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

While the market is on pace for a strong 2025, most of the stocks in the "Magnificent Seven" merely had good, not fantastic, years. But one Magnificent Seven stock clearly took the crown in 2025: Google parent Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL).

GOOG Year to Date Total Returns (Daily) data by YCharts.

As you can see, Alphabet's 64% return trounced the rest of the Magnificent Seven, beating 2025's second-best performer, Nvidia (NASDAQ: NVDA), by a whopping 33 percentage points and most of the others in the group by more than 50 points.

Here's how Alphabet did it and why the rally may very well continue into 2026.

Alphabet entered the year as the cheapest Magnificent Seven stock and still isn't expensive

Coming into the year, Alphabet had been a notable laggard, with its valuation reflecting considerable fear, uncertainty, and doubt in the age of generative artificial intelligence (AI). As a result, Alphabet began the year at the lowest valuation of the group. At one point, its price-to-earnings (P/E) ratio even touched the high teens -- below the average valuation of the S&P 500.

Yet, as you can see, even with this year's vast outperformance, Alphabet retains the second-lowest P/E ratio of the group at 30.6 times trailing earnings, barely beating out Meta Platforms.

GOOG PE Ratio data by YCharts. PE Ratio = price-to-earnings ratio.

Alphabet engineered a turnaround, and Buffett saw it coming

The primary concern entering the year was that AI chatbots might eventually disrupt Google Search, which is still Alphabet's largest profit center. It's also true that, early in the year, Google Search showed a concerning deceleration in paid clicks. Yes, there was still growth, but by the first quarter, paid click growth had fallen to just 2%, with concerns that it might eventually go negative.

However, on its second-quarter earnings, Alphabet began to prove that narrative wrong, as Search paid clicks reaccelerated to 4% growth. That might have been when Warren Buffett or his lieutenants decided to buy Alphabet stock for the Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) portfolio. Whatever the reason, the buy proved prescient, as Search paid click growth accelerated yet again in the third quarter to 7%. 

AI improvements bolstered Search and Gemini

It wasn't just a matter of luck that Alphabet was able to reaccelerate Search paid clicks. The reacceleration of Search happened just after Google introduced AI Mode in May, giving Search users the option of a chatbot-like experience powered by Alphabet's own homegrown large language models (LLMs). It appears the improvement, combined with 2024's introduction of AI Overviews, caused Search users to reengage.

Of course, all of that AI infusion into Search would have been for naught if Alphabet's AI models weren't competitive. However, Alphabet has clearly upped its AI game over the past year. The vast improvement was confirmed by the November introduction of Gemini 3, Alphabet's latest LLM, which rapidly climbed to the top of several industry benchmarks, beating out even the latest ChatGPT model on many important tasks.

The introduction of Gemini 3 appears to signify at least a near-term changing of the guard in the AI race, as ChatGPT had pretty much retained its first-mover advantage since introducing LLM chatbots to the world in late 2022. Subsequent to Gemini 3's launch, OpenAI CEO Sam Altman issued a "code red" memo to OpenAI's employees.

Alphabet can maintain its new lead in the AI race

Years ago, Alphabet had a virtual monopoly on artificial intelligence research before OpenAI was formed to challenge its industry-leading research lab. In fact, Alphabet's researchers were the first to innovate transformer technology, which is the backbone of modern-day LLMs.

Not only does Alphabet have a longer history of deep AI research than even OpenAI, but it has also designed its own proprietary AI chips for the past decade. Alphabet trained Gemini not on expensive Nvidia chips but on its in-house-designed Tensor Processing Units, or TPUs. That's a proprietary technology of Google and a point of differentiation.

Proprietary AI research and in-house chips have enabled Google to become a vertically integrated AI player with the most extensive collective experience in the field. And although OpenAI clearly caught Alphabet off guard when it unveiled ChatGPT three years ago, it appears that Alphabet has now caught up and surpassed OpenAI, at least for now.

Given Alphabet's significantly greater financial resources, more years of AI research experience, and its own proprietary chips, Google may even continue to augment its new lead.

Why things could get even better for Alphabet in 2026

Not only that, but Alphabet also has several businesses it can infuse with its newfound AI leadership. For instance, many of the most reputable private AI labs conduct their research on Google Cloud, thanks to its proprietary TPU option alongside the standard GPU formats. Google's cloud business is accelerating and could become a meaningful new profit center in the years ahead.

Additionally, Alphabet's self-driving unit, Waymo, appears to be growing by leaps and bounds. This past spring, Waymo reached one million autonomous rides per month, and it surpassed 14 million rides in 2025 as of December -- more than triple the number of rides delivered the previous year. Waymo also just began delivering autonomous rides on freeways, and Alphabet plans to expand Waymo services in 20 cities in 2026.

Autonomous robotaxis could become a significant business in a few years, and Waymo has a substantial first-mover advantage in this space. That could add still another leg to Alphabet's burgeoning empire across Search, AI services, YouTube, Cloud, hardware, subscriptions, and other next-generation technology bets.

In other words, with the big looming fear regarding Search seemingly quelled for now, one could argue that Alphabet should be priced higher than its other Magnificent Seven peers today, rather than the second-cheapest of the bunch.

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

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Billy Duberstein and/or his clients have positions in Alphabet, Berkshire Hathaway, and Meta Platforms. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, 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, Berkshire Hathaway, 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's conglomerate Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) just filed its 13F filing last Friday, revealing a new position in Google parent Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG). In the third quarter, Berkshire bought $4.3 billion worth of Alphabet shares, making the Search giant Berkshire's 10th-largest equity position.

