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- [00:02]
A
What should investors do with a new wave of IPOs coming? You're listening to Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. I'm John Quass and I'm joined today by fool contributors Matt Frankel and Rachel Warren. And later in the show, we do want to talk about some a new IPO that is coming to market as well as a question from you regarding what to do with new IPOs when they do go public. But first, we wanted to talk about a earnings that came out this morning. And that is from Monday.com. this is a enterprise software company and we've been talking about the the death of sath stocks. And this kind of reminds me of the Monty Python routine where they're saying bring out your dead. And the one guy's like, I'm not dead yet. I'm actually getting better. Well, Monday.com gets lumped in with the stocks that are doomed. And it reported today the market apparently loved it because, man, the stock jumped in about 25% in pre market trading. I see it's down from that now that we're recording. But this is a stock that got hammered down over 70% over the last year. But there must have been something here that the market liked. Rachel?
- [01:16]
B
Yeah, I mean, the stock has taken a massive beating over the last year, down significantly. And it's worth noting, you know, Monday.com stock is still down about 50% year to date at the time that we're recording this episode. And I think what we've been seeing is really, I think a lot of the market appetite that's been surrounding a lot of software stocks, right? This fear that generative AI will either disrupt Money.com's customer acquisition, maybe render its project management tools obsolete. But certainly there were a few things that the market liked. So for starters, money.com beat analyst expectations on the top line with $351 million in revenue. That was a 24% year over year increase. The company also delivered adjust earnings per share of $1.15. That's compared to what analysts were guiding for of just 93 cents a share. Management also raised their guidance for 2026. They're now looking to bring in about 1.5 billion in revenue. There's the launch of their new AI work platform. Also net dollar retention rate was 110%. So there were certainly some good numbers that the market seems to like.
- [02:23]
A
Matt, what stood out to you?
- [02:25]
C
Yeah, so in a nutshell, the market was pricing in three things, right? Rapidly slowing growth, margin compression and the risk of AI disruption. And this quarter really showed better than expected results when it comes to all three of those things. So Rachel noted that Monday beat expectations on the top and bottom line. They gave excellent guidance beyond those headlines. Looking at RPO's remaining performance obligations, which is future booked work that was up 33% year over year. And anytime you see future revenue growing faster than current revenue, it's generally a good sign and the market takes it as such. Enterprise customer expansion is a very, very impressive story. Monday's clients that account for more than $100,000 in annual recurring revenue that grew by 39% year over year in the quarter, much higher than the overall top line. Those tend to be very sticky customers. So that's a part of the story the market market's really paying attention to. Management specifically pointed out that 10% of new annual recurring revenue was driven by AI specifically, and that it expects that to continue to grow. They just announced their new cease plus credit business model or pricing model, which a lot of AI software companies are expected to do. They just announced that last week. And it will be rolled out over time. And it should help keep revenue growing as AI can do more of its customers work for them. And finally, on the issue of margins, operating margin doubled to 6% from 3% a year ago. And despite the really strong revenue growth, management said that headcount is going to remain relatively stable for the next year. And that is a good indicator that we should see margins kind of expand even further. So all three areas looked really good.
- [04:06]
A
Well, something that you said just then, Matt, you talked about how the market was pricing in a rapid deceleration in the revenue growth rate. But I wonder if maybe the celebration here from the market wasn't premature. Because if you do look at the numbers, the top line is continuing to decelerate. So in the fourth quarter it had 25% growth. That was last quarter, 25%. This quarter the growth was 24%. And then next quarter it's expected to be 18 to 19% growth. So the, the trend line is still slowing down and it makes. I mean, the margin improvement was great and everything, but I think that it still leaves the core question to the thesis intact here. It's that is this business starting to approach a ceiling? And the decelerating growth would tend to indicate that because of the AI tooling that's coming out. Is that siphoning off some of its potential business and causing it to have a less big opportunity than what investors thought a couple of years ago?
