This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Nine publicly traded American companies are worth $1 trillion or more, but only four have graduated into the exclusive $3 trillion club so far: Nvidia, Apple, Alphabet, and Microsoft.

I think Amazon (NASDAQ: AMZN) could join them by the end of 2026 thanks to the accelerating revenue growth in its cloud computing division, and the surging profits in its legacy e-commerce business. The company has a market capitalization of $2.48 trillion as I write this, so investors who buy its stock today could earn a 21% return over the next year if it does cross the $3 trillion milestone.

Read on, and let's consider Amazon's growth prospects in the year ahead. 

All eyes on Amazon Web Services

Amazon's potential pathway to the $3 trillion club next year starts with its industry-leading cloud computing platform, Amazon Web Services (AWS). It used to be a place where businesses would simply store data and host their critical digital applications, but it has evolved to become the center of Amazon's artificial intelligence (AI) strategy.

AWS operates state-of-the-art data centers and it rents the computing capacity to AI developers who don't have the financial resources to build their own infrastructure. These data centers are filled with advanced AI chips from suppliers like Nvidia, but Amazon also designed its own chips called Inferentia and Trainium. Top developers like Anthropic are using hundreds of thousands of the latest Trainium2 chips, which offer up to 40% better price performance than competing hardware when training AI models.

Then there is the AWS Bedrock platform, where businesses can access hundreds of completed AI models from third-parties including Anthropic and Meta Platforms. Developing models from scratch is time consuming and expensive, so using a ready-made solution can help businesses achieve their AI goals much faster.

AWS generated a record $33 billion in revenue during the third quarter of 2025 (ended Sept. 30), which was up 20% year over year. That was the fastest growth rate since the fourth quarter of 2022, which highlights the platform's incredible AI-driven momentum. But it gets better, because AWS has a whopping $200 billion order backlog from customers who are waiting for more data center capacity to come online, so the strong top-line results are likely to continue.

Amazon's earnings continue to crush Wall Street's estimates

The $33 billion in third-quarter revenue that AWS brought in accounted for just 18% of Amazon's total revenue of $180 billion. However, the cloud business is the company's most profitable by far, contributing 65% of its total operating income. E-commerce is actually Amazon's largest source of revenue, but its profit margins are very thin because its Amazon.com site focuses on selling a high volume of products at low prices.

However, Amazon is pushing to improve profitability in its e-commerce business by boosting efficiency and implementing new technologies. In 2023, it broke its U.S. logistics network into eight distinct regions, so now the products in each fulfillment center are specific to their geographic region. As a result, orders travel shorter distances to reach customers, which brings down packing and shipping costs.

Amazon also uses AI-powered software like Project Private Investigator in its fulfillment centers, which uses computer vision to identify defective products before they ship. This reduces returns and refunds, creating further cost savings.

The accelerating growth at AWS combined with improved efficiency in the e-commerce business is driving a huge increase in Amazon's overall profit. The company generated earnings of $5.22 per share during the first three quarters of 2025, which was a whopping 42% jump from the same period in 2024. Plus, Amazon's earnings have beaten Wall Street's consensus estimates in every single quarter of 2025, by an average of 22%.

How Amazon can cross the $3 trillion milestone in 2026

Amazon stock trades at a price-to-earnings (P/E) ratio of 32.8 as I write this. That's roughly in line with the Nasdaq-100 index which trades at a P/E ratio of 32.1, so Amazon stock is basically sitting at fair value relative to its peers in the tech sector.

Wall Street's consensus estimate (provided by Yahoo! Finance) suggests Amazon could generate earnings of $7.86 per share in 2026, placing its stock at a forward P/E ratio of 29.6.

AMZN PE Ratio data by YCharts

Assuming Wall Street is right, Amazon stock would have to climb by 11% next year just to maintain its current P/E ratio of 32.8, lifting its market cap to $2.75 trillion. But remember, the company has a habit of beating Wall Street's expectations.

If its 2026 earnings beat the consensus estimate by 22% like they have so far in 2025, then its stock could be poised for a 35% gain next year instead. That would catapult its market value to a whopping $3.35 trillion.

However, even an earnings beat of just 9% next year would be enough to see Amazon join the $3 trillion club. Given the incredible momentum across its e-commerce business and AWS, I think that's an achievable target. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Nvidia's (NASDAQ: NVDA) graphics processing units (GPUs) for data centers are the gold standard for developing artificial intelligence (AI) models. Demand continues to exceed supply for these chips, as the world's largest tech giants battle for supremacy in the emerging AI industry.

By 2030, Nvidia CEO Jensen Huang estimates data center operators will be spending up to $4 trillion annually on infrastructure to meet demand from AI developers, and a sizable chunk of that money will go toward GPUs.

Nvidia stock has soared more than tenfold since the beginning of 2023, which is when the AI boom started gathering momentum, but it's still trading at a very attractive valuation. The stock is priced at $181 as I write this, but here's why I predict it will breeze past $300 in 2026. 

Nvidia will launch its most powerful GPUs ever in 2026

GPUs are designed for parallel processing, meaning they can handle multiple tasks simultaneously which makes them ideal for data-intensive AI workloads. Nvidia's GPU architectures (the latest of which is called Blackwell Ultra) are optimized specifically for AI, and it currently leads the industry in terms of performance.

Blackwell Ultra-based GB300 GPUs produce up to 50 times more processing power in certain configurations compared to Nvidia's original Hopper-based H100 chips from 2022, which highlights how far the company has come in just three years.

The H100 was perfect for one-shot large language models (LLMs) like OpenAI's GPT-3 and Alphabet's Gemini 1 from a few years ago, but each new generation of AI model requires more computing capacity. In fact, Nvidia CEO Jensen Huang says the latest reasoning models -- like GPT-5.1 and Gemini 3 -- consume up to 1,000 times more tokens (words and symbols), so even Blackwell Ultra GPUs aren't necessarily enough.

But Nvidia plans to take an enormous leap forward in 2026 by launching its new Rubin architecture. It's expected to be around 3.3 times more powerful than Blackwell Ultra, which implies a staggering 165 times performance increase over Hopper. Nvidia is already experiencing more demand than it can possibly supply for its current chips, and Rubin will probably accentuate that imbalance, giving the company incredible pricing power.

Record revenue is forecasted for next year

According to management's guidance, Nvidia is on track to generate a record $212 billion in total revenue during its current fiscal 2026 year (which ends on Jan. 31, 2026). Almost 90% of that revenue will come from the data center segment alone, which highlights the importance of GPU sales.

Wall Street's consensus estimate (provided by Yahoo! Finance) shows that Nvidia's revenue could soar by 48% to $313 billion in fiscal 2027 (which starts in February 2026). Analysts also predict the company's earnings could surge by 59% year over year to $7.46 per share, which could have an extremely positive impact on its stock. I'll discuss this further in a moment.

Nvidia has made a habit of beating its own forecasts and Wall Street's estimates over the last couple of years, because demand for its AI GPUs has consistently been far stronger than expected. With the Rubin architecture in the pipeline, that dynamic is unlikely to change over the next 12 months.

Nvidia stock looks cheap

Based on Nvidia's adjusted (non-GAAP) trailing 12-month earnings of $4.05 per share, its stock is trading at a price-to-earnings (P/E) ratio of 45.1. That's a steep discount to its 10-year average of 61.2. If we use Wall Street's fiscal 2027 earnings estimate of $7.46 per share, that places Nvidia stock at an even more attractive forward P/E ratio of 24.4:

NVDA PE Ratio data by YCharts

That means Nvidia stock would have to climb by 84% next year just to maintain its current P/E ratio of 45.1, and it would have to soar by a whopping 151% to trade in line with its 10-year average P/E ratio of 61.2. That would place the stock at somewhere between $334 and $454.

That being said, there are no guarantees in the stock market, especially in industries that move as fast as AI. Nvidia is facing growing competition from other chip makers, and also from tech giants like Alphabet, which are now training their AI models using their own specially designed chips.

This won't be a near-term problem for Nvidia if Huang is right about AI infrastructure spending reaching $4 trillion annually by 2030, because it means demand for data center GPUs is likely to outstrip supply for the next several years.

However, Nvidia investors should keep a close eye on the competitive landscape in the new year, because if the company does experience declining demand, it could struggle to meet Wall Street's revenue and earnings estimates, negatively impacting its stock.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Prediction: Nvidia stock is going to soar past $300 in 2026 appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet and Nvidia. The Motley Fool Australia has recommended Alphabet and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Tesla (NASDAQ: TSLA) stock is up by 75% over the past year, as investors place early bets on the success of future products like the Cybercab robotaxi and Optimus humanoid robot. However, 74% of the company's revenue still comes from selling passenger electric vehicles (EVs) like the Model 3, Model S, and Model Y, and sales plummeted in the first half of this year.

Fortunately, Tesla just released its production and delivery numbers for the third quarter (ended Sept. 30) and it appears sales are finally growing again. This is great news for investors, but there's a catch. 

Tesla might have borrowed a few sales from the fourth quarter

Tesla's EV deliveries shrank by 1% to 1.79 million units during 2024, marking the first annual decline in sales since the launch of its flagship Model S in 2011. Then, in the first half of 2025, deliveries were down by a whopping 13% year over year, to just 720,803 cars.

Rising competition is a big reason why. For example, Tesla's sales have steadily declined across Europe this year, despite EV sales growing overall across the region. Meanwhile, China-based manufacturer BYD is experiencing explosive demand in Europe, and it even outsold Tesla in July and August. It seems budget-conscious consumers are choosing lower-cost options, rather than premium EVs like those sold by Tesla.

But Tesla delivered 497,099 EVs worldwide during the third quarter, representing an increase of 7% compared to the year-ago period. It was a very welcome return to growth, so is the tide turning? Maybe not -- on Sept. 30, the U.S. government's $7,500 EV tax credit expired, so many American consumers who were planning to buy a car within the next few months probably pulled the trigger earlier to take advantage of the incentive.

In other words, Tesla probably pulled some sales forward from the fourth quarter, which means the October to December period might be considerably weaker, at least in the U.S.

All eyes are on Tesla's future product platforms

Tesla stock is wildly expensive right now (which I'll discuss further in a moment), so it's clear investors aren't valuing the company based on its EV sales alone. Instead, they are looking several years into the future, and trying to estimate how valuable products like the Cybercab and Optimus could be.

The Cybercab is designed to run on Tesla's full self-driving (FSD) software. The company's goal is to have millions of these cars on the road, autonomously hauling passengers around the clock to generate a high-margin revenue stream. However, Tesla's FSD software isn't approved for unsupervised use anywhere in the U.S. just yet, which could be a problem considering the robotaxi is slated to enter mass production in 2026.

Plus, it places Tesla significantly behind the competition. Alphabet's Waymo is already completing over 250,000 paid autonomous trips every single week in five U.S. cities, and it partnered with Uber Technologies, so it has access to the world's largest ride-hailing network. Tesla not only has to prove the viability of its autonomous technology, but it also has to build an entire network from the ground up.

Turning to the Optimus robot, CEO Elon Musk believes this product platform will generate $10 trillion in revenue for Tesla over the long term, because humanoid robots will have several use-cases for both businesses and households. In fact, he believes robots will outnumber humans by 2040.

However, Optimus will take even longer than the Cybercab to make a meaningful contribution to Tesla's financial results. Production is expected to begin in 2026, but Musk says it could take five years to reach Tesla's target output of 1 million units per year -- and that's assuming there is real demand, which is a big unknown right now.

Tesla stock is trading at a sky-high valuation

The Nasdaq-100 technology index is trading at a price-to-earnings (P/E) ratio of 32.6 as I write this. Nvidia stock, on the other hand, trades at a premium P/E ratio of 53.7, mainly because of the company's incredible growth and the enormous future demand for its artificial intelligence (AI) chips.

Then there is Tesla stock, which trades at a staggering P/E ratio of around 252. That would be difficult to justify even if Tesla's business was booming, but its earnings shrank by 31% in the first half of this year because of its weak EV sales.

TSLA PE Ratio data by YCharts

As a result, it's very difficult to advocate for buying Tesla stock based on what we know right now, especially with a potentially weak fourth quarter on the horizon. Optimus and the Cybercab would have to become incredible success stories to justify the company's current valuation, but even if you believe that will be the case, it could take several years to unfold.

