Core Viewpoint - The "Magnificent Seven" stocks are no longer considered top performers in the market, as they have shown poor performance over the past year and do not align with each other in terms of direction and growth [1][2][3][4]. Group 1: Performance Analysis - The Magnificent Seven, once regarded as a group of high-performing large-cap stocks, have failed to deliver significant returns, leading to the conclusion that they are "finished" [2][4]. - The grouping of these stocks lacks coherence, with each stock moving in different directions and not contributing to overall market performance [2][3]. Group 2: Individual Stock Insights - Microsoft Corporation (NASDAQ:MSFT) is described as the "least Magnificent of the Seven," with concerns about its recent performance and strategic direction, particularly regarding its AI initiatives [9]. - Meta Platforms, Inc. (NASDAQ:META) has shown a remarkable recovery, with significant growth attributed to its AI capabilities, which have enhanced its advertising effectiveness and user engagement [11][12][14].

Summary of Key Points from the Conference Call Industry Overview - **Industry**: China Internet and Other Services - **Key Focus**: Impact of the new Value Added Tax (VAT) regulation on the Internet industry, particularly gaming and advertising sectors [1][2][3] Core Insights - **Market Reaction**: On February 3, 2026, the Hang Seng Tech Index fell over 3%, with Tencent down 6% and Alibaba (BABA) down 5%, primarily due to concerns over the new VAT regulation affecting the Internet industry [2] - **VAT Regulation Details**: The new VAT law was passed in December 2024 and became effective on January 1, 2026. It reclassified certain telecom services, leading to an estimated EPS dilution of 8-15% for telecom operators [3][4] - **Internet Services VAT**: There is no evidence of any VAT change for Internet-related services, which remain at a 6% rate. The likelihood of future changes is considered low due to the complexity of the legislative process [5] Company-Specific Insights - **Tencent**: Identified as a top pick due to its resilient core businesses and strong positioning in consumer-facing AI applications [6][11] - **Alibaba (BABA)**: Viewed as a leading AI enabler with cloud services as a key growth catalyst [6][11] Additional Considerations - **AI Industry Outlook**: The outlook for China's AI sector is positive for 2026, driven by advancements in both supply (US and domestic chips) and demand (improvements in model coding and agentic capabilities) [6] - **Risks**: Potential risks include regulatory uncertainties in the gaming industry, intensified competition in social networks and advertising, and economic factors such as slower post-COVID recovery and consumption [16] VAT Rate Overview - **VAT Rates for Major Categories**: - 13%: Sale of goods, processing services, etc. - 9%: Basic telecommunications services - 6%: Sale of services and intangible assets [8] Analyst Ratings - **Stock Ratings**: Morgan Stanley uses a relative rating system, with Tencent rated as Overweight and Alibaba also rated positively [34][39] This summary encapsulates the critical points discussed in the conference call, focusing on the implications of the new VAT regulation on the Internet industry and the positioning of key companies like Tencent and Alibaba within this context.

