakes are immense, as it is not only the scale of these AI investments to consider but also the fierce competition to secure power can amplify the consequences of a delay.

mid

AI leaders are in unison this is the predominant challenge the industry faces. Commentary from executives at hyperscalers, neoclouds, Bitcoin miners, colocation providers and commercial real estate firms all point to power as a key constraint (and consideration) facing the market this year and next.

CBRE said in its H1 2025 North America Data Center Trends Report that “power availability and infrastructure delivery timelines remained the most decisive factors shaping site selection, leasing activity and pricing across all major U.S. markets.”

Equinix executives stated that “the amount of power we need isn't sitting around on the grid. And so we are planning, and I think most people in the room that are doing data center development are ensuring you have clear line of sight to that power before you take down any land or plan any data center capacity.”

A survey by Bloom Energy of 44 hyperscaler and colocation developers found that availability of power was the number one consideration for new site selection, with 84% of respondents placing that in the top 3 with an average rating of 7.8 out of 10.

Amazon CEO Andy Jassy said that “you see some of the constraints and they kind of exist in multiple places, [but] the single biggest constraint is power.” Microsoft CEO Satya Nadella said Microsoft needs “power in specific places so that we can either lease or build at the pace at which we want.”

Google Cloud’s Thomas Kurian explained that “more powerful chips… take a lot more power. And power is, in many cases, a short resource.” Arm’s CEO Rene Haas has said that without improvements in efficiency, "by the end of the decade, AI data centers could consume… 20% to 25% of U.S. power requirements. Today that’s probably 4% or less."

AI Data Center Power Demand Forecast for 2030: Projected to Surge 8,050%

Data center power demand is expected to grow at an accelerated clip through the end of the decade and beyond, driven by the two main drivers of more powerful GPUs and surging growth in inference.

In 2024, we had revealed that “Wells Fargo is projecting AI power demand to surge 550% by 2026, from 8 TWh in 2024 to 52 TWh, before rising another 1,150% to 652 TWh by 2030. This is a remarkable 8,050% growth from their 2024 projected level. AI training is expected to drive the bulk of this demand, at 40 TWh in 2026 and 402 TWh by 2030, with inference’s power demand accelerating at the end of the decade.”AI power demand to surge 550% by 2026, from 8 TWh in 2024 to 52 TWh, before rising another 1,150% to 652 TWh by 2030. This is a remarkable 8,050% growth from their 2024 projected level. AI training is expected to drive the bulk of this demand, at 40 TWh in 2026 and 402 TWh by 2030, with inference’s power demand accelerating at the end of the decade.”

However, we have more data from the IEA that projects global data center power demand to more than double from ~415 TWh in 2024 to ~945 TWh by 2030 under its base-case scenario, or growth of roughly 530 TWh. The agency’s AI ‘lift-off’ scenario projects demand reaching 1,250 TWh, or growth of ~835 TWh, more closely aligning with Wells Fargo’s projection.

Regardless of where AI demand falls relative to these projections, the trend and takeaway is rather clear – AI is set to drive data center power demand much higher by 2030. We can also look at this from a GW perspective, with numerous projections all pointing to substantial growth in data center capacity.

Boston Consulting Group forecasts 45 GW of growth in global data center power demand in just three years from 82 GW in 2025 to 127 GW by 2028, with this more than doubling from 2023’s 60 GW.

Overall, BCG expects generative AI power demand to rise at a 65% CAGR from 2023 through 2028, with AI training increasing at a 30% CAGR and inference rising at a rapid 122% CAGR. Under BCG’s scenario, gen AI will account for more than one-third of global data center power demand by 2028.  

Stacked bar chart showing global data center power required to meet projected computing demand from 2020 to 2028, rising from 43 GW to 127 GW. Bars display segments for GenAI, other AI + HPC, and traditional workloads, with CAGR rates shown for 2020–2023 and 2023–2028.

On the other hand, McKinsey projects data center capacity will rise ~2.5x to 219 GW by 2030, up from a similar ~82 GW baseline in 2025. McKinsey projects AI training and inference demand to rise at a nearly 29% CAGR by 2030, driven by inference, rising at a 35% CAGR from ~21GW to ~91GW. In total, AI would be contributing ~112 GW of the projected total 137 GW demand growth.

This is quite a substantial amount of projected capacity growth over the next three to five years. But, more importantly, what level of capex does this require?

Given our prior calculations for each GW to cost between $30 to $38 billion from the ground up (and now towards >$40 billion with Nvidia’s Blackwell Ultra), building out 112 GW of AI training and inference capacity by 2030 could necessitate as much as $4.3 trillion in capex.

Looking more directly at the power side, and more specifically what Bloom’s TAM could be in the realm of on-site generators, Bernstein analysts estimate that generators and turbines could account for ~6% of capex per GW. This would equate to roughly $1.8 to $2.4 billion per GW, or in the long-term scenarios noted above with 112 GW of growth tied to AI, as much as $258 billion. BofA takes a more conservative approach at roughly ~2% of capex per GW, or ~$800 million, placing this 112GW forecast opportunity at nearly $90 billion.

Why Bloom Energy Stands Out in a Crowded Energy Industry

Time-To-Power Solutions for AI Infrastructure

Our primary message has been “time to power” for Bloom, and the company continues to stand out for this very reason as it is finding strong product market fit in AI data center power needs. This is a key advantage as on-site power is becoming more of a necessity as grid constraints and connection timelines rise.

As we had noted above, the industry is expecting to see significant demand growth over the next few years, yet the primary hurdle is that the grid is not able to keep up with such rapid demand in a short timeframe. For example, PJM (home to Data Center Alley in Northern Virginia as well as fast-growing data center markets in Pennsylvania and Ohio) fell short of its reliability requirements in the last two capacity auctions, with the most recent 2027/28 planning year, falling ~6.6GW short.

A similar dynamic is unfolding in Texas, where ERCOT’s interconnection queue has reached roughly 226 GW as of mid-November, nearly quadruple the 63 GW recorded at the end of 2024. Of that total, approximately 165 GW comes from data center projects targeting approval by 2030, whereas ERCOT added only 23 GW of new capacity in 2024–25 — about 10% of the queued demand.

This further validates Bloom’s positioning by enabling new data center projects to come online sooner with on-site, behind the meter power without sitting in interconnection queues for years at a time. Bloom has already proven that it can quickly establish data center power solutions in a rapid manner, completing shipments to Oracle Cloud Infrastructure in just 55 days of its 90-day delivery request.

Its fuel cells are also fuel-flexible and can run on natural gas, biogas, or hydrogen, and provide continuous power with 99.9-99.999% reliability metrics. They are also modular in nature and can scale from 20 MW to 500 MW+, allowing flexibility in deployments and ease of scaling. Bloom is also continuously improving on price-performance, stating that its fuel cells have seen double digit YoY cost reductions each year for the past ten years, and a 10X increase in power production in the same footprint versus ten years ago.

Bloom Energy vs. Gas Turbines for Data Centers

Bloom also has an advantage over gas turbines when it comes to on-site power demand, as GE Vernova had stated in December that its gas turbines are sold out through 2028 with less than 10% remaining in 2029, meaning any new orders would not be delivered for another 3+ years. Nuclear has been floated as a solution to meet GWs of demand, though restarting facilities take years and SMRs are not expected to be commercially viable at scale until the 2030s.

From Oracle to Quanta: Bloom’s Rapid AI Power Deployment

Doubling capacity this year to 2GW gives Bloom an outlet to meet immediate-term demand from data centers throughout this year into 2027.

A subsidiary of American Electric Power (AEP) had entered into a deal with Bloom in November 2024 for the purchase of 100MW of solid oxide fuel cells with the option to purchase 900MW more, for a total of 1GW.

On January 4, AEP disclosed that its subsidiary had exercised a “substantial” portion of this option for $2.65 billion as part of its plan to develop and build a fuel cell power generation facility in Wyoming. This is rumored to be for Crusoe and Tallgrass Energy’s 2.7GW ‘Project Jade’ campus currently under development, said to be scalable to 10GW in the future.

Bloom also quietly secured a major purchase order from AI server manufacturer Quanta Computer’s subsidiary QMN at the very end of 2025, with it buying three fuel cell microgrid systems for ~$502 million to provide reliable back-up power to its B16, B18 and B19 plants in California to ensure that high-value AI server manufacturing is not interrupted in times of inclement weather or wildfires.

As a quick recap of some of Bloom’s prior deals, it had announced a partnership with Brookfield in October, which will see the asset management firm invest up to $5 billion in Bloom’s fuel cell tech and potentially finance deals for Bloom to be the preferred on-site power provider for Brookfield’s AI data center portfolio. This spans Brookfield’s $100 billion global AI Infrastructure program announced in November, in partnership with Nvidia and the Kuwait Investment Authority, which is aiming to build ‘AI factories’ on Nvidia’s Vera Rubin stack under Brookfield’s new cloud company Radiant.

Bloom also struck a deal with Oracle back in July to deploy its fuel cells for onsite power at select Oracle Cloud Infrastructure (OCI) data centers, with Bloom serving as the first and second source of power for a single data center, with management hinting that this partnership is likely to expand over time.

Financials

2025 Revenue up 37.3%, 2026 Guided to Increase 58%

Bloom once again delivered revenue more than 20% above analysts' expectations, with Q4 revenue of $777.7 million beating estimates by 20.5%. This represented 35.9% YoY growth, decelerating from 57.1% YoY growth in Q3; however, sequential growth was very strong at 49.8% QoQ, accelerating from 29.4% QoQ in Q3 – this is because Q4 is typically Bloom’s seasonally strongest quarter. The company announced its total current backlog at $20 billion, including $6 billion in product backlog, up 2.5X, and $14 billion in service backlog, up 1.5X.

Bar chart titled ‘Revenue YoY’ showing Bloom Energy’s year‑over‑year quarterly revenue performance from Q4 2023 to Q4 2025, with Q4 2025 highlighted at +35.9% YoY, reflecting revenue growth to $777.7 million driven primarily by strong AI demand.

Source: Company IR

For the full year, Bloom reported record revenue of $2.02 billion, driven by significant AI data center growth and demand from commercial and industrial sectors. This represented 37.3% YoY growth.

For 2026, Bloom guided for a sharp acceleration to 58% YoY at the midpoint of its guide for $3.1 to $3.3 billion, supported by its capacity expansion towards 2GW. This is a notable 24% beat over the consensus estimates and also would represent just 16% of its total $20 billion backlog.

Product Revenue grew by 35% YoY and 66% QoQ in Q4 2025

Products, installation, and service revenue growth remained solid in Q4, though electricity revenue continued to decline.

Product revenue was $638.5 million in Q4, up 35.4% YoY and 66.1% QoQ, though YoY growth did decelerate from 64.4% as Q4 faced a much tougher, seasonally strong comp. FY25 product revenue increased 41.1% YoY to $1.53 billion.

Installation revenue was $67.3 million in Q4, up 86.4% YoY, though this did decelerate from 105.2% growth in Q3. FY25 installation revenue increased 66.9% YoY to $204.1 million.

Service revenue was $61.7 million, up 14.7% YoY, decelerating slightly from 15.5% in Q3. FY25 service revenue increased 6.9% YoY to $228.3 million.

Electricity revenue did reaccelerate in Q4 but growth continued to decline. Q4 revenue declined (5.3%) YoY to $10.2 million, improving from Q3’s (25.1%) decline. FY25 electricity revenue was $60.3 million, up 14.2%.

Bar chart titled ‘Growth by Segment’ showing Bloom Energy’s year‑over‑year growth across Products, Installation, Service, and Electricity from Q4 2023 through Q4 2025.

Source: Company IR

Bloom Energy Q4 2025: Margins Rebound Sharply QoQ

Bloom’s margins showed a sharp sequential rebound in Q4 but remained lower on a YoY basis. Full year margins showed expansion across the board with the exception of GAAP net margin, while GAAP operating margin moved a bit further into positive territory albeit remaining razor thin.

Bloom Energy’s adjusted gross profits grew by 10.2% YoY to $248 million with an adjusted gross margin of 31.9%, an improvement of 1.5 percentage points sequentially.
GAAP operating margin was 11.3% in Q4, up 9.8 points QoQ. Adjusted operating margin was 17.1%, an improvement of 8.2 points QoQ. Bloom noted that it continues to focus on reducing product cost and driving operating leverage, which will likely be much more visible in 2026 based on its current guide.
The company’s adjusted net profits grew by 13.1% YoY to $134.1 million with an adjusted net margin of 17.2%, compared to 20.7% last year and a significant improvement over 6.8% in the previous quarter. Bloom’s margins are improving, primarily driven by operational efficiency, product cost improvements, and operating leverage.

Bar chart titled ‘Margins’ showing Bloom Energy’s adjusted gross margin and adjusted operating margin by quarter from Q4 2023 to Q4 2025, with Q4 2025 displaying 31.9% adjusted gross margin and 17.1% adjusted operating margin.

Source: Company IR

The company’s 2025 gross profits grew by 45.2% YoY to $587.4 million. While adjusted gross profits grew by 44.9% YoY to $612.44 million with an adjusted gross margin of 30.3%, an improvement of 1.6 percentage points YoY. The strong gross margins were primarily due to product cost improvements.
FY25 GAAP operating margin expanded 2 points to 3.6%, remaining quite thin, while adjusted operating margin expanded 3.6 points to 10.9%, ahead of guidance for 8.6%.
Looking ahead, the company’s margins are expected to improve in 2026. Management guided adjusted gross margin to be 32%, an improvement of 1.7 points YoY. While the adjusted operating margin is expected to improve 3.2 points to 14.1% primarily due to operating leverage.

2026 Adjusted EPS Guided to Increase 85%

Bloom reported GAAP EPS of $0.00 in the quarter, though adjusted EPS saw a large 50% beat, coming in at $0.45 versus the $0.30 estimate. Analysts expect strong adjusted EPS growth in the coming quarters, with Q1 growth of 314.2% YoY to $0.12 and 153% YoY to $0.25 in Q2.

Bar chart titled ‘Non‑GAAP EPS’ showing Bloom Energy’s quarterly adjusted EPS from Q3 2024 to Q4 2025, with values ranging from –$0.17 to $0.45. Q4 2025 adjusted EPS came at $0.45, beating estimates by 50%

Source: Company IR

For FY25, GAAP EPS was ($0.37), widening from ($0.13), while adjusted EPS was $0.76, increasing 171.4% YoY. For FY26, Bloom guided for adjusted EPS to be $1.33-$1.48, up 84.9% YoY at the midpoint and beating estimates by 25.5%.

Turning to adjusted EBITDA, Bloom reported $146.1 million in Q4 for an 18.8% margin, down 6.9 points YoY but up 7.4 points QoQ. FY25 adjusted EBITDA was $271.6 million for a 10.9% margin, up 3.6 points YoY.

Cash Flows and Balance Sheet

Q4 is seasonally Bloom’s largest quarter for cash flows, with operating and free cash flow margins in excess of 50% this quarter, though this was much lower than the >80% margins it reported in Q4 2024. However, these large margins simply offset weak cash flows in the rest of the year, with full-year margins in the single-digit range.

Operating cash flow was $418.1 million in Q4 for a 53.8% margin, down from an 84.6% margin in the year ago quarter. FY25 operating cash flow was $113.9 million for a 5.6% margin, down 0.6 points YoY. Bloom is guiding for operating cash flows to be ~$200 million in FY26, representing a ~6.3% margin at midpoint.

Free cash flow was $395.1 million in Q4 for a 50.8% margin, down from an 82.7% margin in the year ago quarter. FY25 free cash flow was $57.2 million for a 2.8% margin, expanding 0.5 points YoY.

Bloom reported $2.45 billion in cash and debt of $2.61 billion compared to $595.1 million and $1.13 billion in the previous quarter as Bloom raised $2.5 billion in convertible notes while also paying $975 million in existing debt in the quarter.

Valuation

Bloom Energy is trading at a P/S ratio of 17.1 and a forward P/S ratio of 12.7. The strong AI-demand led the company’s stock outperformance of 291.2% in 2025, and YTD return of 61%. As a result, Bloom Energy is trading at a premium to its average forward P/S ratio of 4.6. The company’s forward P/S ratio peaked at 17.7 on November 03, 2025, and is now 28% below that level. On the bottom line, the company is trading at a forward P/E ratio of 103.8.

Chart showing Bloom Energy Corp. (BE) forward price‑to‑sales ratio from March 2025 to February 2026, rising sharply through late 2025 and currently trading at 12.70.

Source: YChartsYCharts

Conclusion

We are in the era of “what you see is what you get” – meaning, those offering strong earnings reports right now are setting up for a strong runway as future generations of AI accelerators will only be more power hungry.

Bloom Energy has a compelling story, and after two decades, it appears like the stars are aligning for this alternative energy company. There is far less speculation today than at the start of 2025, when we first made our three initial buys, with two on the April 4th low at $17.04 and $16.64 for a 5% position. We then added another 3% on July 24th at $32.93, taking tactical gains in September as Bloom’s strong relative performance had made it one of the I/O Fund’s largest allocations at up to 15%. Bloom ended the year as one of the I/O Fund’s best performing stocks with an average return of 305%, with one entry returning 422%. The company’s customer base has expanded to six major accounts; margins are improving, and utilization of Bloom’s SOFCs has increased due to ongoing product enhancements all leading to strong price appreciation.

