We’re executing two strategic portfolio adjustments today. First, we’re divesting 100 shares of Cisco Systems at approximately $87 per share. This move trims the weighting of CSCO in the Charitable Trust to around 2%, down from its previous 2.18% allocation, and reduces our total share count to 900.
Simultaneously, we’re acquiring 30 shares of Alphabet, with each share purchased at approximately $318. This increases the Trust’s exposure to GOOGL to 1.2%, an uptick from its prior 0.95% weighting, and brings our total Alphabet share count to 150.
Cisco Systems, a leader in networking hardware, has experienced a notable rally of roughly 18% since its mid-November earnings report, significantly outperforming the S&P 500’s approximate 2% gain over the same period. This recent surge has elevated its forward price-to-earnings multiple to around 20 times. We’ve advocated for a re-rating of Cisco since initiating our position last July, driven by accelerating order momentum from hyperscale clients and the ongoing campus refresh cycles within enterprise segments. However, with the upcoming earnings announcement on Wednesday evening and the stock trading at all-time highs, presenting a premium valuation compared to its historical mid-teen multiples, we are capitalizing on these gains. Our rationale for taking profits now is to mitigate risk ahead of the earnings print. While we maintain a positive outlook on Cisco’s artificial intelligence narrative, we’re exercising caution due to potential headwinds. Specifically, we’re monitoring the impact of rising memory prices on the company’s gross margins. Furthermore, Cisco’s Security division has demonstrated underperformance in recent quarters, and we don’t anticipate a swift turnaround. Although management successfully raised its full-year guidance in the last quarter despite the security segment’s softness, the stock’s current record-high status may invite increased scrutiny from the market this time around. This sale is expected to yield a robust gain of approximately 28% on the Cisco shares acquired in July.
We are deploying the capital realized from the Cisco sale to selectively increase our position in Alphabet during its recent pullback. Despite delivering excellent quarterly results last Wednesday evening, shares of the tech behemoth have experienced a decline of about 4%. Notably, Google Search revenue exhibited robust year-over-year growth of 16.7%, showing no adverse impact from AI-driven queries. Google Cloud delivered an impressive surge in revenue, up approximately 48% year-over-year, with its backlog expanding by 55% to a substantial $240 billion. The Gemini App, with over 750 million monthly active users, has now nearly matched the user engagement of OpenAI’s ChatGPT.
The market’s current hesitation appears linked to Alphabet’s projected capital expenditures for this year, estimated between $175 billion and $185 billion, a figure significantly exceeding the $120 billion forecast by analysts. This substantial investment spend is anticipated to notably impact free cash flow, which stood at approximately $73 billion in 2025. The company is also leveraging debt financing for these investments, including the issuance of a new 100-year bond that has garnered attention. While some market participants express apprehension regarding the success of these ambitious ventures, we view Alphabet’s rapidly expanding backlog, increased product engagement, and strengthening search advertising revenue as clear indicators that the company is effectively monetizing its significant investments. In fact, we believe Alphabet has emerged as the most compelling performer among the Magnificent Seven megacap technology stocks in its ability to translate investments into tangible returns.
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