Morning Watchlist: Friday Edition
A quick note from Behind the Markets
We're closing out the week. And we want to start with a company that just told Wall Street its artificial-intelligence revenue tripled — and should double twice more from here.
The stock fell.
Sit with that for a second. A forecast that would have seemed like science fiction two years ago, and the crowd's response was a shrug and a step back. That's not a verdict on the business. It's a verdict on the price — and it tells you where the crowd's expectations have climbed.
Meanwhile, the sky over the Persian Gulf filled with missiles again, and a quiet software company said the robots writing code are making its product more valuable, not less. Three stories this morning. Three pairings. Let's get into it.
1) The Forecast Was a Doubling. The Stock Fell Anyway.
On Wednesday night, Broadcom — the biggest maker of custom AI chips for the tech giants — reported quarterly revenue of $29.6 billion, up 86% from a year ago. AI chip revenue alone hit $16.7 billion, up 221%. Free cash flow was $13.7 billion in a single quarter. It was the company's ninth straight earnings beat.
Then CEO Hock Tan gave the forecast: AI revenue of roughly $115 billion next fiscal year, and on toward $230 billion the year after. A doubling, then another doubling.
And the stock dropped about 5% after hours — per CNBC, because total guidance of $34.8 billion came in a whisker under the $35.03 billion Wall Street wanted, and because Marvell's new Google deal reminded everyone the custom-chip fight is getting crowded.
Here's what we take from that. When a stock falls on a forecast like this one, the argument isn't about the work — it's about the ticket price. The work itself is contracted, colossal, and coming. And whoever wins the custom-chip fight — Broadcom, Marvell, the giants designing their own — there's a step everyone skips: a chip is not a computer. Every one of those accelerators has to be built into a server, a rack, a machine — assembled, wired, and tested by somebody with factories.
The pairing: Sanmina (SANM) — Buy
Sanmina is a 40-year-old Silicon Valley electronics manufacturer that made the acquisition of its life: last October it bought the data-center manufacturing business of ZT Systems from AMD, becoming AMD's lead manufacturing partner for AI systems.
The results are showing up fast. Revenue over the past year: $12.8 billion, up 59%. Management is pointing to $16 billion or more next fiscal year — roughly double what the company did in fiscal 2025. And at about $186, the stock trades near 15 times next year's expected earnings — the S&P 500 costs about 21 — and sits about a third below its 52-week high of $289. Only four analysts even cover it, with an average target of $260. The quietest name in the loudest industry.
The honest risks: contract manufacturing runs on thin margins — pennies per dollar of revenue — so stumbles hurt. Orders are lumpy (a customer pulled orders forward earlier this year and the following quarter's guidance spooked people). And the growth leans on one big customer relationship; if the AI build-out pauses, an assembler has no pricing power to hide behind.
2) The Sky Over the Gulf Got Crowded
Through the early part of this week, Iran answered American strikes with waves of missiles and drones aimed at U.S. bases and Gulf states — Jordan, Kuwait, Bahrain, the UAE. Air defenses intercepted attack after attack; Gulf states reported downing hundreds of incoming missiles and drones. Oil pushed into the low $90s, and the 10-year Treasury yield touched its highest level since 2023.
Now do the ammunition math. Every interception you read about spent an interceptor — a Patriot round costs about $4 million — and the stockpile was thin before this week: CNN reported in August that nearly 80% of the interceptors for one key U.S. missile-defense system were already depleted. That's why the Pentagon signed a $58.6 billion contract with Lockheed Martin in July for more than 10,000 Patriot interceptors through 2032, with production going from about 600 a year to 2,000.
A building that just had a fire refills every extinguisher in the hallway — and the refill order doesn't wait to see whether there's another fire. Lockheed is the headline name. But every single one of those 10,000 interceptors needs a solid rocket motor, and the company that makes the PAC-3's motor is L3Harris, through its Aerojet Rocketdyne unit. The Pentagon liked that business so much it closed a $1 billion direct investment into it this spring — the government almost never buys equity in a contractor — and signed an agreement in July to drastically expand motor production, with new capacity going up in Arkansas.
So why is the stock cheap? Because three weeks ago the board fired CEO Chris Kubasik over a conduct violation and promoted insider Sam Mehta the same day. The crowd sold the corner office.
The pairing: L3Harris (LHX) — Buy
At about $261, L3Harris sits within a few dollars of its 52-week low, down roughly 30% from its high near $379 — while guidance was reaffirmed the day the CEO left, the dividend yields about 1.9%, and 18 covering analysts average a $339 target, a consensus Buy. The scandal is in the executive suite. The backlog is in Arkansas. We'd rather own the motor plant than argue about the nameplate.
The risks, plainly: an abrupt CEO exit can hide more than one problem, and Mehta is unproven in the top job. At about 21 times next year's earnings, this is fair-priced, not bargain-bin. And defense revenue moves at the speed of factories, not headlines — the refill order is signed, but it pays out over years.
3) The Robots Are Writing. The Editor Gets Paid.
One more report from this week that the crowd mostly missed. GitLab — the platform where software teams store, review, and secure their code — reported Tuesday night: revenue up 21%, earnings of 24 cents a share against an 18-cent estimate, record bookings, and raised full-year guidance. The stock jumped about 11% on Wednesday, to near $50.
The interesting part is why. The fear hanging over every software toolmaker has been that AI writes the code now, so who needs the tools? GitLab's quarter argues the opposite. CEO Bill Staples put it plainly: as AI drives more software creation, "the context, security, governance and control GitLab provides become increasingly valuable."
Think of AI as a thousand new writers showing up at the newspaper. The volume of copy explodes — and the editor who checks it, approves it, and keeps the libel out becomes more important, not less. More code means more editing. GitLab is the editor's desk, and net new recurring revenue grew more than 40%.
The pairing: GitLab (GTLB) — Watch
So why not buy the confirmation? Check the tell we always check: after the pop, the stock sits near $50 while the average analyst target is about $40 — below the price, with a consensus Hold. We saw this movie with Tenable last month: a stock that jumps over its own targets usually gives some back while the models catch up. On its adjusted profit guidance, GitLab costs about 58 times this year's earnings — a full-price ticket. Market cap: about $7.5 billion, squarely in the wheelhouse. Our entrance: a pullback toward the pre-report price, or another quarter proving the AI tailwind is a trend and not a bounce. What kills it: growth slipping back under 20%, or AI coding agents starting to bypass the editor's desk entirely.
Before You Go
The machine built around the chip, the motor inside the missile, and the editor behind a thousand new writers. Same discipline in all three: when the crowd argues about the loud name, get paid one step behind it.
Housekeeping, in one breath: Lululemon reported Thursday evening and Tesla showed off its Cybercab after we went to press; Saturday's review grades both, along with our Nutanix trigger now that Broadcom has spoken. And one honest update: Dell, down 7% at Wednesday's open when we last wrote, reversed and closed the day sharply higher — either way, the memory bill is real, and our Onto Innovation thesis rides the bill, not the bounce.
We'll see you tomorrow.
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Written by Behind the Markets