HOLT TMT: Divergence in Software, CFROI Acceleration Screen, & Broadcom (AVGO)

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HOLT TMT: Divergence in Software, CFROI Acceleration Screen, & Broadcom (AVGO)

g the leading performers, with an average share price

increase of 50%+ over the past six months. These leaders share a common set of

attributes: strong earnings revisions and accelerating revenue growth supported by AI-

driven workload expansion, with business models structurally levered to usage-based

monetization. As a result, the market is embedding robust expectations, with ~20%

long-term revenue growth priced in (see figure 4 - right side).

In contrast, ADBE, INTU, ROP and WDAY - among the 80th percentile (cheap) - have CFROI revisions measure the impact

fallen an average ~40% over the past six months, with several names experiencing on the firm's CFROI from a change in

materially larger drawdowns. These laggards are underperforming not because the IBES consensus earnings

fundamentals are deteriorating, but because the market is increasingly penalizing estimates from one period to the

companies with less clearly monetizable AI exposure and decelerating near-term growth next.

trajectories. Notably, CFROI revisions for these firms continue to improve (see figure 5).

This mismatch highlights a growing disconnect between underlying economic

performance and stock price performance. In contrast to the leading companies where

AI is driving visible revenue acceleration, these laggards are viewed as participants rather

than beneficiaries, with limited evidence of incremental demand uplift. As a result,

expectations have stagnated and valuations, previously supported by durability and

consistency in CFROI and growth, are being compressed. These companies are priced for

little-to-no growth longer-term (see figure 4 - left side)

Figures 6 and 7 illustrate this divergence.