Whether with Bloom Energy or the many other lesser-known AI stocks that my company has successfully identified early in their cycle, the test for investors will be figuring out how to hold-on while this market unfolds in the coming quarters (and years).

We aim to offer support at every stage — from identifying products and solutions early in their cycle, to examining financials for confirmation that companies are executing, to breaking down technicals in our weekly webinars for a disciplined approach during market highs and lows.

Since our inception in May 2020, I/O Fund has delivered a cumulative return of 326%— if we were a hedge fund, we’d rank #1 and if we were a tech ETF or Mutual Fund, we’d rank #3 in the United States. 326%— if we were a hedge fund, we’d rank #1 and if we were a tech ETF or Mutual Fund, we’d rank #3 in the United States.

Being early to Bloom Energy and many lesser-known AI winners helped us to achieve these results. To get our Top 15 AI stocks, real-time trade alerts, weekly webinars and deep-dive research from a proven team in AI and tech stocks, Sign up now.Top 15 AI stocks, real-time trade alerts, weekly webinars and deep-dive research from a proven team in AI and tech stocks, Sign up now.

Royston Roche, Equity Analyst at I/O Fund contributed to this analysis.

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.

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Applied Optoelectronics Q4: Signs of an Inflection Point

Posted on February 27, 2026June 30, 2026 by io-fund

As you’ll recall last quarter, AOI (Nasdaq: AAOI) missed earnings due to orders getting pushed out to Q4. Therefore, it was quite important that AOI meet expectations following the delay. The company’s revenue grew 34% YoY and 13% QoQ and guided to grow 58% YoY and 17% QoQ for Q1. Of this, data center inflected with growth of 69% YoY and 70% QoQ. Suffice to say, AOI met the bar set for the company with momentum headed into 2026.

During the call, management focused on detailing the ramp for 800G and 1.6T with targets shared through mid-2027. The forecast implies that AOI’s optical attach per unit of compute is rising as network sizes increase to include more lanes and more links. For example, the 800G era is widely expected to require record ports, resulting in higher revenue for optical networking companies. The industry is shifting from 400G to 800G with 1.6T on the roadmap as throughput becomes more critical with the incoming inference phase.

Management also offered details on how much of their supply is internal and their customer list has increased from one major customer to now two major customers.

$1 Billion Targets for 2026 and Updated Target for Mid-2027

Management offered a forecast for mid-2027 of $378 million per month with the framework of 800G being the bulk of the revenue, 1.6T contributing and some 100G/400G content contributing yet the lowest of the mix. Importantly, management framed this discussion as being capacity-constrained rather than demand-constrained. In the more near-term, management guided for $1 billion in 2026 revenue with $120 million in adjusted operating profit.

The following was stated in the opening remarks:

“Given the recent surge in customer inquiries and apparent rising demand, we believe that by mid-2027, 100G and 400G revenue will be approximately $90 million. 800G revenue will be approximately $217 million and 1.6 terabit revenue will be approximately $71 million monthly. Altogether, this represents $378 million in monthly revenue for transceiver products.”

The company also stated they expect $1 billion in revenue this year compared to analyst estimates that are just shy of $764 million: “Looking more broadly at 2026. While it's still early in the year, we expect to generate over $1 billion in revenue this year, with a non-GAAP operating profit of over $120 million. This revenue level is limited by our production capacity and supply chain, not market demand, which we believe is much larger.”

Capacity is Expanding and Customer List Ticks Upward

At the end of 2025, the company was producing 90,000 units per month of 800G capacity with 31% of that production based in the United States. Therefore, a sizable amount of AOI’s revenue could be subject to tariffs should that surface again in the news.

The company’s U.S. footprint is cantered in Texas with an additional facility recently leased to support 2026 goals. The goal is to end the year producing 500,000+ units per month of 800G and 1.6T combined, with roughly one-quarter of output coming from Texas.

“During the fourth quarter, we announced that we signed an agreement to lease an additional building in Sugar Land. We began construction on this new facility earlier this month and are working hard to scale our production towards the middle end of this year to achieve our 2026 targets. Looking further ahead, we expect that by the end of this year, we will be capable of producing over 500,000 pieces of 800G and 1.6 terabit products per month with about 1/4 of that output coming from Texas as we expand into additional facility space and bring new production online. These investments reflect measured scaling of our footprint while aligning with strong and growing customer demand and qualification progress across both 800G and 1.6 terabit products.”

The majority of 2026 is expected to be driven by two hyperscaler customers, up from one major customer previously – with a third customer also soon contributing to revenue:

“Stefan Murry CFO & Chief Strategy Officer

So if you break down the revenue, right, if you just take a round number of $1 billion, right? So track the [ 300-ish ] that we have in cable TV, that gives you $700 million-ish left over. Right now, I would expect that's going to be dominated by — most of that is going to be 2 large hyperscale customers. And they'll probably be roughly equivalent exiting the year. We'll see how that plays out. That's — it's pretty early to say exactly how the timing on that is going to go. But I would expect at least 2 to be sort of comparable in size, let's put it that way. And then obviously, the third one that would be smaller in scale, still significant.”

Tariffs in the Background for Now

Although tariffs are in the background for now, it’s important to emphasize that AOI is impacted by tariffs. For example, the CEO disclosed that AOI paid $4.6M in tariffs last quarter and $7-$8 million in tariffs last year.

“Stefan Murry CFO & Chief Strategy Officer

I mean, sorry, if we could recoup all of it, we had about $4.6 million, I believe, just last quarter in tariffs. We probably paid last year $7 million or $8 million in tariffs overall. Again, we're still analyzing exactly how many of those are IEEPA related, not all tariffs that way. So there's a lot of nuance there, but I mean it's not going to dramatically change our picture, but — but it certainly would be a welcome cash flow development for sure.”

Any tariffs will increase as the company scales, although the company is also trying to onshore as much of its production as possible, with management stating: “[…] So the more — as time goes on, the more we can manufacture in the U.S. and the more that we can attract other supply chain partners, which we are doing to move their production to the U.S. as well. that will help us in the long term, that's going to be the solution for really minimize the tariff impact.”

Financials

By Royston Roche

2026 Revenue Guided over $1 Billion

Applied Optoelectronics (AOI) Q4 revenue grew by 33.9% YoY and 13.2% QoQ to $134.3 million, beating estimates by 4.7%. The revenue growth was primarily driven by strong data center revenue which grew by 69.2% YoY and 70.4% QoQ to $74.9 million.

During the quarter, the company also announced that they received the fourth 800G volume order from one of their major hyperscale customer to support its AI data center growth, which is likely to be Amazon. AOI has begun ramping up production of this 800G module in anticipation of a strong volume ramp starting in Q2. Management also mentioned in the earnings call that they are in discussion with a new hyperscale customer about qualifying for 800G and 1.6T products and sounded confident about the growth trajectory in both these products with multiple customers.

Management also provided a strong Q1 revenue guide of $150 million to $165 million, implying a YoY growth of 57.7% and 17.3% QoQ at the midpoint. The strong Q1 revenue growth is led by sequential revenue growth in both CATV and data center revenue.

The company’s 2025 revenue grew by a solid 82.8% YoY to $455.7 million. Management expects strong revenue growth to continue in the coming years and guided 2026 revenue of over $1 billion, implying a 119% YoY growth, beating estimates by 31%. The company’s CFO, Stefan Murry, said in the earnings call, “Looking more broadly at 2026. While it's still early in the year, we expect to generate over $1 billion in revenue this year, with a non-GAAP operating profit of over $120 million. This revenue level is limited by our production capacity and supply chain, not market demand, which we believe is much larger.”

AOI has also witnessed a surge in customer inquiries due to the strong AI datacenter demand. Management believes that by mid-2027, 100G and 400G revenue will be about $90 million. While 800G revenue of about $217 million and 1.6 terabit revenue of $71 million monthly, totalling $378 million in monthly revenue for transceiver products. Management also believes that the customer demand is even larger than this. To accommodate this expected surge in demand, AOI is planning to more than triple the laser manufacturing in Texas.

Key Segments

Data Center Revenue Growth of 69% YoY and 70% QoQ

The company’s Q4 data center revenue grew by 69.2% YoY and 70.4% QoQ to $74.9 million. The revenue growth sharply accelerated from 7.3% YoY and decline of (1.9%) QoQ in Q3. Revenue of 100G products grew by 54% YoY and 400G products grew by 141% YoY. 100G products accounted for 51% of data center revenue, 200G and 400G transceiver products accounted for 41%, and 8% was from 10G and 40G transceiver products.

CATV Revenue

The company’s Q4 CATV (Cable TV) revenue grew by 3.4% YoY and down (23.5%) QoQ to $54 million. Though there was a sharp deceleration from a record 237.1% YoY and 26.1% QoQ growth to $70.6 million in Q3, the revenue came close to the higher end range of the guidance of $50 million to $55 million. Management expects CATV revenue to be between $61 million and $67 million in Q1, implying a decline of (0.8%) YoY and 18.5% QoQ growth. While the vast majority of the CATV revenue expectations for 2026 are related to the amplifiers, management expects that they will generate some revenue from the software solutions this year. Also, the company’s QuantumLink software suite has the potential of generating $300 million in annual revenue.

Telecom/Other Revenue

Q4 telecom revenue grew by 44.6% YoY and 36.6% QoQ to $5.1 million. While the other revenue grew by 2.2% YoY and down (18.8%) QoQ to $0.29 million.

Non-GAAP Profitability expected in Q2

AOI has witnessed a turnaround in margins and expects to be sustainable profitable on an adjusted basis from Q2 driven by the shift to higher margin revenue, operational efficiencies, and leverage.

The company’s Q4 gross profits grew by 46% YoY to $41.95 million. Gross profit margin improved by 250 basis points YoY and 320 basis points QoQ to 31.2%. Adjusted gross margins improved by 250 basis points YoY and 40 basis points sequentially to 31.4%, beating the guidance of 30%.
The improvement in gross margins was primarily due to the favorable product mix and cost reduction efforts. Management expects gradual improvement in gross margins, although they expect data center revenue in the next few quarters to be slight headwind. They are confident to achieve the long-term adjusted gross margin target of 40% due to the shift towards higher margin products and operational efficiencies. For Q1, management has guided adjusted gross margin of 30%, down 70 basis points YoY and 140 basis points QoQ.
Q4 operating margin was (8.6%) compared to (6.5%) in the same period last year and (15.3%) in the previous quarter. Adjusted operating margin was (5.3%) compared to (2.5%) in the same period last year and (8.7%) in the previous quarter. Management has guided adjusted operating margin of (4%) in Q1, an improvement of 80 basis points YoY and 130 basis points QoQ.
Q4 adjusted net income was ($0.6 million) or (0.5%) of revenue compared to ($1.05 million) or (1%) of revenue in the same period last year. It was better than the guide of ($5.9 million) or (4.5%) of revenue. Management has guided Q1 adjusted net income of ($3.35 million) or (2.1%) of revenue.

2025 gross margin improved by 520 basis points YoY to 30%.
Operating margin improved by 16.4 percentage points YoY to (12%). Adjusted operating margin improved by 11.9 percentage points YoY to (7.2%). Looking ahead, management guide implies adjusted operating margin to further improve by a solid 19.2 percentage points to 12%.
Adjusted net margin showed an improvement of 960 basis points YoY to (3.5%).

Adjusted EPS beat of 91%

The company’s Q4 GAAP EPS came at ($0.03), beating estimates by $0.12. While the adjusted EPS came at ($0.01), beating estimates by 91%. Management has guided adjusted EPS of ($0.09) to break even in Q1, which is in-line with the estimates of ($0.05) at the midpoint. Analysts expect adjusted EPS to improve to $0.13 in Q2 and $0.28 in Q3.

Cash Flow and Balance Sheet

The company’s cash flows have been weak. However, with improved profitability expected in the coming quarters we could expect cash flows to improve.

Q4 operating cash outflow was ($29.6 million) or (22%) of revenue compared to (24.6%) in the same period last year.
Q4 free cash outflow was ($113.6 million) or (84.6%) of revenue compared to ($53.1 million) or (53%) of revenue in the same period last year. To support the strong expected growth capex grew by 227% YoY to $84 million in Q4.
Cash and short-term investments were $216 million and debt of $197.2 million at the end of Q4 2025. The company also announced an equity offering of $250 million after the announcement of Q4 results.
Inventories rose 7.6% QoQ to $183.1 million in Q4.

Conclusion

AOI’s report marked an important inflection that shows the company can execute following last quarter’s pushout. Management laid out visibility for 2026 and into mid-2027 as they seek to quickly increase capacity. It’s clear by the hour-long commentary in the call that the company is capacity and supply-chain constrained rather than demand constrained. Importantly, customer concentration is improving with a second major customer contributing in 2026 and a third on the way.

Risks remain – such as tariff exposure and heavy capex cadence, especially since cash flows have been pressured as the company invests ahead of demand. If AOI can execute on the additional capacity, and sustain margins, then it has a strong, credible path to scale alongside the incoming 800G and 1.6T cycle.

Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in AAOI at the time of writing and may own stocks pictured in the charts.

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Talen Q4: Reveals 2028 Timeline for Data Center Power Delivery

Posted on February 27, 2026June 30, 2026 by io-fund

Talen’s Q4 saw revenue growth accelerate to more than 60% YoY as it is now recognizing the impacts of the 2025/26 capacity auction price increase, though margins and EPS were both impacted by a rather large, one-time $501 million charge related to stock awards.

On the broader view of the grid and power ecosystem, Talen noted that PJM’s grid is seeing strong peak load growth forecasts, such as 15GW of forecasted incremental load additions by 2030 in Ohio and Indiana, and 10GW of load under agreement in Pennsylvania by Q1 with half under construction. However, Talen revealed that regardless of if/when they sign another data center deal – whether it is tomorrow or later in 2026 – they would not be delivering or ramping until 2028.

Strong Peak Load Growth Forecasts

Talen provided some statistics on peak load growth forecasts within PJM’s footprint, noting that AEP (Ohio and Indiana) is forecasting 15GW of incremental load by 2030 with 90% under energy/electric service agreements (ESA), while PPL (Pennsylvania) is expecting to have 10GW load under ESA by the end of Q1 with 5GW under construction. Over the long-term, PPL has signed agreements with data centers to bring 25GW online through 2034.

Management says that these strong load growth signals mean “higher runtimes for our existing generation fleet, especially our intermediate dispatch and peaking units,” as well as more attractive economics for offtake agreements, both beneficial for revenue growth over the next few years.

More specifically, analysts questioned about the 10GW load PPL is expecting to have under ESA, with Talen saying the ESAs are a strong leading indicator for PPAs/ data center demand following through:

“I’m just trying to link the comments that we’re hearing from PPL and AEP to your generation contracting. For example, the comment that you quoted yourself, right? In the slides, that PPL expects 10 gigs of load under ESAs by the end of the first quarter, which sounds like one more month. How does that relate to, you know, you being the largest generation company in the PPL zone and signing, you know, generation contracts to back this 10 gigs of load?”

CFO Cole Muller:

“Without an ESA, data centers aren’t going to contract under a PPA, right? I think that’s just a good kind of leading indicator of PPAs coming. Just to be really clear, we obviously have announced 2 gigawatts, roughly, of tangible PPA in that zone. I mean, again, leave it to PPL to break down their count, but, you know, that’s 2 of the 10 right there.”

Montour Data Center Pushback, 2028 Data Center Delivery Timeline

Talen and Amazon recently faced substantial pushback from local regulators to the proposed rezoning of agricultural land to data center use, with the rezoning request denied on concerns over higher local utility prices. Talen hinted in the opening remarks that it will remain flexible and can pivot to a different solution as needed, seeing it as being similar to the initial regulatory decisions regarding AWS and Susquehanna’s behind-the-meter pact.

While the regulatory process is still ongoing, Talen revealed in the Q&A related to its long-term FCF projection that any data center PPAs — regardless of it being at Montour or at other sites (what they dub a ‘virtual’ PPA where power is delivered to a data center not co-located nearby) — will not see megawatts being delivered until 2028:

“I said we won’t discuss Montour, but maybe we’ll unpack it a little bit for you. But the 1 gigawatt data center PPA is really more than likely a post 2028. Because when you think about when you’ve got to build data centers like’s going on at Susquehanna, there’d be a ramp rate. That’s why we show that out there on 2028.

That [FCF upside lever is] probably the least likely to be pulled forward early, because even if there was a signed contract today on the so-called Montour deal or some other virtual PPA, across our pipelines of opportunity, the delivery of those megawatts is not gonna be 2028. This is something that I find very interesting going back to the Montour. Whether Montour happens today or happens 6 months from now, it really is irrelevant to when the megawatts would flow under that type of arrangement, because they’re not going to be delivered until 2028, and they’re gonna ramp up from there more than likely.”

The biggest takeaway here is that the emphasis may remain on time-to-power and providers such as Bloom Energy, for data centers able and wanting to come online within the next 12 to 24 months, as Talen is saying it will not be able to ramp to GW-scale PPAs until 2028 at the earliest.