Financial Data and Key Metrics Changes - Lumentum reported a record quarterly revenue of $665.5 million, representing over 65% year-over-year growth and a non-GAAP operating margin increase of more than 1,700 basis points [6][20] - Non-GAAP gross margin for Q2 was 42.5%, up 310 basis points sequentially and 1,020 basis points year-on-year, driven by better manufacturing utilization and increased pricing [21] - Non-GAAP operating margin reached 25.2%, up 650 basis points sequentially and 1,730 basis points year-on-year, primarily due to revenue growth in components products [22] Business Line Data and Key Metrics Changes - Components revenue was $443.7 million, a 17% sequential increase and 68% year-over-year growth, driven by demand for laser chips and assemblies [24][14] - Systems revenue reached $221.8 million, reflecting a 43% sequential increase and 60% year-over-year growth, with cloud transceivers being the main contributor [24][17] Market Data and Key Metrics Changes - The order backlog for optical circuit switches (OCS) surged past $400 million, with most shipments expected in the second half of the calendar year [9] - Demand for cloud transceivers has significantly increased, with revenue growing and expectations for continued growth in Q3 [10][19] Company Strategy and Development Direction - Lumentum aims to capitalize on three primary growth drivers: cloud transceivers, optical circuit switches (OCS), and co-packaged optics (CPO), with a focus on scaling production and improving profitability [8][12] - The company is exploring opportunities in the broader external light source (ELS) market to diversify its customer base and increase its serviceable market [11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in surpassing the previously projected $750 million in quarterly revenue, with guidance for Q3 indicating a midpoint of $805 million, representing an 85%+ year-over-year increase [7] - The company acknowledged ongoing cyclical softness in the industrial market but highlighted strong demand in cloud-related businesses [18] Other Important Information - Lumentum's cash and short-term investments increased by $33 million to $1.16 billion, while inventory levels rose by $39 million to support expected growth [24] - The company is actively negotiating with leading customers to offset capital requirements in exchange for long-term supply assurances [12] Q&A Session Summary Question: Can you provide more details on the OCS market and the impact of price increases? - Management noted that the OCS market is developing better than expected, with a backlog exceeding $400 million and significant customer demand [30] - Price increases are positively impacting both top line and gross margin, with modest overall revenue impact expected [31] Question: What is the status of indium phosphide capacity ramp and potential new fabs? - Management confirmed that capacity increases are ahead of schedule, with expectations for better than 40% capacity growth [38] - Discussions about new fabs are ongoing, with a focus on increasing overall capacity [43] Question: How is the transition to 1.6T transceivers progressing? - The transition is primarily driven by EMLs, with expectations for significant growth in both EML and silicon photonics [51] - Management remains committed to vertically integrating CW lasers for transceivers, with timelines slightly pushed out [55] Question: What is the outlook for CPO and its competitive landscape? - Management expressed confidence in their position in the CPO market, highlighting reliability and customer engagement as key advantages [56] - The company anticipates significant growth in CPO, with a multi-hundred million dollar order expected to ramp in early 2027 [65] Question: How has the supply-demand imbalance affected long-term agreements with customers? - The supply-demand imbalance remains significant, with long-term agreements in place that provide pricing flexibility and stability [78] - Customers are increasingly seeking additional capacity beyond what is covered in LTAs, allowing for incremental pricing discussions [80]

Financial Data and Key Metrics Changes - The company achieved a record revenue of $12.68 billion for Q2 FY 2026, representing a 123% year-over-year growth and a 153% quarter-over-quarter increase [7][16] - Non-GAAP gross margin for Q2 was 6.4%, down from 9.5% in Q1, impacted by customer and product mix, as well as higher freight and production costs [18] - GAAP operating expenses were $324 million, up 14% quarter-over-quarter and 8% year-over-year, while non-GAAP operating expenses were $241 million, up 18% quarter-over-quarter and 6% year-over-year [19] - GAAP diluted EPS was $0.60, exceeding guidance of $0.37-$0.45, while non-GAAP diluted EPS was $0.69, surpassing guidance of $0.46-$0.54 [20] Business Line Data and Key Metrics Changes - The enterprise channel revenue segment totaled $2 billion, representing about 16% of revenue, down from 31% in the prior quarter, but up 42% year-over-year [17] - The OEM appliance and large data center segment revenue was $10.7 billion, representing approximately 84% of Q2 revenue, up from 68% in the last quarter, and up 151% year-over-year [17] Market Data and Key Metrics Changes - By geography, the US represented 86% of Q2 revenue, Asia 9%, Europe 3%, and the rest of the world 2% [17] - Year-over-year, US revenue increased 184%, Asia grew 53%, Europe decreased 63%, and the rest of the world increased 77% [18] Company Strategy and Development Direction - The company is focusing on its Data Center Building Block Solution (DCBBS) to enhance profitability and customer engagement, with expectations for DCBBS to contribute significantly to profits in the second half of FY 2026 [9][14] - The company is expanding its global manufacturing footprint, with new production sites in Taiwan, Malaysia, and the Netherlands to support regional AI requirements and optimize cost structure [12][13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the demand for AI and IT infrastructure, stating that the DCBBS solution is essential for customers to build out their AI and cloud capabilities more efficiently [14][15] - The company guided for at least $12.3 billion in revenue for Q3 and raised full-year revenue guidance to at least $40 billion, indicating a conservative approach due to supply constraints [15][24] Other Important Information - The company has expanded access to working capital through a $2 billion cash flow-based secured revolving credit facility and a $1.8 billion secured Taiwan revolving debt facility [22] - Cash position at quarter end totaled $4.1 billion, with a net debt position of $787 million, compared to $579 million in the prior quarter [23] Q&A Session Summary Question: Margin improvement expectations - Management indicated that customer mix is improving and that gross margins are expected to improve quarter-over-quarter due to reduced expedite transportation costs and tariff impacts [28][31] Question: Full-year guidance and supply constraints - Management stated that the $40 billion guidance is conservative, and if supply constraints improve, revenue could exceed this figure [36][47] Question: DCBBS revenue contribution - DCBBS is expected to grow rapidly, contributing significantly to profits, with management highlighting its appeal to a wide range of customers [39][54] Question: Customer mix and revenue diversification - Management noted that they are focusing on diversifying their customer base, targeting both large and mid-sized enterprise customers [83][76] Question: Upcoming platform transitions - Management confirmed that they have received interest and some commitments for upcoming platforms, indicating readiness to deliver once available [78]

