DK Street Journal

Russia suspended diesel exports this summer while Ukrainian drones kept striking the refineries that would have supplied them, and the world's remaining fuel plants have been running flat out ever since. American refineries operated at 96.5% of capacity in late July, processing 17.2m barrels of crude a day, and distillate stocks still sat about 12% below their five-year seasonal average. The benchmark US 3-2-1 crack spread — the margin on turning three barrels of crude into two of gasoline and one of distillate — reached an all-time high near $72 a barrel, with diesel cracks above $91. It started the year near $20.

The quarter was real

Marathon Petroleum, which runs Gulf Coast, Mid-Continent and West Coast plants alongside a pipeline network feeding about 7,159 branded outlets, saw its refining and marketing margin double to $36.33 a barrel from $17.58. Net income was $5.14bn against $1.22bn.

Valero Energy, with 15 refineries totaling roughly 3.2m barrels a day plus ethanol and renewable diesel plants, took refining operating income to $4.5bn from $1.3bn and raised its dividend to $1.20. Phillips 66, which pairs 12 refineries with chemicals and midstream businesses, said it captured 98% of the market crack indicator and guided to a 95% capture rate this quarter. HF Sinclair, an independent refiner across six interior states now separating its lubricants arm into a standalone company, more than doubled refining EBITDA. Delek US, four refineries and 248 convenience stores, swung from a $106m loss to $169.5m of profit. PBF Energy, a merchant refiner with six plants and no upstream cushion, went from a 0.6% operating margin to 10.9%, though $250m of that came from an insurance settlement on its Martinez fire.

Management teams argue this is not a spike. Valero told investors roughly 5m barrels a day of global capacity is offline across the Middle East and Russia and product inventories sit about 130m barrels below normal, with no full recovery through 2027. Two US plants are gone for good: LyondellBasell's 263,776 b/d Houston refinery closed in early 2025, and Phillips 66 permanently stopped crude processing at Wilmington, California, 139,000 b/d.

The share moves, though, were not gradual. From mid-July to 7 August the six names were flat to slightly down, earnings and all. Then between 8 and 14 August they gained 15.3% on average, rising together on four consecutive sessions as the diesel crack exploded on the Russian export ban and renewed Hormuz tension. This was a commodity shock priced into equities, not a verdict on any one company.

What consensus already assumes

Every one of the six trades below its trailing multiple on forward earnings — Marathon at 7.75x against 12.2x trailing, PBF at 5.27x, Phillips 66 the dearest at 10.38x. That looks like a group priced for collapse. It is closer to the opposite. Analysts model Marathon's earnings per share falling from $45.87 this year to $30.77 in 2027 and $19.66 in 2028. On that last figure the stock sits at 18.1x, Valero at 17.5x, and Delek at a small loss. The cheap forward number is peak-cycle arithmetic; the out-year number is what the market is actually paying.

On assets the picture splits. PBF trades at 1.33x book and 4.77x trailing EBITDA, near tangible value, and cut net debt by $1.4bn in the quarter. HF Sinclair is at 1.63x book with a 15.3% free-cash-flow yield. Marathon is at 5.42x book and Delek at 9.5x — the two ends of the same trade.

There is a second split worth noting. Marathon, Valero, Phillips 66 and HF Sinclair have all shrunk their diluted share counts, Marathon by 5.8% in a year and from 638m in 2021 to 291m now. The two twelve-month leaders have gone the other way: PBF's count rose 5.6%, Delek's 3.3%. The stocks that ran hardest are the ones whose owners got diluted. Marathon, Phillips 66 and Valero returned $6.3bn in the quarter, and TD Cowen's Jason Gabelman estimates Valero and Marathon will buy back about 20% of their market value by end-2027 — while cutting his rating on Valero on the view that the refining outlook priced in is too bullish.

Two dated risks sit ahead. Delek said crude backwardation compressed from $6-7 to about $1.50, which feeds into third-quarter cracks roughly one-for-one, and that it carries no meaningful hedge on its spread. And global refinery downtime is projected near 8.5m barrels a day in October as autumn maintenance peaks — capacity offline that supports cracks but also means barrels these companies do not run.

The setup

Where it stands — Record diesel cracks delivered the best refining quarter since 2022, and five August sessions repriced all six names together.

Would confirm — Distillate inventories staying more than 10% below the five-year seasonal average through the autumn turnaround season.

Would invalidate — 2027 consensus earnings per share for Marathon holding near $30 rather than being cut toward the 2028 path.

Watch next — October, when global refinery downtime peaks near 8.5m barrels a day; third-quarter results follow in late October.

Valuation — Marathon at 12.2x trailing and 7.75x forward earnings, but 18.1x its own 2028 consensus; group forward range 5.3x-10.4x.

Two of the three best-performing security-software stocks of the past month have not published a financial statement since spring. Rubrik, which sells backup, cyber-recovery and threat analytics for corporate data estates, last reported in early June. Zscaler, which routes enterprise internet traffic through its own cloud instead of through office firewalls, last reported in May — and when it did, it guided next year's annual recurring revenue to grow only 16–17%, and the shares fell about a third in a session.

Both are now among the most-bid names in the group.

A month made in three sessions

Across the 30 days to 14 August, the seven names — CrowdStrike, Palo Alto Networks, Fortinet, Zscaler, Okta, Cloudflare and Rubrik — gained an average of 10.7%, with five of seven positive. Rubrik led at 27.2% and Zscaler followed at 23.9%. Remove those two and the average falls to 4.8%.

No member gained more than 10.4% in any single session. The month was instead built out of three broad up-days. On 4 August six of the seven rose between 4.3% and 8.4% as the Nasdaq Composite gained 2.59% in a rotation back into software. On 11 and 13 August they rose again, after the Black Hat conference in Las Vegas, where BTIG reported that the most consistent theme in its meetings was that AI agents have "fundamentally changed the threat landscape" while deployment of AI security tools remains early. Rubrik also drew a product headline: the Cloud Security Alliance named it a founding member of its AI-security leadership group.