The move is in some ways surprising, but in other ways not. While Buffett has generally eschewed technology stocks, Berkshire's largest equity position has been Apple (NASDAQ: AAPL) since 2017. Additionally, Buffett and his late partner Charlie Munger have discussed "missing" the opportunity to buy Alphabet in the past. So some may have concluded Berkshire would never buy Alphabet.

Still, Alphabet entered the year as the cheapest of the "Magnificent Seven" stocks, due to a specific fear around the disruption of its Search business. That's why the timing of Berkshire's purchase likely came due to one specific data point that emerged in Q3.

The fears over Alphabet's Search franchise

Although Alphabet's stock has had a great year, with a total return of 46% year to date, Alphabet's stock had actually been negative on the year until late July, when the company released its third-quarter earnings report.

Coming into the year, Alphabet traded cheaper than peers, at around 20 times earnings. Investors might have been surprised at that below-market valuation, given Alphabet's multifaceted businesses, including Search, YouTube, Google Cloud, and next-generation technologies such as self-driving car service leader Waymo, as well as world-class artificial intelligence (AI) research.

However, investors had also grown nervous over the rise of AI chatbots, and with it, the threat that AI chatbot usage may begin to displace Google Search activity. If that were to occur, it could be very problematic for Alphabet. While Alphabet has done a great job of nurturing other businesses over the years, a large percentage of the company's profits still comes from Search ad revenue.

Those fears were augmented earlier in the year, when Alphabet's first-quarter paid click growth rate decelerated to just 2%. That marked a deceleration from the 5% paid click growth the company saw in 2024. While not a negative number, the downward trend in growth certainly fueled the fears that Search volume might eventually decline. 

Search reaccelerated in Q2

While we don't know exactly when Buffett decided to buy shares, or even if it were Buffett himself or one of his younger lieutenants Todd Combs and Ted Wechsler, the purchase might have come following Alphabet's second-quarter earnings release in late July.

That's when Alphabet trounced analyst expectations for revenue and earnings, while also disclosing a 4% paid click growth rate.

That reacceleration from the first quarter could have been a key proof point that Alphabet's efforts to sustain the Search franchise were working. In 2024, Alphabet unveiled "AI Overviews" when customers used Search, providing an AI-powered summary to questions at the top of Search results. Then in the second quarter of 2025, Alphabet took Search innovation one step further, introducing "AI mode" in May to over 200 countries and territories. AI mode, powered by Google's Gemini LLM, is basically an option to get a chatbot-like experience within Google Search.

The fact that Alphabet introduced AI mode in May and subsequently saw a reacceleration in paid clicks on Search could have meant Alphabet's Search enhancements were leading to more engagement within the established Search ecosystem.

While chatbot usage is definitely on the rise, Google Search is still a daily habit for literally billions of people. So as long as Alphabet can innovate and keep pace with AI leaders with its underlying Gemini large language model, its current distribution advantage over AI start-ups should keep many within the Search ecosystem, preserving that franchise and the cash flows that come with it.

While we can't know exactly why Buffett & Co. purchased Alphabet stock in the third quarter, the reacceleration of Search likely put some of the overhanging fears on Alphabet to bed, removing a big risk.

Search clicks should continue to be scrutinized

Fortunately for Buffett, Alphabet stock has continued to appreciate since that second-quarter release. But perhaps even more important than the stock price appreciation, third-quarter results were also excellent. And even more important than overall Q3 results was the fact that paid clicks continued to accelerate, rising 7% year over year, a three-point acceleration over Q2 and a five-point acceleration from Q1.

Even better is that Alphabet still trades at a very reasonable 28 times trailing earnings, which is still a cheap valuation for a company with high AI-fueled growth prospects. With the core Search franchise intact, its Cloud unit now experiencing high and profitable growth, and self-driving unit Waymo recently extending its lead over would-be competitors, Buffett's Alphabet purchase in the third quarter is beginning to look like another in a long line of very savvy investments.

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

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Billy Duberstein and/or his clients have positions in Alphabet, Apple, and Berkshire Hathaway. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Apple, and Berkshire Hathaway. The Motley Fool Australia has recommended Alphabet, Apple, and Berkshire Hathaway. 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.

Shares of Apple (NASDAQ: AAPL) fell 18.1% in the first half of 2025, according to data from S&P Global Market Intelligence.

Apple came into 2025 after a 30% gain in 2024 while trading at a high P/E ratio of 40. So it would have taken some very good news for Apple's stock to climb higher in the beginning of the year.

Instead, Apple suffered from the Trump Administration's trade war, particularly regarding its negotiations with China. Furthermore, management announced there would be a delay in the new AI-powered Siri, with Apple potentially going to third-party models and spurring doubt about Cupertino's AI capabilities.

Where's Siri?

Of all the big technology companies, perhaps none have as much exposure to China as Apple. Despite CEO Tim Cook migrating some iPhone production to India in recent years, about nine in 10 iPhones are still manufactured in China and would therefore be subject to any tariff imposed on goods made in the Middle Kingdom.

Apple received an exemption on tariffs during Trump's first term, but it's unlikely that exemption will continue in the second. As of today, it's very unclear exactly what will happen this time around. After Trump levied a 54% tariff on China on April 2, "Liberation Day," a tit-for-tat mini-trade war erupted that saw that rate balloon to 145% before a temporary truce was announced on May 12, when tariffs were eased to 30% for 90 days as talks continue.

However, just two weeks later, President Trump said that any iPhone manufactured outside the U.S. would be subject to at least a 25% tariff. While this tariff would also of course apply to Apple's smartphone and electronics competitors, Apple could potentially see a margin hit or reduced demand if it tries to pass through those extra costs.

The tariff situation is still unclear.

The other big worry Apple endured was about artificial intelligence. Apple has never really been an innovator in new technologies, instead historically incorporating new technologies into customer-friendly devices that provide a great experience.