- [05:06]
B
Yeah, I think that's the major tension here. Right? I mean this was a pretty significant growth story a few years ago. I certainly Monday.com is becoming a more mature enterprise business, but that deceleration unit is real. You know, when you're seeing mid-20s growth slow down to, you know, 18 to 19% next quarter, that's not really the trend line you want to be looking at. And the slowdown is coming from a few factors. You've got smaller businesses that are tightening their belts. And so Monday.com is really leaning heavily into moving up market to grab those bigger corporate contracts. They're expanding their multi product strategy. They really have to squeeze more value from the customers that they already have. I think the big question that the market still has that a lot of investors still have is whether Monday.com becomes, you know, a victim of AI or the master of it. Right. So you've kind of got the bare case, which is that AI might eventually just allow teams to build their own custom workflows. So that makes a platform like this one redundant. Now Monday.com and their management are obviously betting that AI will be glue for their platform. You know that new AI work platform I mentioned, it's designed to automate kind of the tedious parts of project management, try to make the software stickier for their clients. For me, the biggest drawback for this business or the stock, I should say, you know, they're not profitable on a GAAP basis. They're still really leaning heavily into stock based compensation. I think the stock is probably going to be under pressure for a while.
- [06:30]
A
Okay, Matt, go ahead and give us the counter argument here.
- [06:33]
C
Yeah, as I mentioned, the growth in RPOs and the AI specific revenue growth, they're certainly encouraging and revenue is expected to slow over the next quarter. But remember that that seats and credits model is going to take several quarters at a minimum to roll out to all of its customers. So keep that in mind. But they're not out of the woods. So what they needed to do, they did. They reframed the narrative from Monday is losing to AI to maybe AI could be a tailwind for Monday. They needed to reframe the narrative like that. And they did that with this quarterly report. But at the same time, I would place a big emphasis on that word maybe in that sentence. I personally am not a buyer here. It's on my radar, especially with the massive buybacks they're doing. But they are not out of the woods yet. But solid quarter. Credit where it's due.
- [07:18]
A
Credit to where it's due, indeed. But that's all the time we have for Monday. When we come back from our break, we're going to be talking about an AI semiconductor company that could go public as early as this week. You're listening to Motley Fool. Hidden Gems Investing.
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A
Fool Hidden Gems Investing. We have a question coming up about IPOs in just a moment, but before we go there, we we want to talk about an actual IPO that could happen as early as this week. Many investors may not have heard about it, but you're going to be hearing about it. The company is called Cerebras, and Cerebras is in the news today because it just increased the expected IPO range for what it's going to be going public at, the company is looking to raise nearly $5 billion in its IPO. That would value it at around $50 billion. So this is going to be a big IPO. And I do want to note as well that this is an incredible increase in the valuation just from a few months ago. So back in September, the company did a Series G funding round and was valued at about 8 billion at the time. So this is roughly 6x what it was valued at just what, seven months ago. So very interesting, but this is going to be a big ipo. Rachel, go ahead and start us off here. What is Cerebras and how does this company make money?
- [09:44]
B
Yeah, so essentially Cerebras is looking to build a massive alternative to Nvidia's empire by rethinking what a chip even looks like. So instead of making thousands of small chips from one Silicon wafer. They actually use the entire wafer to create one giant processor, the wafer scale engine. They say this can train and run AI models far faster than traditional GPUs. So they don't just sell silicon. They package it into these multimillion dollar supercomputer systems that handle everything from power to liquid cooling in a single unit. And so they make money through a few different channels. One is selling these massive hardware appliances. They provide recurring software and support services. They also offer AI as a service where companies can rent time on chips via the cloud. Now, they've recently landed very significant deals with hyperscalers like aws. In March, they signed a binding term sheet with AWS that was the first major hyperscaler to commit to deploying Cerebras systems in their data centers. They just signed a big deal with OpenAI. And a lot of the excitement around these deals is what you're seeing in that updated IPO range of 150 to $160 per share, you're seeing reports that that demand is 20 times oversubscribed for the IPO. They could raise nearly 5 billion in their public debut. So this is certainly an upcoming IPO that the market is going to be paying very, very close attention to.
- [11:11]
A
Matt, I'm just curious here, and I know it's on every listener's mind as we talk about this. What competitor alternative to Nvidia. That sounds exciting. What would be some brief bull and bear cases for Cerebra stock when it goes public? Map.