In the meantime, Tesla's rich P/E ratio leaves its stock vulnerable to a significant correction. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Tesla just delivered fantastic news for investors, but there's a catch appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Nvidia, Tesla, and Uber Technologies. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended BYD Company. The Motley Fool Australia has recommended Alphabet and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The S&P 500 (SP: .INX) delivered a 23% return last year, which was more than twice its average annual gain dating back to when it was established in 1957. It was led higher by some of its trillion-dollar constituents, including Tesla (NASDAQ: TSLA) and Meta Platforms (NASDAQ: META) which both soared by more than 60%:

META data by YCharts

Tesla and Meta are entirely different companies. The former manufactures electric vehicles (EVs), whereas the latter is the social media giant behind Facebook and Instagram. However, both of them are counting on artificial intelligence (AI) to deliver the next phase of growth for their businesses.

Which stock will be the better buy in 2025? Let's find out.

The case for Tesla

Despite its incredible run last year, Tesla stock is currently down 31% from its December record high. Although the company is packed with long-term potential, investors are concerned about its passenger EV sales, which appear to be rapidly declining.

Less than two years ago, CEO Elon Musk consistently told investors Tesla could grow its EV production by 50% per year on average. But the company sold 1.79 million cars during 2024, which was a 1% drop from 2023. It was the first annual decline since Tesla launched its flagship Model S in 2011, and the company simply can't increase production if the cars aren't selling.

Some early reports suggest a recovery is unlikely in 2025. In January, Tesla's sales plunged by over 50% year over year across Europe, which included a 75% decline in Spain, a 63% decline in France, and a nearly 60% drop in Germany. Sales also fell by 33% in Australia, which highlights how widespread the weakness really is.

Since passenger EV sales still account for 78% of Tesla's revenue, the declines are a serious concern in the short term. But most investors are looking further into the future, because there is a belief that products such as the company's AI-powered full self-driving (FSD) software, its Cybercab robotaxi, and its Optimus humanoid robot, could be orders of magnitude more valuable than passenger EVs.

The Cybercab will run entirely on Tesla's FSD software, so it will be capable of operating autonomously within a ride-hailing network, where it can haul passengers and even make commercial deliveries around the clock. According to Cathie Wood's Ark Investment Management, this could make up the lion's share of Tesla's revenue by 2029 and drive the company to an $8.2 trillion valuation, eight times what it's currently worth.

But Musk thinks Optimus presents an even bigger opportunity because it could be used everywhere from manufacturing facilities to households in the future, so it has significantly more use-cases than the typical car. His recent comments suggest the humanoid robot could rake in $10 trillion in revenue over the long term, making Tesla more valuable than the next five companies combined. For some perspective, the five most valuable companies today are worth a total of $14.8 trillion.

The case for Meta Platforms

Over 3.3 billion people use one of Meta's social networking apps every day. Since that number is approaching half the world's population, generating user growth is becoming more and more difficult. That's why the company is focusing on boosting engagement instead. Users see more ads when they stay online for a longer period, which translates into more revenue.

Meta has embedded AI into the algorithms on Facebook and Instagram, because it can rapidly learn what type of content people like to see, and it feeds them more of it to keep them interested. CEO Mark Zuckerberg told investors at various stages last year that this strategy was successfully increasing the amount of time users were spending online.

The new Meta AI chatbot is also helping the company drive engagement. It's available through all of Meta's apps, including Facebook, Instagram, WhatsApp, and Messenger, where it stands ready to answer complex questions or even suggest fun activities for you and your friends. Meta AI had 700 million monthly active users at the end of 2024, up 50% from just three months earlier.

The chatbot is powered by the Llama family of large language models (LLMs) that Meta developed in-house. The models are open source and have been downloaded more than 600 million times, which means Meta can crowdsource bug fixes and improvements from a gigantic community of other developers. That's how Llama quickly caught up to industry-leading closed source LLMs like those from OpenAI. Zuckerberg thinks the upcoming Llama 4 model will actually be the most advanced in the industry when it launches this year.

Meta generated a record $164.5 billion in total revenue during 2024, a 22% increase from the prior year. It marked an acceleration from its growth rate of 16% during 2023, which speaks to the company's momentum right now, thanks partly to its efforts in the AI space.

The verdict

Tesla was slashing the sticker price on most of its EVs to spur demand last year, and since sales still declined, the company's earnings per share plunged by 53% year over year. Since its stock also soared 62% in 2024 at the very same time, it now looks extremely expensive, with a price-to-earnings (P/E) ratio of 173.3.

That makes Tesla stock five times more expensive than the Nasdaq-100 index, which trades at a P/E ratio of 33.7. Meta stock, on the other hand, is actually cheaper than the Nasdaq-100, with a P/E of just 29.1:

TSLA PE Ratio data by YCharts

As a result, this choice comes down to valuation. It's hard to justify paying such a steep premium for Tesla stock right now, given the state of its core business. Since products such as the Cybercab and Optimus aren't expected to reach mass production until 2026 or later, passenger EV sales will remain the company's primary revenue source for at least the next 12 months, but probably longer.

Based on what we know from Tesla's January sales, the picture doesn't look very promising, and delivering positive returns might be an uphill battle for its stock this year.

Meta, on the other hand, is growing nicely at the top and bottom line, and yet its stock is cheaper than most of its peers in the tech sector. In my view, it has a much better chance to deliver upside in 2025 for those reasons alone, which makes it a much better buy than Tesla.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Better buy in 2025: Tesla stock or Meta Platforms? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Global X says it's time to target this electric vehicle ASX ETF that has doubled in a year
• Why ASX investors dumped IVV ETF last month
• Is this the best Vanguard ETF money can buy right now?

Anthony Di Pizio has no position in any of the stocks mentioned. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Meta Platforms and Tesla. The Motley Fool Australia has recommended Meta Platforms. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Tesla (NASDAQ: TSLA) stock soared to a new record high in December, shortly after President Trump's election win. Investors are betting on friendlier regulations, which could help the company bring its full-self-driving (FSD) software to market much faster than previously expected, especially since CEO Elon Musk is currently serving as an advisor to the administration.

FSD has the potential to transform Tesla's economics, but that could still take years, even with an accelerated approval timeline (more on this later). In the meantime, the company is struggling with declining passenger electric-vehicle (EV) sales, which is where most of its revenue comes from right now.

That's part of the reason Tesla stock has fallen by around 27% from its recent record high. Here's why I predict it could plunge by another 50% over the next year or so.

Tesla's electric vehicle sales are shrinking

Up until the end of 2023, Musk consistently told investors that Tesla could grow its annual EV production by 50% per year, on average. The company delivered 1.8 million cars that year, which was a 38% increase, compared to 2022. It wasn't quite 50% but still a very strong result.

However, 2024 was a totally different story. EV deliveries shrank by 1%, compared to 2023, marking the first annual decline since Tesla launched the flagship Model S in 2011. The company is facing some grim realities, including a sharp increase in competition and softening demand for EVs overall as consumers weigh issues like depreciation and availability of charging infrastructure.

Simply put, it's impossible for Tesla to grow production by 50% per year if the cars aren't selling. Musk told investors he expects sales to rebound during 2025, with EV deliveries potentially growing by as much as 30%. However, the early signs are very troubling.

In January, Tesla's sales plunged by 63% year over year in France, almost 60% in Germany, 44% in Sweden, and 38% in Norway. Sales were even down by over 33% in Australia.

Here's the kicker: In Germany, sales of EVs overall actually increased by 53%, which implies Tesla is rapidly losing market share.

These challenges are likely to get worse as the year progresses, as more EVs come to market from low-cost manufacturers, like China-based BYD. It already sells its Seagull model for $10,000 in its domestic market and is expected to enter Europe this year.

FSD and a new $10 trillion opportunity

Tesla unveiled its Cybercab robotaxi last year, which will be powered by its FSD software. In fact, it won't even come with pedals or a steering wheel. Musk wants to build a ride-hailing network in which Cybercabs can haul passengers and even make commercial deliveries around the clock, creating a new, high-margin revenue stream for Tesla.

Cathie Wood's Ark Investment Management thinks autonomous ride-hailing could drive Tesla's annual revenue to over $1.2 trillion by 2029, representing a staggering 12-fold growth from its 2024 result of $97.6 billion. Other Wall Street analysts, like Dan Ives from Wedbush Securities, have also predicted that FSD will be a trillion-dollar opportunity for the company.

The Cybercab isn't scheduled to go into mass production until 2026, so those forecasts will take years to play out. That brings me to another long-term opportunity for Tesla — the Optimus humanoid robot — which Musk says will have a thousand times more use cases than a car.

Tesla plans to use several thousand Optimus robots inside its manufacturing facilities this year to complete repetitive and even dangerous tasks that human employees don't want to do. Given the versatility of humanoid robots, the potential customer base is almost limitless because they can be used in factories, households, and everything in between.

Plus, since Optimus is expected to sell for under $30,000, it will be extremely cheap, compared to the ongoing annual cost of a human worker. Its value proposition is obvious for businesses all over the world.

Musk thinks Optimus will generate $10 trillion worth of sales over the long term and even predicts robots will outnumber humans by the year 2040.

Tesla stock is wildly expensive, which could lead to a drop of 50% or more

Tesla generated $2.04 in earnings per share (EPS) during 2024, placing its stock at a price-to-earnings ratio (P/E) of 161. That's an eye-popping valuation, considering the Nasdaq 100 technology index — which is home to all of Tesla's big-tech peers — trades at a P/E of just 33.6.

It also makes Tesla three times more expensive than Nvidia stock, which trades at a P/E of 52.2. Nvidia will report its financial results for its fiscal year 2025 on February 26 and is expected to have grown its EPS by a whopping 126%. Tesla's EPS, on the other hand, plunged by 53% during 2024. Therefore, it's incredibly difficult to justify the enormous premium in Tesla's valuation right now.

TSLA PE Ratio data by YCharts.

With that said, Tesla stock has always traded at a premium valuation to the broader market. But in the past, it was supported by the incredible growth in the company's EV business. That's no longer the case.

EV sales still account for 78% of Tesla's total revenue, so the recent decline is a problem because the company's future potential growth drivers, like autonomous driving and the Optimus robot, aren't expected to scale up until after 2026. That means investors might have to brace for another year of weak earnings in 2025, which makes Tesla's current valuation even harder to stomach.

As I mentioned at the top, Tesla stock is down 27% from its all-time high already. But even if it plunged by another 50%, its P/E ratio would still be above 80. The stock would have to decline by 67% just to trade in line with Nvidia's P/E ratio, or 79% to trade in line with the P/E ratio of the Nasdaq 100. That's assuming the company's earnings don't fall even further, which is a real possibility.

As a result, I think significant downside is on the horizon for Tesla stock over the next year or so. If it does fall by another 50%, investors who believe in the potential of the Cybercab and Optimus might be faced with an attractive long-term buying opportunity.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Could Tesla stock plunge by another 50%? appeared first on The Motley Fool Australia.

More reading

• Global X says it's time to target this electric vehicle ASX ETF that has doubled in a year
• Why ASX investors dumped IVV ETF last month

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Nvidia and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended BYD Company. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Last week, semiconductor stocks like Nvidia (NASDAQ: NVDA), Advanced Micro Devices, and Micron Technology plunged on news that a Chinese start-up called DeepSeek had figured out how to train artificial intelligence (AI) models for a fraction of the cost of its American peers.

Investors were concerned that DeepSeek's innovative approach would trigger a collapse in demand for graphics processors (GPUs) and other data centre components, which are key to developing AI. However, those concerns might be overblown.

Meta Platforms (NASDAQ: META) is a huge buyer of AI chips from Nvidia and AMD. On January 29, CEO Mark Zuckerberg made a series of comments that should be music to the ears of investors who own AI hardware stocks.

DeepSeek background

Successful Chinese hedge fund High-Flyer has been using AI to build trading algorithms for years. It established DeepSeek as a separate entity in 2023 to capitalise on the success of other AI research companies, which were rapidly soaring in value.