The run-up to the window is the tell. On 14 July, security shares rallied on cooler June inflation data — CrowdStrike up 11%, Palo Alto 7% — the same day IBM chief executive Arvind Krishna warned that clients would pause new security purchases until they knew what securing artificial intelligence would cost.

The price of a dollar of gross profit moved; the dollar did not

Because several of these companies lose money under standard accounting, the usable comparison is what buyers pay per dollar of gross profit. Against this desk's own 29 July reading, Rubrik went from 12.8x trailing gross profit to 18.3x — a 43% re-rating in sixteen days, with nothing filed in between. Zscaler went from 10.1x to 12.2x. CrowdStrike's price-to-sales rose about a fifth on the same silence.

What the businesses actually did is uneven. Fortinet, which builds FortiGate firewall appliances and runs its own operating system and custom chips, grew June-quarter revenue 25.6% to $2.05bn, a fourth straight acceleration. Its reported operating margin widened 5.7 points to 33.7%, billings rose 33%, and free cash flow more than tripled to $966m. Cloudflare, which operates a global edge network selling content delivery, denial-of-service protection and zero-trust access, grew 35.9% to $696.1m with net revenue retention at 120% and remaining contracted revenue up 38% — though its operating margin worsened on $99m of severance, with full-year restructuring charges now guided to $165m. CrowdStrike, whose Falcon platform sells endpoint and identity protection by subscription, grew 25.6% to $1.39bn and improved its operating margin by 9.1 points; it split its shares four-for-one on 29 June, and adjusted for that is up roughly 103% over twelve months.

Against those three, the rest are harder. Palo Alto's headline 31.1% growth is mostly the roughly $25bn purchase of identity vendor CyberArk, closed in February: gross margin fell 5.3 points, operating income swung to a -$183m loss, and the share count rose from 713m to 744m. Rubrik is the fastest grower at 39%, but that is down from 51.2% three quarters ago. Okta, which sells single sign-on and multi-factor authentication, has decelerated four quarters running to 11.2% — and is up 78% in three months. Zscaler grew gross profit 26% last quarter, matching CrowdStrike, yet sell-side targets have been cut at UBS, Wedbush and RBC.

The gap that has not closed

Price per dollar of trailing gross profit across the seven spans nearly six-fold: Okta 10.6x, Zscaler 12.2x, Rubrik 18.3x, Fortinet 19.4x, Palo Alto 41.0x, CrowdStrike 57.8x, Cloudflare 61.4x. On forward gross profit the ordering barely shifts, meaning consensus expects the cheap names to stay cheap rather than converge. In Okta's case that looks justified — analysts model 10% revenue growth in fiscal 2028.

Five of the seven have traded with their 50-day average above their 200-day since May or June; Zscaler only crossed on 13 August. The single name whose multiple fell while its numbers rose is Fortinet: its trailing price/earnings ratio compressed from about 59x to 55.9x through the best quarter in the group, and it was the second-worst performer of the month.

The setup

Where it stands — The month's biggest gainers re-rated on conference narrative and rate-cut pricing, not on results they have yet to publish. Would confirm — Rubrik's next quarter holding revenue growth at or above 39% rather than extending its slide from 51%. Would invalidate — Zscaler confirming 16–17% ARR growth for fiscal 2027 at its 8 September report. Watch next — CrowdStrike and Okta report 26 August, Palo Alto 1 September, Zscaler 8 September. Valuation — Cohort spans 10.6x to 61.4x trailing gross profit; Fortinet sits at 19.4x trailing, 18.1x forward.

The seven largest listed American companies got substantially more profitable over the past year, and investors ended up paying less for each dollar of that profit. Combined trailing gross profit across Nvidia, Apple, Alphabet, Microsoft, Amazon, Meta and Tesla rose close to 30%. The average multiple applied to it contracted about 8%. Equal-weighted, the shares gained roughly 16% — a year underwritten by the income statement rather than by enthusiasm.

Gross profit is the honest yardstick here because reported net income has become unreliable. Alphabet booked $112.2bn of net income in the June quarter on $119.8bn of revenue — a 93.7% net margin against a 34.0% operating margin — on a large non-operating gain. Price-to-earnings ratios built on figures like that describe an accounting event, not a business.

The three that grew into their prices

Nvidia, which designs the graphics processors and networking gear that data centers use to train artificial-intelligence models, is the extreme case. Its trailing gross profit rose 80.5% to $187.95bn while the multiple on it fell from 42.9x to 29.0x. The shares still rose 23.7%. Consensus expects the growth to continue: forward price-to-earnings is 25.0x against 34.3x trailing, the widest such gap in the group. The counterweight is concentration — roughly 61% of revenue comes from a handful of buyers, and Nvidia's share of AI accelerators is expected to ease from about 80% toward 75% by year-end as those same customers build their own chips.

Microsoft, which sells Office and Windows alongside the Azure cloud platform, is the sharpest recent example of price catching up to profit. Its trailing earnings per share rose 31.6% to $17.95 over the year while its trailing multiple compressed from about 38x to 27.5x. On July 29 it reported June-quarter revenue of $90.0bn, up 18%, with Azure accelerating to 43% growth and contracted future revenue of $678bn. The shares rose about 3% on the beat and extended toward 8% only when Hood said the calendar-2026 capital-expenditure forecast was unchanged. The stock gapped 15.5% the next session on four times normal volume and has added a quarter of its value in a month. It is still cheaper on gross profit than a year ago.

Amazon carries the lowest multiple in the group at 7.2x trailing gross profit, having got marginally cheaper as gross profit grew 18.5%. Its cloud arm grew 36.7% to $42.2bn in the June quarter, a fifth consecutive quarter of acceleration, with backlog at $496bn — and 2026 capital spending raised to $220bn from $200bn on memory-price inflation.

