VIDEO: This Holding Is Making a Big Move into Cybersecurity

In today’s Portfolio video, Chris Versace shares why he isn’t quite as bothered as some about the Q3 2025 GDP and PCE Price Index data released on Friday morning. He also reviews figures shared by Mastercard (MA) and Visa (V) about holiday shopping spending so far this year and how that supports our Portfolio holdings, including Costco (COST) .

He also discusses M&A developments in the last 24 hours from Google (GOOGL) and ServiceNow (NOW) . That includes sharing why we could see more hyperscalers flex their balance sheets and why we’re encouraged by ServiceNow’s move into cybersecurity, even if we don’t love the price tag.

More Pro Portfolio

At the time of publication, TheStreet Pro Portfolio was long COST, GOOGL and NOW.

Transcript

CHRIS VERSACE: Hey, everyone, Chris Versace here. It is. Tuesday, December 23. Quiet day so far. Remember, we got a shortened trading day tomorrow, December 24. Market closes around 1:00 PM, if I remember correctly. What's going on today?

Well, before the market open, we did get the Q3 GDP rating 4.3%, a little hotter than folks were expecting. And alongside of that, we also got the PCE price index for the third quarter, also a little hotter than people were looking for. That, and we have before, I talk about it, let's remember, the PCE price index is one of the Fed's preferred inflation metrics.

So for the third quarter, it came in at 4.3%. That was warmer than 3.8% in the June quarter and a full point higher than the 3.3% the market was looking for. Now, what does this tell us? Well, let's remember that that is for the third quarter. Here we are, December 23, as I mentioned, getting ready to close the fourth quarter of the year.

So I would argue that while the data helps fill in some of the blanks, some of the missing pieces, if you wanted to think of it that way, the reality is, it's a few months old. We've already gotten data and a variety of it for both October and November.

And next week, we will get the flash PMI data for December from S&P-- S&P, excuse me, global. So if we had gotten this data earlier in the year-- and we didn't because of the government shutdown-- if we had gotten earlier, I think it would have been a little more informative, a little more constructive. But what have we seen with the more recent data?

Obviously, the overall GDP numbers are still showing a growing economy. We look at the numbers from ISM, ADP, even the most recent employment report, obviously, we've seen a sharper slowdown in the jobs market. And the more recent inflation data, particularly the November CPI report, showed an unexpected tick lower.

Now, how much of that is due to one-time items? And we don't rely on any one data point. We look to triangulate. We also look to see, oh, if we get one positive data point, is it an aberration? Does it continue? That means we obviously want to see what the December CPI data has to show but also all the other data.

So where am I going with all of this? The reality is that some folks, they're going to have their hair on fire, given those numbers that we got for the third quarter today. My position is that OK, fine, but it's the coming data that will matter more.

Remember, the Fed has already cut interest rates three times this year, three times in 2024. So in order to see more, it's going to be really a decision that is influenced by the coming data. That is why we will continue to follow the data and adjust our thinking about the economy, make any adjustments to the portfolio that we need to, based on what we see and learn with the oncoming data.

Again, today's data for the third quarter, a little to rearview mirror for my liking. But hey, that is just my opinion on that. Let's stick with the data as well. We also saw some spending data coming out from MasterCard and Visa. Mastercard said their US retail sales, excluding automotive, increased 3.9% year over year. That's between November 1, December 21. So not the entire holiday shopping period, but a pretty good representation of what we've seen thus far.

Over at Visa, it said US consumers were resilient, driving retail spending up just over 4% on a year-over-year basis. So when we step back, those numbers are a little better than I think what people were looking for. I think there's a little bit of a psychological impact that we can attribute to this. And by that, I'm referring to the fall in gas prices.

Again, I say that's more of a psychological factor because people see falling gas prices, they feel a little better. But I think when you do the math, it's not exactly a demonstrative savor to your wallet. So again, I think it's more of a psychological thing.

I will also share too that I am seeing at the grocery store, a much greater use of promotional activity by CPG or consumer packaged goods companies. Case in point yesterday, I saw this-- I kid you not-- buy two six packs of soda get three free. And if you're wondering who made that offer, that was a PepsiCo product.

Now, in yesterday's office hours, we shared with you some thoughts about Costco and how that we continue to like the company's positioning in this current environment. And provided it continues to put up figures that confirm it is continuing to take consumer wallet share, we are willing to remain optimistic bullish long-term shareholders. Call it what you will.

And I think what we saw in these figures from MasterCard and Visa, which we'll likely get updated once we close out the holiday shopping season and the subsequent return and sales, i.e. the balance of December, I think that when these figures get updated, and we get other holiday shopping figures from the National Retail Federation, Adobe, and others, they are going to provide for us a very useful benchmark by which to judge Costco's December retail sales report we'll get in early January.