With AI, it's still unclear how Apple will compete. About a year ago, management announced new AI-powered features to be introduced over the course of the next year. But one year later, the company has clearly disappointed.

In June, Apple announced the new AI-powered Siri would be delayed at least until 2026. Moreover, Bloomberg reported Apple may be giving up on building its own AI models and was in talks with both OpenAI and Anthropic to power the "new" Siri, which is now slated for next year...maybe.

That may be a smart and pragmatic move if these AI-first start-ups can make better large language models than Apple, and if LLMs become somewhat "commoditized." Still, ceding that ground opens a dependence on these new AI companies, and the situation would become really complicated if one of these companies decided to become a hardware competitor.

And OpenAI is doing just that. A few days ago, OpenAI acquired former Apple design wizard Johnny Ive's design start-up for $6.5 billion, with the aim of creating a new AI device. While we don't yet know what kind of device these two are working on, it could potentially be a disruptor to Apple's portfolio. So it's probably not great that Apple may also be depending on OpenAI to power Siri in the future.

Could Apple be disrupted?

There's no reason to panic as an Apple shareholder. After all, Apple has a massive user base that's very loyal, and it certainly has the financial means to invest in or acquire the AI technologies it may need to serve its customers.

Still, with the tariff threat, the difficulty of executing new AI technologies, and a valuation that is by no means cheap, it's no wonder Apple stock took a step back in the first half. Until these issues are resolved, I wouldn't expect a bounce back or any significant upside in the stock.

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

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Billy Duberstein and/or his clients have positions in Apple. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple. The Motley Fool Australia has recommended Apple. 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.

2025 could be the year the autonomous driving revolution takes off in earnest. After all, Alphabet's (NASDAQ: GOOGL) (NASDAQ: GOOG) Waymo is currently on the road in several cities, with some analysts concluding that it has already overtaken Lyft in areas of San Francisco where Waymo operates.

Meanwhile, Tesla's (NASDAQ: TSLA) autonomous robotaxi service is set to launch next month in Austin, Texas. This will be a huge deal for both Tesla's and Alphabet's shareholders, as many believe Tesla will be the eventual winner in the space. However, the launch will be of absolutely massive importance to Tesla shareholders, as the bulk of Tesla's valuation appears tied to this autonomous robotaxi opportunity.

Thus, next month's launch will have huge consequences for Tesla's stock. But will Tesla really dominate this emerging industry?

Elon Musk makes a bold prediction

Tesla is set to officially launch its autonomous robotaxi service in Austin, Texas, in June. In a recent CNBC interview, Musk gave a very bullish outlook on the new service, saying he believed that by the end of 2026, there would be hundreds of thousands, if not a million, Teslas doing self-driving in the United States.

That appears to be an astronomical amount, given there are only a bit over 1,500 Waymos on the roads today in Phoenix, Los Angeles, San Francisco, and Austin. Of course, Musk was discussing not only robotaxis but also existing owned Teslas equipped to use the company's full self-driving software.

Tesla's potential cost advantage and big opportunity

It should be noted that while Waymo is given very little credit as part of Alphabet's stock value, a huge amount of Tesla's valuation rests on the self-driving robotaxi opportunity. After all, Tesla's stand-alone auto sales are struggling.

At the beginning of 2023, revenue growth started to decelerate, and that negative momentum has recently snowballed into outright revenue declines. Last quarter's deliveries were down a whopping 13%, and trailing-12-month earnings per share have more than halved.

TSLA Revenue (Quarterly) data by YCharts. EPS = earnings per share.

Needless to say, these results alone, with earnings of $1.82 (and falling) over the past 12 months, clearly do not justify a stock price anywhere close to $334 as of this writing. But Tesla bulls such as Cathie Wood believe Tesla can become a multibagger mainly on the back of the autonomous robotaxi opportunity.

Wood's firm, Ark Invest, published an analysis of Tesla last year, valuing the stock at a whopping $2,600 per share. However, the rub of that ambitious price target is that Ark believes 90% of that future value will come from autonomous robotaxis, not car sales.

That's because Ark believes autonomous robotaxis will be a massive market and that Tesla will dominate. This is likely due to the belief not only in Tesla's full self-driving technology but also in its cost advantages over potential competitors.

This is where the Tesla bull case potentially has legs. According to Elon Musk, Tesla's costs per operating mile for its self-driving fleet are 20% to 25% of Waymo's. This is due to the higher cost of Waymo's sensor suite, which includes cameras, lidar, and radar, versus Tesla's camera-only approach, as well as Tesla's mass production capabilities. That analysis has also been reflected by other analysts, such as artificial intelligence (AI) analyst James Douma, who noted the biggest cost differential between the two services was the depreciation on the vehicle and sensor hardware.

With a cost advantage, Musk believes Tesla can achieve up to 90% of the autonomous driving market share. While estimates for the autonomous robotaxi market vary widely, some analysts put the opportunity as high as $450 billion by 2033. For Cathie Wood's part, Ark estimates Tesla's robotaxi revenue will reach between $600 billion and $950 billion by 2029. That would likely amount to a huge market share of a big market in just four years' time.

But there's a case that Waymo may be underrated

The danger for Tesla investors is if next month's initial rollout doesn't go as well as expected or its robotaxi service isn't as superior to Waymo's as many think it will be.

The first danger, obviously, is if there is a safety issue. Keep in mind that Waymo had its initial robotaxi trial all the way back in October 2020 in Phoenix. So, Waymo had a five-year head start on Tesla before it carefully and methodically expanded to San Francisco, Los Angeles, and then Austin. As of last month, Waymo was making 250,000 rides per week, with each ride adding to its driver's intelligence and reputation for safety.