Last week's stock market panic was triggered by DeepSeek's V3 large language model (LLM), which matches the performance of the latest GPT-4o models from America's premier AI start-up, OpenAI, across several benchmarks. That isn't a concern at face value, except DeepSeek claims to have spent just $5.6 million training V3, whereas OpenAI has burned over $20 billion since 2015 to reach its current stage.

To make matters more concerning, DeepSeek doesn't have access to the latest data centre GPUs from Nvidia, because the U.S. government banned them from being sold to Chinese firms. That means the start-up had to use older generations like the H100 and the underpowered H800, indicating it's possible to train leading AI models without the best hardware.

To offset the lack of computational performance, DeepSeek innovated on the software side by developing more efficient algorithms and data input methods. Plus, it adopted a technique called distillation, which involves using a successful model to train its own smaller models. This rapidly speeds up the training process and requires far less computing capacity.

Investors are concerned that if other AI firms adopt DeepSeek's approach, they won't need to buy as many GPUs from Nvidia or AMD. That would also squash demand for Micron's industry-leading data centre memory solutions.

Nvidia, AMD, and Micron power the AI revolution

Nvidia's GPUs are the most popular in the world for developing AI models. The company's fiscal year 2025 just ended on January 31, and according to management's guidance, its revenue likely more than doubled to a record $128.6 billion (the official results will be released on February 26). If recent quarters are anything to go by, around 88% of that revenue will have come from its data centre segment thanks to GPU sales.

That incredible growth is the reason Nvidia has added $2.5 trillion to its market capitalisation over the last two years. If chip demand were to slow down, a lot of that value would likely evaporate.

AMD has become a worthy competitor to Nvidia in the data centre space. The company plans to launch its new MI350 GPU later this year, which is expected to rival Nvidia's latest Blackwell chips that have become the gold standard for processing AI workloads.

But AMD is also a leading supplier of AI chips for personal computers, which could become a major growth segment in the future. As LLMs become cheaper and more efficient, it will eventually be possible to run them on smaller chips inside computers and devices, reducing reliance on external data centres.

Finally, Micron is often overlooked as an AI chip company, but it plays a critical role in the industry. Its HBM3E (high-bandwidth memory) for the data centre is best in class when it comes to capacity and energy efficiency, which is why Nvidia uses it inside its latest Blackwell GPUs. Memory stores information in a ready state, which allows the GPU to receive it instantaneously when needed, and since AI workloads are so data intensive, it's an important piece of the hardware puzzle.

Mark Zuckerberg might have put recent concerns to bed

Meta Platforms spent a whopping $39.2 billion on chips and data centre infrastructure during 2024, and it plans to spend as much as $65 billion this year. Those investments are helping the company further advance its Llama LLMs, which are the most popular open-source models in the world, with 600 million downloads. Llama 4 is due to launch this year, and CEO Mark Zuckerberg thinks it could be the most advanced in the industry, outperforming even the best closed-source models.

On January 29, Meta held a conference call with analysts about its fourth quarter of 2024. When Zuckerberg was quizzed about the potential impact of DeepSeek, he said it's probably too early to determine what it means for capital investments into chips and data centres. However, he said even if it results in less capacity requirements for AI training workloads, it doesn't mean companies will need fewer chips.

Instead, he thinks capacity could shift away from training and toward inference, which is the process by which AI models process inputs from users and form responses. Many developers are moving away from training models by using endless amounts of data, and focusing on "reasoning" capabilities instead. This is referred to as test-time scaling, and it involves the model taking extra time to "think" before rendering an output, which results in higher-quality responses.

Reasoning requires more inference compute, so Zuckerberg thinks companies will still need the best data centre infrastructure to maintain an advantage over the competition. Plus, most AI software products haven't achieved mainstream adoption yet, and Zuckerberg acknowledges that serving many users will also require additional data centre capacity over time.

So, while it's hard to put exact numbers on how DeepSeek's innovations will reshape chip demand, Zuckerberg's comments suggest there isn't a reason for Nvidia, AMD, and Micron stock investors to panic. In fact, there is even a bullish case for those stocks over the long term.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Mark Zuckerberg just delivered incredible news for Nvidia stock investors appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Anthony Di Pizio has no position in any of the stocks mentioned. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Advanced Micro Devices, Meta Platforms, and Nvidia. The Motley Fool Australia has recommended Advanced Micro Devices, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Tesla (NASDAQ: TSLA) CEO Elon Musk has a history of making optimistic forecasts about the company. And during his conference call with investors for the fourth quarter of 2024 (ended Dec. 31), he made his boldest prediction yet.

He thinks Tesla could be the most valuable company in the world one day, with a bigger market capitalisation than the next top five companies combined. As of this writing, the five largest companies in the world are Apple, Nvidia, Microsoft, Amazon, and Alphabet, which have a combined value of $14.7 trillion.

Could Tesla really be worth that much in the future? A new $10 trillion opportunity might be the secret to getting there, according to Musk, and it has nothing to do with electric vehicles (EVs). Read on.

Tesla's core business is struggling right now

Before diving into Tesla's potential, it's important to address the elephant in the room: Its core business, selling passenger EVs, isn't doing so great. The company delivered 1.78 million cars during 2024, a 1% drop compared to 2023.

That isn't good news considering passenger EV sales still account for almost 79% of the company's total revenue.

Not so long ago, Musk was forecasting 50% annual growth in deliveries as far as the eye can see, but a series of challenges, such as increasing competition and softening demand for EVs, dampened Tesla's sales.

Plus, Musk feels absolutely certain that autonomous vehicles are the future, so rather than engaging in a race to the bottom by producing cheaper and cheaper passenger EVs, he wants Tesla to focus on its new Cybercab robotaxi instead.

The Cybercab will run entirely on Tesla's full self-driving (FSD) software, so it won't come with pedals or even a steering wheel. FSD Version 13 is now available in beta mode, and owners of Tesla's passenger vehicles can test it in the real world in a supervised manner. It's the most advanced version so far.

According to the company's latest vehicle safety report, cars using FSD Version 13 are involved in one crash per 5.9 million miles driven, versus the typical American driver, who crashes once every 700,000 miles on average. As a result, Musk believes there will be Tesla vehicles running entirely on unsupervised FSD in Austin, Texas, as well as several other cities by the end of 2025.

Autonomous driving could transform Tesla's economics. Rather than just selling cars, the company can build a massive ride-hailing network for its Cybercabs, which can earn revenue by hauling passengers and completing commercial deliveries 24 hours a day. Cathie Wood's ARK Investment Management thinks this will be a $14 trillion opportunity by 2027, and other Wall Street analysts have also called this a trillion-dollar market for Tesla.

The $10 trillion opportunity: Optimus

The Cybercab opportunity could pale in comparison to Optimus, a humanoid robot that Musk is more excited about than any other product in the company's history. He says it probably has a thousand times more uses than a car, which means it can be sold into a variety of different markets.

Musk says several thousand Optimus robots will be used internally at Tesla this year to complete repetitive jobs humans don't want to do, like transporting sheet metal to a welding line. They could eventually be deployed in factories all over the world across countless industries, and they might also be popular in households to perform basic cleaning tasks.

In fact, Musk thinks humanoid robots will outnumber humans by 2040. He believes Tesla will manufacture them at a cost of around $20,000, which opens the door to a sale price of under $30,000. That price will probably decline over time as the company becomes more efficient, and as competitors enter the market.

Musk put forward some ambitious targets in his fourth-quarter conference call with investors. He thinks the production ramp-up will potentially grow fivefold every year from now to eventually reach 100 million annual units.

In the long run, he says Optimus could generate north of $10 trillion in revenue.

Tesla stock is extremely expensive

If Tesla's market cap does eventually exceed the combined value of Apple, Nvidia, Microsoft, Amazon, and Alphabet, it will translate into a stock price of around $4,660. That implies a 1,200% upside from where it trades today.

The prospect of a 12-fold return sounds enticing, but investors need to consider the potential risks. Tesla's earnings per share (EPS) plunged by 53% during 2024 to $2.04, placing its stock at a price-to-earnings ratio (P/E) of 190.7. That means the stock is substantially more expensive than Apple, Nvidia, Microsoft, Amazon, and Alphabet right now:

PE ratio, data by YCharts.

Tesla stock would have to fall by 78% just to trade in line with the average P/E of those five stocks (40.2). That is the potential downside investors could face if Musk and his team fail to deliver meaningful progress on platforms like FSD and Optimus over the next year.

I think 2025 will be a transition year for the company. The Cybercab isn't expected to reach mass production until 2026, and Optimus production figures will probably be nominal for several more years. In fact, Musk isn't fully confident Tesla will hit its target of 10,000 humanoids this year.

That means its financial performance will hinge almost exclusively on passenger EV sales for at least the next 12 months. Considering they shrank last year, it makes the company's valuation even harder to stomach.

I don't recommend investors jump in on Tesla stock today, but if they do, they must be prepared to hold it for at least the next five years to maximise their chances of a positive return.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Elon Musk predicts Tesla will be bigger than Apple, Nvidia, Microsoft, Amazon, and Alphabet combined thanks to this $10 trillion opportunity appeared first on The Motley Fool Australia.

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Anthony Di Pizio has no position in any of the stocks mentioned. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Apple, Microsoft, Nvidia, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Nvidia (NASDAQ: NVDA) was founded in 1993, and it went on to create the world's first graphics processing units (GPUs) for computing, media, and gaming applications. Now, decades later, the company has adapted those powerful chips for data centres, where they are used to develop advanced artificial intelligence (AI) models.

Nvidia CEO Jensen Huang believes data centre operators will spend $1 trillion over the next four years on upgrading their infrastructure to meet demand from AI developers. Since the data centre segment currently accounts for 88% of Nvidia's total revenue, that spending will be instrumental to the company's future success.

However, the semiconductor industry has always been cyclical, so the data centre boom won't last forever. That's why it's critical for Nvidia to diversify its revenue streams, and at the CES 2025 technology conference on January 7, Huang delivered some incredible news for investors on that front.

Meet Nvidia's next multitrillion-dollar opportunity: Autonomous vehicles

Nvidia saw the autonomous driving revolution coming. In fact, the company's automotive business is more than two decades old, but its revenues were so tiny that it lived in the shadow of the gaming and data centre segments. That's all about to change, because global car brands like Mercedes-Benz, Hyundai, BYD, Volvo, Toyota, and more are adopting Nvidia's Drive platform to power their autonomous ambitions.

Drive provides all of the internal hardware and software a car needs for self-driving capabilities. That includes Nvidia's latest chip called Thor, which processes all of the incoming data from the car's sensors to determine the best course of action on the road. But Nvidia's opportunity doesn't end there, because it also sells the infrastructure a car company needs to maintain and improve its autonomous models, so it can differentiate itself from the competition.

In addition to Drive, Huang says car companies are buying DGX data centre systems featuring its latest Blackwell-based GB200 GPUs, which deliver the necessary computing power to continuously train self-driving software. Then there is Nvidia's new Cosmos multimodal foundation model, which allows companies to run millions of real-world simulations using synthetic data, serving as training material for the software.

Overall, Huang says autonomous vehicles could be the first multitrillion-dollar opportunity in the emerging robotics space. He's not alone, because Cathie Wood's Ark Investment Management thinks technologies like autonomous ride-hailing could create $14 trillion in enterprise value by 2027, with the majority of that value attributed to autonomous platform providers — in this case, that would be Nvidia.

Nvidia's fiscal year 2025 will finish at the end of January, but the company generated $1.1 billion in automotive revenue through the first three quarters (if we extrapolate that result, full-year revenue will probably be around $1.5 billion). Huang says in fiscal 2026, Nvidia's automotive revenue could soar to $5 billion, so it's going to ramp up insanely fast.

Data centre chips are the main story for now

Wall Street's consensus forecast (provided by Yahoo) suggests Nvidia could generate a whopping $196 billion in total revenue during fiscal 2026, so the automotive segment's potential $5 billion contribution would still be relatively tiny. It's a longer-term story that could secure Nvidia's future growth, but in the here and now, it's all about the data centre.

Nvidia just started shipping its new Blackwell GB200 GPUs to customers, but sales are expected to grow quickly. By April this year, revenue from Blackwell chips could overtake revenue from the previous generation of chips built on the Hopper architecture, which highlights how quickly Nvidia's business is evolving.