- [11:27]
C
Yeah, it's pretty clear, actually, the bull case is the truly unique nature of Cerebris's hardware. I mean, independent testing shows that one of their products, the CS3, delivers 21 times faster inference than Nvidia's flagship GPU and with 32% lower costs when you include things like energy and hardware. There's a case to be made that Cerebras is well positioned for the shift away from from training AI models, which is what we've been doing so far and why Nvidia's GPUs have been so successful to running AI models where speed becomes the most important thing and that's where they excel. And that's especially true as the agentic AI boom unfolds. I mean, the big agreements with OpenAI and AWS Rachel mentioned, they certainly help the bull case as well. At IPO, Cerebras is going to trade for roughly 100 times sales, assuming a $50 billion market cap, but it grew revenue by 76% year over year. With a 47% GAAP net margin last year. So there's a lot to like there. On the bull side, there are several bear cases other than the valuation and the general hype surrounding the IPO customer concentration is huge, which Rachel can touch on in a bit. It's important to mention that Nvidia is developing competing products and Nvidia has pretty much an unlimited R and D budget, which would scare me investing in any competitor of Nvidia. There's a lot of future growth priced in here and there's more that can go wrong than a lot of investors seem to think, especially if you buy the $50 billion valuation.
- [13:01]
A
Rachel, what else do you see in this?
- [13:04]
B
Yeah, I mean, I think there's a few different ways to look at this. Obviously there's the bull case that really, I think goes back to Cerebras architectural moat. By using one massive processor on a single wafer instead of thousands of small chips, they could eliminate a lot of the bottlenecks we've seen. It could make it its hardware, you know, significantly faster for next gen AI reasoning. I think the most obvious bear case for anyone looking at this business that it's important to be aware of is customer concentration. So in 2025, two UAE affiliated entities accounted for 86% of their total revenue. And that was a company called G42, as the Mohammed bin Said University of Artificial Intelligence. Now, as I mentioned, they're working to diversify away. You know, they have these new deals with OpenAI, with AWS, but it's certainly something to be aware of. And then, you know, obviously the business is not GAAP profitable at this point. So at that $50 billion valuation, the market is essentially pricing in perfect execution. So if the software essentially fails to break Nvidia's ecosystem or adoption slows, there's really no margin for, for error.
- [14:11]
A
Okay, so I'm going to move into a final question here. It doesn't look like either of you are eager to buy the Cerebras IPO on day one. But rather than just leave it there, let's talk about what you'll be watching with this company. What might you look for in this first year of being a publicly traded company that might change your opinion and make you a buyer of this stock?
- [14:36]
C
The short answer is a lower, lower valuation, but the longer version. I'll almost never buy an IPO stock on day one, and Cerebras is not going to be an exception. I don't see myself buying cerebras on days 2, 3 or 4 either. All of the recent AI adjacent IPOs, at least the ones I can think of, have been turbulent at best, even when they performed well. And in most cases they've been terrible performers. Think companies like Figma, the hype is too high for what I would consider a rather speculative stock at this point. So I'll be staying away. But to really answer your question, if they kept these growth numbers alive and the valuation went down to something that was a little bit more palatable, that's probably what would get me interested.
- [15:18]
B
Yeah, I think I'm similar here to Matt. I mean, looking at that IPO range, the 20 times over subscription, that shows massive hype. But again, that concentration, that customer concentration, that's something I'm still a bit wary of. For me, kind of the key metric to watch is really going to be the execution of these new contracts with OpenAI, the hyperscaler grow. I think if they can successfully transition that backlog into recognized revenue, build out these partnerships, I think that could be really favorable for their long term growth. But until that diversification is really visible in the quarterly numbers and they can really show true operating profitability, I think the valuation we're expecting leaves no room for any slowdown in adoption. So I'll be watching from afar for now.