Cornerstone Acquisition Boosts Fleet to 15.6GW

Talen is continuing to increase its fleet, now entering into a definitive agreement with ECP to purchase three assets – the the 875 MW Waterford and 456 MW Darby assets in Ohio, and the 1.12 GW Lawrenceburg asset in Indiana. Talen believes these high-capacity factor assets will have high free cash flow conversion rates and enhance its large-load contracting opportunities. In total, once closed, the three assets will boost Talen’s fleet to nearly 15.6GW, up from its current 13.1GW.

The Cornerstone acquisition is priced at $3.45 billion, including $2.55 billion in cash, which will be funded by debt, and 2.4 million shares of stock valued at $900 million at the time of signing. The transaction is expected to close early in 2H 2026. For some of the financial impacts, Talen expects the Cornerstone fleet to generate more than $4 in incremental annual FCF upon closing, with this broadly expected by 2027 in full, with potential for upside in 2026 should the transaction close in the summer. For adjusted EBITDA, Cornerstone was implied to have a ~$500 million annual impact post-close.

On why they continue to acquire assets in the western PJM area, management explained that the region has “significant data center tailwinds and accessibility to reliable, low-cost natural gas from the Marcellus and Utica shales,” providing Talen with access to a larger, faster growing pipeline of potential data center offtakers with lower-cost fuel possibly aiding better margins in future deals.

Related to expanding its fleet and footprint, management did state that they have “numerous other organic and inorganic sites we are developing across the PJM footprint,” but emphasized that they will “not discuss them at any level of detail, and we no longer plan to discuss development in the public forum” to avoid pushback such as what is currently occurring with Montour.

New Build vs Existing Builds

On this point of acquiring existing , Talen made an interesting case that it will be existing generation capacity, not new generation capacity, that will be the first to serve new data center loads:

“Over time, we’ll start to shift to kind of hybrid models where there’s existing gen powering the first three to five-year build-out of these data centers across Pennsylvania, Ohio, Indiana and so forth. Eventually, backed by a second either upscaling of a PPA or a second PPA that, you know, enables new generation to kind of fill the gap from there.” Management also emphasized that they believe that there is not much new generation that will be able to meet data center demands in 2027 through 2029.

CEO Mac McFarland provided more clarity on the new vs existing generation debate in a later question about peers turning to new-build gas or turbines, and if Talen would follow and secure the supply chain to do something similar (as turbines are sold out for 24+ months):

“With respect to turbines and EPC relationships and the rest of it, our view and the reason why we’ve built up and invested in these existing assets is very much to the point which we think that there’s still the capability to use existing assets to contract. There’s a lot of data centers that are out there right now that are looking at whether they contract for a longer period of time. Existing ones, right? You saw that in a recent PPA announcement with existing data center load.

I think that when it comes to new build, and there’s a fair amount of discussion around new build, we view new build very simply. New build is going to require either winning in the RBP and having a 15-year contract that allows for a taking the merchant risk of the capacity off, thereby allowing financing, or new build is going to require a contract.”

This piece highlights the two main reasons why Talen is quick to take on debt and quick to acquire these existing generation assets – in the case of Guernsey and Freedom, management believed it was cheaper to acquire than to build new CCGT plants, and secondly, management expects existing gen to serve data center loads first, making their fleet potentially more attractive for possible data center offtakers.

There are other hurdles to new builds related to the RBP (discussed below) that would likely put new build capacity towards meeting shortfalls rather than having optionality to serve data center loads. However, Talen did not write off new builds completely, saying that they would be open to new gen with the right certainty and the right deal (such as that 15-year deal that would effectively finance the build).

Quick Note on PJM’s Reliability Backstop Procurement

PJM is currently proposing the Reliability Backstop Procurement (RBP) as a one-time procurement of capacity to address the ‘unprecedented’ load growth the grid is seeing. PJM said last week that its “current projections show a potential capacity shortfall of 50-60GW in the next decade primarily driven by large load growth but also forecasted conventional load growth,” and as such, it needs to add net-new supply to have enough capacity in the region to meet peak demand. The RBP aims to ‘markedly improve’ capacity and minimize future shortfalls.

On the topic of the RBP, policy uncertainty within PJM and contracting abilities, management explained that contract details, who pays for energy and how capacity is allocated will work out in due course, and that ultimately, data centers are coming and are not slowing down. CEO Mac McFarland explained that hyperscalers and chip manufacturers “continue to talk about the race for creating data centers on the ground, powering them today, powering them in 2028, and then soon 2029 will become the new 2028. I think that as we progress through that, it just further aids in the ability to continue those discussions. We don’t see any slowdown to it, and we think that the RBP will ultimately increase the level of those discussions.”

Financials

Revenue up 60% YoY in Q4, to Accelerate into Q1

Talen reported Q4 revenue of $749 million, up 60.4% YoY but down (7.8%) QoQ. This was driven by nearly 257% YoY and 9.6% QoQ growth in Capacity revenue to $182 million as the 2025-26 PJM capacity pricing of $270/MW-day kicks in. Energy and other revenue was $589 million, up 34.8% YoY but down (2.5%) QoQ. Talen also recorded a ($22 million) loss on hedging derivates this quarter.

Talen did not provide guidance for Q1, though revenue is currently projected to be $1.12 billion, up 187.2% YoY and 49.5% QoQ. This would mark a sharp acceleration on both a YoY and QoQ basis, of 127 points and ~40 points respectively.

For 2025, operating revenue was $2.58 billion, up 22% YoY, driven by a 13.8% increase in Energy and other revenue to $2.14 billion and a 152.6% increase in Capacity revenue to $485 million.

Talen did not provide formal guidance for FY26 this quarter, though it has previously provided estimates for 2026 revenue at its Investor Day in September. Talen had forecast Energy revenue to be $2.885 billion, up 34.8% YoY, and Capacity revenue to be $953 million, up 96.5% YoY; this would give visibility to roughly $3.84 billion in revenue excluding hedging impacts. However, current consensus estimates for FY26 are much higher at $4.21 billion, for growth of 63.1% YoY.

Margins Impacted by Stock Award Related Charge

Talen’s operating and net margins were deep in the red in Q4 as the company recognized a $501 million charge related to accounting changes for certain stock awards granted in 2023; however, excluding this impact, margins were solid and down roughly 7 points QoQ.

GAAP gross margin was 61.7%, down 3.2 points YoY and 2.3 points QoQ.

GAAP operating margin was (41.8%), and when excluding the one-time stock award charge, operating margin would be 25.1%. This compares to 32.5% in Q3 and 3.4% in the year ago quarter.

GAAP net margin was (48.5%), and when excluding the stock award charge, net margin would be 18.4%. This compares to a 25.5% margin in Q3 and a 17.6% margin in the year ago quarter.

For FY25, GAAP gross margin was $1.52 billion for a 58.7% margin, down 3.6 points YoY.

GAAP operating margin was (3.5%), and excluding the stock award charge, operating margin would be 15.9%; this compares to a 10.7% margin in 2024.

GAAP net margin was (8.5%), and excluding the stock award charge, net margin would be 10.9%, compared to a 47.2% margin in 2024 as Talen benefited from gains on the sale of its Cumulus data center assets to Amazon in March 2024.

Looking ahead to 2026 (and 2027), Talen provided a quick snapshot of margin impacts from its hedging program, which uses derivates to hedge against rising gas prices. For a +/- $10 MWh increase from the end of 2025, Talen is guiding for a +/-$105 million impact to margins, or around 2.5 points at the current revenue estimate. Management added that hedging will be less of a necessity as the AWS deal ramps and as cash flows increase.

EPS and Adjusted EBITDA

Due to the stock award charge, Talen reported a large loss in Q4 at ($7.75) per share. This also drove FY25 GAAP EPS to a loss of ($4.79); excluding the impact of the charge, Q4 EPS would be ~$3.21, and FY25 EPS would be ~$6.17.

Looking ahead to FY26, GAAP EPS is projected to be $20.98, nearly tripling the stock-award adjusted figure implied from above.

Turning to adjusted EBITDA, Talen reported a strong 51% margin in Q4 with adjusted EBITDA of $382 million. This marked a 15.9 point YoY and 6.3 point QoQ expansion, with Talen noting the strong YoY growth was due to higher capacity prices and the AWS ramp, among other factors. For FY25, adjusted EBITDA was $1.04 billion for a 40.1% margin, up 3.7 points YoY.

Talen maintained its FY26 adjusted EBITDA guidance of $1.75 to $2.05 billion, noting that this excludes its pending acquisition of the Cornerstone assets, expected to close in 2H. This would represent growth of 83.6% YoY, and represent a ~45.1% margin at the midpoint of guidance and at the current $4.21 billion consensus estimate.

Cash Flows and Balance Sheet

Talen’s debt load is quickly increasing as the company continues to take on debt for its acquisitions, though it expects to quickly deleverage through 2026.

Operating cash flow was $280 million for a 37.4% margin, up 35.3 points YoY but down 6.8 points QoQ. For FY25, operating cash flow was $704 million for a 27.3% margin, up 15.2 points YoY.

Adjusted free cash flow was $292 million in Q4 for a 39% margin, up 34.5 points YoY and 11.5 points QoQ. For FY25, adjusted FCF was $524 million, at the upper end of guidance for $450-540 million and representing a 20.3% margin, up 6.9 points YoY. Talen also maintained its FY26 adjusted FCF guidance of $980 million to $1.18 billion, more than doubling YoY at the midpoint of $1.08 billion.

Cash, equivalents and restricted cash totaled $752 million in Q4, with total liquidity of more than $2 billion. Debt rose sharply to $6.81 billion, up from $3.03 billion in Q3 as Talen took on ~$3.89 billion in debt to fund its Freedom and Guernsey acquisitions. Talen is expected to take on another $2.55 billion in debt to fund the Cornerstone acquisition.

Management stated that net leverage ratio for 2025 would be an ‘apples-to-oranges’ comparison as it would include the debt related to the Freedom and Guernsey acquisitions but not the EBITDA, and instead projected 2026 net leverage to be <3X, based on current net debt of $5.75 billion and adjusted EBITDA guidance for $1.9 billion. Management added that they still expect to have net leverage of <3.5X by year-end even when incorporating the debt added by Cornerstone.

Conclusion

Talen reported strong revenue growth in Q4 at 60.4% YoY with Q1 expected to accelerate to 187.2% as the new capacity pricing kicks in. Adjusted EBITDA and adjusted FCF are both projected to increase sharply in 2026, with EBITDA guided to be up 83.6% YoY and adjusted FCF to more than double at midpoint.

Notably, on the tune of data center load requests and serving this demand from the grid, Talen revealed in a blanket 1GW scenario that it would not be delivering or ramping those megawatts until 2028, putting the near-term emphasis again on time-to-power solutions such as Bloom Energy’s fuel cells.

Every Thursday at 4:30 pm Eastern, the I/O Fund team holds a webinar for premium members to discuss how to navigate the broad market, as well as various stock and crypto entries and exits. Beth Kindig offers weekly deep dives including lesser-known cryptocurrencies and AI stocks, plus the team offers trade alerts. The I/O Fund team is one of the only audited portfolios available to individual investors. If you’d like to subscribe to the Advanced Market Signals plan, email us at premium@io-fund.compremium@io-fund.com.

Damien Robbins, Equity Analyst at I/O Fund contributed to this analysis.

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Nvidia Q4: Stellar Report; Stock Remains Range Bound

Posted on February 26, 2026June 30, 2026 by io-fund

Nvidia put up a stellar report, yet the market seems to be numb to the strong fundamentals coming out of the company. Not only did Nvidia report record QoQ data center growth at $11.1 billion, but the CFO also stated they expect to see QoQ growth every quarter this year with visibility into CY2027. Management also confidently stated they will exceed the $500 billion estimate they had provided for Blackwell and Rubin combined.

Management also stated that Nvidia is now the world’s largest Ethernet networking company, accomplishing this in just a few short years of Spectrum-X deployments. Networking growth was 263% this quarter, up 100 points from last quarter’s growth rate of 162% YoY growth.

The Q&A session centered around whether capex can continue to grow, if the CUDA moat is still intact, and the company’s strategy for keeping margins elevated. The analysts poked yet there was no chink to be found in the armor.

Nearing $700 Billion – can Capex Continue to Grow?

About four months ago, our firm published on the AI Monetization Supercycle here and here. The point of those articles was to say that debates around an AI bubble are loud at this exact point in time because of Big Tech has spent an exorbitant amount of money for the training phase, which is a foundational stage rather than a revenue-generating stage. As a result, investors see soaring capex, and meanwhile, the revenue streams are still in their infancy, which fuels the bubble debates.

My contention has been that we are too early in the cycle for these concerns to carry weight. Inference is synonymous with monetization, and we know the inference stage is incoming with architectures like Rubin and Helios (AMD) optimized for high-throughput and low latency at scale. This means they are not only designed to train models, but rather to deploy them into applications where revenue is generated, which is supported by the sheer amount of memory these incoming generations of GPUs offer.

To add to this, Nvidia recently acquired Groq, a startup with specialized inference hardware called LPUs or language processing units. LPUs allow trained models to generate answers very quickly at several hundreds of tokens per second. Groq offers a cloud platform for Ai inference-on-demand to access language models and AI capabilities in the cloud, and also a rack cluster for on-premises AI inference for data centers that want LPUs. Jensen Huang stated to expect announcements regarding how Nvidia plans to strategically integrate Groq : “What we’ll do with Groq is you’ll come to see GTC, but what we’ll do is we’ll extend our architecture with Groq as an accelerator, in very much the way that we extended NVIDIA’s architecture with Mellanox.”

Back to whether capex can increase, there was a question on this in the Q&A session, to which Huang’s answer lines up with my understanding of how the return on capital for infrastructure is set to improve:

Here was the question from Antoine Chkaiban from New Street Research:

“[…] Jensen, I’m curious, you know, when you look at your top cloud customers, cloud CapEx close to $700 billion this year, many investors are concerned that it would be harder for this level to grow into next year, and for several of them, their cash flow generation capability is also getting compressed. I know you’re very confident about your roadmap, right? And your purchase commitments and whatnot, but how confident are you about your customers’ ability to continue to grow their CapEx?

Jensen Huang:

“I am confident in their cash flow growing. The reason for that is very simple. We have now seen the inflection of agentic AI and the usefulness of agents across the world in enterprises everywhere. You’re seeing incredible compute demand because of it. In this new world of AI, compute is revenues. Without compute, there’s no way to generate tokens. Without tokens, there’s no way to grow revenues. In this new world of AI, compute equals revenues. […]

Now, I am certain at this point that we are at the inflection point. We’ve reached the inflection point, and we’re generating profitable tokens that are productive for customers and profitable for the cloud service providers. The simple logic of it, the simple way to think about it, is computing has changed. What used to be software running on computers, modest amount of computers, you know, call it $300 billion-$400 billion worth of CapEx each year, has now gone into AI. AI, in order to generate tokens, you need compute capacity, and that translates directly to growth, and that translates directly to revenues.”

The Defensibility of CUDA during the Inference Phase

One of the more intriguing questions on the call was whether CUDA matters as much as dollars shift from training to inference. Jensen Huang’s answer was essentially that CUDA turns inference from raw compute into a monetizable stack as CUDA offers TensorRT-LLM tools and NVLinkn optimizations, which in turn, lead to a higher performance-per-watt. This also ties back to the notion that inference equals revenue as Huang is stating agentic AI can push tokens into the thousands to hundreds of thousands per session.

Here was the exchange:

Atif Malik, Analyst, Citi:

Thank you for taking my question. Jensen, I’m curious if you can touch on the importance of CUDA, as now more of the investment dollars in AI are coming from inference workloads.

Jensen Huang:

Without CUDA, we wouldn’t know what to do with inference. The entire stack from TensorRT-LLM that we introduced a few years ago, which is still the most performant inference stack in the world.

Optimizing it for NVLink requires us to discover and invent new parallelization algorithms that sits on top of CUDA to distribute the workload and the inferencing to take advantage of the aggregate bandwidth across NVLink Switch. NVLink Switch has enabled us to deliver generationally 50 times more performance per watt. It’s just an incredible leap, and it’s sensible. NVLink Switch is a great invention. It was hard to do.

The, the creation of the switching technology, disaggregating the switches, building the system racks, all of that, you know, we did it all in plain sight, and everybody knew how hard it was for us to do. The, the results are incredible. You know, performance per watt is 50 times. Performance per dollar, 35 times. The leap in inference is incredible. It’s very important to realize that inference equals revenues now for our customers. Because agents are generating so many tokens, and the results are so effective. When the agents are coding, it’s off generating thousands, tens of thousands, hundreds of thousands, because they’re running for, you know, minutes to hours. These systems, these agentic systems, are spawning off different agents working as a team.

Durability of Gross Margins

Nvidia has impressive gross margins that are high compared to previous eras where the gross margins were below 60% and sometimes as low as 40%. The gross margin reported tonight was 75%, thus analysts are wondering if this can be sustained, especially from the rising costs of memory.