The one that re-rated

Alphabet, the owner of Google Search, YouTube and Google Cloud, is the exception that proves the point. Its shares rose 70.4% on gross-profit growth of 24.0%; the multiple went from 11.3x to 15.4x. The business is genuinely accelerating — cloud revenue up 82% to $24.8bn with operating margin widening from 20.7% to 35.6% — but free cash flow was minus $5.9bn in the quarter, capital-spending guidance rose to $195-205bn, and long-term debt went from roughly $16bn to $98.2bn in a year. Consensus 2027 earnings per share of $15.01 sits 26% below the $20.24 modelled for 2026, which puts the shares near 23x on those numbers rather than the 17x the screens display.

The one that de-rated

Meta, owner of Facebook, Instagram and WhatsApp, is now the smallest company in the group by market value at $1.50tn. Its shares fell 24.6% over the year while gross profit rose 27.3%; the multiple on gross profit fell from 13.7x to 8.1x. Advertising revenue grew 27% to $59.4bn in the June quarter. But GAAP operating income fell 8.2% to $18.78bn and operating margin went from 43.0% to 30.9%, against capital spending guided to $130-145bn. The de-rating came in two steps tied to spending, not to advertising: shares slid when Meta lifted its 2026 capex outlook toward $145bn in April, and fell about 10% after hours on July 29 on guidance and shrinking free cash flow. Forward price-to-earnings of 18.4x sits below 21.9x trailing on consensus 2026 earnings of $32.00 a share, and the analyst target averages near $754 against a $589.85 close. The market is repricing an advertising business as a capital-spending business.

The two that fit neither box

Apple is the only member whose multiple expanded while it was being marked higher: 18.2x to 19.8x gross profit on 19.1% growth. Its forward multiple of 34.7x is indistinguishable from its 34.9x trailing, meaning consensus prices in no earnings relief at all. June-quarter revenue grew 16.4% to $109.42bn at a 50.1% gross margin, but September guidance is for 9-11% growth and 47-48% margin. Tim Cook, on his final earnings call, called it a "100-year flood on memory pricing"; TechInsights puts the memory bill in an iPhone 18 Pro at roughly $145 against about $39 a generation earlier. John Ternus becomes chief executive on September 1.

Tesla is the only one of the seven where earnings fell and the multiple rose. Trailing earnings per share dropped 37.5% to $1.08 while the trailing multiple went from about 194x to 290x. June-quarter operating income fell 56.9% to $398m — a 1.4% operating margin on revenue up 25.5% — and the shares fell 14.5% on the print to an eleven-month low. Capital spending is guided above $25bn with a $30bn debt facility behind it. Cheapness is not the issue; there are no earnings to be cheap against.

The common thread is how the spending is funded. Hyperscalers and Nvidia have issued $225bn of bonds so far in 2026, a nearly ten-fold jump, and credit spreads on Alphabet, Amazon and Meta have widened. Microsoft's premium this month was awarded for the one thing none of the others offered: a capex number that did not go up.

The setup

Where it stands — The group's year came from profit growth, not a higher price tag; Alphabet alone re-rated, and Meta alone collapsed. Would confirm — Meta's operating margin stabilizing above 31% in the September quarter while advertising revenue growth stays above 20%. Would invalidate — Nvidia's gross profit decelerating below 30% growth, which would make its lower multiple a warning rather than a discount. Watch next — Nvidia reports on August 26; Apple's first quarter under John Ternus begins September 1. Valuation — Meta trades at 8.1x trailing gross profit against 13.7x a year ago; Nvidia 29.0x trailing, 18.7x forward, from 42.9x.

When the buyers stalled

On 22 July, Pegasystems — which sells workflow-automation and customer-decisioning software to banks, insurers and government agencies, priced per case rather than per user — told investors its first half had "significantly underachieved." Management blamed "unprecedented confusion" over the economics of artificial intelligence: enterprises were not cancelling projects so much as postponing them until they knew what tokens would cost. Growth in annual contract value, the industry's order book, halved to 8% in constant currency. The shares fell 16% that day.

Two weeks later HubSpot, which bundles marketing, sales and service software for mid-sized businesses on per-seat and per-contact pricing, said much the same thing. It beat on revenue and earnings, then cut its full-year guidance, citing tightened corporate budgets and a shift toward outcome-based AI pricing that lengthens sales cycles. It added 7,000 net customers against an expected 9,000 to 10,000, and guided the second half down to 5,000-6,000 a quarter. The stock fell 18% on 6 August, its worst session on record.

Freshworks, which sells help-desk and IT-service software to companies below roughly 20,000 employees, reported in the same week and said it saw no material sales-cycle impact from AI vendor noise at all. It called AI a demand driver.

One day did most of the work

All seven of these companies nonetheless rose over the past month, by about 13% on an equal-weight basis. That average is a single session in disguise. On 28 July, every member gained at once — HubSpot 16.2%, Pegasystems 13.6%, Braze 11.6%, Salesforce 11.4% — in a market-wide rotation out of semiconductors into enterprise software that also lifted ServiceNow and Workday. Remove that day and the group's month shrinks to 2.6%, with HubSpot down 10.4% and Pegasystems down 9.1%. Remove the two other biggest up-days and only Zeta is still positive.

Four are compounding, two are breaking

Twilio, whose programmable interfaces let developers embed voice, text and email into their own apps, is the group's clearest accelerator: revenue growth has risen four quarters running to 22%, and dollar-based net expansion reached 116% from about 108% a year ago. Management lifted full-year organic growth guidance to 13-13.5% from 9.5-10.5%. The shares rose 26.6% on 7 August to an all-time high.

Zeta Global, which predicts consumer intent from opted-in data and runs marketing campaigns off it, grew revenue 43.5% — 28% excluding acquisitions — in a twentieth consecutive beat-and-raise quarter. It also disclosed that Gap has made Zeta its system of record, displacing Salesforce and three other vendors, and that its data platform is now integrated with Palantir Foundry, with none of that in guidance.

Freshworks grew 16% and posted its first GAAP profit, $3.2m, ahead of schedule; its employee-experience line is growing 24% while its customer-experience line grows 4%. Braze, which orchestrates cross-channel messaging from app behavior data, delivered a fourth straight quarter of accelerating growth at 30%, with net retention up to 110% — but it is still loss-making, and it is the only member whose share count is rising, up 5.9% year over year.