Remember, we have October. We have November. December will be the missing piece that we get. And that is, again in early January. I can say that based on firsthand observations at Costco, long lines, people walking out with full carts, and you don't really see people putting stuff back at Costco.

We think that Costco is going to continue to be a strong recipient in terms of pulling in additional consumer wallet share this holiday shopping season. And I think as long as we continue to see consumers trading down or with relatively low savings levels, I think that Costco is going to continue to be a beneficiary. I think that's the same for TJX, but I will also say that those Visa, Mastercard numbers are also very supportive for American Express and their transaction volumes as well.

So that's what we're thinking on the consumer front. Much more data on that front to come. Remember, with American Express folks, just like with Bank of America, we continue to watch the position size very closely there, 4.3%, 4.4% If we see them melt up, some prudent portfolio management may be called for.

Yesterday, we talked a little bit about M&A as it relates to Morgan Stanley and Bank of America. We also talked about the IPO market and prospects. But we did talk about the M&A market being very strong in 2025, and that was yesterday morning.

Yesterday afternoon, we learned that Google was acquiring Intersect Power. That's a data center and clean energy developer, $4.75 billion in cash. Plus, they're going to assume Intersect's debt. Now, I see that as Google using its balance sheet to shore up and guarantee the supply of power as it continues to expand its AI data center and cloud footprint, and we know that it's continuing to do that, given its capital spending plans.

I just view it as them using that balance sheet as a competitive weapon to provide them the supply of energy that they need. We have seen through the September quarter earnings season and subsequent reports that energy power, it's kind of a hobbling effect for data center capacity expansion.

So I'm not surprised that Google did this. Remember, they've made other investments in power generation areas previously. I think we're going to see others do this. This could be, again, another reason to favor companies with extremely strong balance sheets that can take advantage of this. We talked about that recently examining the net cash or net debt levels for several of the portfolio's holdings vis-à-vis what we saw at Oracle.

So again, we see this as a positive. Would not be surprised to see more of this. And sticking with the M&A front, last week, we talked about the speculation that ServiceNow would acquire a cybersecurity startup known as Armis. And today, well, a deal was formally announced with ServiceNow paying $7.75 billion in cash. From ServiceNow's perspective, bringing Armis in will obviously improve its cybersecurity capabilities.

But according to CEO Bill McDermott, it is going to more than triple its market opportunity for security and risk solutions. Now, from Armis's perspective, they claim that they have about $340 million in annual recurring revenue, growing at around 50% on a year-over-year basis. Very quick. And remember, that's much faster than ServiceNow's targeted annual growth level of around 20%, low 20% level. So this could be a nice positive for them.

Do I like the nature of the transaction? Yes, you know that we are bullish on cybersecurity, hence our position in the cyber ETF. And we continue to see cybersecurity not only as a growth market but one that should accelerate further as the bad actors really tap AI. Call it the dark side of AI usage. It's a positive tailwind for cybersecurity.

And if you've been reading our signals, including the batch that we shared with you yesterday, then you know that there is simply no slowdown in the vector and the velocity of cyber attacks. So conceptually, we see this as a very good acquisition. I'm not thrilled with the price point. Remember speculation last week was around $7 billion.

Now, the fact that they're paying $7.75 billion, we're going to want to hear a lot more about how ServiceNow is going to integrate this, the expected growth accelerant that it has on the overall company, what the impact on margins could be. To the extent that it's accretive, that's a very big positive.

We're also going to want to hear how ServiceNow is going to integrate not only Armis, but remember, in December, it announced another acquisition of an identity platform by the name of where is it? I got it over here. Versa, I believe.

And if that's the case, then the question becomes, hmm, between these two acquisitions, ServiceNow is really planting a flag in cybersecurity. And if we step back, the bigger question is between AI, cloud, and security, how does this change its competitive positioning vis-à-vis SAP, Salesforce, and some others?

Those are the questions that we're going to want answered when the company reports its December quarter results in January. My suspicion is that it is going to be positive. And we're going to learn that it's going to be able to improve its bundling with the use and inclusion of cybersecurity and identity.

Now, remember the core reason why we like ServiceNow, because it is well positioned as AI adoption accelerates in the enterprise. And given the various workflows that it touches, it can help companies solve the pain point of siloed data.

So as we learn more about this overall move into cybersecurity, if need be, will we revisit our ServiceNow price target, we will. But from a competitive position, the base business plus what this cybersecurity push could mean, we continue to it. And folks, that is today's video. We're going to have a lot more coming your way. Stick around. We'll be seeing you.