While Tesla's clearance for its Austin launch shows Tesla has proven its safety bona fides to some extent, investors really won't know how safe it is until it gets its robotaxi service on the road. In another CNBC interview on Wednesday, Waymo CEO Tekedra Mawakana appeared to question how Tesla's camera-only approach would perform at night, implying that Tesla's cameras may miss things that Waymo's radar and lidar sensors would pick up in extreme darkness.

Furthermore, Waymo's higher costs aren't fixed at today's levels -- they're also set to decrease. In an interview with Business Insider last week, Waymo's first CEO, John Krafcik, said that in the long run, sensor costs will come down and ultimately be a "trivial" portion of Waymo's total cost per mile.

Instead, the bigger cost is that of producing vehicles, which Waymo currently buys from Jaguar in low volumes. This is in contrast with Tesla, which already has established, vertically integrated mass manufacturing.

But Waymo just announced on May 5 that it's opening a new autonomous vehicle factory for its Jaguar I-Pace vehicles in Phoenix, Arizona. The new autonomous plant will produce another 2,000 vehicles this year, more than doubling the 1,500-vehicle fleet already on the road. The company also said the new plant would eventually scale up to tens of thousands of Waymo riders per year, which should drive down costs per vehicle.

The rubber is about to meet the road for Tesla

With Waymo's current momentum, five-year head start, and improvements to its mass manufacturing on the way, Tesla is under a lot of pressure to deliver when it unveils its robotaxi service next month. Keep in mind, Tesla's initial service will comprise only 10 to 20 vehicles. However, that will still be an important starting point for both Tesla and Alphabet investors to begin monitoring the unfolding robotaxi battle for the months and years ahead.

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. Billy Duberstein and/or his clients have positions in Alphabet. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet and Tesla. The Motley Fool Australia has recommended Alphabet. 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.

Today, the lowest-valued stock in the "Magnificent Seven" is Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), and it's not close. In fact, Alphabet even trades at a lower valuation than the overall market. That's quite a shocking development considering Alphabet's long track record of success and innovation capabilities.

The market is currently focused on the rise of artificial intelligence chatbots and their implications for Alphabet's core Search business. However, not only is Alphabet making solid moves to sustain Search's relevance, but the company also has not one but three other major businesses growing really fast.

Five years from now, Alphabet's earnings look like they'll be more balanced between not just a resilient Search business but also all four of these major business lines.

How Alphabet is making Search relevant in the AI era

At first glance, it's unsurprising that investors may be worried about AI's impact on Alphabet. After all, Alphabet has long had a virtual monopoly on Search, which is a very profitable business that routinely grows double-digits year in and year out.

But at a massive $200 billion revenue run-rate, investors may begin wondering how much Search could grow from here, even without challengers. And when you add the new competitive threat from AI chatbots ChatGPT, Anthropic, Perplexity and others, it makes sense that some see the end of Alphabet's dominance in the years ahead.

However, Alphabet has rapidly caught up in frontier large language models (LLMs), rolling out its Gemini 2.5 model one month ago. Upon the rollout, Gemini is generating positive reviews, with some saying that in several use cases, Gemini 2.5 compares favorably to ChatGPT 4.5, which is currently regarded as the best-in-class model. On the recent call with analysts, CEO Sundar Pichai noted, "By many metrics, I think we have the best model out there now."

Regardless of how Gemini compares to ChatGPT, Alphabet has clearly closed the big gap between Gemini and early AI leaders over the past couple of years.

Google Search habits may be hard to kick

Investors may also be underestimating the advantages Google Search has as consumers adapt to using AI. To that end, Alphabet is infusing and improving the existing Search experience -- which is still a part of billions of people's daily routines -- with increased AI capabilities. After all, Alphabet still managed to grow its Search and Other segment by 13.1% in 2024 despite the emergence of various LLMs.

Exactly one year ago, Google began to implement AI overviews, which essentially use Gemini capabilities to perform an enhanced multipart Search, then summarize the findings, helping users piece multipart searches together into one quick and easy prompt.

The good news is that for Alphabet, management has said it monetizes AI overviews at the same rate as traditional Search. That appears evident in Search's continued revenue growth.

In addition, Alphabet is currently testing a new Search feature called "AI mode," which allows for even more complex multipart and multimodel queries and enables follow-up questions. The beta testing began last month, and when AI mode is rolled out, Alphabet will have two AI enhancements to the existing Search experience, along with the premium Gemini model.

People still have a strong Google Search habit, evidenced by its size and growth last year. And given that most AI start-ups like ChatGPT are mostly losing money and rely on subscriptions -- or getting people to pay for AI -- Google's free ad-based Search franchise, which is already an ingrained habit, may give it a competitive advantage in terms of retaining its large audience and affording it more time and resources to compete over the long term.

Non-search businesses are taking off

While Search is still Alphabet's main business, at 56% of revenue and likely an even higher share of profits, Alphabet has been cultivating several other segments for years that are just now hitting inflection points. In five years, they are likely to contribute a much greater percentage of revenue and profit. The three key future growth drivers are YouTube, Google Cloud, and Waymo.

After 20 years, YouTube has become the dominant online streaming video platform and continues making inroads into traditional media through subscription and ad-based formats. Last year, YouTube ads grew 15%. And while Alphabet lumps YouTube subscriptions in with all its other subscription services, overall subscriptions grew 16%.

Meanwhile, while Google was once an afterthought and a late entrant in cloud computing, it has become a formidable business in today's three-company cloud infrastructure oligopoly. Last year, Google Cloud grew 31% to $43.2 billion in revenue and $6.1 billion in operating profit.

Google Cloud just became profitable in the first quarter of 2023, and its margin has expanded rapidly with increased scale. In fact, Google Cloud's operating margin nearly doubled to 17.8% in the first quarter relative to the year-ago quarter. The good news is that even that improved margin is still well below the other two larger cloud leaders, leaving much more margin expansion to go.