The GB200 NVL72 system is capable of performing AI inference up to 30 times faster than the equivalent H100 GPU system, so Blackwell will pave the way for the most advanced AI models to date. Therefore, over the next year or so, consumers and businesses might have access to the "smartest" AI software applications (like chatbots and virtual assistants) so far.

Demand for Blackwell chips is outstripping supply, which should support further strength in Nvidia's revenue and earnings during fiscal 2026. Plus, some reports suggest a Blackwell successor called "Rubin" might be unveiled later in the year, which would further cement the company's chokehold on the market for data centre GPUs.

It's probably not too late to buy Nvidia stock, despite its incredible run

Nvidia stock has soared by 830% since the start of calendar year 2023, lifting the company's value from $360 billion to an eye-popping $3.3 trillion in just two years. Despite the amazing run, the stock might still be cheap.

It currently trades at a price-to-earnings (P/E) ratio of 53.6, which is a discount to its 10-year average P/E ratio of 59. But Wall Street's consensus estimate suggests Nvidia could generate $4.44 in earnings per share (EPS) in fiscal 2026, placing its forward P/E ratio at just 30.6.

In other words, Nvidia stock would have to soar by 92% over the next 12 months just to trade in line with its 10-year average P/E ratio of 59.

Nvidia has a habit of beating Wall Street's forecasts, so it's possible the stock has even more upside potential. On the flip side, there is some competition emerging from other chipmakers like Advanced Micro Devices, which plans to release a Blackwell rival in a few months. That's a risk investors should keep an eye on as this year progresses.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Jensen Huang just delivered incredible news for Nvidia stock investors appeared first on The Motley Fool Australia.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Advanced Micro Devices and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends BYD Company. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Tesla (NASDAQ: TSLA) is a leading manufacturer of electric vehicles (EVs), whereas Meta Platforms (NASDAQ: META) is home to social networks like Facebook, Instagram, and WhatsApp. In other words, they are two completely different companies.

But they have one important thing in common: They are betting big on artificial intelligence (AI).

Tesla stock and Meta stock both soared by more than 60% in 2024, ending the year near record highs. But 2025 is here, and it's time for investors to look forward, so which one is the better buy now? I think the answer is clear.

The case for Tesla

Tesla is one of the most exciting stories in the AI industry, and its stock has no shortage of bullish price targets from Wall Street analysts. Most of the optimism stems from the company's full self-driving (FSD) software, which owners of its passenger EVs can already use in beta mode.

Tesla CEO Elon Musk believes autonomy is the future of the automotive industry. The company unveiled its Cybercab robotaxi in October, which doesn't have pedals or even a steering wheel, because FSD will handle the entire driving process. The company plans to build a ride-hailing network where the Cybercab can autonomously haul passengers and earn revenue around the clock. Since it won't need a human driver, this revenue stream should have a very high profit margin.

Moreover, consumers will be able to buy the Cybercab for personal use, or they can purchase a fleet of them and operate a ride-hailing service of their own using Tesla's network. Simply put, this new product platform unlocks several new revenue streams for the company, which is why analyst Dan Ives from Wedbush Securities believes it could be a $1 trillion opportunity.

But Tesla faces a few short-term problems. First, it delivered 1.79 million passenger EVs during 2024, which was a drop of 1.1% compared to 2023. EV sales still account for almost 80% of the company's total revenue, so it can't afford for this business to be shrinking.

That brings me to the second problem -- the Cybercab isn't scheduled for mass production until 2026, which means Tesla's passenger EV sales need to impress investors for at least another year.

Moreover, the company's FSD software doesn't have regulatory approval for unsupervised use anywhere in the U.S. right now. Investors are speculating that Tesla will face a friendlier regulatory environment under the Trump administration, which could fast-track the approval process, especially since Musk was a major donor to the incoming president's election campaign. Musk hopes FSD will be fully approved in at least California and Texas this year.

Still, Tesla stock trades at an extremely high valuation (more on this later), based entirely on products that aren't even available yet. That poses a significant risk to investors who buy it now.

But here's the upshot: Cathie Wood's Ark Investment Management thinks Tesla stock could soar 530% to reach $2,600 by 2029 if the Cybercab and FSD are successful, so the payoff could be substantial for investors with a high-enough risk tolerance to buy it today.

The case for Meta Platforms

Over 98% of Meta's revenue comes from selling advertising slots to businesses on its social networks, like Facebook and Instagram. The formula for success is quite simple: The longer each user spends browsing those platforms each day, the more ads they see, and the more revenue Meta pulls in.

Meta spent the last couple of years building AI into its recommendation engine, which learns what content each user likes to see, and shows them more of it to keep them online a little longer. In the third quarter of 2024 (ended Sept. 30), CEO Mark Zuckerberg said AI-powered recommendations drove an 8% increase in the amount of time users spent on Facebook for the year to date, and a 6% increase for Instagram.

But that's only the tip of Meta's growing AI strategy. The company also launched an AI chatbot called Meta AI in 2023, and it has already amassed 500 million monthly active users. It's embedded in each of the company's apps, where users can ask it questions on almost any topic, or prompt it to generate images.

Meta AI is free to use, but I predict businesses will eventually pay money to embed product links into its responses when users ask it a relevant question, which will unlock a new revenue stream for Meta.

Meta AI is powered by the company's family of large language models (LLMs) called Llama. Unlike models from leading AI start-ups like OpenAI, Llama is open source, which allows Meta to crowdsource bug detection and improvements from an entire community of developers. With over 600 million downloads, Llama is the most popular family of open-source models in the world.

Meta will report its official financial results for 2024 on Jan. 29, and the company is likely to tell investors it spent around $40 billion building data centre infrastructure for the year to further its AI ambitions. The company plans to launch Llama 4 this year, which Zuckerberg thinks could be the most advanced LLM in the world. It will pave the way for new AI features for Meta's social networks, and new opportunities to generate revenue.

Turning to 2025, Wall Street's consensus estimate (provided by Yahoo!) suggests Meta could deliver a record $186 billion in revenue, and $25.38 in earnings per share. Based on those figures, its stock looks very attractive right now.

The verdict

In my view, this choice comes down to valuation. As I touched on, Tesla stock is pricey right now -- it trades at an eye-watering price-to-earnings (P/E) ratio of 108, which makes it three times more expensive than the 32.1 P/E ratio of the Nasdaq-100.

Meta stock, on the other hand, trades at a very enticing P/E ratio of just 29.1.

TSLA PE Ratio data by YCharts

We don't actually know if Tesla's business will grow in 2025. Elon Musk says it will -- he thinks passenger EV deliveries could grow by as much as 30% -- but it's a "show me" story, given the company's 2024 results. Plus, I can't recommend making a large bet on Tesla stock at this price based on what might happen with the Cybercab and FSD in 2026.

Meta has a better opportunity to financially benefit from AI in 2025, because incremental improvements in its recommendation engine alone could immediately drive more advertising revenue. Combined with its attractive valuation, I think it's a much safer stock to buy for this year.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Better buy in 2025: Tesla stock or Meta Platforms? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• Global X says it's time to target this electric vehicle ASX ETF that has doubled in a year
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Anthony Di Pizio has no position in any of the stocks mentioned. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Meta Platforms and Tesla. The Motley Fool Australia has recommended Meta Platforms. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The S&P 500 (SP: .INX) delivered a total return (including dividends) of 25% in 2024, which followed a gain of 26% in 2023.

The index only delivered back-to-back annual returns of at least 25% on one other occasion since it was established in 1957. It soared by 33% in 1997 and then by 29% in 1998, fueled by the dot-com internet bubble, which drove technology stocks to astonishing valuations.

The stock market is more rational this time around, but emerging themes like artificial intelligence (AI) are driving substantial gains in some pockets of the tech sector once again. Based on a mixture of historical data and a series of coming events, here's what might be in store for the S&P 500 this year.

History points to more upside in 2025

Following its strong gains in 1997 and 1998, the S&P 500 soared by a further 21% in 1999. That suggests more upside could be in the cards during 2025, but one data point certainly doesn't make a trend.

After all, the dot-com era was one of the most irrational periods in stock market history. Internet companies were going public without any revenue, and many of them didn't even have a solid business plan, yet investors were pouring money into them anyway.

The AI boom is a little different. Nvidia, for example, is the leading supplier of data centre graphics processing units (GPUs) for AI development, and its annual revenue is on track to grow by 112% during its current fiscal year (which ends this month) to $129 billion. That accounts for the 178% gain in its stock in 2024.

However, there are some pockets of exuberance. Serve Robotics generates a minuscule amount of revenue (just $221,555 in its most recent quarter) yet its market capitalisation has ballooned to more than $600 million. Its price-to-sales (P/S) ratio is a whopping 278 right now.

Then there is Palantir Technologies stock, which soared 350% in 2024. It's more than twice as expensive as Nvidia based on its P/S ratio:

SERV PS Ratio data by YCharts

With that said, both Serve Robotics and Palantir are forecast to generate solid revenue growth in 2025. While that doesn't fully justify their present valuations, at least there is some substance behind their respective gains.

Predicting the end of a speculative frenzy (like the dot-com bubble) is impossible, so the gain in the S&P 500 during 1999 isn't a good indication of what might happen in 2025. However, the S&P could rise this year because AI companies are delivering tangible financial growth.

Stock market valuations are stretched right now

If there is one thing that could prevent further upside in the S&P 500 this year (outside of an unexpected economic shock), it's the index's valuation. It trades at a price-to-earnings (P/E) ratio of 25.2 as of this writing, which is a 38% premium to its average of 18.1 dating back to the 1950s.

But investors shouldn't rush to sell their stocks, because valuation isn't a reliable timing tool. Markets can remain expensive for longer than anybody expects — the S&P reached a P/E ratio of 34 in 1999, which means the index continued to rise despite being overvalued relative to its historical average already.

Of course, exuberant valuations don't last forever. The S&P tumbled for three straight years between 2000 and 2002, and it didn't make a new all-time high until 2007.

The S&P entered 2025 with the wind at its back. The U.S. Federal Reserve cut interest rates three times since September, and is likely to cut at least two more times this year. Lower rates can reduce the yield on risk-free assets like Treasuries and CDs, making growth assets like stocks more attractive. Plus, lower rates let companies borrow more money to fuel their growth, and their interest costs also fall, boosting their earnings.

AI will also remain a tailwind this year. According to Morgan Stanley, four tech giants — Microsoft, Amazon, Alphabet, and Meta Platforms — could spend a combined $300 billion on AI data centers and chips in 2025.

That will benefit S&P 500 companies like Nvidia, Broadcom, Advanced Micro Devices, and more.

Volatility could make a comeback this year

There is a major political shift on the horizon in Washington following Donald Trump's election win in November. He will take office on January 20, and he's bringing a set of economic policies that will differ greatly from the Biden administration's during the past four years. It will take some time for markets to adjust, which could spark short-term volatility.

Trump campaigned on lower corporate taxes and significant deregulation, which are two things the stock market usually likes. But he also plans to impose tariffs on key trading partners like China, Mexico, and even Canada, in order to protect American businesses.

Trump imposed tariffs on steel and aluminium imports from practically every country in the world during his previous term in office. Some countries, including China, retaliated with tariffs of their own, which left investors fearful of an all-out global trade war. That was a key reason the S&P 500 almost slipped into a bear market in 2018.

Given where stock valuations are right now, it won't take much to trigger a meaningful correction in the S&P 500. Technically, the index would still be expensive relative to its history even if it falls by 10% from here. Therefore, I won't be shocked if the stock market moves lower after Trump takes office, even on the mere expectation of disruptive trade policies.

Although corrections can be painful in the short term, they can also be great opportunities to buy high-quality stocks at a discount. If there is a dip, investors should try to avoid panic selling and look for ways to put some money to work instead.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post The US stock market just did something it hasn't done since the dot-com bubble in 1998. Here's what could happen in 2025 appeared first on The Motley Fool Australia.

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Anthony Di Pizio has no position in any of the stocks mentioned. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, and Serve Robotics. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Nvidia (NASDAQ: NVDA) is the leading supplier of high-end graphics processing units (GPUs) for data centers, where they are used to power and train artificial intelligence (AI) applications. Uber Technologies (NYSE: UBER) operates the world's largest ride-hailing platform and also the Uber Eats food-delivery service.

