'Demand for accelerated computing is exceptionally high': Ellerbroek on tech sector

追加: 2026-05-31

[00:00:00]Time for hot picks, and today we're looking at the tech sector. For more, let's bring in Jed Elebroek, portfolio manager at Argent Capital Management.

[00:00:08]Jed, thanks very much for joining us.

[00:00:11]>> Hey, thanks for having me today.

[00:00:12]>> Okay, uh Microsoft showing up for you. Uh what what has your attention there?

[00:00:18]>> Yeah, Microsoft is a beaten-down stock over the last year. It's been caught up in a lot of the software disruption from AI fears.

[00:00:26]Um and I think that's unfounded. We've actually seen Microsoft stock rebound here and uh perk up over the last month, month and a half. Um we think Microsoft is an attractively priced stock, just a hair over 20 times earnings, which for it is is on the low side. Um and I think that they're um you know, they're infusing AI, you know, tools and functionality into a lot of their software products, which is going to make them more relevant for customers and help to continue their growth alongside um Azure, which is their cloud computing unit, growing about 40% a year and um and speeding up here in in the next couple quarters. So, I think there's a lot of good news. I think Microsoft has um deeper ties with its customers than just about any software company in the world. And uh and so we think that they are a software winner. And we think investors are starting to pick through the rubble that is that has become of software in the last six or nine months and identifying stocks that are going to be attractive going forward. We're seeing that this morning with with Octa, uh which reported, you know, results yesterday afternoon.

[00:01:27]>> Any concerns with Mark Zuckerberg's comments that uh maybe they might be getting into cloud wars with Amazon and Microsoft? He said it uh what's the quote? "It's definitely on the table."

[00:01:37]>> Yeah, it's a it's a really big ocean. Um cloud computing, the the demand for those services and tools is exceptionally high today. There are a lot of neo clouds that are jumping into cloud computing.

[00:01:48]Um SpaceX um is is, you know, rented out some of their some of their AI factory capacity to Anthropic um recently. So, uh so no, I I think right now there's more demand than there is supply. New entrants are coming into the you know, coming into the cloud computing industry, but the the the big boys, um, you know, Amazon's AWS, Microsoft's Azure, Google's GCP, um, are in an exceptionally strong competitive position.

[00:02:16]>> They know how to play. And the And software, the the death of software greatly exaggerated?

[00:02:21]>> Um, in some cases, yes. Um, I think there will be, you know, software businesses that that struggle to grow in the future as they have in the past because, um, because their their use to customers is surpassed by new AI functionality. But there are also a handful of software companies, and probably more than a handful, that have very very strong growth prospects going forward and are going to adopt AI tools, improve their products, and become even more useful for customers going forward.

[00:02:47]So, I think it it, you know, is going to span the entire spectrum.

[00:02:51]>> All right. Uh, let's move on to TransDigm.

[00:02:55]>> Yeah, TransDigm is an aerospace and defense company, um, that has really all parts of their business, all all all parts of their customer base growing strongly. The defense business is growing. Um, the US Department of Defense budget continues to grow at a high single-digit or low double-digit pace. Um, that's been helpful.

[00:03:14]Uh, and then commercial aerospace is growing strongly as well. Both, um, new equipment, uh, new new plane shipments from Boeing and Airbus, and then also the aftermarket business sold mostly to airlines. Those are both growing double-digits as well. So, all all customer groups are firing. They also have been doing acquisitions recently, which are contributing new growth to the company.

[00:03:34]And, uh, we think the CEO, who's who's, you know, about at the one-year mark, is off to a good start in his tenure.

[00:03:40]>> What are some of the acquisitions they picked up?

[00:03:43]>> Yeah, they bought a couple, um, companies out of California.

[00:03:46]Um, Sierra was the name of one. Um, they're companies that do aftermarket parts mostly for airplanes. So, you know, that that aftermarket business is appealing because the products usually are sourced from only one or two competitors, which gives the supplier, TransDigm in this case or the companies they bought, um you know, good pricing power and also the ability to, you know, project demand forward um years in advance with with um high likelihood.

[00:04:12]And does it almost put them into a silo?

[00:04:16]It does. Yeah, the aerospace and defense business is extremely siloed product by product, which limits competition within each silo. That's why you see a lot of um a lot of successful aerospace companies making acquisitions and and kind of consolidating um the industry.

[00:04:31]Heico's been very successful doing that, you know, dozens and dozens of acquisitions over the last year.

[00:04:36]TransDigm is another group um in that category as well.

[00:04:40]>> Okay, and uh last one we want to get to, uh Broadcom, the earnings are coming out. It's another one I think people are going to be paying attention to.

[00:04:46]>> Yeah, huge company, huge earnings report coming tomorrow or uh excuse me, next week on Wednesday afternoon.

[00:04:52]Um demand for accelerated computing is exceptionally high. We saw Nvidia's results 2 weeks ago. They're obviously the the market leader, uh but Broadcom and their, you know, um kind of custom customer chip efforts are doing very well, too. They're the primary supplier behind Google's TPU.

[00:05:10]They're also working with um Meta and Open AI and a couple other companies to develop their custom accelerator chips.

[00:05:16]Demand is extremely high. Those customers are placing a very high priority on the internal development of those products with Broadcom's help. So, we see exceptionally strong demand. Uh and then of course they have, you know, the other half of their business is is software, um where I think we are seeing sentiment improve. Broadcom's stock has done pretty well lately. It's at an all-time high, but I think it's still reasonably priced. Um investors have been more excited by other, you know, kind of racier semiconductor stocks, memory, um and also recently some of the edge hardware companies. So, while semiconductors have been doing great, Broadcom um, has actually been lagging the group and we think is a a pretty attractive candidate to buy today.

[00:05:57]>> And what are you going to be looking for in the earnings to maintain that optimism?

[00:06:01]>> Yeah, their guidance for next quarter is going to be big. They'll tell us more about, um, you know, TPU ordering plans.

[00:06:07]Google is now selling those chips directly to customers. And so I think that's a big new, uh, step up in demand coming here over the next couple quarters for Broadcom.

[00:06:16]>> And any concerns with AI right now or does it seem like it's settling in and it's real?

[00:06:21]>> Yeah, demand remains quite a bit higher than supply. And so it's all systems go across really the entire, um, the entire supply chain. Um, Nvidia, of course, leading the way, but so many others at this point following.

[00:06:36]>> All right, uh, Jay, we got to wrap it up there, but thanks as always for joining us.

[00:06:40]>> Have a good day.

[00:06:41]>> Jay Della Brocco, portfolio manager at Argent Capital Management.