Given that growth trajectory and the prospect of increased margins, it's not a stretch to think Google Cloud's profitability could become a very meaningful contributor to Alphabet's overall profits in five years, from nearly zero just two years ago.

And Waymo could be a game-changer

Finally, another huge potential business in the making isn't even contributing any profit at the moment but rather generating losses: Waymo.

But 2024 was a huge year for the fledgling autonomous robotaxi service, as the company expanded its Phoenix, San Francisco, and Los Angeles services. In December, YipIt data reported that Waymo had achieved a 22% share of the ride-hailing market in San Francisco, on par with Lyft just 15 months after launch.

As of early 2025, Sundar Pichai noted that Waymo was already providing 200,000 paid rides per week. Waymo's recent launch in Austin, Texas, in March has reportedly been a big success, generating twice as many cumulative rides in its first month as the San Francisco launch two years ago.

Of course, Waymo isn't the only company trying to get into the autonomous taxi game. Tesla (NASDAQ: TSLA) is set to launch its robotaxi service in June. Other autonomous driving start-ups are also looking to make a splash.

Still, there is something to be said for Waymo being first-to-market with autonomous taxis, both from a first-mover and name-recognition perspective in generating rider trust. After all, the longer Waymo has been on the road without incident, the more trusted it will become, making it more of a go-to for prospective riders.

While autonomous vehicles have been seen as somewhat of a risky science experiment to date, the projections for market growth are massive. Various research firms are putting the total market size between $370 billion and $450 billion by 2033 -- and it is sure to grow from there.

While it remains to be seen how the competition shakes out, Waymo is likely to get a significant share of that pie as the early leader. That would make it a fourth massive business under Alphabet's umbrella, along with Search, YouTube, and Cloud.

Alphabet won't be just a Search box anymore

While it's true that Search has competitive questions today, investors should still expect Search to generate huge profits in the years ahead, even if growth slows down over the next five years. However, Alphabet's valuation seems to be more than factoring that in. But the biggest difference to Alphabet five years out will be that Search is likely to decrease in importance, especially as Google Cloud and Waymo come into their own.

As long as Alphabet can maintain Search profitability as it matures and fights LLMs, the other non-search franchises should pick up the slack in terms of growth. If that comes to pass, the stock is a solid value today -- if not a bargain.

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. Billy Duberstein and/or his clients have positions in Alphabet. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet and Tesla. The Motley Fool Australia has recommended Alphabet. 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.

Could Nvidia's (NASDAQ: NVDA) magical two-year run be coming to an end? Up until now, there has been insatiable demand for Nvidia's latest and greatest graphics processing units (GPUs). As the artificial intelligence (AI) races heated up, big tech companies and start-ups alike rushed to buy or rent as many of Nvidia's high-performance GPUs as they could in a bid to create better and better models.

But last week, Chinese AI start-up DeepSeek released its R1 model that stunned the technology world. R1 is a "reasoning" model that has matched or exceeded OpenAI's o1 reasoning model, which was just released at the beginning of December, for a fraction of the cost.

Being able to generate leading-edge large language models (LLMs) with limited computing resources could mean that AI companies might not need to buy or rent as many high-cost computing resources in the future. The consequences could be devastating for Nvidia and last year's AI winners alike.

But as always, the truth is more complicated.

What is DeepSeek?

DeepSeek is an AI lab spun out of a quantitative hedge fund called High-Flyer. CEO Liang Wenfeng founded High-Flyer in 2015 and began the DeepSeek venture in 2023 after the earth-shaking debut of ChatGPT.

DeepSeek has been building AI models ever since, reportedly purchasing 10,000 Nvidia A100s before they were restricted, which are two generations prior to the current Blackwell chip. DeepSeek also reportedly has a cluster of Nvidia H800s, which is a capped, or slowed, version of the Nvidia H100 designed for the Chinese market. Of note, the H100 is the latest generation of Nvidia GPUs prior to the recent launch of Blackwell.

R1 shocks the world

On Jan. 20, DeepSeek released R1, its first "reasoning" model based on its V3 LLM. Reasoning models are relatively new, and use a technique called reinforcement learning, which essentially pushes an LLM to go down a chain of thought, then reverse if it runs into a "wall," before exploring various alternative approaches before getting to a final answer. Reasoning models can therefore answer complex questions with more precision than straight question-and-answer models can't.

Incredibly, R1 has been able to meet or even exceed OpenAI's o1 on several benchmarks, while reportedly trained at a small fraction of the cost.

Just how cheap are we talking about? The R1 paper claims the model was trained on the equivalent of just $5.6 million rented GPU hours, which is a small fraction of the hundreds of millions reportedly spent by OpenAI and other U.S.-based leaders. DeepSeek is also charging about one-thirtieth of the price it costs OpenAI's o1 to run, while Wenfeng maintains DeepSeek charges for a "small profit" above costs. Experts have estimated that Meta Platforms' Llama 3.1 405B model cost about $60 million of rented GPU hours to run, compared with the $6 million or so for V3, even as V3 outperformed Llama's latest model on a variety of benchmarks.

How DeepSeek Pulled It Off

According to an informative blog post by Kevin Xu, DeepSeek was able to pull this minor miracle off with three unique advantages.

First, Wenfang built DeepSeek as sort of an idealistic AI research lab without a clear business model. Currently, DeepSeek charges a small fee for others seeing to build products on top of it, but otherwise makes its open-source model available for free. Wenfang also recruited largely young people who have just graduated from school or who were in Ph.D. programs at China's top universities. This led to a culture of free experimentation and trial-and-error without big expectations, and set DeepSeek apart from China's tech giants.