Salesforce is the one that does not fit

Salesforce, the largest seller of per-seat sales and service software, has accelerated for three consecutive quarters to 13.3% growth. Operating margin reached 21.8% from 19.8%, net income rose 36.7%, and the diluted share count fell 10.2% — the deepest buyback here. The stock is down 15.9% over twelve months and spent 87 sessions this year in a steep downtrend. It costs 13.9x forward earnings against 22.6x trailing, on a 9.1% trailing free-cash-flow yield, and consensus models next year's growth at 9.4% — below what the company just reported. Its Agentforce agent business reached $800m of annualized revenue, up 169%, with the next quarterly print due 26 August.

The price of a dollar of gross profit

The month has been multiple expansion, not earnings catching up to price. Against readings taken on 29 July, five of six names now cost more per dollar of gross profit: Twilio 11.42x to 13.37x, Braze 5.41x to 6.23x, Salesforce 4.47x to 4.83x. Only HubSpot got cheaper. Since early May, Freshworks has re-rated 41%. Gross margin, meanwhile, is compressing at four of the seven — Zeta by 300 basis points on channel mix, Braze by 290, HubSpot by 160.

The striking comparison sits one layer down. DigitalOcean, which rents servers and GPU capacity to developers and startups, trades at 22.6x forward gross profit — roughly 1.8 times Twilio, the priciest application name, and six times Pegasystems or HubSpot at 3.73x. Its own gross margin has fallen 487 basis points to 55.0%, the steepest compression in this set, while AI-customer revenue tripled. The rung below is priced as growth infrastructure; the rung above is priced as melting seats. This quarter they moved in opposite directions: DigitalOcean is down 16.1% over three months, the software layer up 27.3%.

The trends underneath are just as divided. Twilio's 50-day average has sat above its 200-day since 17 April, 80 sessions; Pegasystems has been the reverse since 30 January, 133 sessions, and HubSpot since 16 January. Zeta sits in the 96th percentile of its 52-week range, HubSpot in the 15th.

The setup

Where it stands — A one-day sector rotation supplied most of a 13% month, while the underlying businesses split cleanly into four accelerating and two stalling. Would confirm — Salesforce reporting a fourth straight quarter of accelerating revenue growth above 13% on 26 August. Would invalidate — Twilio's Q3 organic growth landing inside the guided 11-12% step-down, confirming the Q2 beat was carrier fees and acquisitions. Watch next — Salesforce's fiscal Q2 2027 results, 26 August 2026; HubSpot's Q3 net customer adds against the cut 5,000-6,000 target. Valuation — The group spans 3.73x to 12.78x forward gross profit; DigitalOcean, the cloud beneath it, costs 22.6x.

On 5 August, Paycom Software — an Oklahoma City vendor whose single-database payroll, time-tracking and benefits system runs the back office for small and mid-sized American employers — beat quarterly estimates and raised its full-year forecast. The next session did most of the work of its month. The shares closed nearly 24% higher, and that one day accounts for about three-fifths of everything Paycom has gained since mid-July.

That matters because Paycom is more than half the combined market value of the three companies in this corner of software, and because the other two names have no comparable event behind them. Paylocity, a Schaumburg, Illinois rival selling payroll and human capital management to the same mid-market employers, added 17%. ZoomInfo, which sells a business-to-business contact database with buying-signal tracking to sales and marketing teams, added 29% — while telling investors its revenue will shrink this year.

The profit line moved, not the top line

Paycom's second-quarter revenue was $531.2m, up 9.8%, with recurring revenue up 11%. Operating income rose 50% to $168.5m. Operating margin reached 31.7%, against 23.2% a year earlier. Management attributed the gain to a 2025 data-center build now saving more than $100m a year in research and development, plus a $30m cut in third-party AI token fees — artificial intelligence is currently reducing Paycom's own cost base, not its customers' headcount. Management said client employment growth remains stable and consistent with historical levels.

Underneath, the growth curve is bending down: 23.2% revenue growth in 2023, 11.2% in 2024, 8.9% in 2025, and a raised full-year guide of $2.197-2.212bn that still implies 7-8%. Diluted earnings per share of $2.34 was up 48% on net income growth of 20%, the difference coming from a share count that fell to 45.9m from 56.3m. Paycom bought back $1.4bn of stock in the first half, cutting shares outstanding by a fifth, with $1.66bn of authorization left. After the beat, analysts raised targets sharply — TD Cowen from $149 to $244, Baird from $183 to $245 — leaving a consensus of $269.76 across 25 analysts.

The one that is actually shrinking

ZoomInfo is the case the AI-disruption thesis was written for, and its quarter confirmed it. Revenue of $310.4m grew 1.2%; gross profit fell slightly. Net revenue retention — what existing customers spend this year against last — dropped to 89%, from 90% in each of the prior three quarters. The company took a $651m goodwill impairment and a $35m restructuring charge, producing a net loss of $643.7m. Headcount is down 15% year on year with several hundred more cuts planned, and smaller-customer contract value fell 12%. Management said software-sector softness "doesn't get better near term" and is modelling no recovery. A securities class action is pending, with a lead-plaintiff deadline of 24 August.

One piece is growing: the Operations segment, which sells data by consumption rather than by seat, grew contract value 20%. On cash measures the stock is genuinely cheap — 1.13x trailing gross profit and a 37.6% free-cash-flow yield — but consensus models revenue declining again in 2027.

Paylocity sits between them. Fiscal 2026 revenue of $1.771bn grew 11% on a client base up roughly 7%, with operating margin at 21.8% against 19.1%. Then it guided fiscal 2027 to $1.880-1.895bn, about 7%. Seats are still being added; the price per platform is what is decelerating.

Nothing here is distinctive

The wider software complex moved at least as much. Over the same window Workday rose 40%, Atlassian 77%, ServiceNow 18% and Salesforce 18%, helped by soft producer-price data that carried the S&P 500 to a record close on 13 August. The bear case that mattered most — that falling rates would gut interest earned on customer payroll floats — is not currently operative: the Federal Reserve's target range stands at 3.5-3.75% with a pause the baseline for the rest of 2026, ADP is guiding client-funds interest revenue up, and Paycom's outlook assumes stable rates. The employment base is likewise intact: ADP's data showed private employers adding 122,000 jobs in May and 98,000 in June.

