U.S. software and industrial stocks offer opportunities across businesses with different growth drivers. Valuations and the durability of demand are central to the investment case.
BNN Bloomberg spoke with Jed Ellerbroek, portfolio manager at Argent Capital Management, about his picks: Dynatrace, Amazon and TransDigm.
Key Takeaways
- Dynatrace could benefit from stronger software demand, though Ellerbroek wants it to prioritize organic growth over further acquisitions.
- Strong computing demand and Anthropic’s expansion underpin Ellerbroek’s expectations for accelerating growth at Amazon Web Services.
- Amazon’s retail business remains an important earnings driver, with Ellerbroek pointing to sales growth and improving margins.
- Resilient air travel demand supports TransDigm’s replacement parts business despite concerns about higher fuel costs.
- TransDigm’s debt supports its acquisition strategy, and Ellerbroek believes recurring aftermarket demand gives it the capacity to service those obligations.
Read the full transcript below:
ROGER: Time now for Hot Picks, and our next guest has three picks spanning software and industrials he believes offer compelling growth opportunities. Let’s bring in Jed Ellerbroek, portfolio manager at Argent Capital Management. And Jed, thanks very much, as always, for joining us.
JED: Hey, Roger, how you doing today?
ROGER: Ah, good. Fighting a bit of a cold. You’ll hear it in my voice right now, but we’re warming up with the Hot Picks you got going here. Let’s get right to it. Dynatrace.
JED: Yeah, Dynatrace offers observability software, and what that means for us non-tech experts is they offer software that helps large businesses figure out when their cybersecurity presence breaks, and then recommends how to fix it across all the computing devices a company might use, all their, you know, big employee base, public cloud, private cloud, on-premises servers, the whole thing. And that technology is in greater demand today than it’s been in the past. It’s a bigger priority for large corporations and their spending intentions, and so we think Dynatrace’s revenue growth is going to accelerate. We think industry demand for cybersecurity in general is very good, and we think the stock is reasonably priced.
ROGER: All right, and with it, it just acquired Arize, or it has acquired Arize. What kind of a factor is that for it?
JED: Yeah, yeah, I think Arize is another, you know, compelling leg to the stool. Arize, you know, protects a different part of a company’s workloads, kind of like pre-production LLM activity, and so that gives Dynatrace exposure to that part of the market, something they didn’t have before, and we think it enhances their growth story long term.
ROGER: And you see any more acquisitions coming their way?
JED: I hope not. We want the company to kind of flex their own organic growth muscle. We don’t want them to rely on acquisitions for growth necessarily. A one-off acquisition here, there is just fine, but primarily we want the company to grow by expanding their sales force, creating their own new products and cross-selling their existing customers.
ROGER: Yeah, it’s sitting on some cash right now, $2.1 billion in negative net debt.
JED: Yeah, that’s right. They do have a strong balance sheet. I think that they’re, they’re ready for any twists and turns in the market coming forward.
ROGER: OK, Amazon, the beast.
JED: Yeah, so earnings next Thursday afternoon. We saw SpaceX’s earnings yesterday. They made a lot of grand pronouncements, but I think my biggest takeaway for the cloud computing group in general is that demand for computing power remains well above the supply. SpaceX, you know, told us they’re going to try to accelerate their construction of new data centres to serve that market and grow. Amazon is doing the same thing in their AWS unit, which is the biggest cloud computing provider in the country, in the world, in fact.
So Amazon is going to grow AWS, I think, a, you know, north of 40 per cent this quarter. They grew 37 per cent next quarter. That growth is accelerating. Margins remain really strong, about 40 per cent. That’s been a key concern for investors, and I think that they’ve, you know, proven that they can hold margins steady while accelerating their growth rate.
And then people don’t talk all that much about their massive retail business anymore. All the focus is AWS, but Amazon’s retail business continues to do exceptionally well. It’s growing about 15 per cent a year. That’s faster than their biggest peers, Walmart and Costco, which are growing about six or seven or eight per cent. And the profitability is really good in Amazon’s retail business as well. Margins are increasing, so we think really all pistons are firing for Amazon, and I think the valuation, you know, which has really come down steadily over the course of the last 18 months, is attractive.
ROGER: And can that AWS growth? What gives you confidence that there’s no, it’s going to come? No, I was going to say no end in sight. I won’t never say that, but that it has the strength to continue.
JED: Yeah, the single biggest reason is Anthropic continues to grow. Anthropic’s revenues grew 45 per cent in the September quarter compared to the June quarter. Anthropic’s largest cloud computing partner is AWS, and AWS is opening up a lot of data centres specifically for Anthropic, and so it seems as though customer demand remains exceptionally strong.
ROGER: OK, and want to get in the third one, TransDigm.
JED: Yeah, investors today are most interested in stock ideas where the business is not dependent on AI. There’s so much uncertainty related to AI, and it’s, you know, sucked up so much investor attention over the last few years. I think TransDigm is one of those ideas. TransDigm makes most of their profits selling aftermarket replacement parts for airplanes, helicopters, etc.
Yeah, so that stock is less. Because investors are worried that higher gas prices, due to the war between the U.S. and Iran, is going to curtail flight activity, and that’s happened around the margins, but not in a big way. Demand remains really strong to fly and travel amongst consumers and business travellers, and we’re seeing that, you know, kind of proven out this quarter. Delta and United have already reported pretty good earnings, so we think demand for TransDigm products remains strong. They will provide guidance for 2027 when they report earnings here in two weeks, and we think that they will continue to grow their revenues double digits and their profits a little bit faster than that.
ROGER: Any concerns with their net debt? It’s running, I think, about $30 billion, almost $31 billion.
JED: Yeah, TransDigm does carry a hefty debt balance. There, they have supplemented their own organic growth historically by acquiring companies that offer products that they don’t have, and they’ve oftentimes taken on debt to do so. They issue debt around six or seven per cent, but the returns that they generate from those acquisitions are well above that, so it’s kind of a core growth strategy of theirs to borrow at reasonable rates, buy companies that allow them to earn well above that, that cost of debt, and I think they’re going to continue to do that.
This debt level is not abnormal for them; it’s about where they typically run, and their business is very sustainable and consistent and repeatable with that aftermarket demand, so their business is capable of servicing that, that high level of debt. So we expect it to stay at about this level going forward.
ROGER: OK, we have to wrap it up there, Jed. But thanks, as always, for joining us. Have a great day. You too. Jed Ellerbroek, portfolio manager at Argent Capital Management.
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This BNN Bloomberg summary and transcript of the Oct. 21, 2026 interview with Jed Ellerbroek are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