Second, DeepSeek uses its own data center, which allowed it to optimize the hardware racks for its own purposes.

Finally, DeepSeek was then able to optimize its learning algorithms in a number of ways that, taken together, allowed DeepSeek to maximize the performance of its hardware.

For instance, DeepSeek built its own parallel processing algorithm from the ground up called the HAI-LLM framework, which optimized computing workloads across its limited number of chips. DeepSeek also uses F8, or 8-bit, data input framework, a less-precise framework than F32. While F8 is "less precise," it also saves a ton in memory utilization, and R1's other processes were also able to then make up for the lack of precision with a greater number of efficient calculations. DeepSeek also optimized its load-balancing networking kernel, maximizing the work done by each H800 cluster, so that no hardware was ever left "waiting" for data.

These are just a few of the innovations that allowed DeepSeek to do more with less. But when cobbling all of these "hacks" together, it led to a remarkable increase in performance.

The negative implication for Nvidia is that by innovating at the software level as DeepSeek has done, AI companies may become less dependent on hardware, which could affect Nvidia's sales growth and margins.

Counterpoints to the doom thesis

As dire as R1 may seem for Nvidia, there are several counterpoints to the thesis that Nvidia is "doomed."

First, some are sceptical that the Chinese startup is being totally forthright in its cost estimates. According to machine learning researcher Nathan Lampbert, the $5.6 million figure of rented GPU hours probably doesn't account for a number of extra costs. These extra costs include significant pre-training hours prior to training the large model, the capital expenditures to buy GPUs and construct data centers (if DeepSeek truly built its own data center and didn't rent from a cloud), and high energy costs. There is also the matter of DeepSeek's engineering salaries, as R1 had 139 technical authors. Since DeepSeek is open-source, not all of these authors are likely to work at the company, but many probably do, and make a sufficient salary.

Lampert estimates DeepSeek's annual costs for operations are probably closer to between $500 million and $1 billion. That's still far below the costs at its U.S. rivals, but obviously much more than the $6 million put forth by the R1 paper.

There are also some who simply doubt DeepSeek is being forthright in its access to chips. In a recent interview, Scale AI CEO Alexandr Wang told CNBC he believes DeepSeek has access to a 50,000 H100 cluster that it isn't disclosing, because those chips are illegal in China following 2022 export restrictions.

However, given that DeepSeek has openly published its techniques for the R1 model, researchers should be able to emulate its success with limited resources. As of now, it appears the R1 efficiency breakthrough is more real than not.

Even if true, it may not be over for Nvidia

While DeepSeek is no doubt impressive, ex-OpenAI executive Miles Brundage also cautioned against reading too much into R1's debut. Brundage notes that OpenAI is already out with its o3 model and soon its o5 model. While DeepSeek has been able to hack its way to R1 with novel techniques, its limited computing power is likely to slow down the pace at which it can scale up and advance from its first reasoning model.

Brundage also notes that limited computing resources will affect how these models can perform simultaneously in the real world:

Even if that's the smallest possible version while maintaining its intelligence -- the already-distilled version -- you'll still want to use it in multiple real-world applications simultaneously. You wouldn't want to choose between using it for improving cyber capabilities, helping with homework, or solving cancer. You'd want to do all of these things. This requires running many copies in parallel, generating hundreds or thousands of attempts at solving difficult problems before selecting the best solution. ... To make a human-AI analogy, consider Einstein or John von Neumann as the smartest possible person you could fit in a human brain. You would still want more of them. You'd want more copies. That's basically what inference compute or test-time compute is -- copying the smart thing. It's better to have an hour of Einstein's time than a minute, and I don't see why that wouldn't be true for AI.

The Jevons paradox

Finally, investors should keep in mind the Jevons paradox. Coined by English economist William Stanley Jevons in 1865 regarding coal usage, this is the phenomenon that occurs when a technological process is made more efficient. According to Jevon's paradox, if a resource is used more efficiently, rather than seeing a decrease in the use of that resource, consumption increases exponentially. The increased demand then usually more than fully offsets the efficiency gained, leading to an overall increase in demand for that resource.

For AI, if the cost of training advanced models falls, look for AI to be used more and more in our daily lives. That should, according to the paradox, actually increase demand for computing power -- although probably more for inference rather than training. So that could actually benefit Nvidia, strangely. On the other hand, it is thought that AI inferencing may be more competitive relative to training for Nvidia, so that may be a negative. But that negative would arise from more competition, not decreased computing demand.

The bottom line is that demand for AI computing should continue to grow a lot for years to come. After all, on Jan. 24, Meta Platforms CEO Mark Zuckerberg announced that Meta would be building an AI data center almost as big as Manhattan and will ramp up its capital spending to a range of $60 billion to $65 billion this year, up from a range of $38 billion to $40 billion in 2024.

This announcement came four days after DeepSeek's release, so there was no way Zuckerberg wasn't aware of it. Yet he still thinks a huge 50%-plus increase in AI infrastructure spending is warranted.

No doubt, the advent of DeepSeek will have an effect on the AI races. But rather than being "game over" for Nvidia and other "Magnificent Seven" companies, the reality will be more nuanced.

As the AI races progress, investors will have to assess which companies have a true AI "moat," as AI business models evolve at rapid speed and in surprising ways, as DeepSeek R1 just showed.

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

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Billy Duberstein and/or his clients have positions in Meta Platforms. 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 Nvidia. The Motley Fool Australia has recommended 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.

Shares of electric vehicle makers Tesla (NASDAQ: TSLA), Rivian, and Aehr Test Systems rallied on Wednesday, up 8.04%, 4.5%, and 10.98%, respectively.

There wasn't much company-specific news today, so the across-the-board rally likely had to do with today's important inflation report.