What do these two industry leaders have in common? Uber is partnered with 14 different companies developing autonomous driving platforms as it looks forward to a shift away from human drivers in the mobility industry. Technologies like autonomous driving and robotics are powered by AI, and Nvidia has also developed its own autonomous driving platform.

That might explain why both Nvidia and Uber are supporting Serve Robotics (NASDAQ: SERV), a $530 million market-cap company that has developed an autonomous delivery robot. Between them, they own more than 20% of Serve's shares outstanding, suggesting that they are bullish on the company's prospects. If you're considering following them into the stock, here's what you need to know.

Delivery robots could be the future of last-mile logistics

Existing last-mile delivery solutions are rather inefficient. Platforms like Uber Eats and DoorDash rely on people who typically use cars to deliver food and other products to customers. In a presentation last month, Serve Robotics posed this thoughtful question: Why move two-pound burritos in two-ton cars?

Robots and drones might be better solutions. Serve says the cost of hardware and software associated with developing AI and autonomy is rapidly declining, so robots are becoming a more economical choice with each passing day. In fact, Serve predicts its robots will eventually be able to operate at a cost of as little as $1 per delivery once their adoption grows and the business scales up.

Serve's robots use level 4 autonomy, which means they can drive on sidewalks within designated areas with no human intervention necessary. Since early 2022, the company's robots have delivered more than 50,000 orders on behalf of more than 400 restaurants across Los Angeles, and those deliveries were made with up to 99.94% reliability. That made the robots 10 times more reliable than human drivers, according to Serve.

The company's latest Gen3 robot is its smartest and fastest so far, with a top speed of 11 miles per hour. Thanks to Nvidia's Jetson Orin technology, which includes the hardware and software necessary for advanced robotics and computer vision, Gen3 is five times more powerful than Serve's previous generation of robots. It features faster top speeds, greater range, and longer operating times — a combination that translates into a 50% reduction in operating costs.

Under a contract with Uber, Serve is working to deploy 2,000 new robots by the end of 2025, which will let it expand into other areas of California, plus Dallas and Fort Worth in Texas. It's also a win for Uber, because if this program is successful, the company will save money by reducing its use of human delivery drivers.

Serve generates very little revenue, but it's growing rapidly

Serve generated just $221,555 in revenue during the third quarter, but that was a 254% increase from the same quarter in 2023. On the other hand, that figure was down by more than half from 2024's second quarter, when it generated $468,375 in revenue.

The reason for the decline was because Serve realised the last of its services revenue from Magna International during Q2. Magna is a $13 billion components supplier to the automotive industry, and it is Serve's manufacturing partner for the 2,000 new robots I mentioned earlier. The two companies also have a licensing deal in place under which Magna paid a fee to Serve in exchange for some technology to build robots of its own for market segments in which Serve doesn't operate.

That licensing revenue stream is now gone, leaving Serve with only its delivery revenue. And that part of the business is still in the scale-up phase. This brings me to an important point: Serve is currently losing truckloads of money.

It had $8.3 million in operating expenses during Q3, most of which went toward research and development. Given its minuscule revenue, Serve's net loss came in at $8 million for the quarter, bringing its year-to-date net loss to $26.1 million.

Serve only has $50.9 million in cash on hand. That cushion will be totally wiped out in the next 18 months if the company keeps burning money at the current pace. With that said, Serve did establish a new at-the-market stock offering facility in November that will allow it to sell additional shares to raise a further $100 million. However, that would significantly dilute existing investors.

Together, Nvidia and Uber own more than 20% of Serve's outstanding shares

Serve became an independent entity in 2021 after it was spun off from Postmates, which Uber acquired. However, Uber remains Serve's largest investor with a 12% stake.

Nvidia has invested in Serve since 2022, and currently owns an 8% stake.

Uber and Nvidia could suffer the most if Serve continues to issue new shares, unless they participate in every future capital raise to protect their interests. However, that might not be the best move, given the company's current valuation.

Serve is valued at an eye-popping price-to-sales (P/S) ratio of 196 — meaning it's six times more expensive than Nvidia.

SERV PS Ratio data by YCharts.

According to Wall Street's average forecast (provided by Yahoo), Serve could generate $13.3 million in revenue in 2025 thanks to the deployment of its 2,000 robots. Since the company is on track to deliver $1.9 million in revenue for the whole of 2024, that would amount to growth of 600%.

That estimate gives Serve stock a forward P/S ratio of 31.7, which is much more reasonable, but still expensive. In light of that, investors who want to follow Uber and Nvidia into Serve stock should only put in money they can afford to lose.

With that said, the company says its opportunity in the robot and drone delivery industry could top $450 billion by 2030. So even a small bet on Serve stock could pay off handsomely if the company is successful.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Why are Nvidia and Uber backing this $500 million artificial intelligence (AI) stock? appeared first on The Motley Fool Australia.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended DoorDash, Nvidia, Serve Robotics, and Uber Technologies. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Magna International. The Motley Fool Australia has recommended DoorDash and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Nvidia (NASDAQ: NVDA) had a market capitalisation of $360 billion at the start of 2023. Less than two years later, it's now worth over $3.4 trillion. Although the company supplies graphics processing units (GPUs) for personal computers and even cars, the data center segment has been the primary source of its growth over that period.

Nvidia's data center GPUs are the most powerful in the industry for developing and deploying artificial intelligence (AI) models. The company is struggling to keep up with demand from AI start-ups and the world's largest technology giants. While that's a great thing, there is a potential risk beneath the surface.

Nvidia's financial results for its fiscal 2025 second quarter (which ended on July 28) showed that the company increasingly relies on a small handful of customers to generate sales. Here's why that could lead to vulnerabilities in the future.

GPU ownership is a rich company's game

According to a study by McKinsey and Company, 72% of organisations worldwide are using AI in at least one business function. That number continues to grow, but most companies don't have the financial resources (or the expertise) to build their own AI infrastructure. After all, one of Nvidia's leading GPUs can cost up to $40,000, and it often takes thousands of them to train an AI model.

Instead, tech giants like Microsoft, Amazon, and Alphabet buy hundreds of thousands of GPUs and cluster them inside centralised data centers. Businesses can rent that computing capacity to deploy AI into their operations for a fraction of the cost of building their own infrastructure.

Cloud companies like DigitalOcean are now making AI accessible to even the smallest businesses using that same strategy. DigitalOcean allows developers to access clusters of between one and eight Nvidia H100 GPUs, enough for very basic AI workloads.

Affordability is improving. Nvidia's new Blackwell-based GB200 GPU systems are capable of performing AI inference at 30 times the pace of the older H100 systems. Each individual GB200 GPU is expected to sell for between $30,000 and $40,000, which is roughly the same price as the H100 when it was first released, so Blackwell offers an incredible improvement in cost efficiency.

That means the most advanced, trillion-parameter large language models (LLMs) — which have previously only been developed by well-resourced tech giants and leading AI start-ups like OpenAI and Anthropic — will be financially accessible to a broader number of developers. Still, it could be years before GPU prices fall enough that the average business can maintain its own AI infrastructure.

The risk for Nvidia

Since only a small number of tech giants and top AI start-ups are buying the majority of AI GPUs, Nvidia's sales are extremely concentrated at the moment.

In the fiscal 2025 second quarter, the company generated $30 billion in total revenue, which was up 122% from the year-ago period. The data center segment was responsible for $26.3 billion of that revenue, and that number grew by a whopping 154%.

According to Nvidia's 10-Q filing for the second quarter, four customers (who were not identified) accounted for almost half of its $30 billion in revenue:

Nvidia only singles out the customers who account for 10% or more of its revenue, so it's possible there were other material buyers of its GPUs that didn't meet the reporting threshold.

Customers A and B accounted for a combined 25% of the company's revenue during Q2, which ticked higher from 24% in the fiscal 2025 first quarter just three months earlier. In other words, Nvidia's revenue is becoming more — not less — concentrated.

Here's why that could be a problem. Customer A spent $7.8 billion with Nvidia in the last two quarters alone, and only a tiny number of companies in the entire world can sustain that kind of spending on chips and infrastructure. That means even if one or two of Nvidia's top customers cut back on their spending, the company could suffer a loss in revenue that can't be fully replaced.

Nvidia's mystery customers

Microsoft is a regular buyer of Nvidia's GPUs, but a recent report from one Wall Street analyst suggests the tech giant is the biggest customer of Blackwell hardware (which starts shipping at the end of this year) so far. As a result, I think Microsoft is Customer A.

Nvidia's other top customers could be some combination of Amazon, Alphabet, Meta Platforms, Oracle, Tesla, and OpenAI. According to public filings, here's how much money some of those companies are spending on AI infrastructure:

• Microsoft allocated $55.7 billion to capital expenditures (capex) during fiscal 2024 (which ended June 30), and most of that went toward GPUs and building data centers. It plans to spend even more in fiscal 2025.
• Amazon's capex is on track to come in at over $60 billion during calendar 2024, which will support the growth it's seeing in AI.
• Meta Platforms plans to spend up to $40 billion on AI infrastructure in 2024 and even more in 2025, in order to build more advanced versions of its Llama AI models.
• Alphabet is on track to allocate around $50 billion to capex this year.
• Oracle allocated $6.9 billion toward AI capex in its fiscal 2024 year (which ended May 31), and it plans to spend double that in fiscal 2025.
• Tesla just told investors its total expenditures on AI infrastructure will top $11 billion this year, as it brings 50,000 Nvidia GPUs online to improve its self-driving software.

Based on that information, Nvidia's revenue pipeline looks robust for at least the next year. The picture is a little more unclear as we look further into the future because we don't know how long those companies can keep up that level of spending.

Nvidia CEO Jensen Huang thinks data center operators will spend $1 trillion building AI infrastructure over the next five years. If he's right, the company could continue growing well into the late 2020s. But there is competition coming online that could steal some market share.

Advanced Micro Devices released its own AI data center GPUs last year, and it plans to launch a new chip architecture to compete with Blackwell in the second half of 2025. Plus, Microsoft, Amazon, and Alphabet have designed their own data center chips, and although it could take time to erode Nvidia's technological advantage, that hardware will eventually be more cost-effective for them to use.

None of this is an immediate cause for concern for Nvidia's investors, but they should keep an eye on the company's revenue concentration in the upcoming quarters. If it continues to rise, that might create a higher risk of a steep decline in sales at some point in the future.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 46% of Nvidia's revenue came from 4 mystery customers last quarter appeared first on The Motley Fool Australia.

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Anthony Di Pizio has no position in any of the stocks mentioned. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, DigitalOcean, Meta Platforms, Microsoft, Nvidia, Oracle, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, DigitalOcean, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Cathie Wood is the head of Ark Investment Management, which operates several exchange-traded funds (ETFs) focused on innovative technology companies. Tesla (NASDAQ: TSLA) stock is one of the top positions across Ark's portfolios, and Wood calls it the biggest artificial intelligence (AI) opportunity in the world thanks to the company's full self-driving (FSD) software.

Tesla currently generates around 79% of its revenue by selling passenger electric vehicles (EVs), but Ark released a set of financial models earlier this year that suggest that number is about to shrink significantly.

In fact, by 2029, Ark predicts a whopping 86% of Tesla's earnings will come from something else entirely.

Tesla's passenger EV business is struggling at the moment

When Tesla stock came public in 2010, few analysts believed the company would succeed in mass-producing EVs. It certainly proved them wrong, and it delivered a record 1.8 million units in 2023 alone. However, sales are clearly slowing.

Tesla delivered 1.29 million EVs in the first three quarters of 2024, which represented a drop of 2.3% compared to the same period last year. That means its annual deliveries are on track to shrink for the first time since it launched the flagship Model S in 2011 -- even though the company has drastically slashed prices over the past year to boost demand.

Demand is softening across the EV industry right now as consumers opt for cheaper gas-powered cars amid tough economic conditions headlined by high interest rates. Plus, a report by Goldman Sachs suggests consumers are concerned about a lack of rapid charging infrastructure, as well as the declining resale value of EVs in general.

But Tesla also faces a growing competitive threat, with low-cost manufacturers like China-based BYD threatening to flood global markets with cheap EVs. BYD's Seagull sells for under $10,000 in China, and it could be on its way to Europe in 2025. Those are important geographic markets for Tesla, and none of its passenger EVs can compete at that price point.