Huang provided his typical approach, which is to not directly answer the question if he doesn’t care for the angle. Instead of discussing what effects memory prices will have on the gross margin, he stated that gross margins are sustained when Nvidia delivers “generational leaps” that create a step-up in performance per watt and performance-per-dollar that outpace what Moore’s Law alone could deliver.

“The single most important lever of our gross margins is actually delivering generational leaps to our customers. That is the single most important thing. If we could deliver generationally, performance per watt, that exceeds dramatically what Moore’s Law can do. If we can deliver performance per dollar dramatically more than the cost of our systems, than the price of our systems, then we can continue to sustain our gross margins. That’s the simple, most important concept.”

Data Center QoQ Revenue Sets a New Record

Data Center revenue in the quarter was $62.31 billion, with YoY growth accelerating nine points to 75% YoY although QoQ growth moderated 3 points to 22% QoQ, due to the larger revenue base. This compares to 25% QoQ growth last quarter, marking two strong back-to-back quarters from Blackwell Ultra shipping in volume.

One key takeaway is that the company delivered a higher QoQ growth on a dollar basis in Q4 on a larger revenue base, highlighting just how rapidly Blackwell and networking platforms are ramping. Data Center revenue increased $11.1 billion sequentially, surpassing Q3’s $10.1 billion growth. Assuming similar mix in Q1 on the $78 billion guide, Data Center revenue could come in around $71.4 billion at the midpoint, or up another $9.1 billion QoQ.

Within Data Center, Compute revenue rose 58% YoY and 19% QoQ to $51.33 billion, slowing from 27% QoQ in Q3 though YoY growth accelerated 2 points. Networking revenue accelerated more than 100 points to 263% YoY to $10.98 billion, with QoQ growth accelerating 21 points to 34%.

For the full year, Data Center revenue was $193.74 billion, up 68% YoY; this was driven by a 59% increase in Compute revenue to $162.36 billion, and a 142% increase in Networking revenue to $31.38 billion.

Looking ahead through FY27, Blackwell Ultra and related networking will be the main driver of this near-term QoQ growth, but the bigger story will be Rubin and if the upcoming platform is fully priced in, considering it is expected to carry a significant price premium over the GB300s. For example, the Street is suggesting Rubin could carry up to a 40% to 50% premium versus the GB300’s estimated $3.5 million price tag.

While the timing of the ramp remains a bit more fluid at the moment, Wolfe Research projects Rubin to ramp smoothly in 2H, and quickly meet a similar volume profile to Blackwell in the 1,000 rack/week range. Under a rough projection that Rubin ramps from ~8,000 racks/quarter to 13,000 in 2H, for total volume of ~21,000 racks in FY27, this estimated ASP uplift alone could drive incremental revenue of ~$12.6 billion and $20.5 billion.

Financials

Revenue Accelerates to 73% YoY

Nvidia’s Q4 revenue accelerated to 73.2% YoY from 62.5% YoY in Q3, while QoQ growth moderated slightly to 20% QoQ from 22% in Q3, due to Nvidia’s increasing revenue base. Revenue for the quarter was $68.13 billion, beating estimates by 2.9%.

For Q1, Nvidia guided for revenue growth to accelerate further to 77% YoY, forecasting revenue to be $78 billion, +/- 2%, coming in well ahead of consensus for $72.03 billion. Sequential growth would again moderate to 14.5% QoQ at the midpoint of guidance, though again this is simply due to the law of large numbers as dollar growth is projected to be nearly $10 billion QoQ, versus $11.1 billion in Q4.

For FY26, Nvidia reported revenue of $215.94 billion, up 65.5% YoY, with this growth driven by Data Center revenue increasing 68.2% YoY to $193.74 billion. Nvidia is not providing full year guidance for FY27, but considering that FQ1 is already $6 billion ahead of estimates, the current estimate for $330.76 billion for 54.6% growth may quickly move tens of billions higher.

Networking Steals the Spotlight with 263% Growth

Networking revenue was once again quite an outlier in Q4’s report, with growth accelerating sharply on both a YoY and QoQ basis in the quarter. Networking revenue was $10.98 billion in Q4, up 34% QoQ and 263% YoY – this represents more than a 100 point acceleration from 162% YoY growth in Q3, while QoQ growth accelerated 21 points. Nvidia said the strong growth stemmed from the introduction and ramp of NVLink compute fabric for both GB200 and GB300 systems, as well as growth in Ethernet, InfiniBand and Spectrum-X.

On the call, it was stated that Nvidia is likely the largest Ethernet company in the world: “The amount of switching that we do per rack is really quite incredible. We’re also now the largest networking company in the world. If you look at Ethernet, we came into the Ethernet market about a couple of years ago, into Ethernet switching, and I think that we’re probably the largest Ethernet networking company in the world today, and surely will be soon. Spectrum-X Ethernet has been a home run for us. You know, we’re open to however people want to do, networking.”

This rapid acceleration in 2H drove networking revenue up 142% YoY to $31.38 billion, contributing more than 16% of Data Center revenue, up from more than 11% in FY25. To put in perspective the sheer size of Nvidia’s Networking segment, it alone was >1.5X of Broadcom’s entire AI revenue from FY25, and just $3 billion shy of AMD’s entire annual revenue last year.

Turning to Nvidia’s other segments:

Gaming revenue increased 47% YoY but declined (13%) QoQ to $3.73 billion, with YoY growth driven by strong Blackwell demand and the QoQ decline due to channel inventory moderating after the holiday season. However, Nvidia expects supply constraints to be a headwind on Gaming revenue in FQ1 and beyond.

Pro Viz revenue showed an unusually strong 159% YoY and 74% QoQ increase to $1.32 billion in Q4, accelerating from 56% YoY and 26% QoQ in Q3. Nvidia said this was driven by ‘exceptional’ Blackwell demand, likely for its DGX Spark desktop supercomputer as was the case in Q3.

Automotive revenue was soft in Q4, up just 6% YoY and 2% QoQ to $604 million, driven by adoption of Nvidia’s self-driving vehicle platforms.

OEM and other revenue rose 28% YoY but declined (7%) QoQ to $161 million.

For FY26:

Gaming revenue was $16.04 billion, up 41% YoY.
Pro Viz revenue rose 70% YoY to $3.19 billion.
Automotive revenue rose 39% to $2.35 billion.
OEM and other revenue rose 59% to $619 million.

Margins Expanded in Q4

Nvidia’s gross margins moved higher in Q4 to the 75% range, with GAAP operating margin following this expansion and moving back to the 65% level. To note, starting in Q1, Nvidia’s adjusted margin figures will include SBC.

Q4 GAAP gross margin was 75%, slightly ahead of management’s guidance for 74.8% and expanding by 2 points YoY and 1.6 points QoQ, with the sequential expansion driven by Blackwell and better product mix. Adjusted gross margin was 75.2%, expanding 1.7 points YoY and 1.6 points QoQ. Looking ahead to Q1, Nvidia guided for a minimal QoQ contraction to 74.9% for GAAP gross margin and 75% for adjusted gross margin.

Q4 GAAP operating margin was 65%, also slightly ahead of guidance for 64.5%, and expanding 3.9 points YoY and 1.8 points QoQ, showing a hint of operating leverage. Adjusted operating margin was 67.7%, expanding 2.8 points YoY and 1.5 points QOQ, coming in slightly above the guidance for 67.3%. For Q1, Nvidia guided for operating margins to be flat at 65% and since the adjusted margin figures will include SBC, it will be lower sequentially at 65.4%.

Q4 GAAP net margin was 63.1%, expanding 6.9 points YoY and 7.1 points QoQ, while adjusted net margin was 57.2%, up 1.1 points YoY and 1.5 points QoQ.

For FY26, as evidenced by the chart above, gross and operating margins contracted YoY as Nvidia faced inventory charge impacts related to the H20 China ban earlier last year. FY26 GAAP gross margin was 71.1%, down 3.9 points YoY, while adjusted gross margin was 71.2%, down 4.3 points.

GAAP operating margin was 60.4%, down 2 points YoY, and adjusted operating margin was 63.6%, down 2.9 points. Despite this contraction, GAAP net margin as relatively unaffected at 55.6%, down 0.3 points, through adjusted net margin contracted 2.7 points to 54.2%.

EPS

GAAP EPS saw a rather large beat in Q4, coming in at $1.76, up 98% YoY and beating estimates for $1.47 by more than 19%.

Adjusted EPS was $1.62, up 82% YoY and beating estimates by just over 5%. Growth accelerated from 60.5% in Q3 and marked Nvidia’s fastest adjusted EPS growth in the last five quarters. Looking ahead to Q1, current consensus estimates point to this acceleration continuing to nearly 108% YoY, though this is likely to be revised higher considering the scale of the revenue beat.

For FY26, GAAP EPS rose 67% YoY to $4.90, while adjusted EPS increased 60% YoY to $4.77; for FY27, initial estimates point to strong EPS growth continuing, with adjusted EPS forecast to rise 67.3% to $7.86.

Cash Flows and Balance Sheet

Cash flows were robust in Q4, with cash flow margins improving significantly on both a YoY and QoQ basis.

Operating cash flow was $36.2 billion in Q4 for a 53.1% margin, up 10.9 points YoY and 11.4 points QoQ. For the full year, OCF was $102.7 billion for a 47.6% margin, down 1.5 points YoY due to the softer Q2 print.

Free cash flow was $34.9 billion for a 51.2% margin, up 11.7 points YoY and 12.4 points QoQ. For FY26, free cash flow was $96.6 billion for a 44.7% margin, down 1.8 points YoY.

Cash and equivalents totaled $62.6 billion, while debt was $8.47 billion.

Inventories increased more than 8% QoQ to $21.4 billion, though more importantly, Nvidia’s supply related commitments surged — we highlighted this last quarter as a key sign that the strong data center QoQ revenue inflection would continue.

In Q4, Nvidia’s supply-related commitments surged nearly 90% sequentially to $95.2 billion, a major step-up from the prior ~$28-30 billion range through late FY25 and the first half of FY26. Nvidia says it is strategically securing inventory and capacity to meet demand beyond the next several quarters, which we believe serves as a key sign that the current accelerated QoQ data center growth of ~$10 billion will likely persist as Blackwell Ultra continues ramping and as Vera Rubin ramps.

Conclusion:

The financials were flawless while the Q&A during the call cleared the pressure points that the bears have leaned on for months, such as sustainability of AI capex, durability of the CUDA moat, and whether memory/input costs can compress margins.

Management’s answers pointed to the same conclusion, which is that demand is broadening, utilization is tightening, and NVIDIA’s ability to deliver step-function gains in performance per watt and performance per dollar will preserve pricing power.

The most important takeaway is that inference is no longer a future event; rather it is the revenue engine for customers today while agentic workloads are increasing token demand. The market will continue to play tug-o-war on whether the AI economy is an investable opportunity or a bubble, but the results this evening continue to make one thing clear: the fundamentals are driving forward record growth and profits with Nvidia remaining an obvious choice for participating in the AI monetization cycle.

Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in NVDA at the time of writing and may own stocks pictured in the charts.

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I/O Fund Jumps to 326% Cumulative Return, Ranking Among Wall Street’s Best

Posted on February 24, 2026June 30, 2026 by io-fund

In 2025, the I/O Fund posted a 37% return, bringing its cumulative returns since inception to 326%, outperforming the broader markets and leading institutional tech portfolios by as much as 294%. On an annualized basis, the I/O Fund has averaged returns of 29.2%, outpacing many of Wall Street’s most renowned firms.

The I/O Fund’s 2025 return of 37% outperformed the Nasdaq-100 by 17% and the S&P 500 by 21%.
Since its May 2020 inception, the fund has achieved a 326% cumulative return, surpassing the Nasdaq-100 by 152% and the S&P 500 by 192%.
Since inception, the I/O Fund has maintained a notable 294% lead over other institutional technology portfolios.

An investment of $10,000 with the I/O Fund's picks at inception versus other all-tech portfolios would see a portfolio value of $42,552 with IOF versus $13,192 with institutional tech-focused portfolios. The difference in value is 223%.

I/O Fund Ranks Among Top Tech ETFs and Mutual Funds

On a cumulative basis, the I/O Fund’s stellar performance ranks among the top performing Tech ETFs and Mutual Funds, with the 326% cumulative return hypothetically placing the I/O Fund at #3.

While the I/O Fund’s portfolio was not exclusively invested in semiconductors, similar to many of the top ETFs on the chart below, we held high allocations in a select group of semiconductor winners, which played a significant role in driving our cumulative performance. This extended well beyond Nvidia to include several lesser-known AI semiconductor names.

I/O Fund Reports 56% Equity-Only Returns in 2025

The I/O Fund’s 37% portfolio return combines both equities and cryptocurrencies, with the latter weighing on results with Bitcoin down (5%) and altcoins down as much as (40%). When excluding cryptocurrencies, the team’s equity strategy delivered a staggering 56% return, a result that ranks the I/O Fund team among the highest-performing investment teams in the United States on both an annual and cumulative basis.

The I/O Fund’s equity-only portfolio return of 56% would rank as the third highest recorded for any U.S. equity-only portfolio in 2025.
The I/O Fund had 11 positions beat the Nasdaq-100 in 2025, up from 10 positions in 2024 and up from 7 positions in 2023.

The returns shown above reflect the performance of our equity strategy in 2025 and provide a more appropriate comparison to ETF thematic approaches. I/O Fund equities are concentrated entirely in AI stocks.

I/O Fund’s 29.2% Annualized Return Ranks Among Leading Hedge Funds

The I/O Fund actively manages risk through hedging and raising cash. Therefore, the closest comparison in terms of style would be hedge funds. The I/O Fund’s annualized returns of 29.2% since inception compare favorably with some of Wall Street’s most established investment teams.

The I/O Fund launched mid-year in 2020 on May 9th. The comparison below illustrates the strength of our annualized return over the past five years, outpacing several well-known hedge funds, including Pershing Square and Coatue.

What Drove the I/O Fund’s Outperformance in 2025

The last few years have demanded a high level of precision as the markets quickly and sharply rotated from cloud towards AI, with valuations resetting, and major indices advancing to consecutive strong years – conditions that have made sustained outperformance exceptionally difficult for active managers.

The I/O Fund strives for breadth and consistency by measuring how many positions outpaced the Nasdaq-100. Our results in 2025 exceeded previous results, notably this was on a high base from 2024.

The I/O Fund had 11 positions beat the Nasdaq-100 in 2025, up from 10 positions in 2024 and up from 7 positions in 2023.

Additionally, the I/O Fund’s biggest winners were built through strategic entries that occurred below the January 1 opening price as tactical purchases through March and April allowed us to realize gains that exceeded the stock’s annual performance. Although we reserve the complete list for our paid members along with real-time alerts for every trade we make, below are a few highlights we can share with you: 

Nvidia remained a key anchor in the I/O Fund’s portfolio, though we actively managed the position with purchases in March and April in alignment with our publicly-stated buy target zones.
We tactically reduced Bitcoin from a 10% allocation to 1% through April to December 2025, locking in gains from numerous purchases made through 2023 and 2024.
Bloom Energy became the I/O Fund’s top performing stock of 2025 with a 305% average return, with one entry as high as 422%.
An AI semiconductor stock became a leading allocation in the I/O Fund’s portfolio, with a 140% average return across all entries, driven by five tactical buys through February to April 2025.
We entered and exited a Bitcoin miner for a 93% average gain.
We captured a 79% return on a lesser-known AI data and software platform, with one entry as high as 94%.
We realized a 51% return on a leading AI advertising and social media firm.

Nvidia Stock Positioning

Leading up to the release of the Hopper GPUs, we were net buyers of Nvidia in 2021 through early 2023. On average, it was held as a 15% position throughout 2022 and 2023. As we moved into 2024, Nvidia was allowed to exceed this allocation to become our first ever 20% position.

However, in mid-2024, we shifted our focus by looking more deeply at suppliers for Nvidia. Although the stock remained a core holding, we used our oversized allocation to raise cash at periods of perceived risk. Most notably, we talked about Nvidia hitting the $90 – $80 region for months, including in two free newsletters in January 2025, Where I Plan to Buy Nvidia Stock Next, and DeepSeek Creates Buying Opportunity for Nvidia Stock.

In February of 2025, we cut half of our position with an average cost basis of $130.88. We were then able to grab shares of Nvidia roughly 30% lower at $94.48 on April 4th and again at $87.99 on April 7th. The low for the year was $86.60.

Bitcoin Allocation Strategy

While we were exceedingly bullish in Bitcoin in 2023 and early 2024, buying most dips, we lean heavily into technical analysis to manage our position. Using our technical analysis and internal indicators and other liquidity signals, such as those outlined in the free newsletter from August, Is Bitcoin’s Bull Run Nearing a Top? What the Herd Missed at $16,000 and is Missing Now and subsequent free webinar, we began trimming our position.

From April through December 2025, we reduced our Bitcoin position from 10% down to a 1% allocation, locking in gains between $85,000 and $113,000, making the multi-year bull run in Bitcoin one of the top actively managed positions in our firm’s history.

Bloom Energy as Top 2025 Winner

We first covered surging power demand from AI data centers in our June 2024 newsletter, AI Power Consumption: Rapidly Becoming Mission-Critical, with Bloom Energy quickly rising to the top of our list for its ability to solve the critical time-to-power constraint.