CPI runs hot, but the important 'core' CPI cools

Inflation is a critical factor in demand for autos, as a car is a large-ticket item that is often financed by customers. But interest rates have proven to be especially critical for electric vehicle stocks, given that EVs have up until this point been a bit more expensive, at least up front before maintenance, than traditional internal combustion cars.

In addition, EV stocks tend to be unprofitable or trade at high multiples. Interest rates tend to especially punish high-multiple stocks or unprofitable stocks, as higher rates depress the value of cash flows that are further out in the future, while also making financing a business more expensive.

Thus, today's positive inflation report sparked a "risk-on" rally, including these EV-related stocks. Today, the December Consumer Price Index (CPI) was released.

While the overall CPI came in a bit hotter than expected, "core" CPI figures, stripping out volatile food and energy prices, actually cooled more than expected. The CPI came in at 2.9% year over year and 0.4% month over month, versus expectations of 2.8% and 0.3%, respectively. However, core CPI came in at 3.2% year over year and 0.2% month over month, below the 3.3% and 0.3% expected.

Cool inflation data is critical, as new fears of an inflation reacceleration came to the fore after the Federal Reserve's December meeting and press conference. In that meeting, Fed chair Jay Powell and other officials worried that strong economic data and the Fed's 100 basis points of rate cuts since September may prevent inflation from coming down as quickly as hoped. After that meeting, long-term Treasury rates rose, and expectations for more short-term interest rate cuts fell, suggesting higher interest rates for borrowers of autos.

So, today's "core" numbers coming in cooler than expected generated relief from the fears over higher rates.

Each stock may have also bounced harder, given that each had sold off recently. Tesla enjoyed a post-election pop, thanks to Elon Musk's backing of President-elect Trump, but has since seen a pullback. That pullback was amplified when Tesla reported a miss on its fourth-quarter deliveries in early January. Furthermore, the deliveries implied Tesla would experience its first-ever annual sales decline in 2024.

Rivian actually beat its fourth-quarter delivery target and popped on that news early in the month, but has since retreated amid the concerns about interest rates. Moreover, Rivian was down double digits in 2024, and remains unprofitable as it attempts to get to scale, losing $1.44 billion in the third quarter 2024 alone.

Aehr Test Systems isn't a vehicle manufacturer, but it does make chip testing equipment that is largely centered on silicon carbide chips that go into electric vehicles. Aehr actually reported earnings on Monday that disappointed investors, missing both revenue and earnings expectations, and the stock plunged more than 25%.

Aehr had actually been disclosing new orders from both AI accelerator clients and gallium nitride clients in recent months, highlighting its attempts at diversification. However, the downturn in EVs is still affecting the majority of its existing business. CEO Gayn Erickson noted that silicon carbide investment would remain difficult outside of China in 2025.

Have electric vehicle stocks bottomed?

It's difficult to say whether today's CPI report marks the end of the downturn for EV-related stocks, but it's certainly a positive data point. It's also unclear whether EV demand is totally dependent on interest rates. Early adoption of EVs seems to have slowed, but this could also be due to factors like range anxiety. It's also possible the new administration may repeal the EV tax credit, which could also slow a recovery in EVs.

All in, EV stocks still make for risky bets, especially given their high multiples or unprofitable status. Investors may want to stick with the highest-quality and profitable players in the EV supply chain, which ranges from chips, to parts manufacturers, to OEMs like Tesla and Rivian, to chip testing equipment like Aehr.

Furthermore, investors need to keep track of not only interest rates, but technology innovation and government policy changes as well. It's a difficult sector, but can also lead to big gains if EV adoption reaccelerates.

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

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Billy Duberstein and/or his clients have positions in Aehr Test Systems. 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.

The artificial intelligence (AI) revolution will be an ongoing focus for investors, given its transformational potential. However, the winners and losers in the market could change rapidly in this fast-evolving space.

In a recent interview, Microsoft (NASDAQ: MSFT) CEO Satya Nadella mentioned something that could be concerning for 2023 and 2024's big winner, Nvidia (NASDAQ: NVDA), which has run away with a lot of AI value gains thus far. But Nadella's statement could be very bullish for a certain commodity whose associated stocks often come with high dividends for passive income.

'Not chip constrained' any more

Earlier this month, Nadella appeared on a podcast with venture capitalists Brad Gerstner and Bill Gurley. The wide-ranging, hour-plus interview dealt with AI. But while the interview was largely bullish on the prospects of AI broadly, one topic did come up that seemed to put a damper on sentiment around Nvidia.

When asked if Microsoft was still supply-constrained for Nvidia chips as it was throughout 2024, Nadella noted:

I am power [constrained], yes, I'm not chip supply constrained ... We were definitely constrained in '24. What we have told the street is that's why we are optimistic about the first half of '25 which is the rest of our fiscal year. And then after that I think we'll be in better shape going into 2026 and so we have good line of sight.

Since that statement, Nvidia's stock has been somewhat weak. That's not surprising. Since 2023, there has been far more demand for Nvidia's chips than it could supply, leading to big revenue increases and high margins for Nvidia's graphics processing units (GPUs). And Microsoft has been Nvidia's biggest customer by far, with some estimating Microsoft accounted for 20% of Nvidia's sales over the past year.

On recent earnings calls, Microsoft noted it had been supply-constrained; otherwise, its Azure cloud growth, especially for AI workloads, would have been even faster. So now, Nadella's hint that those supply constraints may be coming to an end could mean one of three things: Demand for AI is slowing, chip supply is improving, or a bit of both is happening.

Are AI improvements slowing? Is Maia ramping?

There have been some rumbles that improvements to AI large language models may be harder to come by, and the pace of innovation may slow down. These rumours have been denied by some major industry participants, but they could have an effect on AI chip purchases.