- [16:05]
A
Well, we're headed to the break, but when we come back, we are continuing on this subject of IPOs. As we dip into our mailbag, you're listening to Motley Fool. Hidden Gems Investing, study and play come
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- [16:46]
A
Welcome back to Motley Fool Hidden Gems Investing. One quick note. We want to make you part of the conversation here. So if you have a stock or investing question for any of us here on the show, you can email us@podcastool.com we'd love to just hear from you. We'd love to take your questions. We ask you to keep them brief, keep em foolish, but we want to get to em as we can. That email again is podcastool. Com Podcastool. Com and this question we got, it's so timely. It says hello fools. I started investing during the pandemic and currently have a growth oriented portfolio since I'm in my mid-30s with companies like Anthropic, OpenAI, SpaceX and we'll add Cerebras to the question here, potentially going public in the coming years, I'm considering trimming some profitable positions to invest in these IPOs. How do experienced investors generally approach high conviction IPOs? Do they typically rotate out of existing positions or deploy fresh capital? Also when major IPOs enter the market, do they usually impact specific sectors? And I'll go ahead and just summarize the rest of the question there it says thanks Sandip. So here's, here's my basic summary of what he's just asked. Essentially I have some winners in my portfolio. Should I sell at least some of the positions I have to invest in these new companies that I really like and or, or should I be adding new money to my portfolio and some other things in there. So let Matt, I'm going to let you go ahead and speak to this first.
- [18:24]
C
Yeah, so I've certainly trimmed positions in the past, especially those I already consider to be richly valued. If I saw a compelling opportunity a long time ago, I trimmed half of my Apple position because I thought it was richly valued and it was getting a little overheated. But it's usually to sell a stock in one industry and buy something undervalued in another, not to do what I would essentially call diversifying your AI trade, which is what you're talking about with some of those big investments there. A word of caution for me on that strategy especially would be the tax implications of selling appreciated stock. If you have like a 10 bagger in your portfolio that you're going to sell to buy some of these IPOs, beware of the tax bill you're going to get. My preferred approach in situations like this when there's an IPO that I really like and would like to own. For me, a recent example is Klarna would be to invest a very little bit in the beginning of new money, not selling and gradually build a position over time. Again, not personal advice, just what I do. So think of some of the recent IPOs I mentioned. Klarna Figma's another one. Some of the other hyped IPOs from last year, StubHub was another one that I remember. Investors who like those companies would have been better off instead of rushing in during the IPO hype, waiting a little while, maybe buying a little bit at first and then incrementally adding over time. And when the hype dies down, the market figures out what it actually wants to value these businesses at. Investors in a lot of cases would have been better off. And I don't have a crystal ball, but I believe there's a strong chance of that happening again, especially given the hype surrounding some of these IPOs.
- [20:02]
A
Yeah, and I just want to weigh in here real fast just to point out the obvious. It's not personalized investing advice. We're discussing the strategies, the do I sell a winner to get that cash to buy something new, or do I just put the new cash in? We're discussing these strategies and the merits behind either side of the equation. Matt basically saying what he does as far as his preferred strategies. But Rachel, how about you?
- [20:26]
B
Yeah, I, I think I have a similar mindset there. I mean, very much that that urge to, to chase a generational IPO like SpaceX, like open the Eye is understandable. I think for me, the idea of maybe trimming my most profitable positions to, to fund a newcomer to the market, that's probably not a move I would take. I tend to be of the mind for my personal portfolio that I'd rather deploy fresh capital for new entries rather than trimming, you know, established winners in my portfolio. Now, I do personally tend to avoid brand new IPOs. I like to wait for that initial hype to settle. I think it often reveals the true value of the business once that early volatility has subsided. That's just my approach. I wanted to also weigh in briefly on the impact that some of these IPOs can have on the broader market. Right. So often these massive IPOs act as liquidity vacuums, if you will. So let's say you have a dominant player like OpenAI that hits the market. A lot of times you'll be seeing institutional managers might sell off their smaller second tier AI or software stocks to clear portfolio space for that new industry leader. So you can sometimes see that sector wide rotation and that can put some of our holdings under temporary selling pressure, just as we kind of see those broader movements in the market. But you know, it doesn't change long term fundamentals for quality businesses that are already performing. So just something to bear in mind as you watch the sector react with these IPOs coming up.
- [21:49]
A
And just maybe as a final thought here from me, I've always liked Warren Buffett who says he got it from Peter lynch, but it always makes a lot of sense to water your flowers instead of cutting your flowers. We, we prefer to cut the weeds as a general rule, but it's definitely part of a winning investment strategy. Keep those flowers watered if you can. Well, that's all the time we have for today. As always, people in the program may have interest in the stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our first full advertising disclosure, please check out our show Notes. Thanks to our producer, Dan Boyd, and the rest of the Motley fool team from Matt, Rachel and myself. Thank you so much for listening today, and we'll see you again in the next episode.