On price per dollar of gross profit — the fair comparison across very different gross margins — Paycom trades at 5.56x forward and Paylocity 6.07x, against 22.56x for DigitalOcean, the developer cloud these applications run above. DigitalOcean is guiding roughly 30.5% revenue growth this year. The HR names are guiding 7-8%. The gap in price is doing exactly what the gap in growth asks of it.

The setup

Where it stands — Three HR and sales-software names are up about 30% in a month on one earnings beat and a broad software re-rating. Would confirm — Paycom recurring revenue growth holding at or above 11% year on year in the third quarter. Would invalidate — Paycom cutting its $2.197bn revenue floor, or Paylocity tracking below its $1.880bn fiscal-2027 guide. Watch next — ZoomInfo's class-action lead-plaintiff deadline, 24 August; Paycom's third-quarter results in early November. Valuation — Paycom 23.1x trailing and 18.2x forward earnings, versus about 12.6x forward on its 16 July price.

GDS Holdings, which builds and rents colocation space — power, racks and cooling — to Chinese cloud and internet firms, used its 13 August earnings call to report the strongest half-year of sales in its history: 260 megawatts of new bookings in the second quarter, 470 in the first half, and a full-year target lifted to a gigawatt from 500 megawatts. Backlog rose from 450 megawatts in January to 757 at midyear. The shares slid anyway, on tighter margins.

A week earlier, SharonAI — founded in 2024, 25 employees, a high-performance-computing and GPU-cloud operator that mostly rents space in other people's buildings — disclosed a six-year, $4.9bn collaboration with Nvidia covering 40,000 GB300 chips and 72 megawatts. Its quarterly revenue was $1.93m. The stock rose 54% in five sessions.

That contrast is the whole of the month's move in this group. Across the six names, the sum of one-month returns comes to 31.7 percentage points, and SharonAI and WhiteFiber supply 31.0 of them. Keel Infrastructure fell 10.8%; VNET fell 1.6%. Stretch the window to three months and four of the six are down double digits, for a group average of -6.2%.

The charts agree with the businesses less than they appear to. Five of the six moved into weaker trends over the past 90 days, and every transition was downward. GDS and VNET have both had their 50-day averages below their 200-day since late June.

What the operators reported

GDS grew first-quarter revenue 23.6% to about $470m and expanded gross margin to 33.6% from 23.7% a year earlier. The catch is forward pricing: management guided monthly recurring revenue per megawatt down roughly 3% by the fourth quarter against a year earlier, as legacy contracts reprice and new markets dilute the mix, and raised capital spending to about $1.4bn. Net leverage is 4.7x. It trades at 14.2x trailing EV/EBITDA and 1.45x book, the cheapest anchor in the set — falling on record demand.

VNET, which runs 78,540 cabinets across 40 self-built Chinese data centers, shows the cost side more plainly. First-quarter revenue grew 19.8% to about $375m, but gross profit grew 8.9% and gross margin fell to 22.9% from 25.2%. Free cash flow is deeply negative, a trailing yield of -41.5%, the worst here.

Applied Digital, a former crypto miner that now hosts AI computing in North Dakota, is the extreme version. Full-year revenue rose 183.7% to $611.3m, and its 10-K carries a $36.2bn lease backlog after roughly $20bn of new 15-year hyperscaler contracts were signed in the quarter. Yet fourth-quarter gross margin collapsed to 15.7% from 42.5% the quarter before, as revenue doubled and new capacity started depreciating. At 48.8x forward gross profit it is more than double DigitalOcean. Its anchor tenant, CoreWeave, now carries $35.6bn of debt.

Keel, which develops data centers and power infrastructure in North America, is the one name whose decline the numbers support. Second-quarter revenue fell 60.9% to $30.4m, gross margin was deeply negative, and it has still signed no high-performance-computing lease. Its forward price-to-sales of 18.8x sits above its trailing 13.9x — the multiple gets dearer because consensus has revenue falling 59% this year.

WhiteFiber, spun out of Bit Digital last year to run GPU-optimized halls and rent GPU capacity by the hour, is the closest thing here to a supported advance. Revenue rose 54% to $28.8m, colocation revenue nearly tripled, and it is the only member whose forward gross-profit multiple, 14.5x, undercuts DigitalOcean's 22.6x. But $12.3m of the quarter's cloud revenue came from a customer termination, gross margin slipped to about 59% from 61%, and permanent financing for its North Carolina site is not yet closed against $56.1m of cash.

The margin tax is the common thread

DigitalOcean, which sells the same compute by the virtual machine to developers, grew revenue 28.6% last quarter while gross profit grew 18.1% and gross margin fell to 55.0% from 59.9%. That is the pattern repeating at VNET, at WhiteFiber, and inside a single Applied Digital quarter. Signed megawatts are being converted into depreciation faster than into gross profit. Nvidia's July backstop, under which it rents back unused GPU capacity at a fixed rate, addresses the lenders' problem, not the margin one.

The setup

Where it stands — The month's gain belongs to two contract announcements; the operators reporting record bookings are in downtrends. Would confirm — GDS holding gross margin above 30% while backlog converts toward its gigawatt booking target. Would invalidate — Applied Digital's gross margin recovering toward 40% in the September quarter as new halls bill. Watch next — SharonAI's fourth-quarter revenue ramp, the first material revenue management has promised. Valuation — GDS 14.2x trailing EV/EBITDA, 1.45x book; Applied Digital 48.8x forward gross profit against DigitalOcean's 22.6x.

On 28 July, investors sold semiconductor shares and bought software that had spent the first half of the year going down. Six of the nine companies here rose in that single session — Atlassian by 17.1%, Samsara by 12.5%, Nutanix and BILL by 10.7% each — on a day Salesforce gained about 7%, ServiceNow about 8% and Workday close to 10%. Nobody had reported anything. The rotation came first.

