T Mobile USA (TMUS): We were a little nervous about TMUS heading into the company’s 4Q24 earnings report.  Growth has slowed modestly, while AT&T and Verizon have seen improved growth.  TMUS has been a great stock performer on a consistent trend of better-than-expected subscriber, revenue, operating profit, and free cash flow growth.  In early December, at a Wall Street conference, management appeared to warn of a potential shortfall in subscriber growth by noting the holiday quarter was always heavily weighted to December.  The shares fell from an all-time high of about $245 to $220 just before the earnings report.  It turns out our worries were misplaced.  TMUS reported strong 4Q24 results for subscribers and all key financial metrics and the shares are back near $240.  More importantly, management issued unusually strong guidance for 2025.  Typically, guidance starts off conservative and the company reports a little ahead of expectations.  A willingness to guide 2025 ahead of current street expectations suggests a very high degree of confidence from management.  Beyond continued good results, positive catalysts in 2025 could include updated guidance as the company closes a couple of significant acquisitions.  TMUS is transitioning from a “beat and raise” story to a blue-chip growth compounder.  TMUS shares have doubled in less than three years since our initial purchase.  We do not expect as much upside will exist in the next three years but average gains of 10-20% built on double-digit free cash flow growth create an attractive, high-quality investment consistent with the profile we desire for individual stock holdings.

IBM (IBM): IBM reported better than expected results for 4Q24 and issued better than expected guidance for 2025, further validating our return to growth investment thesis.  Three months ago, IBM shares sold off following the company’s third quarter and we noted, “The stock sold off because consulting and infrastructure segments fell slightly short of estimates.  A 3Q24 acceleration in software is more important for the long-term story, but when a stock is up 2X in two years and more than 60% in 2024, there is no room for error.  This is especially the case for IBM, a fallen angel in the tech world where there remains skepticism about the growth turnaround.”  Our investment thesis at IBM when we first purchased the shares in 2019 was that software was going to allow the company to start growing again.  At the time the shares sold for about 12 times earnings.  Software growth has come through and in the just reported fourth quarter, growth accelerated for the second consecutive quarter.  IBM also has a growth engine in AI.  The company announced it booked another $2 billion in contracts focused on AI.  80% is related to consulting and 20% is related to software. Guidance for 2025 calls for accelerating constant currency revenue growth of 5%.  The shares have doubled since our purchase and now trade at 20 times earnings reflecting the company’s new growth posture.  Even after a 13% gain in the shares in response to earnings, with both pillars of growth accelerating, we think additional multiple expansion is in order that will drive more upside in the shares.  Furthermore, IBM still has a 3% dividend yield.

Meta Platforms (META): META reported another great quarter with revenue growth of 21% on a constant currency basis easily beating estimates.  As has been the case for a couple of years, profit margins also grew more than expected.  After a huge scare in 2022 related to seemingly excessive expense growth, META has worked effectively to control spending on operations.  However, in 2025, expense growth will accelerate to over 20%.  Management did not guide for 2025 revenue growth but analysts are forecasting about 17%, implying a contraction in profit margins.  Expense growth is coming from depreciation of the massive investments in AI infrastructure capital spending and new hires to develop the company’s many AI investments.  This shift in the investment story toward investments and lower profitability would normally hurt the stock.  However, management has earned a lot of leeway with investors over the past two years.  Furthermore, META is an AI leader, and management speaks very confidently about the competitive positioning, revenue opportunities, and productivity enhancements from its AI products and services.  Mark Zuckerberg suggested that 2025 would be an investment year where it becomes clear which AI opportunities will be winners and losers.  He said upside from the heavy investment phase could be evident in 2026 and 2027.  With 2025 looking more like a transitional year, we expect META shares gains to slow.  The shares are up almost 7X since the low in late 2022.  Current business trends should be strong enough to satisfy investors while waiting for the AI investments to pay off.

Apple (AAPL): AAPL reported a modest upside surprise in the December quarter and issued guidance for the March quarter a little better than consensus.  Estimates have been coming down as analysts point to slower-than-expected sales of new iPhones, especially in China.  Investors have turned bearish on AAPL due to the lack of traction for Apple Intelligence features to drive iPhone sales.  Apple Intelligence is not available in China.  The problem there is loss of market share to Chinese brands.  AAPL shares had fallen from an all-time high of $260 just after Christmas to $220 on the growth fears.  Following the earnings report, the shares continued a rebound that was triggered by the new AI service, DeepSeek, from China.  DeepSeek operates very efficiently which has the potential to help get more robust AI features into iPhones, complementing AAPL’s current leadership in small-model AI.  Our discussion about AAPL last quarter mentioned that the shares are expensive given the low-to-mid single-digit top-line growth that is being driven mostly by services (with an assist this quarter from Macs and iPads).  iPhone revenue has been flat to slightly down recently.  We continue to think the shares will be in a trading range until growth picks up.  A growth surge led by iPhones should occur in the next year or two due to new form factors (thinner phones or foldable phones) and a replacement cycle driven by the current four-year average age of iPhones in use.  Apple Intelligence services could trigger the new cycle.  We are willing to wait for growth to resume given the company continues to execute well operationally, growth in high margin services remains robust, and strong free cash flow leads to aggressive share buybacks.  AAPL shares are large positions for many clients, so despite our long-term confidence, clients may see small sales to help maintain portfolio diversification.

IBM, TMUS, META, and AAPL are widely held by clients of Northlake Capital Management, LLC, including in Steve Birenberg’s personal accounts.  Steve is sole proprietor of Northlake, a registered investment advisor.  Northlake’s regulatory filings can be found at www.sec.gov.