We made three initial buys in Bloom that defined our core position, with two on the April 4th low at $17.04 and $16.64 for a 5% position. We then added another 3% on July 24th at $32.93, taking tactical gains in September as Bloom’s strong relative performance had made it one of the I/O Fund’s largest allocations at up to 15%. Bloom ended the year as one of the I/O Fund’s best performing stocks with an average return of 305%, with one entry returning 422%.

AI Networking Stock Allocation

We built a leading 11% allocation to an AI networking stock from February to April after identifying its key positioning within the networking stack and its product positioning enabling larger and faster AI clusters to be architected.

We trimmed 1/3 of this position in September to lock in an average 295% return from our initial four purchases and free up cash, shortly before the stock sold off 50% in just over two months.

Early to a Bitcoin Miner

The I/O Fund first pitched this Bitcoin miner to its Discovery members, identifying it as one of the first to lead the transition to lucrative, high-revenue AI data center hosting with multi-billion dollar deals already secured. Shortly after, the I/O Fund brought this idea to its Advanced members as Portfolio Manager Knox Ridley believed he saw a potential positive setup emerging within his technical analysis on the chart.

mid

The I/O Fund then entered this Bitcoin miner with two purchases, both on April 4th, before exiting the stock in late July; we attempted to re-enter this position in October and November but closed the position for a small loss.

Overall, the I/O Fund realized an average return of 93% on this miner.

Unlock our portfolio, real-time trade alerts on every position, live weekly webinars and more by signing up for Advanced Market Signals today. Learn more here.Learn more here.

What Sets the I/O Fund Apart

At the heart of I/O Fund, we believe that transparency is key to our success over the last few years. We keep our members in the loop with real-time trade alerts and audited performance reviews, and we take pride in holding ourselves to the utmost highest standard when it comes to accountability as very few research platforms (if any) offer this.

Why Real-Time Trade Alerts Matter

Real-time trade alerts are sent to our premium members at the moment we decide to buy, sell, trim, or add to a position. That may sound straightforward, but in practice, it’s one of the most demanding ways to manage a portfolio, as each and every decision is recorded publicly the moment it’s made.

That level of transparency places meaningful pressure on the portfolio team, which is exactly the point. It’s the same standard registered fund managers are held to when they file trades, yet it’s rarely offered across investment research. There’s a reason most research platforms avoid real-time alerts, active position management, and detailed transparency: the more granular the reporting, the higher the stakes. When decisions are logged instantly, there’s nowhere to hide.

Every portfolio team makes mistakes. The difference is that by making mistakes publicly, it has sharpened our decision-making and strengthened our discipline over time.

Verified Returns, Accountability: $210,000 Invested in Transparency

One of the biggest gaps across research platforms is the lack of verified performance. Institutional investors don’t take claims at face value — they require proof. Hedge funds are required to report returns precisely because it reduces posturing and selective storytelling.

We apply that same mindset here. To date, the I/O Fund has invested over $210,000 into accountability and transparency for members since inception.

Early on, we used a forum-based system for trade alerts. By 2021, we transitioned to dedicated SMS and email infrastructure using Twilio and Mailchimp — tools designed to minimize outages and delays. This alone costs $30,000–$40,000 per year, depending on trading activity.

In addition, we engage an independent accounting firm in San Francisco to mathematically review and verify performance across both our equity and crypto accounts. Each audit takes several months and costs $4,500 to $5,500. To date, we’ve completed seven audits, totaling $32,500.

Accountability isn’t free, but it’s a standard we hold ourselves to.

Conclusion: Consistency, Accountability, and Strong Portfolio Returns

Over the past year, we delivered 11 positions that outperformed the Nasdaq-100, continuing a multi-year trend of identifying winners early. Many of our biggest winners were built at prices below the January 1 opening levels, allowing us to realize returns that exceeded the stock’s annual performance. In addition, we drastically cut back our crypto positions to stave off losses starting in August, despite many crypto influencers calling for aggressive price targets. 

This consistency helped extend the portfolio’s cumulative return to 326% since inception in May 2020, with annualized returns averaging 29.2% over that period. Across thousands of portfolio options, these results place us firmly among the top-performing investment strategies in the United States. 

We take the responsibility of providing our Members early, actionable research tools just as seriously as the pursuit of the upside. Thank you for your continued support and confidence.

You can read our full press release here: I/O Fund Proves Leadership in AI Stocks with 326% Cumulative Return and 29.2% Annualized Return.You can read our full press release here: I/O Fund Proves Leadership in AI Stocks with 326% Cumulative Return and 29.2% Annualized Return.

These results have been independently audited by an accounting firm in San Francisco. Additional performance details and disclosures are available on the I/O Fund website for Premium members.

Just as important as performance is access to timely, actionable tools. The I/O Fund’s Advanced Tier provides:

• Real-time trade alerts on entries, trims and exits
• Deep-dive research on lesser-known AI Stocks
• Weekly, one-hour webinars held Thursdays at 4:30 pm Eastern

Join today with a limited-time offer for $100 off our flagship tier. Sign up now.Join today with a limited-time offer for $100 off our flagship tier. Sign up now.

Please note, past results are not a guarantee of future outcomes. Reference our terms and conditions here.terms and conditions here.

Damien Robbins, Equity Analyst at I/O Fund contributed to this analysis.

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Alphabet Q4: Cloud Sees 14 Point Acceleration to 48% Growth, FY26 Capex to Nearly Double

Posted on February 23, 2026June 30, 2026 by io-fund

As we had discussed in our free newsletter in late January, The $530 Billion AI Question: Which Big Tech Stock is Winning?, the key question is no longer which Big Tech stock is spending the most on AI, but rather who is translating this capex into measurable revenue and sustainable margins. To spoil the conclusion of that analysis, our takeaway was that Alphabet was the best positioned “given its ability to monetize AI directly through Search while simultaneously accelerating Cloud growth. To add to this, Google will see improved unit economics with custom silicon with a path to expand margins despite elevated capex.”

The company’s Q4 results proved that point, with Cloud growth seeing the largest acceleration against AWS and Azure at 14 points to 48%, substantial inference serving cost reductions within TPUs and strong Cloud margin expansion, as well as accelerating Search growth. And despite a significant capex raise for 2026, coming in more than 50% of estimates and nearly doubling YoY, management emphasized the measured and careful approach they are taking to prevent overspending.

Cloud Sees Substantial 14 Point Acceleration to 48% YoY

Of the Big Three, Alphabet reported the strongest AI-driven cloud acceleration this quarter, coupled with strong AI metrics and backlog growth that support this acceleration continuing through 2026.

Google Cloud growth accelerated each quarter this year, though Q4 recorded the sharpest acceleration at 14 points to 48% YoY, with revenue coming in at $17.66 billion. Notably, this marked the segment surpassing a $70 billion annualized run rate, up from less than $50 billion annualized at the start of 2025. This would also mark its fastest revenue growth in more than four years. For Q1, Google expects strong growth to continue despite having tight accelerator supply.

While the sharp acceleration is certainly impressive, sequential growth figures show a strong underlying trend within Cloud – for three quarters in a row, Cloud has delivered >$1 billion in QoQ growth, with each quarter larger than the last and Q4 increasing more than $2.5 billion versus Q3. Putting this in perspective to highlight Google Cloud’s strong AI-driven momentum, this was nearly as large as a QoQ increase as AWS, which rose $2.57 billion sequentially despite being double the size of Google Cloud.

In percentage terms, Cloud growth accelerated from ~11% QoQ in Q2 and Q3 to 16.5% QoQ in Q4; this compares to 7.8% QoQ for AWS in Q4 and likely <2% QoQ for Azure.

Alphabet explained that the strong Q4 was fueled by GCP, which “continued to grow at a rate that was much higher than cloud's overall revenue growth rate” on “accelerating growth in enterprise AI products, which are generating billions in quarterly revenues.” Management added that this was driven by TPU and GPU deployment along with high demand for models such as Gemini 3, with Gemini 3 Pro already processing 3X as many daily tokens as 2.5 Pro.

Google Cloud Reporting Broad AI Demand

Alphabet also provided a handful of stats accentuating AI’s impacts to growth. Revenue from products built on Google’s own genAI models increased nearly 400% YoY. Revenue from third-parties building AI applications rose 300% YoY. In total, Google Cloud has 14 product lines spanning infrastructure, platform and high-margin AI products and services exceeding $1 billion in annual revenue.

It’s important to note that growth is currently off of a small base, thus the market will likely look toward overall AI revenue to justify the capex increase Alphabet is guiding for. While there were no specific updates to Cloud’s AI revenue or contribution, assuming that AI contributed roughly half of the quarter’s 48% YoY growth, this would place AI’s run rate at more than $11 billion.

Strong Cloud Growth Estimates in 2026/27, Supported by Rapid Backlog Growth

For 2025, Google Cloud revenue increased 35.8% YoY to $58.7 billion, though analysts are currently projecting the segment to build on Q4’s momentum to a significant acceleration in 2026 with strong growth persisting in 2027.

For example, Morgan Stanley projects Google Cloud revenue to increase 61% YoY in 2026, led by GCP growth of 71% on strong AI demand. This would roughly project revenue to reach $94.5 billion by the end of this year. For 2027, Google Cloud growth is projected to moderate to 46% YoY, led by GCP once again at 51%; running off the above estimate, this would place Google Cloud revenue at approximately $138 billion.

Supporting this potential growth curve for Cloud is Alphabet’s robust backlog growth and its deal with Anthropic ramping to >1GW of capacity in 2026, said to be worth tens of billions. Alphabet reported $242.8 billion in backlog in Q4, up 161% YoY and 54% QoQ, with Google Cloud’s backlog stated to be $240 billion, up 55% QoQ and driven by cloud products and enterprise AI.

This marked a nearly 80 point acceleration from 82% YoY growth in Q3, while QoQ growth accelerated another 8 points off an already rapid 46% print – the inflection in backlog is quite clearly visible after surpassing $100 billion in Q2.

Cloud Seeing Strong Margin Expansion, Substantial Inference Cost Reductions

Perhaps the most important piece for Cloud is Google’s ability to drive substantial reductions in inference serving costs while simultaneously driving strong revenue acceleration. This is visible in the strong operating margin expansion Cloud is witnessing.

Management explained that throughout 2025, Alphabet was able to lower Gemini’s inference serving costs by 78% through model optimizations, utilization and efficiency improvements. The rollout of its newest TPU, Ironwood, is likely to help with further cost reductions moving through 2026.

This is increasingly critical as Gemini usage continues to scale rapidly, with strong adoption both across consumers and enterprises. Gemini MAUs increased 100 million QoQ to 750 million, with management saying “all the metrics, be it active usage, the intensity of usage, retention all showed distinct progress across iOS, web, Android, et cetera, and geographically globally.” Paid Gemini Enterprise seats totaled 8 million in Q4, with Gemini Enterprise managing over 5 billion customer interactions, up 65% YoY, as enterprises continue to deeply integrate Gemini in critical workflows.

Overall, Alphabet’s first-party models are processing more than 10 billion tokens per minute on direct APIs, up more than 40% QoQ from 7 billion in Q3 (if you want to visualize this, this would be more than 5 quadrillion tokens annualized).

This strong adoption and 78% reduction in inference serving costs are increasingly visible in Cloud’s operating margin, which expanded each quarter for a total expansion of more than 12 points throughout 2025. In particular, Q4 saw the strongest expansion, with operating margin expanding 6.4 points QoQ alongside that 14 point revenue acceleration.

For the full year, Cloud delivered an operating margin of 22.5%, expanding 8.4 points YoY. This is quite a bit below AWS’ operating margin of 35.4% for 2025 and Microsoft’s Intelligent Cloud operating margin of 41.9% over the last twelve months, largely driven by Azure; however, Q4’s results show that Cloud is quickly catching up on the margin front, a trend that could be accentuated by accelerating revenue growth and lower inference serving costs.

Search Growth Accelerates to 17%

Outside of Cloud, Alphabet has a second AI monetization lever in Search, which continued to see growth accelerate in Q4 alongside strong adoption metrics.

Q4 saw Search revenue increase 16.7% YoY to $63.1 billion, marking a 2.2 point acceleration from 14.5% growth in Q3. Since the start of the year, Search growth has accelerated 6.9 points, an impressive feat considering it is now a $225 billion business. What’s also notable here is that this is the fastest growth Search has logged since Q1 2022, when revenue was roughly 37% lower at $39.6 billion.

On Search growth, management said that there was not a single driver responsible for the acceleration, as nearly all verticals accelerated in Q4, though commentary around AI suggests that it is playing an increasingly larger role in Search’s acceleration:

“We see AI Overviews and AI Mode continue to drive greater search usage and growth in overall queries, including important in commercial queries. Gemini-based improvements in search ads help us better match queries and craft creatives for advertisers. I talked about the understanding of intent and how this has significantly expanded our ability to deliver ads on longer and more complex searches that were, frankly, previously difficult to monetize. AI Max, for example, is already used by hundreds of thousands of advertisers and continues to unlock billions of net new queries in that sense. We see strength with SMB advertisers expanding their budgets and adopting automation tools, leading to better ROI. On the creative side, we're using Gemini to generate millions of creative assets via text customization in AI Max and PMax and so on.”

This quote and the one below are perhaps (one of) the most critical from Q4’s call:

“People are obviously using search, experiencing AI Overviews and AI Mode as part of it and Gemini app as well. And the combination of all of that, I think, creates an expansionary moment. I think it's expanding the type of queries people do with Google overall. And so overall, some of it all is what we see as a growth opportunity, and we haven't seen any evidence of cannibalization there.”

There are a couple major takeaways from these two quotes, with the most important being that AI and its integration and search are not cannibalizing search volumes and ad load like the market had originally feared, but instead are doing the exact opposite – opening up new pathways to monetization, such as in longer complex queries, driving total query growth, and opening up new ad placement areas such as below AI responses.

Alphabet added that once people begin using the new AI search experiences, engagement increases, noting that daily AI Mode queries per use in the US had doubled since launch with AI Overviews also performing well. Management said that users are also engaging in longer, complex search sessions, with AI Mode queries being 3X longer than traditional search on average, with a “significant portion” leading to follow-up questions.

The other key takeaway is that AI is also improving the other half of the growth flywheel, advertiser ROI, with Gemini helping improve query matching, ad ranking and ad quality, helping drive better ROI for advertisers. This is likely a key factor behind SMB advertisers increasing budgets, and other larger ad customers seeing significant increases in conversions or revenue. For example, Alphabet noted that using AI Max, fashion house Aritzia was able to deliver an incremental 80% uplift in conversions on high-value customers, while L’Oreal used AI Max to help drive a 23% increase in revenue for DTC brands.

Similar to Cloud, Alphabet did not expand on AI’s exact contributions to Search. Assuming around a 10-11% baseline for Search growth ex-AI, this would place AI’s contribution around 6-7 points, or around 35-40% of the YoY growth. This would roughly estimate AI’s run rate in Search to be in the mid $3 billion range, or likely in the realm of $12.5-14.5 billion annualized.

Capex Guided to $175-185 Billion, Nearly Doubling YoY

Alphabet is currently taking the most aggressive capex stance out of the hyperscalers, outlining capex to be $175-$185 billion in 2026, up nearly 97% YoY and more than 50% ahead of estimates for $119.5 billion. This is well above Meta’s guided 73% increase and Amazon’s ~56% guided increase, though technically Amazon is still higher at $200 billion.

Management noted that roughly 60% of capex will go towards servers and the other 40% to long duration assets including data centers, networking and other equipment, maintaining the same split as in 2025. This would project server spending to be roughly $105 to $111 billion, up from around $55 billion in 2025, with half of ML compute expected to go towards Cloud, likely in an effort to drive this revenue acceleration further and gain more share against AWS and Azure. Despite the substantial step-up in capex, CEO Sundar Pichai said Alphabet has been “supply constrained even as we've been ramping up our capacity,” and that he expects “expect to go through the year in a supply-constrained way” as demand remains very strong.

CFO Anat Ashkenazi provided clarity on Alphabet’s capex stance, pushing back on overspending fears, detailing how the company’s capex follows a rigorous framework from balance sheet and cash flow evaluation to ensure maximum efficiency is extracted from each dollar put towards infrastructure.

At its core, Alphabet has the financial stability within the balance sheet, with more than $126 billion in cash and equivalents, and cash flows, with projected operating cash flow of $195.9 billion in 2026, to support this capex raise. However, the most important piece will be how this capex will then translate to growth in both Cloud and Search.

Financials

Revenue Growth Accelerates to Fastest Pace Since Q1 2022

Alphabet delivered Q4 revenue of $113.83 billion, up 18.2% YoY, accelerating from 16.2% YoY in Q3 and marking Alphabet’s fastest growth since Q1 2022, driven by the accelerations in both Search and Cloud as detailed above.