The results came nine days later, and where they landed matters more than the average.

The five that showed their numbers

Dynatrace, which sells software that watches enterprise applications and bills per host and per gigabyte of telemetry, reported on 5 August that annual recurring revenue crossed $2bn, up 17% in constant currency. Net new recurring revenue of $85m was 66% higher than a year earlier. Organic growth in that measure has now accelerated four quarters running, and management raised the full-year outlook.

Atlassian, the Sydney maker of the Jira issue tracker and Confluence wiki, reported on 6 August revenue of $1.77bn, up 28%, with cloud revenue up 31% and remaining performance obligations up 44% to $4.82bn. The profitability turn was the real event: gross margin rose to 86.9% from 83.1%, and operating income under generally accepted accounting principles (GAAP) swung to $211.7m from a $28.5m loss.

Twilio, whose application programming interfaces (APIs) let developers send text messages and place calls, reported the same day. Revenue reached $1.5bn, up 22%. Dollar-based net expansion — what existing customers spend this year against last — hit 116%, against roughly 108% a year ago. Management lifted full-year organic growth guidance to 13–13.5% from 9.5–10.5%. The shares rose 26.6% the following session.

JFrog, which runs Artifactory, the repository where companies store and govern the software packages they build with, grew revenue 29% to $163.8m, with cloud revenue up 53%. Net dollar retention improved three points to 121%. It is still loss-making on a GAAP basis, at -$4.2m, and trades at 100.8x forward earnings.

DigitalOcean, which rents virtual machines and graphics-processing-unit (GPU) capacity to small developers, added a record $93m of incremental recurring revenue and guided full-year revenue to $1.17–1.18bn. Its shares still fell 21.2% on 28 July, the only one of the nine to drop while six peers rallied.

The four that did not

Veeva, Nutanix, Samsara and BILL have not reported since the spring — and two of them were the month's biggest gainers after Atlassian.

Nutanix, a San Jose vendor whose Acropolis platform bundles virtualization, storage and networking for enterprises leaving VMware, rose 22% on no news. Revenue growth has decelerated four consecutive quarters, from 19.2% to 10.0%. The company announced a workforce reduction in early August. What defends it is the profit line: operating income grew 51% on that 10% revenue growth, at an 86.9% gross margin, and the forward price/earnings multiple is 30.4x against 65.3x trailing.

Veeva, which sells clinical, regulatory and customer-management software only to drugmakers, rose 25.9%. The trigger was a contract, not a quarter: Eli Lilly committed to Veeva's Vault CRM globally on 11 August. Revenue grew 16.3% to $882.9m in the April quarter at a 30.9% operating margin, though gross margin slipped to 74.7% from 77.1%. At $243.75 the shares sit at the consensus 12-month target of $244.14, where estimates run from $165 at Goldman Sachs to $350. Results land 26 August.

Samsara, which sells dashcams and telematics to trucking and construction fleets, grew revenue 30.5% to $478.8m and turned GAAP operating income positive at $7.2m. Gross margin eased to 75.4%. It trades at 55.9x forward earnings.

BILL Holdings, which automates bill payment for small businesses, is the cheapest of the nine at 14.8x forward earnings and a 7.7% trailing free-cash-flow yield, and the slowest-growing at 13.5%. It reports on 19 August.

What actually did the work

Every one of the eight names this desk priced on 29 July costs more against its trailing gross profit today, two and a half weeks later. Atlassian went from 4.83x to 7.64x, Veeva from 13.13x to 15.92x, Twilio from 11.42x to 13.37x, Nutanix from 6.67x to 7.52x. Nutanix's has risen 50% since 11 May without a single earnings report in between. Gross profit did not move that fast. The multiple did.

Concentration compounds the point. Atlassian's 76.8% month supplies 42% of the equal-weighted gain and roughly 57% of the market-value-weighted one. Strip it out and the other eight averaged 13.0% — better than the S&P 500's 2.9%, but behind ServiceNow's 18.4% and Salesforce's 17.5% over the identical stretch.

What the month does not support is the idea that this is a round trip. Eight of the nine are up over three months, averaging 35.4%, and all nine now trade above their rising long-term averages, where seven were in downtrends between February and May. Twilio's 50-day average has held above its 200-day since 17 April. DigitalOcean lost that status on 13 July and JFrog on 13 August.

Where the label breaks

The common description of these businesses as infrastructure with a moat hides one hard division: what it costs them to serve a customer. Eight carry gross margins between 74.7% and 86.9%. DigitalOcean's has fallen six straight quarters, from 61.4% to 55.0%, as data-center and GPU capacity converts into depreciation. In the June quarter revenue grew 28.6% to $281.2m, gross profit grew 18.1%, and GAAP operating income fell 17.5% to $29.4m. Committed future revenue rose twelvefold to $894m on the company's first nine-figure contracts. Even after a 41% slide from June's high, it remains the most expensive of the nine at 26.3x trailing gross profit — about 3.5x Nutanix — on an 89.4x forward P/E. That is a de-rating with an arithmetic reason behind it.

The setup

Where it stands — A rotation into beaten-down software lifted all nine; five earned it with results, four have not yet been asked. Would confirm — Veeva's 26 August quarter showing revenue growth at or above the 16.3% it just posted. Would invalidate — Nutanix's next print holding revenue growth near 10% while price-to-gross-profit stays above 7x. Watch next — BILL reports fiscal fourth-quarter results after the close on 19 August. Valuation — Group price-to-gross-profit rose at all eight measured names since 29 July; DigitalOcean 26.3x trailing, 22.6x forward, the dearest.

Every 1.6-terabit optical module and 224-gigabit electrical lane bound for an AI data center has to be proved out on somebody's instruments before it ships. Keysight Technologies, which makes the oscilloscopes, network and signal analyzers and bit-error-rate testers that do that proving, took in $2.05bn of orders in its fiscal second quarter against $1.72bn of revenue — a book-to-bill near 1.19, and a record.