Financial Data and Key Metrics Changes - Total reported revenue declined 8.7% to $3.041 billion, with business segment revenue down 8.8% to $2.425 billion [22][24] - Adjusted EBITDA was $767 million, with a margin of 25.2%, compared to approximately $1.052 billion in the year-ago quarter [24][25] - Free cash flow was negative $765 million, impacted by a delay in a $400 million tax refund expected in the first half of 2026 [25][26] Business Line Data and Key Metrics Changes - North American enterprise revenue grew slightly, driven by strength in IP, while overall North American business revenue declined 8.6% [24] - The business revenue mix improved, with 52% of North American enterprise revenue now coming from growth products, up from the mid-40% range in 2024 [17][22] - The company recognized revenue of approximately $41 million in Q4 and $116 million for the full year from nearly $13 billion in PCF deals [23][24] Market Data and Key Metrics Changes - Wholesale revenue declined approximately 7.8% year-over-year, in line with expectations, while international and other revenue declined 16.3% [24] - The company reported a strong performance in NaaS business, with active customers growing by 29% quarter-over-quarter and NaaS fiber ports deployed increasing by 31% [11][24] Company Strategy and Development Direction - The company aims to become the trusted network for AI, focusing on serving public and private enterprises [3][4] - A three-pillar strategy is being implemented to build the backbone for AI, cloudify telecom, and expand the connected ecosystem [7][10] - The company is transitioning from legacy revenue streams to strategic growth products, with a focus on digital services and programmable networks [20][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in returning to business revenue growth by 2028 and total revenue growth by 2029 [16][26] - The company anticipates a significant reduction in capital intensity and an improvement in margins and free cash flow due to ongoing cost optimization efforts [30] - Management highlighted the urgent need for structural change in network architectures to align with customer needs in a multi-cloud, AI-first world [7][10] Other Important Information - The company closed the transaction with AT&T for $5.75 billion, using proceeds to pay down super priority bonds, reducing annual cash interest expense by an additional $300 million [18][19] - The company achieved over $400 million in run rate cost reductions in 2025, targeting $700 million by the end of 2026 [17][26] Q&A Session Summary Question: Can you share how the recent PCF deals may differ from previous ones regarding margins and returns? - The structure of the recent $2.5 billion deals is similar to previous ones, utilizing existing network conduit, thus maintaining a similar economic profile [34][35] Question: What is the timing of CapEx investments and cash receipts relative to the recent deals? - The company expects a significant reduction in capital intensity, with a projected CapEx intensity profile roughly half of the previous year [36][37] Question: Can you provide insights on the guidance for 2028 business revenue growth? - Management remains cautiously optimistic about growth, acknowledging the need for structural change in the industry while projecting conservative estimates [41][45] Question: How should we think about the EBITDA guide for 2026? - The range of $3.1 billion-$3.3 billion for 2026 is expected to reflect growth compared to 2025, though not every quarter will show growth [93]