Outside of those two, YouTube revenue decelerated five points to 9% YoY to $11.38 billion, Subscriptions, Platforms & Devices revenue decelerated four points to 17% YoY to $13.58 billion, and Google Network revenue declined (2%) YoY to $7.83 billion. Management faced a question on why YouTube growth was low and its new Genie models could play into growth:

Mark Mahaney, Evercore

“Could you just comment a little bit on the YouTube ad revenue, that 9% year-over-year growth? It sounded like direct response was good. And it sounded like from Search that Retail came in relatively strong. So it's a little surprising that it didn't kind of come through in the YouTube ads revenue growth.”

Google SVP and CBO Philipp Schindler

“In Q4, YouTube ads was driven indeed by strong growth in direct response. On the brand side, as Anat shared, the largest factor negatively impacting the year-over-year growth rate was lapping the strong spend on U.S. elections. We also saw a slight impact in some other brand-related verticals. But taking a step back, I think it's important to think about YouTube ads and subs holistically because when a user shifts from being an ad-supported user to a YouTube Music and Premium customer, it has a slightly negative impact on YouTube ads revenues, but a positive impact on our business. And we had strong revenue growth in YouTube subscriptions this quarter, particularly in the YouTube Music and Premium category.”

Turning to Genie, Alphabet’s new model for AI world generation, management emphasized that they will continue to offer a wide range of AI tools to empower creators on YouTube and keep creators at the center of the experience, noting that they are already seeing adoption for Genie and other models.

For 2025, Alphabet crossed the $400 billion milestone with revenue of $402.84 billion, up 15.1% YoY. This was a slight 1.2 point acceleration from 13.9% growth in 2024, a difficult feat to achieve at this revenue scale. 2026 revenue is currently projected to be $469.1 billion, accelerating to 16.5% YoY.

Margins Mixed in Q4

Margins were mixed in Q4, with gross and net margin both expanding YoY while operating margin was marginally lower. This dynamic was also visible within 2025’s margins, though Cloud’s sharp margin expansion and current trajectory suggests it could deliver an operating margin tailwind in 2026.

Alphabet reported a gross margin of 59.8% in Q4, up 1.1 points YoY and 0.1 points QoQ. Operating margin was 31.6%, down 0.5 points YoY but up 1.1 points QoQ; Google Services (Search, YouTube, Subscriptions) saw a segment operating margin of 41.9%, up 2.9 points YoY and 3.4 points QoQ, while Cloud saw operating margin of 30.1%, up 12.6 points YoY and 6.4 points QoQ. Net margin was 30.3% in Q4, up 2.8 points YoY but down 3.8 points QoQ (as Google recorded a $10.7 billion gain on equity investments in Q3 that impacted the bottom line).

For 2025, gross margin was 59.7%, up 1.5 points YoY, while operating margin was 32%, down just 0.1 points YoY. Despite the operating margin contraction, net margin expanded 4.2 points to 32.8%.

EPS Growth Will Appear Soft in Q1, Q3 2026

Alphabet reported EPS of $2.82 in Q4, beating estimates by 6.8% and representing a slight deceleration from 35.4% growth to 31.1% growth.

Looking ahead, Alphabet’s EPS growth will appear soft in both Q1 and Q3 2026 as the company recorded $9.8 billion and $10.7 billion in gains related to equity securities in these respective quarters in 2025, attributable to its stakes in private companies including SpaceX and Anthropic; Alphabet quantified the per-share impacts at $0.62 and $0.68 in Q1 and Q3 2025.

As a result of these equity gain-impacted comps, Q1 2026 EPS growth is projected to be (7.4%) to $2.60, before rebounding to nearly 20% YoY in Q2 to $2.77. It should be noted that the soft EPS growth rates in Q1/Q3 does not reflect any underlying change in Alphabet’s business momentum, but rather just timing of private funding rounds that sharply increased the value of its respective stakes – for example, backing out the equity-gain impacts would project growth of ~19.2% and ~32% respectively in Q1 and Q3 2026.

The two tough comps will also make 2026’s EPS growth look much lower, with estimates currently pointing to just 6.7% YoY growth to $11.53, versus a 34.5% YoY increase to $10.81 in 2025; backing out the two large equity-gains in Q1 and Q3, growth would project to roughly 21.2%.

Cash Flows and Balance Sheet — Watch FY26 FCF

Alphabet’s cash flows remained rather resilient in 2025, with FCF margin declining marginally in the face of a 74% increase in capex. However, FCF must be tracked closely as the capex surge could easily bring FCF margin to the single-digits.

In Q4, Alphabet reported operating cash flow of $52.4 billion for a 46% margin, up from a 40.6% margin in the year ago quarter but down from a 47.2% margin in Q3. For the full year, Alphabet reported OCF of $164.7 billion for a 40.9% margin, up from 35.8% in 2024.

Q4 free cash flow was $24.55 billion for a 21.6% margin, contracting on both a YoY and QoQ basis, from 25.8% in the year ago quarter and 23.9% in Q3. For the year, free cash flow was $73.3 billion for an 18.2% margin, down from 20.8% in 2024.

Looking ahead to 2026, analysts currently project Alphabet to generate operating cash flow of $195.9 billion, though this would leave just $15.9 billion in FCF at the midpoint of capex guidance. Based on current revenue estimates for $469.1 billion, this would roughly project FCF margin to be 3.4%.

Alphabet’s balance sheet remains healthy with cash and marketable securities of $126.8 billion, while debt was $46.5 billion, up from $21.6 billion in Q3 as Alphabet issued more than $26.5 billion in debt in the quarter. Debt is likely to rise sharply again in Q1 as Alphabet’s recent bond sale reportedly took in over $30 billion.

Valuation

Alphabet’s valuation has pulled back from its late 2025 peaks, and while it remains elevated relative to its five-year averages, it can be argued that the company has deserved at least some of this multiple expansion from the sharp Cloud acceleration and Search acceleration it is driving at scale.

Alphabet is trading at 8x forward PS, below its November peaks above 9.7x, but well above its 6.2x average forward PS multiple over the past five years. On the bottom line, there is a similar trend, with Alphabet trading at 27x forward earnings, below its peaks at 31x but again elevated versus its five-year average of 20.8x

Conclusion

Alphabet is capitalizing on dual AI monetization tailwinds, with Q4 showing a sharp acceleration in Cloud revenue to 48%. Search continued to accelerate to 17% in Q4, with AI playing a core role in driving query growth, improving monetization and boosting ROI, suggesting AI could be driving a notable six to seven point (or 70%) uplift to growth from a 10-11% estimated baseline. Analysts project Cloud growth to accelerate sharply in 2026, with some penciling in north of 60% growth, with backlog growth accelerating to 161% YoY and AI usage stats in the triple-digit range supporting such a scenario; however, Alphabet does face some challenges to free cash flow from its sharp capex raise to support this growth.

Damien Robbins, Equity Analyst at I/O Fund contributed to this analysis.

Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund do not own shares in GOOG at the time of writing and may own stocks pictured in the charts.

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2025 Full Year Audited Returns

Posted on February 20, 2026June 30, 2026 by io-fund

I’m honored to share that the I/O Fund has delivered 326% cumulative returns since inception in May 2020, representing a 4.26X multiple. On an annualized basis, returns have averaged 29.2%, outpacing both broad market indexes plus many of Wall Street’s highest-ranking hedge funds.

You can find our official 2025 Returns Press Release here. 2025 Returns Press Release here.

5-Year Relative Performance vs. Peers

The I/O Fund’s annualized returns compare favorably with some of Wall Street’s most established investment teams.

Although we launched mid-year in 2020 on May 9th, the comparison below gives a general idea of what a strong annualized return would be over the past 5 years.

To provide additional context, we present both our 2020–2025 and 2020–2025 annualized returns in the chart below, each of which ranks competitively within this peer set.

Source: LevelFieldsLevelFields

Based on cumulative returns, the I/O Fund would have hypothetically ranked #3 among technology-focused ETFs and mutual funds. While the portfolio was not exclusively invested in semiconductors, increased allocations in a few semiconductor leaders contributed meaningfully to performance.

Ultimately, a stock-picking approach was able to perform comparatively to a segment of the technology market that was rather difficult to outperform, particularly relative to tech portfolios overweight the Magnificent 7, software, and other less complex subsectors.

Source: YCharts and Yahoo FinanceYCharts and Yahoo Finance

2025 Performance Review

In 2025, the I/O Fund achieved a 37% portfolio return. These returns and the cumulative listed above combine equities and cryptocurrency with Bitcoin down (5%) and altcoins down as much as (40%).

Source: Reuters and BloombergReuters and Bloomberg

When excluding cryptocurrency, the team’s equity strategy delivered a staggering 56% return, a result that ranks the I/O Fund team among the highest-performing investment teams in the United States on both an annual and cumulative basis.

To compare with ETFs last year, we show the I/O Fund’s equities-only performance, as ETFs generally reflect more concentrated thematic exposure. The returns shown below reflect the performance of our AI equity strategy in 2025 and provide a more appropriate comparison to similar thematic approaches

Source: YCharts and MorningstarYCharts and Morningstar

Relative Outperformance vs. Indices

Since inception, our portfolio has outperformed the S&P 500 by 192% and has outperformed the Nasdaq-100 by 152%. The last several years have demanded precision as markets rotated sharply from cloud computing toward artificial intelligence, valuations reset, and major indices delivered consecutive strong years—conditions that have made sustained outperformance exceptionally difficult for active managers.

Additionally, when we look at how the I/O Fund compares to popular institutional all-tech funds, we have a notable lead of 294% since our inception in May 2020.

2025 Winning Positions Overview:

Where the I/O Fund further differentiates itself is in the number of individual positions that outperform the broader indexes:

2023: Five positions returned over 100%, with seven positions outperforming the Nasdaq
2024: Ten positions outperformed the Nasdaq-100, with six exceeding 100% returns
In 2025, we had 11 positions outperform the Nasdaq-100, while two exceeded 100%. One position returned over 300%.

Some of these positions were held for the entire year, while others were tactically closed, allowing us to lock in realized gains that exceeded the Nasdaq-100's performance.

Additionally, our biggest winners were the result of our risk management overlays providing us with ample cash to strategically buy stocks into the Q1 selloff. Being tactical to start the year and then deploying our cash into February – April allowed us to realize gains that in some cases exceeded the stock’s annual performance.

Below, we provide additional details on our entries, exits, adds, and trims — all of which were communicated through real-time trade alerts to our Premium Members.

Positions that we held for the entirety of 2025 that exceeded the NASDAQ-100:

Nvidia (NVDA) +37%
Advanced Micro Devices +75%

The above does not include all trims and buys for the entirety of 2025.

Positions that we opened in early 2025 and held for the year:

Applovin (APP) +70% – our lowest entry ending the year +141%
Bloom Energy (BE) +305% – our lowest entry ending the year +422%
Astera Labs (ALAB) +140% – our lowest entry ending the year up +226%

Positions that we tactically opened and/or closed in 2025 for a realized gain that surpassed the NASDAQ-100's 2025 return:

Coherent (COHR) +33%
Core Scientific (CORZ) +93%
Coinbase (COIN) +40%
Meta (META) + 51%
Innodata (INOD) +79% with one trade at +94%
Taiwan Semiconductor Manufacturing Co (TSM) + 33%

Returns are calculated using either the average cost basis of the initial buys that built the core position or the year’s opening price, and the average sell price across the closing trades or the closing price for the year.

Overview of Notable Winners in 2025

Nvidia (NVDA)

Leading up to the release of the Hopper GPUs, we were net buyers of Nvidia in 2021 through early 2023. On average, it was held as a 15% position throughout 2022 – 2023. As we moved into 2024, Nvidia was allowed to exceed this allocation to become our first ever 20% position.

However, in mid-2024, we shifted our focus by looking more deeply at suppliers for Nvidia. Although the stock remained a core holding; we used our oversized allocation to raise cash at periods of perceived risk. Most notably, we talked about Nvidia hitting the $90 – $80 region for months before we finally got there in April of 2025.

Bloom Energy (BE)

We first covered surging power demand from AI data centers in June 2024, with Bloom Energy quickly rising to the top of our list for its ability to solve the critical time-to-power constraint. Like ALAB below, it was a stock we wanted to own but preferred to hold off considering the broad market risk we warned our readers about in early 2025.

We made three initial buys in BE that defined our core position. Two of them happened on the April 4th low at $17.04 and $16.64. These two buys made Bloom a 5% position in our portfolio. We then added another 3% to BE on July 24th at $32.93, making BE an 8% position before our thesis was proven correct.

We took tactical gains in BE along the way, considering that it became one of our largest holdings due to relative performances. We also closed BE for 3 trading days due to technical support breaking, but quickly bought it back once it was proven to be a false breakdown.

We remain steadfast in Bloom Energy’s positioning within the AI energy demand and will continue to tactically manage this winner as we perceive risks unfolding. As of today, it is one of the best calls in I/O Fund history, alongside Nvidia.

Astera Labs (ALAB)

Astera Labs is a stock that has responded well to technical analysis, as illustrated in the chart below. It went from not being in our portfolio as we moved into 2025, to becoming an 11% position around the April lows. This gave us an average cost basis of $69.42.

We then sold 1/3 of this position in September, with an average cost basis of $205.27, locking in 295% returns, while also freeing up some cash. This was just before ALAB sold off 50% in just over 2 months.

With what we know today in terms of PCIe persisting across future GPU generations and custom silicon systems, we plan to add to Astera during this pullback.

Bitcoin (BTCUSD)

The below chart shows the areas of accumulation and distribution for the Bitcoin bull market that started in late 2022. We lean heavily into technical analysis to accomplish the below feat, which naturally makes us contrarians when it comes to crypto. We were exceedingly bullish in Bitcoin, buying most dips in early 2023 – October 2024. When the herd finally started getting bullish on Bitcoin due to various narratives, that’s when we shift into a distribution mode, trading the final swings in Bitcoin’s bull run.

For those that have been with us during this period, you’ll remember how we took Bitcoin from a 10% position down to a 1% position between April – December 2025. We locked in gains between $85,000 – $113,000, making the multi-year bull run in Bitcoin one of our top actively managed positions in our firm’s history.

Meta (META)

Meta is a stock that we have been closely tracking due to its ability to easily integrate AI across its ad platform for an uplift in advertiser ROI. The company is sitting on a treasure trove of contextually rich data from billions of social media users. More impressively, Meta is currently number two in AI revenue despite spending less on capex than its counterparts.

Like many of the stocks we wanted to own in 2025, due to perceived market risk, we patiently waited for volatility to show up. We built a 7% position with two buys on April 7th at $488.97, and again on April 21st at $482.48. Meta’s low for the year was $478.72.

When it became obvious that the market was starting to penalize hyperscalers for their large Capex spend, we decided to take gains in Meta, locking in a combined 51% realized gain before the stock dropped. We’ve since begun rebuilding a new position at lower prices.

Verified Performance

Our performance is reviewed and verified by an independent accounting firm. Under the terms of our engagement, the firm’s engagement letter is not to be publicly distributed. In accordance with standard practices, the engagement letter and full performance review are made available exclusively to paying members and are hosted behind our paywall.

The I/O Fund retains ownership of the verified performance results and does not authorize the redistribution of the confidential engagement letter or performance review outside of the member area. While we may reference verified performance figures publicly, access to the underlying engagement documentation is limited to our clients in accordance with our agreement with the accounting firm.

Why Real-Time Trade Alerts Matter

Real-time trade alerts are sent to members the moment we decide to buy, sell, trim, or add to a position. That may sound straightforward, but in practice, it’s one of the most demanding ways to manage a portfolio.

Every decision is recorded the moment it’s made. That level of transparency places meaningful pressure on the portfolio team, which is exactly the point. It’s the same standard registered fund managers are held to when they file trades, yet it’s rarely offered in retail investment research.

This accountability extends beyond trade alerts. Our analysts aren’t just responsible for identifying opportunities; they must also determine position sizing, support ongoing portfolio management, and adapt as conditions change. A recommendation doesn’t end at the buy, rather it continually evolves through adds, trims, and exits as the fundamentals, product story or technicals shift.

There’s a reason most research platforms avoid real-time alerts, active position management, and detailed transparency: the more granular the reporting, the higher the stakes. When decisions are logged instantly, there’s nowhere to hide.

Every portfolio team makes mistakes. The difference is that by making mistakes publicly, it has sharpened our decision-making and strengthened our discipline over time.

Risk Management Isn’t Optional

In the tech sector, risk management is just as important as stock selection. Hedging, including raising significant cash or reducing exposure, is psychologically difficult and often avoided. Markets tend to trend higher over time, and downside risk behaves very differently on the short side than it does on the long side.

While hedging decisions should always be reviewed with a financial advisor, many members use our positioning changes as clear risk-on and risk-off signals. From day one, we made a deliberate choice: we would not publish research without pairing it with real risk management.

Again, that decision isn’t common in individual investing, but we believe research sites should be held to the same standard as professionals.

Verified Returns and Accountability

One of the biggest gaps in retail investing is the lack of verified performance. Institutional investors don’t take claims at face value— they require proof. Hedge funds are required to report returns precisely because it reduces posturing and selective storytelling.

We apply that same mindset here. To date, the I/O Fund has invested over $210,000 into accountability and transparency for members since inception.

Early on, we used a forum-based system for trade alerts. By 2021, we transitioned to dedicated SMS and email software systems using Twilio and Mailchimp — tools designed to minimize outages and delays. This alone costs $30,000–$40,000 per year, depending on trading activity.