Tesla CEO Elon Musk outlined plans to build a low-cost EV, which was expected to go into production in 2025 and sell for $25,000, but during his conference call with investors for the third quarter of 2024 (ended Sept. 30), he said the project is no longer going ahead.

FSD and robotaxis are the way forward, according to Musk

Musk says building a low-cost passenger EV is "pointless" because Tesla's future is in autonomous vehicles instead. The company unveiled the Cybercab earlier this month, which is a self-driving robotaxi with no steering wheel or pedals.

The Cybercab will run on Tesla's FSD software, which the company has been developing for years. However, it does not have approval for unsupervised use in the U.S. yet, and a human driver must be ready to take over at all times. But based on the data collected from extensive beta testing in its passenger EVs, it is possible that the Cybercab is already safer than the average car on the road. 

According to Tesla's most recent quarterly vehicle safety report, FSD caused one crash every 7 million miles, compared to one crash every 700,000 miles for the average U.S. driver. In other words, FSD is 10 times safer than human-driven vehicles, statistically speaking, as it stands today.

The software will only get better over time because the AI models upon which it is based are constantly learning from new data. Tesla is currently building a cluster of 50,000 graphics processing chips (GPUs) from Nvidia to train FSD further. In fact, the company is on track to spend $11 billion on AI data center infrastructure this year for that very purpose.

As a result, Musk expects the software to eventually receive regulatory approval for unsupervised use. He says it could be available in Texas next year, and potentially California. 

FSD could transform Tesla's economics

Tesla expects to monetise FSD in three primary ways:

1. Selling the software to owners of Tesla's passenger EVs.
2. Licensing the software to other car manufacturers for a fee.
3. Through a ride-hailing network Tesla built in-house, which will allow Cybercabs to transport passengers at all hours of the day (like Uber, except completely driverless).

Owners of Tesla's passenger EVs will also be able to lend their FSD-enabled cars to the network to earn extra income, which will be split with the company. Plus, the Cybercab will be available for purchase for an expected price of $30,000, so practically anybody can buy a fleet and set up their own driverless ride-hailing network.

All of those revenue sources could carry high profit margins. Software companies, for example, often have a gross profit margin of 80% or more, which is far higher than Tesla's current gross margin of 19.8% across its portfolio of hardware businesses today.

Plus, Uber paid its drivers a whopping $17.9 billion in the last quarter alone, which was its largest expense by far. That's an indication of how much money Tesla could save with an autonomous ride-hailing network operating at scale.

Ark's financial models suggest Tesla will generate $1.2 trillion in annual revenue by 2029, with FSD and Cybercab accounting for 63%. However, thanks to those high profit margins, Ark believes those products will account for 86% of a forecast $440 billion in earnings before interest, tax, depreciation, and amortisation (EBITDA).

Ark's forecast might be ambitious, and Tesla stock isn't cheap right now

Wall Street's consensus estimate (according to Yahoo) suggests Tesla is on track to generate $99 billion in total revenue in 2024. That means it will have to grow twelvefold by 2029 -- or by a compound annual rate of 64.7% for the next five years -- to meet Ark's forecast.

FSD and the Cybercab will have to scale up rapidly for Tesla to grow at that pace, because $99 billion in revenue this year would represent growth of just 2% compared to 2023. In 2025, Wall Street expects revenue to grow by just 15%. Simply put, passenger EV sales alone won't get the job done.

Plus, investors have to pay a hefty price to bet on Tesla's autonomous future, because its stock currently trades at a steep premium to the broader market. Based on its trailing-12-month earnings per share of $3.65, its stock currently sits at a price to earnings (P/E) ratio of 68.5. That's more than double the 32.1 P/E of the Nasdaq-100 technology index.

Tesla's future is incredibly exciting, but according to Musk's own forecast, the Cybercab won't go into mass production until 2026. That means the company's fate will rest on passenger EV sales for at least the next year. While Musk thinks they could grow by as much as 30% in 2025, I have doubts, considering the low-cost model is no longer going ahead, which leaves the brand susceptible to competitors like BYD.

In summary, Ark might be right about FSD and the Cybercab eventually, but its 2029 target is ambitious. Therefore, it might be best to wait until we receive more information next year before buying Tesla stock. Alternatively, if there is a pullback that brings its P/E ratio in line with the Nasdaq-100, that might be a good opportunity to take a long-term position.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Tesla makes money selling electric vehicles, but 86% of its earnings could soon come from this instead appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended BYD Company, Goldman Sachs Group, Nvidia, Tesla, and Uber Technologies. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Larry Ellison is the chairman of Oracle (NYSE: ORCL), which is currently building some of the fastest and most cost-efficient data centres in the world for developing artificial intelligence (AI).

Elon Musk, on the other hand, runs Tesla (NASDAQ: TSLA), which is building AI-powered self-driving software for its electric vehicles. He also runs SpaceX, X (formerly Twitter), and a new AI start-up called xAI.

Ellison and Musk need tens of thousands of graphics processors (GPUs) for their data centres in order to bring AI to life, and Nvidia (NASDAQ: NVDA) supplies the best chips in the industry.

At Oracle's financial analyst meeting on 12 September, Ellison told the audience that he and Musk recently went to dinner with Nvidia CEO Jensen Huang at the Nobu restaurant in Palo Alto. The two, who are among the richest people on Earth, found themselves begging Huang for something money simply can't buy at the moment. Here's how it went down.

The arms race for GPUs

Oracle currently has 162 data centres either live or under construction, but it believes that number could eventually top 2,000 because the demand for computing power from AI developers is soaring. Some of Oracle's largest data centres feature clusters of more than 32,000 GPUs, but next year, the company will offer a cluster of 131,072 GPUs from Nvidia's latest Blackwell lineup.

Oracle designed unique RDMA (random direct memory access) networking technology that can move data from one point to another more quickly than traditional Ethernet networks, and since developers pay for computing power by the minute, this can significantly reduce costs. That's why leading AI start-ups like OpenAI, Cohere, and even Musk's xAI are using Oracle's infrastructure.

In its recent fiscal 2025 first quarter (ended July 31), the Oracle Cloud Infrastructure (OCI) segment generated $2.2 billion in revenue, a whopping 45% jump from the year-ago period. However, it could be growing even faster if not for supply constraints -- in other words, Oracle simply can't get its hands on enough GPUs for its data centres.

Not only is Oracle battling other cloud giants like Microsoft, Amazon, and Alphabet for GPU allocations from Nvidia, but tech companies like Tesla and Meta Platforms are also soaking up supply to develop AI for their own purposes. Tesla is trying to bring a cluster of 50,000 GPUs online this year to enhance its self-driving software, which requires a substantial amount of computing power.

Meta, on the other hand, used around 16,000 of Nvidia's flagship H100 GPUs to train its Llama 3.1 large language model (LLM), but the company plans to increase its capacity to a mind-boggling 600,000 H100 equivalents by the end of this year. That will pave the way for Llama 4, which CEO Mark Zuckerberg says could set the benchmark for the industry in 2025.

Ellison and Musk are begging for more GPUs

Ellison's and Musk's comments to Jensen Huang over dinner, according to Ellison:

Please take our money ... take more of it. You're not taking enough. ... We need you to take more of our money. Please.

Ellison and Musk were practically begging Huang for more GPUs, but no amount of money in the world can buy the numbers they require right now because Nvidia simply can't keep up with demand. Oracle and Tesla aren't even Nvidia's biggest customers!

Oracle spent $6.9 billion on capital expenditures (capex) during fiscal 2024 (which ended 30 April) and expects to spend double that in fiscal 2025. Most of the money will go toward buying chips and building data centres. Tesla plans to spend more than $10 billion on capex this calendar year, which will also go toward the 50,000 GPU cluster I mentioned earlier.

Those numbers are modest compared to what other tech giants are spending. Microsoft allocated $55.7 billion to capex during its fiscal 2024 (ended June 30), and it plans to spend even more in fiscal 2025. Amazon's capex spending, on the other hand, could top $60 billion in calendar 2024.

Therefore, it's no surprise that Nvidia generated $26.3 billion in data centre revenue during its recent fiscal 2025 second quarter (ended July 28), a 154% increase from the year-ago period.

Ellison says the wave of AI spending could continue for the next 10 years as companies and nation-states battle for tech supremacy when it comes to AI, so Nvidia's data centre revenue probably has plenty of growth left in the tank.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post You won't believe what Larry Ellison and Elon Musk said to Nvidia CEO Jensen Huang appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• Global X says it's time to target this electric vehicle ASX ETF that has doubled in a year
• 5 ASX ETFs that could supercharge your portfolio
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• Why ASX investors dumped IVV ETF last month

Anthony Di Pizio has no position in any of the stocks mentioned. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Oracle, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Warren Buffett led the Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) holding company since 1965. He likes to invest in companies with steady growth, reliable profitability, strong management teams, and shareholder-friendly initiatives like dividend payments and stock buyback programs.

That strategy is working: Berkshire delivered a 4,384,748% return between 1965 and 2023. That translates to a compound annual gain of 19.8%, which is nearly double the 10.2% annual return of the benchmark S&P 500 index over the same period. In dollar terms, an investment of $1,000 in Berkshire Hathaway stock in 1965 would have grown to over $43 million, whereas the same investment in the S&P 500, with dividends reinvested, would be worth just $312,333.

Buffett isn't the type of investor who chases the latest stock market trends, so you won't find him piling into red-hot artificial intelligence (AI) stocks today. But three stocks Berkshire already owns are set to benefit tremendously from AI, and they account for more than 45% of the conglomerate's entire $398.7 billion portfolio of publicly traded securities.

1. Snowflake: 0.2% of Berkshire Hathaway's portfolio

Snowflake (NYSE: SNOW) developed its Data Cloud to help businesses aggregate their critical data onto one platform, where it can be analyzed more effectively to extract its maximum value. The service was designed for use by large, complex organizations that work with multiple cloud providers (like Microsoft Azure and Alphabet's Google Cloud), a situation that often leads to the creation of data silos.

Then last year, Snowflake launched its Cortex AI platform, which allows businesses to combine ready-made large language models (LLMs) with their own data to create generative AI applications. Cortex also comes with a suite of AI tools such as Document AI, which allows businesses to extract valuable data from unstructured sources like invoices or contracts, and Snowflake's Copilot virtual assistant, which can be prompted using natural language to provide valuable insights across the Snowflake platform.

In the company's fiscal 2025 first quarter, which ended April 30, Snowflake's product revenue came in at $789.6 million, a 34% increase from the year-ago period. That's a robust growth rate at face value, but it continued a trend of deceleration from prior quarters. Though Snowflake continues to invest heavily in growth initiatives like marketing and research and development, it is acquiring new customers at a slowing rate, and its existing customers are expanding their spending with it more slowly.

Berkshire Hathaway bought its stake in Snowflake around the time of the data cloud specialist's initial public offering in 2020, so it likely paid around $120 per share. The stock soared to as high as $392 in 2021, but it has since declined by 63% from that level and now trades at $142. Unfortunately, due to the company's slowing growth, the stock still appears to be quite expensive, so this is one Berkshire pick investors might want to avoid (for now).

2. Amazon: 0.5% of Berkshire Hathaway's portfolio

Berkshire bought Amazon (NASDAQ: AMZN) stock in 2019, and Buffett has often expressed regret that he didn't spot the opportunity sooner. Amazon was founded as an e-commerce company, but it expanded into cloud computing, streaming, digital advertising, and now, AI.

Its Amazon Web Services (AWS) cloud division designed its own data center chips which can be up to 50% cheaper for AI developers to use compared to its other infrastructure powered by Nvidia's chips. Plus, the Amazon Bedrock platform offers developers a library of ready-made LLMs from some of the industry's leading start-ups, in addition to a family of LLMs called Titan that Amazon built in-house.

In essence, AWS wants to become the go-to destination for developers looking to create their own AI applications. Various Wall Street forecasts suggest AI will add anywhere from $7 trillion to $200 trillion to the global economy in the coming decade, potentially making it Amazon's largest opportunity ever.