Financial Data and Key Metrics Changes - Lumentum reported a record quarterly revenue of $665.5 million, representing over 65% year-over-year growth and a non-GAAP operating margin increase of more than 1,700 basis points [5][17] - Non-GAAP gross margin for Q2 was 42.5%, up 310 basis points sequentially and 1,020 basis points year-on-year, driven by better manufacturing utilization and increased pricing [17][18] - Non-GAAP operating margin reached 25.2%, up 650 basis points sequentially and 1,730 basis points year-on-year, primarily due to revenue growth in components products [18] Business Line Data and Key Metrics Changes - Components revenue was $443.7 million, a 17% sequential increase and 68% year-over-year growth, driven by demand for laser chips and assemblies [21][11] - Systems revenue reached $221.8 million, reflecting a 43% sequential increase and 60% year-over-year growth, with cloud transceivers being the main contributor [21][14] - The optical circuit switches (OCS) business exceeded expectations, with a backlog exceeding $400 million, primarily to be shipped in the second half of the calendar year [7][27] Market Data and Key Metrics Changes - The demand for cloud transceivers and optical circuit switches is accelerating, with significant contributions expected from these segments in the upcoming quarters [6][16] - The company is experiencing a demand-supply imbalance, with a gap of approximately 25%-30% in EML products, indicating strong market demand [75] - The transition to 1.6T speeds is being driven primarily by EMLs, with silicon photonics expected to dominate future shipments [50][51] Company Strategy and Development Direction - Lumentum aims to capitalize on the AI revolution, positioning itself as a foundational technology provider for AI networks [5] - The company is focusing on expanding its capacity and improving manufacturing efficiency to meet growing demand, particularly in cloud applications [10][21] - Lumentum is exploring new market opportunities, including pluggable external light source modules, which could significantly increase its addressable market [9][83] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in surpassing previous revenue projections, with Q3 guidance indicating a midpoint of $805 million, representing an 85%+ year-over-year increase [5][22] - The company anticipates continued growth in its components portfolio, driven by cloud applications, while also addressing cyclical softness in the industrial market [15][16] - Management highlighted the importance of long-term agreements with customers, which provide pricing flexibility and stability in supply [76][78] Other Important Information - The company is actively negotiating with customers to offset capital requirements in exchange for long-term supply assurances, indicating the critical nature of its technology [10] - Lumentum's cash and short-term investments increased by $33 million to $1.16 billion, with inventory levels rising to support expected growth [21] Q&A Session Summary Question: Insights on the OCS market and price increases impact - Management noted that the OCS market is developing better than expected, with a backlog exceeding $400 million and significant demand from multiple customers [27][28] - Price increases are positively impacting both top line and gross margin, with modest overall revenue impact expected [29][30] Question: Indium phosphide capacity ramp and future capacity plans - Management confirmed that capacity increases are ahead of schedule, with expectations for better than previously outlined growth [35][36] - Discussions about new fabs are ongoing, indicating a proactive approach to expanding capacity [42] Question: Transceiver market dynamics and pricing - Demand for transceiver products is strong, with expectations for growth beyond initial projections, driven by multiple customers [39][40] - Management indicated that pricing discussions are ongoing, with opportunities for incremental pricing based on demand [78] Question: CPO opportunity and market share - Management expressed confidence in the CPO market, highlighting a significant order and the potential for increased market share [61][64] - The introduction of external light source modules is expected to enhance revenue potential significantly [83]

Core Insights - The upcoming quarterly results from the "Mag 7" tech giants, specifically Alphabet and Amazon, are highly anticipated, with Alphabet's report due on February 4 and Amazon's on February 5 [1][2] - Investors are particularly focused on the growth of cloud services from both companies, as they compete in the global cloud-computing market [2] Alphabet's Q4 Expectations - Alphabet's Q4 sales are projected to reach $94.7 billion, marking a 16% increase from $81.62 billion a year ago [3] - Google Cloud revenue is expected to be $16.25 billion, reflecting a 36% increase from $11.95 billion in Q4 2024 [3] - EPS for Alphabet is anticipated to rise 20% to $2.58 compared to $2.15 in the same quarter last year [3] - Alphabet has consistently exceeded EPS expectations for 11 consecutive quarters, with an average earnings surprise of 18.74% in the last four reports [4] Amazon's Q4 Expectations - Amazon's Q4 sales are expected to hit a record $211.56 billion, a 12% increase from $187.79 billion last year [6] - AWS revenue is projected to be $35.02 billion, a 21% increase from $28.78 billion in the same quarter last year [6] - EPS for Amazon is expected to rise 6% to $1.98 from $1.86 per share a year ago, with a history of exceeding EPS expectations for 12 straight quarters and an average earnings surprise of 22.47% [7] Performance Comparison - Over the past year, Alphabet's stock has surged more than 80%, attributed to growth in AI-driven businesses and Google Cloud, while Amazon's stock has seen a 2% decline [10] - Amazon's stock currently trades under $240 at a P/E ratio of 30.7X forward earnings, while Alphabet trades near $340 at a P/E of 31X [11] - EPS growth projections for Amazon are slightly higher for fiscal 2026 at 10%, with FY25 EPS expected to rise nearly 30% to $7.18 [14] Bottom Line - Strong Q4 results from both companies could alleviate CapEx concerns among investors, with Amazon currently rated as a Zacks Rank 2 (Buy) and Alphabet as a Zacks Rank 3 (Hold) [17]