The question worth asking about a company whose stock has more than doubled in a year is how much of the growth it bought. Keysight paid $1.4bn net of cash for Spirent Communications, a British network-test firm, and separately acquired the French simulation-software house ESI Group. Both flatter the reported numbers. But the company disclosed that acquisitions contributed only 700 basis points of the 56% order growth and currency another 100, leaving core order growth of 48%. Revenue was up 24% on the same organic basis. The Communications Solutions unit, which serves network equipment makers and datacom customers, grew 35%; the Electronic Industrial arm, selling into semiconductor and automotive engineering labs, grew 24%.

Management told investors on the call that AI-related business in the first half of fiscal 2026 — roughly $500m to $600m — had already exceeded all of fiscal 2025. Most of Keysight's business is booked and recognized inside six months, so backlog does not disguise much. Free cash flow was a record $472m, and $220m of it went to buybacks.

The margin is not what it looks like

Reported operating margin jumped to 23.7% from 15.8%. That is an accounting artifact. A Supreme Court ruling that tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were unlawful led Keysight to book a $100m receivable and a $40m customer-refund liability, cutting reported revenue by $40m and expenses by $97m. Strip the expense credit and underlying operating margin lands near 17.6% — about flat year on year, and equal to the full-year fiscal 2025 figure. Volume is growing; operating leverage, so far, is not.

What the price already assumes

At $357.82 the shares trade at 58.9x trailing and 35.2x forward earnings, 10.0x trailing sales and a 2.4% free-cash-flow yield. Against its own history that sales multiple sat near 4.0x at the end of fiscal 2023, 5.2x in 2024 and 5.9x in 2025. It has roughly doubled.

What has stopped is the stretching. Since early May the trailing price/earnings ratio has moved from 59.2x to 58.9x and price/sales from 10.1x to 10.0x, while the market value rose 6.3% to $61.15bn. Earnings genuinely grew into the price. The forward multiple, though, has crept from about 33x to 35.2x, because next year's estimates have not risen as fast as this year's results.

The shares are up 2.5% over three months and sit 4.2% below their 52-week high, having lagged Teradyne, which makes chip-testing machines, at +23.9%, and the switch maker Arista Networks at +40.0%. Among the storage-and-cloud names Keysight is grouped with, NetApp — enterprise data-storage systems, 5.4% revenue growth — rose 72.7% over the same stretch on a multiple that doubled, while the developer-cloud host DigitalOcean fell 16.1%. Keysight is the one whose numbers moved first and whose price moved least.

Into the 18 August print, guidance is $1.730bn–$1.750bn of revenue and $2.43–$2.49 of non-GAAP earnings per share; consensus sits at the top of both. The average of thirteen analyst targets, $387.69, is about 8% above the last close, with Truist at $376 on a Hold.

The setup

Where it stands — Business accelerating four quarters running and mostly organic, but priced at roughly double its own three-year sales multiple. Would confirm — Fiscal Q3 core order growth above 30% and a book-to-bill again above 1.1 on 18 August. Would invalidate — Underlying operating margin below 17.6% ex-tariff items, or fiscal 2027 revenue guidance under the $7.68bn consensus. Watch next — Fiscal third-quarter results after the close on 18 August 2026. Valuation — 58.9x trailing, 35.2x forward earnings; 10.0x sales versus about 4.0x, 5.2x and 5.9x at the last three fiscal year-ends.

DigitalOcean, which rents virtual machines and graphics-processor hours to individual developers, start-ups and small businesses, told investors on 7 July that it expected a record second quarter, with remaining performance obligations — revenue already under contract but not yet delivered — above $800m, more than ten times the year-earlier figure. It cited multiple nine-figure annual commitments from customers buying inference capacity. When the quarter actually printed on 4 August, the company raised full-year revenue guidance to $1.170–1.180bn from $1.130–1.145bn set in May.

The shares had already fallen by then, and they fell again on the print.

The demand side is not what broke

Revenue growth has accelerated in each of the last four quarters: 15.7%, 18.3%, 22.4% and 28.6%, the most recent taking quarterly revenue to $281.2m. Incremental annual recurring revenue of $93m was a record, up 191%. Annual recurring revenue tied to artificial-intelligence customers reached $234m, from $170m three months earlier, and 85% of it came from inference and core cloud services rather than raw bare-metal rental. Contracted future revenue finished at $894m against $71m a year ago, with the weighted-average contract length stretching from 1.6 years to over three. Non-GAAP earnings of $0.45 a share beat the $0.26 consensus by 73%.

The cost side is

Gross margin has declined in six consecutive quarters, to 55.0% from 61.4% in early 2025 — down 489 basis points year over year in the June quarter alone. Gross profit grew 18.1% against revenue growth of 28.6%. Depreciation and amortization went from $33m to $51m as data-center capacity purchased in 2025 landed on the income statement, and GAAP operating income fell 17.5% to $29.4m, with operating margin at 10.4% against 16.3% a year earlier. Adjusted free cash flow margin was 22% in the quarter, against 26% a year earlier, and management guides the full year to 11–13%. Trailing free cash flow yield is essentially zero.

The pressure is not company-specific. GPU hourly rental rates paid across the sector fell 20–25% over the past year, with the buyer of the hardware absorbing the depreciation. DigitalOcean's roughly 155 megawatts of committed capacity across 20 data centers is a fraction of what CoreWeave or Nebius operate, so it competes on inference and developer workloads rather than large-scale model training.

What the shares did, and against what

The stock peaked at $181.29 on 15 June, fell to $106.76 on 29 July and closed at $129.92 on 14 August. Roughly a third of the decline came before any July company news, during a stretch in which chip stocks shed more than $1trn on doubts about AI capital spending. Over three months DigitalOcean is down 16% while Nutanix, the enterprise-infrastructure software vendor that is the other big riser in this corner of cloud, is up 44%. Over twelve months the ranking inverts entirely: DigitalOcean is up 325%, Microsoft down 5% and Oracle down 39%.