Berkshire Hathaway owns a $2 billion stake in Amazon, representing just 0.5% of the conglomerate's stock portfolio. AI could drive substantial growth for the company over the long term, so if Buffett wished that position was larger before, he might be kicking himself for not adding to it sooner after this next chapter unfolds.

3. Apple: 44.5% of Berkshire Hathaway's portfolio

Apple (NASDAQ: AAPL) is Berkshire Hathaway's largest position by far. The conglomerate has spent around $38 billion accumulating shares starting in 2016, and its position is now worth $177.6 billion -- even after it sold 13% of its stake (for tax reasons) earlier this year. Apple makes some of the world's most popular devices including the iPhone, iPad, Apple Watch, AirPods, and the Mac line of computers.

The company is entering the world of AI with its new Apple Intelligence software, which will be released alongside the iOS 18 operating system in September. It was developed in partnership with OpenAI, and it's set to transform the user experience for Apple's devices. Its Siri voice assistant will lean on the capabilities of ChatGPT, as will its writing tools like Notes, Mail, and iMessage, to help users rapidly craft content.

There are more than 2.2 billion active Apple devices worldwide, meaning this company could soon become the largest distributor of AI to consumers. The upcoming iPhone 16 could drive a significant upgrade cycle, because it is expected to come with a powerful new chip capable of processing AI workloads on-device.

Apple ticks all of Buffett's boxes for a stock pick. It has grown steadily since Berkshire first invested in 2016, it's consistently profitable, it has a resolute leader in CEO Tim Cook, and it returns truckloads of money to shareholders through dividends and stock buybacks. In fact, Apple just announced a new buyback program worth $110 billion -- the largest in the history of corporate America.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Apple, Berkshire Hathaway, Microsoft, Nvidia, and Snowflake. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Berkshire Hathaway, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Electric vehicle company Tesla (NASDAQ: TSLA) is known for delivering high-flying returns to investors over the past few years, as it has grown to become the largest player in the industry. But the stock has lost its shine in 2022, shedding 52% of its value year to date.

Some of that decline has strangely occurred in the past month. Despite the Nasdaq-100 technology index rising 6.25% over the past 30 days, Tesla stock has dropped roughly 14% during this period. Investors appear concerned about CEO Elon Musk's focus after his recent $44 billion acquisition of social media giant Twitter, which appears to be occupying much of his attention. 

But it shouldn't change Tesla's long-term trajectory, and many analysts on Wall Street remain incredibly bullish on the company. For example, an analyst for Ark Investment Management -- run by famous investor Cathie Wood -- thinks Tesla stock could soar nearly 930% by 2026. But could these impressive projections be right? Let's take a closer look.

Elon Musk is a master multitasker

The Tesla boss has a well-documented history of spreading himself thin, but for the most part, things have worked out exceptionally well. His time is split between the electric vehicle giant; his private rocket-building enterprise, SpaceX; his brain-interfacing project, Neuralink; and the newly acquired Twitter. While it may take some time for him to smooth out the kinks over at Twitter, history suggests the impact on Tesla will be negligible at most.

For example, 10 years ago, Tesla had an annual production rate of about 20,000 electric vehicles. But it has rapidly expanded since then, with two new Gigafactories in Austin and Berlin coming online during 2022. Its capacity has now ballooned to 2 million cars per year. So, despite distractions from Musk's various other enterprises, the company's progress hasn't slowed down.

Tesla has even expanded into other verticals, like software, with a particular focus on its full self-driving (autonomous) technology. This will be a lucrative opportunity not only for customer vehicles, but also the company's upcoming robotaxi, which is slated for release in 2024. The robotaxi is likely to be fully autonomous and might not even feature a steering wheel or pedals. By some estimates, this segment of the car market could be worth upward of $2.1 trillion by 2030.

In fact, the robotaxi business is key to Ark Investment Management's lofty prediction for Tesla stock. The firm believes the segment will make up as much as 62% of the enterprise value of Tesla by 2026, and if that's going to be the case, its growth will have to be rapid from the moment it launches.

Tesla is more than an electric vehicle company

Despite its clear focus on the car industry, Tesla is quietly expanding into other areas. The company offers green energy solutions like solar power and battery storage for residential and commercial purposes, and its most recent quarter (ended Sept. 30) was one of its strongest ever in that department. 

Storage deployments jumped by a whopping 62% year over year to 2.1 gigawatt-hours, which was the highest result ever. Remarkably, it came in the face of continued production struggles as Tesla hasn't been able to access an adequate supply of semiconductors. As a result, demand is outstripping supply and the company is in the process of ramping up production at its dedicated Megapack factory in California.

But it gets better. At Tesla's recent artificial intelligence (AI) day, it revealed a new humanoid robot called Optimus. It's far from production-ready, but it could end up being a critical part of low-skill workforces in industries such as manufacturing. Robots don't need to eat, sleep, or take vacations, so the opportunity for around-the-clock production of goods could eventually be a reality.

Tesla thinks Optimus will be deployed into the market in 2027, and prices could start at $20,000. The company intends to produce millions of units following the launch, so the financial contribution from this business segment could be astronomical -- and it's not even factored into Ark's thesis yet. 

What Tesla stock needs for a gain of 900% or more by 2026

Tesla has produced 1.2 million cars over the past four quarters, bringing in $74.8 billion in total revenue. That offers some context for Ark's projections below.

In order for Tesla stock to soar more than 900% by 2026, Ark says the company will have to be selling 17 million cars annually with about $1 trillion in revenue. (Note: The initial report by Ark does not account for Tesla's stock split since it predates its occurrence. As such, the possible "900%-plus-gain" has been adjusted to reflect the split alongside Ark's initial price projection). The company has four full years to make that happen (until the end of 2026), but even so, that projection might be somewhat ambitious.

Elon Musk himself has hinted that Tesla's annual production capacity could hit 20 million vehicles -- but not until 2030. It will require another 10 or 12 Gigafactories, and since none of them have been formally announced yet, it's unlikely the company will be so far ahead of schedule that 2026 becomes a likely possibility.

What might be possible for Tesla stock, then? Well, Ark also has a "bear scenario" at the lower end of its forecast. That would involve the EV maker selling 10 million vehicles by 2026, generating about $490 billion in revenue. In other words, it would mark a halfway point to Elon Musk's 2030 projection, and the timing does make sense.

If that scenario comes to fruition, Ark thinks Tesla could rise to $966 per share, representing more than 400% upside. That's still a significant gain from here, and it's a far more likely scenario than the ultra-bullish case. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Shiba Inu (CRYPTO: SHIB) hit almost every investor's radar in 2021 after speculators drove it to a 43,800,000% gain for the year. It's one of the greatest returns in the history of finance -- a perfectly timed investment would have turned a mere $3 into over $1 million. 

But the tide has since gone out, and Shiba Inu hasn't evolved to deliver any real use cases. As a result, it has declined in value by 64% in 2022 so far. Despite the steep drop, here are five big reasons I still wouldn't be a buyer. 

1. Shiba Inu is unregulated

The first reason to stay away from Shiba Inu -- and this goes for most cryptocurrencies -- is that it's completely unregulated. Ironically, that's one reason some investors choose to own it, because they feel it keeps them outside of the traditional monetary system. But there can be significant consequences to that approach.

For example, if Shiba Inu tokens are lost or stolen, there's virtually no recourse for the holder whatsoever. On the other hand, up to $250,000 worth of cash in a U.S. bank account is automatically insured by the Federal Deposit Insurance Company (FDIC); in other words, it's guaranteed by the government should anything happen. 

It's probable that holders of TerraUSD, a stablecoin that recently shed almost all of its $18 billion valuation, would have appreciated a government-backed initiative to recover their losses.

2. Regulations are coming

You might think this is contradictory to the first point, but the second reason to avoid Shiba Inu is because regulation is inevitable. After a string of high-profile collapses in the cryptocurrency markets (like the one mentioned above), the U.S. government is more aggressively pursuing new laws to protect investors.

Shiba Inu holders (and crypto holders broadly) will soon lose their ability to remain anonymous, because their brokers and exchanges will be required to report all client trading activity to the Internal Revenue Service for tax purposes beginning in 2023. In addition, the majority of cryptocurrencies likely fit the legal definition of a financial security, which could soon place a heavy compliance burden on brokers and exchanges, and that will increase trading costs for customers.

Put simply, more regulation is a net positive for consumers, but it would also strip away many of the reasons people want to own tokens like Shiba Inu. If the subset of the population who currently find Shiba Inu appealing suddenly no longer do, then it might be the final nail in the coffin for the meme token. 

3. Neither consumers nor businesses want to use Shiba Inu tokens

The ultimate goal of most cryptocurrencies is to become a means of payment that performs better than traditional money. Theoretically, that would ensure sustained price gains because people would constantly be transacting in the tokens, giving consumers and businesses an incentive to own them. But so far, not even crypto market leader Bitcoin (CRYPTO: BTC) has garnered mass adoption, and Shiba Inu is lightyears behind. 

Roughly 7,879 businesses accept Bitcoin as payment worldwide, but a mere 659 accept Shiba Inu, and they're mostly small, obscure merchants. Given the significant return Shiba Inu delivered in 2021, followed by its subsequent collapse in 2022, how many businesses could manage their cash flow if they transacted in such a volatile currency? Probably none. 

As a result, it's unlikely Shiba Inu's merchant base will grow materially anytime soon.

4. Shiba Inu has a supply problem

Now that it's been established that Shiba Inu is merely a speculative plaything, here's the fourth reason I wouldn't touch it with a 10-foot pole: It's not even good at that. There are currently 589 trillion Shiba Inu tokens in circulation, which is why they trade at a price of $0.000012 each instead of something more typical, like $1. 

If Shiba Inu did trade at $1 per token, it would be valued at $589 trillion, making it the most valuable asset on Earth. It would be worth 235 times more than iPhone maker Apple Inc. (NASDAQ: AAPL), which is currently the largest company in the world, with a market capitalisation of $2.5 trillion. 

Shiba Inu's enormous supply is therefore a barrier to it ever reaching a significantly higher price per token. As speculators have slowly realized the token is likely mathematically banished to a life with five zeros in front of its price, they've gradually stopped calling for further meteoric price increases to $1 and beyond. 

5. I'm not feeling the burn

To solve the above supply issue, the Shiba Inu community is working together to remove tokens from circulation by "burning" them, which organically increases the price per token. This happens by sending tokens to a dead wallet where they can never be accessed again. The easiest way to participate is to simply send tokens to the aforementioned wallet, but that's no fun.

Shiba Inu holders can also listen to a specific music playlist where the royalties are partially burned, or they can buy coffee from the Shiba Coffee Company, which burns some of the proceeds. Then there's the new Shiba Inu metaverse, where users who purchase virtual land using the Ethereum (CRYPTO: ETH) cryptocurrency can pay a fee in Shiba Inu to rename their plots and, you guessed it, that fee is burned. 

But the burn rate has been incredibly slow so far. If holders are hoping to see their tokens reach $1 through the burn mechanism, they might be waiting more than 10,000 years. And, even if it gets there, it won't change the value of their holdings. Each Shiba Inu investor will simply own fewer tokens at a much higher price, so the net worth of those tokens will remain exactly the same.

Therefore, while this feels like a positive solution, it will have little real impact for investors.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, Bitcoin, and Ethereum. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple, and has positions in and has recommended Bitcoin and Ethereum. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Investors are always searching for the next game-changing company that could generate strong long-term returns. That hasn't been easy this year because the technology sector is mired in a bear market, and sentiment toward innovative companies is broadly pessimistic, which tends to overshadow their potential.

A looming economic slowdown is the reason for the negativity, as rising inflation is pushing interest rates higher and squeezing consumers' wallets. But some companies have been less impacted by this -- particularly those that sell their products and services to other businesses. 

Snowflake (NYSE: SNOW) is one of them. Its stock is down 53% in 2022 so far, but its revenue continues to soar, which suggests this might be a great opportunity to buy. After all, Snowflake stock is owned by Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRKB), and he's widely regarded as one of the best long-term investors in the world.

Enter the Data Cloud

Snowflake is taking advantage of the digital revolution in the corporate sector. Companies are shifting their operations online at a rapid pace using cloud technology, and they're generating mountains of data that might seem messy and disorganized at face value, but that actually contains valuable underlying insights when it's analyzed effectively. 