Core Insights - The energy sector topped the leaderboard for total returns in January 2026, indicating strong performance and potential investment opportunities [1] - The rise in demand for electricity, driven by the expansion of AI infrastructure, is positively impacting energy stocks [1] - Various leveraged ETFs are available for traders to capitalize on sector movements, including both bullish and bearish options [1] Sector Performance - The energy sector was the best-performing sector through January 29, 2026, suggesting a favorable environment for investments in energy-related ETFs like Direxion Daily Energy Bull 3X Shares (ERX) and Direxion Daily Energy Bear 2X Shares (ERY) [1] - Other top sectors included materials, industrials, consumer staples, and communications, with specific ETFs available for traders looking to leverage these sectors [1] Investment Opportunities - For targeted exposure to the energy sector, the Direxion Daily Energy Top 5 Bull 2X ETF (TEXU) offers 200% performance of the S&P 500 Energy Top 5 Equal Capped Index [1] - Traders interested in industrials can consider the Direxion Daily Industrials Bull 3X Shares (DUSL) for leveraged exposure [1] Contrarian Strategies - Sectors that underperformed, such as information technology, healthcare, and financials, may present bounce-back opportunities in February [1] - Traders with high conviction in a rebound can utilize ETFs like Direxion Daily Technology Bull 3X ETF (TECL), Direxion Daily Healthcare Bull 3X ETF (CURE), or Direxion Daily Financial Bull 3X ETF (FAS) [1] - For bearish strategies, Direxion Daily Technology Bear 3X Shares (TECS) and Direxion Daily Financial Bear 3X ETF (FAZ) are available [1]

Core Viewpoint - Realty Income Corporation (NYSE:O) is recognized as one of the 10 Best Monthly Dividend Stocks to Buy Now, reflecting its strong position in the market [1]. Group 1: Analyst Upgrades and Market Context - Deutsche Bank analyst Omotayo Okusanya upgraded Realty Income Corporation from Hold to Buy, setting a price target of $69, indicating a positive outlook for the stock [2]. - The analyst noted that REITs have underperformed the S&P 500 over the past four years and in nine of the last eleven years, with expectations that this trend will continue into 2026 [2]. - Deutsche Bank projects a weighted average return of 10.3% across its REIT coverage, while forecasting the S&P 500 to reach 8,000, suggesting a 16.9% upside by 2025 [3]. Group 2: Company Overview and Portfolio Composition - Realty Income Corporation operates as a real estate investment trust (REIT) focused on acquiring and managing freestanding commercial properties, primarily through long-term net lease agreements [6]. - The company owns properties across the U.S. and eight European countries, with retail assets accounting for approximately 80% of its rental income, while industrial properties contribute about 15% [4]. - The management has strategically diversified its portfolio, including investments in casinos and vineyards, to maintain growth options while adhering to a disciplined investment framework [5].

Core Viewpoint - Goldman Sachs initiated coverage of Healthpeak Properties Inc. with a Neutral rating and a price target of $17, highlighting improving occupancy and cash flow visibility in senior housing investments [1] Group 1: Company Overview - Healthpeak Properties Inc. operates as a fully integrated healthcare REIT, focusing on acquiring, developing, owning, leasing, and managing healthcare real estate across the United States [4] Group 2: Recent Developments - Healthpeak's portfolio has significantly changed since 2019, particularly due to the merger with Physicians Realty Trust, which closed on March 1, 2024, effectively doubling the size of its outpatient medical portfolio [2] - On January 7, Healthpeak announced plans to form and take public Janus Living, Inc., a new REIT focused entirely on senior housing, contributing its 34-community, 10,422-unit senior housing portfolio to Janus Living [3]