Conclusion:

We’re deeply grateful for the trust each of you give us. We take the responsibility of providing our Members early, actionable research tools just as seriously as the pursuit of the upside. Thank you for your continued support and confidence. As we close out 2025, we’re fully focused on the work ahead, as we seek to deliver thoughtful, early research, disciplined execution, and clear risk management in the years to come.

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Bitcoin After the Cycle Peak: What Comes Next and How We’re Positioning

Posted on February 13, 2026June 30, 2026 by io-fund

Bitcoin rarely rewards narrative-based investors for long. Time and again, it has shown a habit of reversing its dominant trend against the prevailing story of the moment. A large portion of the I/O Fund’s edge has been staying on the right side of Bitcoin’s big turns in both directions by following a process rooted in analyzing sentiment through technical analysis, rather than headlines.

Since December 2022, when Bitcoin was trading around $16,000, we went against the crowd at the time and called for the start of a new bull cycle. In the months that followed, we published seven additional pieces reaffirming Bitcoin as a buy, and we issued 13 buy alerts to premium members at key points from roughly $25,000 up through $60,000.

Then, at the height of Bitcoin’s narrative hype, in October 2024, we did something we’ve learned is essential in crypto: we shifted from enthusiasm to discipline when risk was rising and narratives turned euphoric. In our article, Bitcoin Bull Market Intact As Risk Increases, we wrote:

“We do believe risk has increased. As a result, we will likely reduce some risk on the next rally to all-time highs.”

It was a classic period of exuberance—when pundits were confidently calling for $200,000+ in short order, yet the risk/reward was already deteriorating beneath the surface.

From there, we followed up with three additional articles and a free webinar explaining why Bitcoin’s risk was far higher than the mainstream narrative suggested. We backed that view with nine sell alerts, reducing most of our Bitcoin exposure between $95,000 and $113,000—once again stepping aside as conditions began to deteriorate.

Now, with a new bear cycle likely underway, sentiment is back in the driver’s seat. As the larger trend resolves, new narratives are emerging—most of them designed to pull investors in at precisely the wrong time.

In this report, I’ll outline where crowd psychology is most likely to push Bitcoin in the coming months. I'll also examine Coinbase—given its strong correlation with Bitcoin—to help confirm the path. While we still believe another generational buying opportunity will emerge, we believe Bitcoin will need to move higher first.

Bitcoin’s Narrative Trap: A Better Way to Navigate Volatility

Investing in Bitcoin based on narratives has historically been a poor strategy. While the logic can feel compelling, Bitcoin has repeatedly shown an uncanny ability to move in the opposite direction of what the prevailing narrative would suggest. 

Showing large rallies followed by steep corrections, each aligned with major regulatory, technological, or institutional news. Key milestones—such as futures approval, corporate adoption, national adoption, fraud-driven collapses, and ETF approval—serve as markers showing how macro‑narratives and sentiment shifts impact Bitcoin’s volatile price trajectory. 

Thematic investing certainly has its benefits, and the I/O Fund uses it as one component within a blended approach. However, when relied on in isolation, it can create misplaced confidence and prove detrimental—especially in crypto.

Instead, we’ve found that applying technical analysis to crypto positions, particularly when evaluating sentiment-driven patterns, has been a more effective way to participate in Bitcoin’s meteoric upside while helping to manage its inevitable volatility.

Decoding Bitcoin’s Price Moves Through Technical Analysis

If narratives don’t consistently explain Bitcoin’s price swings, many conclude that Bitcoin’s moves are simply random.

Viewed through the lens of technical analysis, it becomes clear that this isn’t true at all. What most often drives Bitcoin’s price action is sentiment, exactly what technical analysis is designed to measure. Sentiment is simply herd behavior, and herd behavior tends to repeat in recognizable patterns.

In the current setup, Bitcoin has been tracing a large degree, 5-wave pattern off the 2022 low, one that now appears likely complete.

mid

Within a 5-wave structure, the third wave is typically the most powerful phase of the trend. It’s the moment the market collectively “gets it” all at once – shorts rush to cover while sidelined participants panic-buy into longs. The result is often a sharp, near-vertical price advance that coincides with peak expansion in volume and momentum.

By contrast, the fifth wave is driven by late arrivals—those who missed the earlier move and assume the trend is only just beginning. It is often the riskiest segment of the advance and, in our view, should only be approached with a defined exit plan. In this phase, price may still push to a higher high, but it frequently does so on declining volume and weakening momentum.

As shown below, this is precisely the behavior Bitcoin’s price trend displayed.

Bitcoin (BTC/USD) chart displaying Bitcoin’s price action from early 2023 through early 2026 on a 3‑day timeframe, annotated with a five‑wave Elliott Wave structure. The price rises through waves (1), (2), (3), (4), and (5), culminating in a major peak in mid‑2025 before declining into 2026. A large “Vertical Price Swing” label marks the strong upward acceleration during wave (3). (1), (2), (3), (4), and (5), culminating in a major peak in mid‑2025 before declining into 2026. A large “Vertical Price Swing” label marks the strong upward acceleration during wave (3). 

As price went vertical in 2024, both momentum and volume accelerated and ultimately peaked for the cycle – classic third-wave behavior. Price then continued to grind higher, but volume and momentum began to decelerate, a key signal that the advance had likely entered its final fifth wave.

These were not the only warning signs. Bitcoin’s internals shifted into a less constructive posture well before the top. Note how volume expanded alongside price from the 2022 low into the late-2024 high. During that stretch, rallies were generally confirmed by rising volume. RSI also tended to find support near the 33.5 level on pullbacks, often referred to as the bull-market support zone.

Bitcoin (BTC/USD) price chart (2023–2026) showing a completed five‑wave Elliott Wave cycle and a current A‑B‑C correction into support zones. Fibonacci retracement levels at 38.2%, 50%, and 61.8% mark potential downside targets. Volume is declining and RSI momentum shows lower highs and bearish signals.five‑wave Elliott Wave cycle and a current A‑B‑C correction into support zones. Fibonacci retracement levels at 38.2%, 50%, and 61.8% mark potential downside targets. Volume is declining and RSI momentum shows lower highs and bearish signals.

Since the last advance into 2025, volume decelerated as price increased and then expanded as price declined. Buyers appeared to fade and sellers became more aggressive, shifting supply/demand dynamics. This was reinforced by a break in RSI support and an inability to regain the prior trend line. These are the types of signals we often see early in trend transitions and do not bode well for Bitcoin.

Now that Bitcoin is 48% lower from our last free article called, Is Bitcoin Nearing a Top? What the Herd Missed at $16,000 and Is Missing Now, investors are understandably asking what comes next.

Using the same technical analysis framework to map potential paths, it appears we may be approaching a tradable low ahead of a sizable bounce.

Bitcoin (BTC/USD) 4‑hour chart showing an A‑B‑C correction with price in the C‑wave inside a support zone. Potential (B) rebound targets are marked above with green arrows, while a deeper (C) downside box sits lower on the chart. Elliott Wave labels, support/resistance zones, and momentum indicators are displayed.A‑B‑C correction with price in the C‑wave inside a support zone. Potential (B) rebound targets are marked above with green arrows, while a deeper (C) downside box sits lower on the chart. Elliott Wave labels, support/resistance zones, and momentum indicators are displayed.

My base case is that Bitcoin is setting up for a large bounce to the $84,000 – $107,000 region. However, we may need one more minor swing into the $50,000 region first. This would be the final 5th wave in the decline, so should unfold with less volume and less momentum than the last drop. Alternatively, if Bitcoin breaks back above $72,500, I would treat that as evidence a low is already in place, as we bounce toward the $84,000–$107,000 range.

Whether the larger bounce has already begun or requires one more marginal low first, the most likely outcome is still a bear-market rally that tops out below $107,000. The structure of the advance will be the key signal. If the move higher is choppy, overlapping, and corrective, it would reinforce the bear-market thesis and increase the odds of a final decline toward the $40,000–$30,000 range in the months ahead.

If, however, Bitcoin breaks above $107,000 in a more vertical, impulsive move, we will re-evaluate the probability of new highs. Until that happens, the odds still favor the view that this bear cycle is not yet halfway complete.

Conclusion:

In conclusion, narratives often push Bitcoin investors into the wrong trade at the wrong time. We warned readers last year that this was Bitcoin’s recurring pattern, and it played out as expected. Technical analysis, particularly when used to map sentiment-driven patterns, remains a more effective tool for managing risk in Bitcoin.

While we believe Bitcoin is finishing the first leg of a multi-month bear cycle, it is likely closer to a meaningful bounce than most realize. Even if price dips into the $50,000s in a final push lower, we would still expect bulls to attempt a move back toward the $90,000 area. Until proven otherwise, however, we will treat any advance as a bear-market rally, with downside risk ultimately extending toward $40,000–$30,000 before this cycle completes. At that point, there will likely be a new narrative explaining why Bitcoin can only go lower.

If you are a crypto investor who saw gains turn into losses in the most recent drop, or are looking to become a crypto investor at a favorable price, we encourage you to attend our weekly premium webinar that we hold every Thursday at 4 pm EST. Next week, we will not only outline the warnings that we are seeing the equity market, and how we plan to navigate this, but we will outline our long-term plan for Bitcoin.  Sign Up Hereweekly premium webinar that we hold every Thursday at 4 pm EST. Next week, we will not only outline the warnings that we are seeing the equity market, and how we plan to navigate this, but we will outline our long-term plan for Bitcoin.  Sign Up HereSign Up Here

Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own BTC at the time of writing and may own stocks pictured in the charts.

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AppLovin: Strong Fundamentals; Sentiment Remains a Hurdle

Posted on February 12, 2026June 30, 2026 by io-fund

AppLovin’s fundamentals remained strong in this earnings report, yet negative sentiment continues to build. There is no material evidence that market concerns are playing out, yet regardless, the market has a new set of concerns around AI-driven ad competitors, following previous concerns on short seller reports and SEC probes.

Sticking to the facts, the company reported very strong growth of 66% YoY and 18% QoQ for revenue of $1.66 billion. On a sequential basis, AppLovin accelerated from 11.6% QoQ last quarter though YoY was down about 230 basis points. Looking into Q1, the company is guiding for growth of 6.2% QoQ on a higher revenue base of $1.66 billion compared to 16% QoQ growth in Q1 last year on a lower revenue base of $999.5 million. The Q1 revenue guide beat estimates by a solid 3.5%.

Adjusted EBITDA margin of 84% was up 700 basis points from last year and up 200 basis points QoQ. This makes for a Rule of 40 of 150, which is higher than Palantir and Cloudflare.

You will be hard pressed to find any issues with the earnings report, yet just as Applovin was beginning to overcome the negative spin from short sellers, a slew of AI-driven competitors launched recently. There were plenty of discussions around Applovin’s positioning, detailed for you below.

AppLovin is a Shark in Sharky Waters:

By definition of being an ad platform, AppLovin is in sharky waters. There is far more competition among advertising platforms than what public investors may realize – the ecosystem is into the thousands

However, AppLovin is top dog (or top shark) in many regards, especially when it comes to gaming for sure, and also when it comes to independent ad platforms. The weak price action as of late is because the waters have become more crowded.

Here is what I had stated last quarter, noting the stock is not for the faint of heart:

“AppLovin operates in shark-infested waters as one of the few companies over the past decade to challenge the walled gardens of Meta and Google. While the company’s fundamentals are exceptional, the presence of an SEC probe—discussed below—adds complexity, contributing to sharp swings in both directions.”

There are three primary developments that complicate AppLovin’s moat, which the market is grappling with. I’ll go in order of least concerning.

Google’s Project Genie 3

Google recently announced Project Genie 3, which offers AI-driven automation for ads by relying on AI agents for campaign setup and optimizations. If we look more closely, Genie is more about workflow automation whereas Applovin emphasizes performance as it’s built on a very large data set of 1+ billion users. The end goal is fundamentally different as Project Genie offers automation of ad operations (so, reducing workforce is the most likely outcome) compared to Applovin’s Axon which is focused on marginal improvements in ad performance by continuously training models to optimize ROAS (return on ad spend) and LTV (lifetime value).

Here is how it was described on the call:

“But right now, we're seeing somewhere around day 30 LTV to cost of user acquisition. So if you think about lead gen models and if you know lead gen models and also if you understand the life of value that we create for advertisers, which is in the many years, to be able to break even on the media buy in 30 days is exceptional. We've got arguably one of the best business models the world has ever seen, and we're seeing the ability to market our platform and small testing at that level.”

For reference, 30 days LTV to CAC (customer acquisition cost) is exceptional as many direct-to-consumer brands consider 3 months as ideal for fast growth and 6 months acceptable.

CloudX:

CloudX is a startup founded by an AI executive heavyweight who previously founded MoPub and MAX (which was later acquired by AppLovin). Rather than competing with Applovin on the demand/advertiser side, this newly launched startup is targeting the publisher/supply side.

As it stands, Applovin works with the world’s largest gaming publishers and is adding e-commerce sites. Where CloudX hopes to attract those publishers is by offering AI agents to offload time-intensive busywork of integrating multiple software development kits (SDKs), mediation layers and custom bidding logic. This level of work represents entire teams on the engineering side, and also can quickly improve time-to-deployment for trying new ad products and demand partners.

On the topic of demand partners, CloudX stated the following in their public announcement: “Four months ago, CloudX launched with three demand partners and a handful of publishers. Today, we're generally available with seven bidders: Meta, Unity, Liftoff, Magnite, InMobi, Mintegral, and Moloco. All competing in the same verified auction. At the same time, we’ve been hard at work adding the publisher features that our first batch of customers have been asking for. We put together a quick demo video to give you an idea of the power of our Monetization as Code and Agentic enabled approach.”Monetization as Code and Agentic enabled approach.”

However, performance parity is not guaranteed as AppLovin has a formidable dataset – in fact, it’s likely the most attractive dataset outside of Big Tech with over 1 billion users. CloudX has a lot to prove, especially given AppLovin can provide a 30-day LTV to CAC.

Here is what was stated about CloudX on the call:

“So in a world where Cloud X becomes a start-up that comes into the space, you have to talk about like what are they walking into? How is the world different today versus what it was? The moat around our mediation is not because of the mediation. We're very good. We've got the most bid density. In any mediation A/B test, if you talk to publishers, you'll hear MAX does better. But we don't blow it out of the water. We're a few percentage points better than other mediations. If someone wanted to pay a bonus to cover that, they could potentially pay a bonus to cover that.

Where it gets really expensive for the publisher and where we're really locked in is that we have the best advertising solutions on the market. In fact, for a lot of these publishers, we're over 50% of all their user acquisition spend. They can't go get that anywhere else. If they go off MAX, that decays. And so they're left in a world where they have the best buying tools. They have the best monetization tools. It becomes a really strong 360 solution and their growth depends on it.

And then the MAX ecosystem is not growing slow, as we've talked about in prior calls, this is a double-digit, very strong growing category where these publishers are seeing their businesses improve because of the improvement in our technology. When you've got that in the foundation and you've got a really strong moat with technologies that no one else can replicate or have, then you end up with a sticky solution, and we're very confident our solution is just that.”

Meta:

The I/O Fund has been quite vocal about Meta’s strength among the Mag 7 given Advantage+ is reporting a $60 billion annual run rate. Conversely, the market is concerned that Meta’s capex-fueled push into AI-driven ad automation will breach Applovin’s moat. There has not been a formal announcement that Meta is focused on gaming inventory or no-ID inventory, yet analysts are growing concerned this is inevitable given the company’s aggressive push to integrate more AI features into ad optimization and targeting.

In November, Meta announced they had optimized campaigns for 29% higher return on ad spend (ROAS) compared to a 12% improvement earlier in the year. The press release stated, “the gaming sector shows particularly strong adoption” with many of the top global gaming studios commenting on the improvements.

Meta received most of the analyst questions given they pose a more substantial threat in terms of data and budget for AI initiatives, plus more direct overlap given their Audience Network ad platform is aimed at attracting publishers.

There were many questions about Meta, but this one was the most important, in my opinion:

“Five years ago, when Meta was really big in the space, and I think this is what's throwing people off. People recall a time Meta was half the space. They think it's going to be half the space again. Meta has been on IDFA-based and Google ad ID-based traffic since that no IDFA change. Nothing has changed for them. What's changed in the marketplace is that the other ad platforms that are built for this category, Unity, Liftoff, Moloco, et cetera, have gotten better.

Now we've got the best. AXON 2 was the biggest breakthrough in a model in this category period, and we were able to end up becoming the #1 by a lot. AXON 2 didn't exist five years ago. So there's no world where Meta is going to end up becoming that kind of a dominant player in the face of this competition. In fact, I don't see a world anyone else can because they're going up against that dominance. And these models, as they build more data, it's a closed-loop model that's continuously reinforcing itself and getting smarter.

Our model is so far into getting smart for this niche. The niche isn't that small, and we've got such a strong position. It's highly unlikely that someone else is going to come in and materially disrupt it. So a long way of saying, again, no, we don't see what people are so afraid of. We think psychologically, people just index on numbers from five years ago and think, oh, Meta is going to ramp to that. But just ask the customers you talk to, what's the share of wallet between us to them and to everyone else on IDFA-based traffic, and that will give you an indicator of how good we are.”