Whether the price level leaves room

Forward price-to-sales has compressed to 12.9x from roughly 15.5x at the May peak. Because gross margin differs so sharply across these businesses — Nutanix earns 86.9%, DigitalOcean 55.0% — price against gross profit is the fairer comparison, and there DigitalOcean sits at 22.6x forward versus 6.5x for Nutanix. It is a 3.5x premium on consensus growth of 31% this year and 54% next, against 12% for Nutanix, whose revenue growth has slipped to 10% while its operating income grew 51%. Reported earnings are the wrong lens: consensus has DigitalOcean's earnings per share falling 29% this year, to $1.45, on 31% revenue growth, entirely because of depreciation and stock compensation.

On 23 July the company retired about $472m of its zero-coupon 2030 convertible notes, funding it by selling 12.5m shares at $117.54, leaving pro-forma net leverage at 0.7x with $767m of cash. That removed the conversion overhang and added roughly 12% to the share count in the middle of the drawdown.

One number the company did not give is net dollar retention — the spend growth of existing customers — which was absent from the release, the presentation and the call. With growth increasingly concentrated in a handful of very large AI-native accounts, it is the disclosure that would settle how broad this is. Analysts have not followed the price down: the median target across 13 of them is $175, and Barclays cut to $160 while keeping an overweight rating.

The setup

Where it stands — Growth is accelerating and margins are compressing at once; the shares have given back a third of a spectacular year. Would confirm — Gross margin stabilizing at or above 55% in the September quarter as capacity fills. Would invalidate — Third-quarter revenue below the $304–307m guide, or contracted future revenue failing to grow from $894m. Watch next — Third-quarter results in early November, with full-year adjusted free cash flow margin guided to 11–13%. Valuation — 12.9x forward sales against 15.0x trailing; 22.6x forward price-to-gross-profit versus Nutanix at 6.5x.

Three businesses that sell into the same artificial-intelligence build-out have been lumped together as one advancing group, and the arithmetic doesn't hold. NetApp, which sells all-flash storage arrays and the ONTAP software that runs them, plus first-party cloud storage services resold through Microsoft Azure and Amazon Web Services, rose 27.7% in the month to 14 August. Keysight Technologies, which makes the oscilloscopes, signal analysers and bit-error-rate testers engineers use to validate 800-gigabit and 1.6-terabit networking hardware, rose 10.9%. DigitalOcean, a developer-first cloud renting virtual machines and graphics-processing-unit (GPU) hours to start-ups and small businesses, rose 8.6%.

NetApp alone accounts for roughly 59% of that average. And nothing happened at NetApp inside the window: the company guided fiscal 2027 revenue to $7.325bn–$7.575bn back in May and does not report the July quarter until 2 September.

What NetApp actually did

Fiscal 2026 revenue, for the year ended April, was $6.925bn — growth of 5.4%. The trajectory inside that year improved genuinely, from 1.2% year-on-year in the first quarter to 12.5% in the fourth, and fourth-quarter operating income rose 52.6%. The company reported record all-flash array revenue of $1.2bn, up 18%, and record public-cloud revenue of $182m. It bought DataPelago in July to speed data processing for AI workloads.

What moved was the multiple, not the business. In early May the shares traded at 18.2x trailing earnings and 4.55x gross profit. They now trade at 32.2x and 8.29x. Forward gross profit is 7.68x — almost nothing has been priced out, meaning the market is not expecting the growth rate to change much. Morgan Stanley upgraded the stock only to Equal-weight on 8 August and raised its target to $173, 16% below where the shares closed. A separate target lift to $210 on AI storage demand leaves the price essentially at the top of the range. Consensus has fiscal 2027 revenue up 9.2%.

Keysight: earnings grew into the price

Keysight's April quarter was its best ever. Revenue rose 31.5% to $1.717bn; gross profit rose 44.7%; operating income nearly doubled, and operating margin reached 23.7% against 15.8% a year earlier. Orders hit a record $2.05bn, up 56%, well above revenue, and first-half AI-related revenue already exceeded all of fiscal 2025.

The striking part is the valuation. Trailing price-to-earnings is 58.9x against 59.2x in early May — unchanged, on a market capitalization 6% larger. Forward earnings are 35.2x, a 40% compression that assumes the roughly 44% earnings growth consensus already models for the year ending October. This is a recent inflection rather than a trend: fiscal 2024 revenue fell 8.9%. Keysight reports the July quarter after the close on 18 August.

DigitalOcean grew fastest and fell furthest

DigitalOcean's June-quarter revenue accelerated to 28.6%, the fastest in years, and AI customer annual recurring revenue reached $234m, up 212%. Remaining performance obligations jumped to $894m from $71m as the company signed its first nine-figure commitments.

Gross profit grew only 18.1%. Gross margin fell to 55.0% from 59.9% as GPU and data-center depreciation scaled, and reported operating income fell 17.5%. The shares dropped almost 8% premarket on the beat and sit 28.3% below their six-month high, even as forward enterprise-value-to-revenue has fallen from about 15.5x in May to roughly 13x. Trailing earnings are 51.6x; forward earnings are 89.4x, because consensus expects reported earnings per share to fall 29% this year.

The month was borrowed

Shift the same 30-day window back two weeks, to July, and the three-name average flips to minus 3.2%, with DigitalOcean down 18.7%. The late-July selloff across data-center-linked names followed a shift in how AI capital spending is funded — incremental annual debt rose from 9% of hyperscaler capex in fiscal 2024 to 32% by mid-2026. August was the snap-back, and it was sector-wide: over the identical window Dell rose 18.9%, Hewlett Packard Enterprise 23.9% and Super Micro 48.2%. DigitalOcean and Keysight both lagged that group.

The setup

Where it stands — NetApp carries the month on a doubled multiple and 5% growth; Keysight carries the fundamentals on an unchanged one.

Would confirm — Keysight's 18 August print showing orders again above revenue and full-year revenue growth held near 29%.

Would invalidate — NetApp's 2 September quarter growing double digits with fiscal 2027 guidance raised above $7.575bn.

Watch next — Keysight fiscal third quarter, 18 August; NetApp first quarter, 2 September.

Valuation — NetApp 32.2x trailing, 23.2x forward, versus 18.2x in May; Keysight 58.9x trailing, 35.2x forward, versus 59.2x.