Large organizations sometimes use multiple providers of cloud services to facilitate their digital transformations, including Amazon.com, Inc.(NASDAQ: AMZN) Web Services, Microsoft Corporation (NASDAQ: MSFT) Azure, and Alphabet Inc. (NASDAQ: GOOGL)'s Google Cloud. But that often means their data is fragmented because it's siloed across several platforms. Snowflake has created the Data Cloud, which is designed to unify all of it for maximum visibility. 

The three aforementioned cloud providers are now all tightly integrated with Snowflake because their customers benefit from the platform. In circumstances where they need to share important data with a business partner that operates on a different cloud provider than their own, for example, Snowflake is a game changer. 

Plus, the company has built an innovative data marketplace where Snowflake customers can buy, sell, and exchange data with one another, adding a new dimension to the benefits of being inside its ecosystem.

Snowflake's growth is soaring

In the second quarter of fiscal 2023 (ended July 31), Snowflake had 6,808 total customers. But the subset of those customers spending at least $1 million with the company more than doubled to 246 compared to the year-ago period. It highlights the rapidly growing need for Snowflake's platform.

Snowflake's revenue soared 83% year over year during the quarter, reaching $497 million. The strong result prompted the company to slightly increase its full-year guidance for fiscal 2023, and it now expects to generate a total of $1.915 billion in sales. 

Zooming out, the big picture shows that if it delivers on that estimate, it will have grown its revenue at a compound annual rate of 93% since fiscal 2020. 

Therefore, even in the face of an economic slowdown, Snowflake's business continues to rapidly expand. This is further supported by the fact it has hired nearly 1,000 additional staff during the current fiscal year, while many other companies in the technology sector have been slashing their head counts.

Snowflake isn't making money, but it doesn't matter (yet)

Snowflake is an unprofitable company. In fact, it has lost over $388 million in the first six months of fiscal 2023. But there are three important reasons why this isn't a problem just yet.

First, Snowflake had a very high gross profit margin of 75% in the second quarter, which affords it plenty of flexibility when it comes to fine-tuning its expenses. Once the company achieves an appropriate level of scale, it can simply trim its operating costs and potentially become profitable on the bottom line. It's improving already -- its net loss was equal to 42% of its revenue during the first six months of fiscal 2023, compared to 78% during the same period last year.

Second, Snowflake has nearly $4 billion in cash, equivalents, and short-term investments on its balance sheet, which means it has a long runway before it hits funding issues. Therefore, it's a good move to continue spending aggressively as long as the company is growing as quickly as it is right now. 

That introduces the third point. Snowflake most recently had a ridiculously high net revenue retention rate of 171%, which means its existing customers spent 71% more with the company during the second quarter of fiscal 2023 than they did during Q2 of last year. As a result, theoretically speaking, each new customer Snowflake acquires could become 71% more valuable with each passing year, so it's wise to spend money hand over fist to get them in the door.

It's little wonder Snowflake has attracted an investment from Buffett's Berkshire Hathaway. It might not be the type of stock the conglomerate typically buys, but that simply reinforces the quality of Snowflake's business.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Microsoft, and Snowflake Inc. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Amazon (NASDAQ: AMZN) is the largest e-commerce company in the world with a market value of over $1.3 trillion. Its website generated 2.7 billion hits last month, making it a no-brainer platform for brands that want to elevate their online presence. 

Peloton (NASDAQ: PTON) is set to join that club, announcing this morning that a range of its products and merchandise items are now available on Amazon's U.S. website. It's the latest in a string of drastic moves by the maker of at-home exercise equipment, to arrest rapidly slowing sales and expanding financial losses.

The partnership is a win for Peloton, but it's likely a bigger win for Amazon. Here's why. 

Peloton is retooling for a world beyond pandemic restrictions

Peloton was one of the best-performing companies during the worst of the pandemic. Gyms were closed, workers were attending their jobs remotely, and society was enduring varying degrees of lockdowns. That left few opportunities for people to get their exercise fix, so a range of interactive at-home equipment that brought the workout – and the classes -- into the home was a proverbial home run. 

But as pandemic restrictions eased thanks to widespread vaccinations, Peloton's business quickly deteriorated. The company will report its financial results for the fiscal 2022 full year this week, and it's expecting that revenue will come in at around $3.5 billion, which would be a sizable drop from the $4 billion it generated in fiscal 2021. 

The drop in sales is underscored by a steep drop in engagement, measured by the average number of monthly workouts in the most recent fiscal third quarter which fell 28% year over year. Put simply, gyms are open, people are free, and they're using their Pelotons far less often. 

The company installed a new CEO at the beginning of 2022 and tasked him with righting the ship. So far, sweeping changes have been made which include staff layoffs and broad cost cutting, a trial of a new subscription-based sales model for its equipment, and moving production to external manufacturers. 

Now, for the first time in its history, Peloton will deviate from its direct-to-consumer sales model and offer the Peloton Bike, Peloton Guide, accessories, and apparel outside of its showrooms and its website, on Amazon.com. 

Why this partnership is a big win for Amazon

Earlier this year, Wall Street was abuzz with the news that Amazon was interested in buying Peloton. The move would have been well within Amazon's wheelhouse because it's no stranger to acquisitions -- and Peloton would've been a relatively small one given the company is worth just $4 billion as of this writing, thanks to a 92% drop in its stock price from its all-time high.

It ultimately never happened, but with this new partnership in place, Amazon gets the benefit of selling Peloton's products on its website and earning revenue without the baggage of absorbing a business that has lost a whopping $1.8 billion over the last four quarters. Additionally, Peloton's financial situation is rather grim with just $879 million in cash on hand which is mostly a result of taking on $750 million in debt in May. 

Peloton's Chief Financial Officer has commented that customers initiate 500,000 Peloton product searches every month on Amazon.com, reinforcing the positive impact this deal could have for his company. But it might be just as beneficial for Amazon, because every time a customer can't find what they're looking for on Amazon.com, it increases the likelihood that they will navigate to another website which costs the company more than just that one potential sale. 

When a customer can find what they're looking for, Amazon not only wins the sale, but its artificial intelligence algorithms gain an opportunity to push other products into their view and potentially generate further revenue. It's estimated that these recommendation engines are responsible for 35% of Amazon's online sales, so being able to satisfy that monthly search volume for Peloton products will be a win for Amazon overall. 

Amazon stock is a buy now

Amazon is fresh off a strong, but mixed, second quarter of 2022. It suffered a net loss mainly as a result of its stake in electric vehicle maker Rivian Automotive (NASDAQ: RIVN), because shares in that company have fallen sharply recently. 

But that speaks to Amazon's operational diversity. It offers investors a cross-section of the digital economy and it continues to drive innovation. Having multiple revenue streams insulates the company from external shocks like high inflation, which is currently putting pressure on consumers and, therefore, Amazon's e-commerce segment. But its cloud segment, driven by Amazon Web Services, still managed to grow by 33% year over year during the quarter. 

Additionally, its relatively new advertising segment has delivered $33.9 billion in revenue over the last four quarters and remains an exciting opportunity going forward thanks to the company's valuable media assets, like the rights to the NFL's Thursday Night Football. 

While the Peloton deal is exciting, Amazon is more than just an e-commerce company now and there's no shortage of reasons to own the stock. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Does this make Amazon stock a buy? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon and Peloton Interactive. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

A bear market occurs when the price of an asset or index falls by 20% (or more) from its all-time high. In the stock market's case, this occurs every 3.6 years on average. In 2022, both the benchmark S&P 500 index and the technology-centric Nasdaq 100 index have crossed the bear-market threshold. The selling has been broad and relentless, especially for tech stocks, many of which have lost more than 50% of their value. But for long-term investors, that has created some interesting opportunities. 

These three companies are currently worth between $900 million and $2 billion, but they each have the potential to amass valuations of $5 billion by 2030. That opens the door to a significant amount of upside for investors. Here's why.

1.Upstart: implied upside of 144%

Upstart Holdings (NASDAQ: UPST) is an artificial intelligence company that is changing the way banks assess potential borrowers. It says its algorithm can deliver loan decisions faster and more accurately than traditional methods of assessment, which have historically relied on Fair Isaac's FICO credit scoring system. 

Upstart has originated $25 billion worth of loans for its 60 bank and credit union partners since it started out, and it earns fees for doing so. But the company just entered the automotive loan segment, which is worth about $751 billion in originations annually, so it has only tapped a small slice of its potential so far. What's more, Upstart could be eyeing business loans and mortgages in the future, which would take its opportunity to $6 trillion each year. 

Upstart is showing exceptional growth, increasing its revenue by a whopping compound annual rate of 96% between 2017 and 2021. But it's set for a slowdown after cutting its 2022 revenue guidance amid challenges like rising interest rates and a weakening economy, though neither of these issues are likely to last for the long term. 

Upstart stock has taken investors on a rollercoaster ride. After listing publicly in December 2020 at $20 per share, it rose by over 20 times to an all-time high of $401 before crashing back to Earth, now trading at $24 per share. It has a $2 billion market valuation at the moment, so its stock price would need to rise by 144% to $59 in order to reach a $5 billion valuation by 2030. 

That's only a fraction of Upstart's all-time high, and considering the company's potential, that goal seems very achievable by 2030. 

2. Lemonade: implied upside of 323%

Lemonade (NYSE: LMND) is another financial technology company using artificial intelligence to transform an age-old industry -- this time, insurance. The company has developed a web-based bot that can interact with customers to write a quote in under 90 seconds, and pay claims within three minutes -- all without human input in most circumstances.

In the two years between the first quarter of 2020 and the recent first quarter of 2022, Lemonade has more than doubled its customer base to 1.5 million, and more than tripled its in-force premium from $133 million to $419 million. It comes on the back of the company's entrance into the car insurance market, its newest and potentially most lucrative segment. It could be worth over $316 billion in the U.S. during 2022 alone, from a pool of 198 million policyholders. 

Yet despite Lemonade's strong growth, its stock has collapsed by 88% from its all-time high, and its market valuation now sits at a modest $1.1 billion. The company is losing quite a bit of money as it builds scale and expands its business, and investors have expressed little patience for this process amid the broader tech sell-off. But as the economy improves, so should the appetite for high-growth stocks.     

Lemonade had a market valuation of about $10 billion at its all-time high stock price, so it would have to regain half of that level to reach $5 billion. It has the potential and the growth rate to achieve that by 2030, and if it does, it would deliver investors a return of 323%.

3. Redfin: implied upside of 455%

In an economic environment where interest rates are rising, real estate prices will typically fall, so buying Redfin (NASDAQ: RDFN) stock is a contrarian play. But the company might be the future of the industry, and it's too cheap to ignore right now.

Redfin has built an army of 2,750 real estate brokers across the U.S., and it represents 1.18% of all home sales by value. That significant scale allows the company to charge listing fees as low as 1%, far cheaper than the industry-standard 2.5%. Since Redfin started, it has saved sellers over $1 billion. 

The company also operates an iBuying segment that purchases homes directly from willing sellers, then attempts to flip them for a profit. It's a risky practice especially if real estate prices are falling, and it dealt a catastrophic blow to Redfin's key competitor Zillow Group (NASDAQ: Z)(NASDAQ: ZG) last year. Thankfully, Redfin's iBuying business is much smaller, and it appears to have behaved less aggressively when acquiring properties, so there are no signs it will suffer a similar fate at this stage.

Redfin's stock once traded at $96.59, but it has fallen 91% from that level to $8.43 today. That places its current valuation at just $900 million -- less than half of its 2021 full-year revenue of $1.9 billion. In 2022, analysts expect revenue will grow further, to $2.5 billion. 

Redfin stock would need to rise 455% to $47 in order to amass a $5 billion valuation, and there's a case that it might be there right now if not for the uncertainty in the real estate market. But that won't last forever. As long as Redfin continues to grow steadily over the next eight years, it should find the target very achievable. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Prediction: These tiny growth stocks could be worth $5 billion by 2030 appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and recommends Lemonade, Inc., Redfin, Upstart Holdings, Inc., Zillow Group (A shares), and Zillow Group (C shares). The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Fair Isaac and recommends the following options: short August 2022 $13 calls on Redfin. The Motley Fool Australia has recommended Upstart Holdings, Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.