Financials

By Royston Roche

Q4 Revenue Growth of 66%

AppLovin’s Q4 revenue grew by a stellar 65.9% YoY and 18% QoQ to $1.66 billion, beating estimates by 2.9%. The strong revenue growth was primarily driven by continued strength in the gaming advertising revenue, seasonal strength, and the contribution of e-commerce revenue. Management has guided Q1 revenue of $1.745 billion to $1.775 billion, implying a YoY growth of 51.9% YoY and 6.2% QoQ at the midpoint. The Q1 revenue guide beat estimates by a solid 3.5%.

The company’s co-founder, Adam Foroughi, said in the earnings call, “Our performance, our business is executing extremely well. We continue to grow very quickly despite the numbers getting much bigger. We delivered strong growth in Q4. And despite typical seasonality where Q1 should be softer than Q4, we are guiding to meaningful sequential growth. That reflects both continued strength in gaming and the scaling of our e-commerce and our self-service customers.”

Full year 2025 revenue grew by 70% YoY to $5.48 billion. Looking ahead, analysts expect revenue to grow 43.7% YoY to $7.87 billion in 2026 and 28.1% YoY to $10.08 billion in 2027.

Q4 Operating Margin of 77%

AppLovin’s margin expansion is truly outstanding, primarily driven by strong operating leverage. The company’s AI-powered advertising engine, AXON 2.0, launched in Q2 2023, serving as a game-changer that drove strong revenue and profits.

Q4 gross profits grew by 74.3% YoY to $1.47 billion with a gross profit margin of 88.9%. The gross profit margin was up 420 basis points YoY and 130 basis points sequentially.
Q4 operating income grew by 103% YoY to $1.275 billion, driven by solid operating leverage. The company’s operating margin improved by 1400 basis points YoY and 10 basis points sequentially to 76.9%.
Q4 net income grew by 84.9% YoY to $1.10 billion. Net profit margin improved by 690 basis points YoY to 66.5%.
Adjusted EBITDA grew by 81.7% YoY to $1.40 billion with an adjusted EBITDA margin of 84%, up by a solid 700 basis points YoY and 200 basis points sequentially. Management Q1 adjusted EBITDA guide is 84%, up 300 basis points YoY and flat QoQ.

2025 operating margin improved to 75.8%, from 59.3% in 2024.
Net profit margin improved to 62.6%, from 49.3% in 2024.
Adjusted EBITDA margin improved to 82%, from 75% in 2024.

GAAP EPS grew by 88% YoY

Q4 GAAP EPS grew by 88.4% YoY to $3.24 primarily driven by strong operating leverage. The EPS beat the analysts estimates by a solid 10.1%. Analysts expect strong growth to continue with Q1 EPS expected to grow by 97.9% YoY to $3.30 and Q2 EPS to grow by 49.2% YoY to $3.57.

Looking ahead, analysts expect 2026 EPS to grow by 59.3% YoY to $15.53 and by 26.6% YoY to $19.65 in 2027.

Q4 Free Cash Flow Grew by 88%

The company has an exceptionally strong cash flow margin profile, primarily driven by strong profits.

Q4 operating cash flows grew by 87.4% YoY to $1.314 billion with a margin of 79.2%, up 910 basis points YoY.
Q4 free cash flows grew by 88.3% YoY to $1.31 billion with a margin of 79%, up 1370 basis points YoY.
The company’s cash improved to $2.49 billion, up from $1.67 billion at the end of the previous quarter. While debt remained the same at $3.51 billion.
The company repurchased and withheld 800,000 shares, valued at $482 million. For the full year, the company repurchased about 6.4 million shares for $2.58 billion, funded entirely by free cash flows. Over the last four quarters, the company reduced the outstanding shares from 346 million in Q4 2024 to 340 million. The remaining share repurchase authorization is $3.28 billion at the end of Q4 2025.

Conclusion:

In terms of number of competitors, Applovin operates in the sharkiest arena across the tech sector. Concerns around Meta, CloudX and IDFA dynamics are narratives that are not showing up in the fundamentals. What Applovin offers is performance at scale and a real data advantage that only Meta can rival. Even with Meta rivaling Applovin across many publishers, Applovin contends they have the gaming category cornered and are now expanding into e-commerce. The most likely end result is that most publishers will use both.

In the Top 15 report, I led with the cautionary sentence that “AppLovin is a stock that needs a strong technical analysis overlay” as App’s fundamentals argue there is real staying power, but the stock will continue to demand patience and disciplined timing.

Royston Roche, Equity Analyst at I/O Fund contributed to this analysis.

Please note: The I/O Fund conducts research and draws conclusions for the company’s portfolio. We then share that information with our readers and offer real-time trade notifications. This is not a guarantee of a stock’s performance and it is not financial advice. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis. Beth Kindig and the I/O Fund own shares in APP at the time of writing and may own stocks pictured in the charts.

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Cloudflare Q4: Important Inflection Across Key Metrics

Posted on February 11, 2026June 30, 2026 by io-fund

While Big Tech is seeing weak price action following capex estimates for 2026, Cloudflare’s earnings report is being met with enthusiasm. Rather than competing with hyperscalers head-on, the company is taking a different route by offering an edge network where latency, global reach and lower costs matter more than compute and scale.

Key metrics are suggesting an important inflection is underway, which was a theme from our coverage last quarter. Cloudflare reported the strongest revenue growth since Q1 2023. The company’s Q4 revenue grew by 33.6% YoY and 9.3% QoQ to $614.5 million, beating estimates by a solid 3.9%. The company’s Q1 revenue guide also beat estimates by 1%.

The company reported a record new annual contract value (ACV) in Q4, which grew by nearly 50% YoY and was the fastest growth rate since 2021. Q4 remaining performance obligations (RPO) grew by 48% YoY and was the fastest growth rate since June 2022. Similarly, paying customers grew by 40% YoY and accelerated by 7 percentage points from 33% growth in the previous quarter. Notably, active developers on the Workers platform grew by 50% YoY to 4.5 million.

Faster and Cheaper for Inference compared to Hyperscalers

Cloudflare has strong positioning at the network edge for handling connectivity, security and real-time edge execution – all needed for the inference stage of AI. Therefore, companies are layering in and adding Cloudflare while also remaining with hyperscalers, which specialize more in compute and perform better in certain regional zones.

Many of the wins that Cloudflare highlighted in the opening remarks are from customers that use the Big 3 yet still chose Cloudflare for its time-to-deployment advantages and easier billing structure.

Here is how management described it: “The hyperscalers are in the business of buying machines and then renting them back so that they basically get 5x what they paid for them over the course of their useful life. And again, it's a great business for them, but it's not the business that Cloudflare is in. Cloudflare is in the business of getting work done. And so what we are constantly doing is having research teams inside of Cloudflare figure out how you can run AI workloads significantly more efficiently. The hyperscalers is actually have no incentive to do that. They don't want AI workloads to be more efficient because that just means you have to lease fewer machines from them. Whereas we — because we only charge you for the actual work that's getting done, that means that we're just getting oftentimes as much as 10x the amount of work off of the same GPU that you might get with a hyperscaler. That advantage is part of how we're able to just bring much more out of the CapEx that we spend than others are.”

Over two years ago, I wrote a deep dive on Cloudflare entitled “Bringing AI Inference to the Edge.” The analysis connected important dots on how Cloudflare attracts business despite the highly competitive arena of cloud infrastructure. Here’s an excerpt:

“With Cloudflare’s serverless approach, developers pay for the Javascript runtime once, and then are able to run more scripts without additional costs […] Cloudflare eliminated cold starts entirely with its Workers platform. There are a few milliseconds where Cloudflare can have Workers runtime load a hostname before a TLS certificate is sent back and the original encrypted request is sent. By the time the HTTPS protocol is ready to send secure data between a browser and a website, Cloudflare has the Worker runtime warm. This means Worker executes code the minute the request is received.

What’s crazy is that Cloudflare rolls out features that exceed hyperscaler performance at minimal cost. It is this combination of competing with the hyperscalers, delivering app performance at faster speeds — while keeping prices low — that is unique to Cloudflare.”

The advantages pointed out in the October 2023 analysis as to how combining a CDN, reverse proxy, zero-trust and a serverless platform can lead to strong edge performance was echoed again tonight with management stating: “Despite an incumbent offering significant discounts to keep the business, this customer chose Cloudflare because of our next-generation architecture and workers' developer platform, which allowed them to customize their edge traffic. We didn't just replace 3 incumbents we replaced a legacy mindset proving once again that when you give developers the best tools, the entire enterprise follows.”

Flywheel driven by AI Agents

Cloudflare’s CEO buried the lead a bit in the opening remarks, finally stating what is perhaps the most important element to his quarter’s beat: AI Agents. Although the key metric was provided for January, it’s clear that Cloudflare is seeing a strong inflection: “Over the month of January alone, the number of weekly requests generated by AI agents more than doubled across the Cloudflare network. This is driving increased demand for our whole platform.”

According to management, this creates a “virtuous flywheel” as more agents drive more code execution on their Workers Platform, which in turn, drives more demand for their security products and networking services.

AI agents also drive sheer infrastructure consumption for Cloudflare as agents look at many more sites and are always-on – which leads to more overall usage.

Here was some commentary from the earnings call:

“You've got a bunch of the agents of the world that are interacting with the Internet and they're interacting with it at a volume that we've just never seen before. And that's just driving more need for what are classically Cloudflare’s services. So the fact that more than 20% of the Internet sits behind us means that the agents have to interact with us, which means we have a seat at the table in defining exactly what the rules and the rails and the guardrails of the future of agentic commerce is going to look like; and be, and we are sitting in the middle of that.”

How Capex Compares to Hyperscalers

Cloudflare’s model is less capital intensive because the edge network architecture shares infrastructure across many workloads. Therefore, their servers don’t sit idle. Another major difference is that Cloudflare charges for execution, rather than pricing based on customers' reserving capacity, which results in optimized runtimes and higher utilization.

The latency sensitive, short bursts that inference needs is well aligned with Cloudflare’s shared edge infrastructure and execution-based pricing. The higher utilization also avoids the very high capex burden associated with reserving GPUs per customer.

Although Cloudflare’s operating margin is ticking down, capex relative to revenue growth is better than hyperscalers. The company’s Q4 capex grew by 14.3% YoY to $91 million. Microsoft’s capex in Q4 grew by 65.9% YoY to $37.5 billion in Q4. While, Microsoft’s Q4 revenue grew by a mere 16.7% YoY to $81.2 billion. Cloudflare’s Q4 revenue grew by a stunning 33.6% YoY to $614.5 million. Capex as a percentage of revenue was only 14.8% for Cloudflare compared to 46.1% for Microsoft.

Cloudflare’s Q4 operating cash flow grew by 49.6% YoY to $190.4 million with an operating cash flow margin of 31%, up 3 percentage points YoY. Similarly, free cash flows grew by 108% YoY to $99.4 million with a free cash flow margin of 16%, up 6 percentage points YoY.

The company had cash and available-for-sale securities of $4.1 billion, while convertible senior notes outstanding were $3.27 billion at the end of Q4 2025.

Financials

Q4 Revenue Growth of 33.6%

Cloudflare reported the strongest revenue growth since Q1 2023. The company’s Q4 revenue grew by 33.6% YoY and 9.3% QoQ to $614.5 million, beating estimates by a solid 3.9%. Revenue growth accelerated 2.9 percentage points from 30.7% growth in Q3 and was primarily driven by strong AI demand for its services, particularly from its enterprise customers. The company guided Q1 revenue of $620 million to $621 million, implying a YoY growth of 29.5% YoY and 1% QoQ and beating estimates by 1%.

The company’s co-founder and CEO Matthew Prince highlighted the strong AI demand in the earnings call. “We are seeing the shift to AI and agents drive more demand for Cloudflare services. What we're witnessing is a fundamental replatforming of the Internet. AI is driving a paradigm shift in how software is both created and consumed, and that is turning out to be the biggest tailwind for Cloudflare's network and Workers developer platform.

If you look at the last 30-plus years of the Internet and software ecosystem, they were built for human consumption, people in seats and clicks. Now the agentic Internet is emerging, and we can already see its trends. If humans looked at 5 sites when they were making a decision, agents might look at 5,000.”

The company 2025 revenue grew by 29.8% YoY to $2.17 billion. Management provided a strong 2026 revenue guide of $2.785 billion to $2.795 billion, implying a YoY growth of 28.7% and beating estimates by 1.8%.

Key Metrics Strengthen, Aided by Enterprise Transition

Cloudflare reported a record new annual contract value (ACV) in Q4. Matthew Prince said in the earnings call, “We blew away our previous record for new ACV in the quarter, with strong year-over-year and quarter-over-quarter acceleration. In Q4, new ACV book grew nearly 50% year-over-year, making it not only a record quarter in absolute ACV dollars but also the fastest growth rate we've delivered since 2021.”

Cloudflare signed the largest annual contract in the company’s history of $42.5 million and management attributed the success to the company’s go-to-market sales strategy. Some of the other customers win this quarter include a leading AI company expanding their relationship with Cloudflare, selecting Cloudflare as their single long-term infrastructure provider with 100% traffic allocation. Another leading AI company expanded their relationship with Cloudflare, signing a 1-year $5.4 million contract for the Workers developer platform and application services. A Fortune 100 technology company expanded their relationship with Cloudflare, signing a 3-year $5.8 million contract, representing a notable upsell from their initial engagement with the company in mid-2025. While a Fortune 500 technology company expanded their relationship with Cloudflare, signing a 2-year $45 million pool of funds contract.

RPO growth of 48% YoY, fastest since June 2022

Q4 remaining performance obligations (RPO) grew by 48% YoY and 16% QoQ to $2.496 billion, accelerating from 43% YoY and 8% QoQ growth in Q3. It was the fastest growth rate since June 2022. Current RPO was 63% of total RPO and grew 34% YoY.

Customers Grew by 40% YoY

Q4 total customers grew by 40% YoY and 12% QoQ to 332,466. Customer growth accelerated by 7 percentage points from 33% growth in Q3 and 10% QoQ. The company is witnessing a transition from the free tier to small paid accounts, particularly for the developer platform products.

Cloudflare’s enterprise cohort, or customers contributing >$100K ARR grew by 23% YoY to 4,298. Revenue contribution from large customers was 73% of revenue during Q4, up from 69% in the fourth quarter last year. Revenue from large customers grew by 41% YoY and 9% QoQ to $448.6 million in Q4.

The company’s largest customers (spending over $1 million) grew by 55% YoY to 269 and added a record of 96 $1 million-plus customers in 2025.

DBNRR of 120%

The company’s continued significant expansion with the largest customers drove an acceleration in the Dollar-based net retention rate (DBNRR) to 120% in Q4, up 1% sequentially and 9% YoY. It was the highest rate since Q4 2022.

Q4 Billings Growth of 27%

The company’s billings grew by 27% YoY and 11% QoQ to $694.9 million. Among the key metrics, billings growth was blemish as it decelerated from 40% YoY and 12% QoQ growth in Q3.

Margins

Q4 gross profits grew by 28.8% YoY to $452.5 million. Adjusted gross profits grew by 29% YoY to $460.18 million with an adjusted gross margin of 74.9%, down 270 basis points YoY and 40 basis points sequentially due to higher network expenses from the increase of paid customer traffic.

Q4 operating loss was ($49.2 million) compared to ($34.7 million) in the same period last year. Adjusted operating income grew by 33.3% YoY to $89.6 million with an adjusted operating margin of 14.6%, which was flat YoY and down 70 basis points sequentially and beat the guidance by 40 basis points. Management Q1 guide is 11.4%. The company reported $132.4 million in stock-based compensation in Q4, which explains the difference between GAAP and non-GAAP operating income.

Q4 net loss was ($12.1 million) compared to ($12.8 million) in the same period last year. Q4 adjusted net profit grew by 55.2% YoY to $106.8 million or 17.4% of revenue compared to 15% in the same period last year.

Q4 Adjusted EPS grew by 47.4%

The company’s Q4 adjusted EPS grew by 47.4% YoY to $0.28, beating estimates by 3.2%. GAAP EPS was in line with estimates of ($0.03) compared to ($0.04) in the same period last year.

Management Q1 adjusted EPS guide of $0.23 was lower than the estimates of $0.25. However, it implies a YoY growth of 43.8%.

Conclusion:

The quarter combined accelerating growth, improved profitability and enterprise deal flow to help support our multi-year thesis that Cloudflare’s distributed edge architecture offers a unique advantage for AI inference workloads.

Agent-driven traffic is growing faster than human-driven usage, generating orders of magnitude more requests. This dynamic creates a powerful flywheel: more agents drive more Workers execution, which in turn increases demand across Cloudflare’s security and networking stack. Unlike prior growth cycles tied to seats or licenses, this model scales directly with usage.

As we patiently wait for the inference stage to arrive, Cloudflare will benefit – not by outspending hyperscalers on capex, but by extracting more value from every layer of internet traffic that flows through its network.

Royston Roche, Equity Analyst at I/O Fund contributed to this article.

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