After all, if the projected returns on AI experimentation and applications are slow to show up, demand could slow down. Even if Microsoft has plenty of demand from enterprise customers, it's possible that smaller buyers of GPUs, such as mini-cloud CoreWeave or others that supply capacity to riskier AI start-ups, may be seeing less demand.

Still, most companies in the space are still pretty bullish on AI demand. One other possibility is that Microsoft sees in-house-designed Maia accelerators ramping to greater volumes in mid-2025.

Microsoft was well behind the other cloud giants, which have been engineering their own custom chips for years and use them internally to avoid being as dependent on Nvidia's expensive GPUs. This is why Microsoft buys so many more Nvidia GPUs than its cloud-computing rivals.

Microsoft, however, first introduced its Maia accelerators and Cobalt central processing units (CPUs) at the end of 2023, one year ago. So, with a year for Microsoft to hone its design and perhaps ramp up a new manufacturing supply, Nadella may merely be seeing Maia chips ramp to higher volumes in the new year, alleviating its chip constraints.

Nadella's commentary about being energy constrained seems to indicate demand is still there, at least for Microsoft's enterprise customer base, and this could be more of a Maia ramp than a downturn in AI chip demand.

Could natural gas stocks beat Nvidia in 2025?

Concerning AI opportunities that could present themselves in 2025, let's turn to the phrase that Microsoft is "power-constrained."

It has been posited that the United States will have unprecedented demand for electricity in the years ahead, with the growth of that demand outstripping that of the past 10 years, in large part due to AI data centres.

What types of clean energy can be brought on quickly to meet demand? Renewables will no doubt have a role here, but renewables don't run 24/7, and solar arrays and wind farms may be constructed in faraway places that need to be connected to the grid.

In addition, some of the biggest 2024 winners were nuclear stocks. Microsoft itself inked a deal to bring on power from the shuttered Three Mile Island facility to feed its AI data centres for 20 years.

However, shuttered nuclear facilities take a long time to get up and running. Three Mile Island itself won't be able to return to service until 2028. So, imagine the cost and time lags to get new nuclear facilities fully operational. With nuclear-oriented stocks having rocketed higher this year, there could be some disappointment in the offing.

Famous hedge fund manager David Tepper also doesn't think the AI revolution can be satisfied by nuclear for all these reasons. That leaves only one other option to quickly deploy at existing or easy-to-build facilities: natural gas. Back in September, Tepper warned, "If you're going to meet the power needs of what they need for AI, you're going to have to use natural gas."

Morgan Stanley energy sell-side analyst Stephen Byrd recently echoed that sentiment. Last year, Byrd predicted the rise of nuclear stocks, which came to pass. This year, Byrd expects natural gas stocks to benefit from the inevitable demand for power to AI data centres.

He even sees new natural gas facilities being built on the same land as AI data centres and connecting directly to them, thereby bypassing the grid and the long transmission-approval process that comes with traditional power deals.

If natural gas sees a new surge in demand, the sector's biggest stocks could do very well.

The quintessential natural gas play

If Nvidia is the quintessential AI stock, EQT Corporation (NYSE: EQT) might be the quintessential natural gas stock. EQT has amassed the largest acreage in the Marcellus and Utica shale formations of the Appalachian Basin, which is home to the largest, low-cost natural gas reserves in the US.

With the highest acreage and lowest drilling costs in the Appalachian Basin, EQT just lowered its break-even costs even more with the acquisition of midstream company Equitrans. The deal closed at the end of July.

The Equitrans acquisition turns EQT into the only vertically integrated play in the Basin, not only with production but also with gathering, processing, storage, and pipelines. This acquisition should be beneficial in several ways.

EQT will now not have to pay a pipeline operator margins to take away its gas, lowering its break-even costs to the lowest of its peer group. In fact, EQT says that post-acquisition, its break-even price is now about $2 per metric million British thermal unit (MMBtu), which is down from about $2.50 for EQT as a stand-alone corporation and roughly equal to the lowest prices seen for natural gas during the pandemic, as well as during a downturn earlier this year.

So, while most natural gas companies have to hedge natural gas prices to protect solvency in a low-price scenario, EQT says it will hedge a lot less after 2025, when its current hedges roll off.

This is because EQT is confident it can break even at low prices, whereas competitors can't afford to operate at those levels. Not having as much downside protection means EQT can realise higher prices should the price of natural gas surge, as it won't have capped upside. And if the AI revolution, coal replacement, and LNG export markets increase, there could be substantially higher natural gas prices through the rest of the decade.

While natural gas prices have just about doubled off their lows to just under $4 per MMBtu today, they did go over $9 when Russia invaded Ukraine. Trading at just 18 times 2025 earnings expectations, EQT could be one of the biggest 'AI winners" in the year ahead -- maybe even bigger, stock appreciation-wise, than Nvidia.

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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Billy Duberstein and/or his clients have positions in Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended EQT, 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 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.

Shares of Chinese consumer tech-oriented names Tencent Holdings (OTC: TCEHY), Baidu (NASDAQ: BIDU), and Futu Holdings (NASDAQ: FUTU) rocketed higher on Monday, up 5.5%, 10.1%, and 21.9% as of noon ET.

There was an across-the-board rally in Chinese stocks today, with the smaller, more economically sensitive stocks in the country rallying the most. This came after the country's Politburo met and made a dovish statement for more forceful and imminent stimulus.

China is getting increasingly serious about stimulus

On Monday, China's 24-member Politburo released a statement, declaring the government will have a more forceful fiscal response to the country's economic woes, and that the central bank will use a "moderately loose" monetary policy into next year.

While that couched language might not scream "huge stimulus money," China's Politburo hasn't used that official language since 2008, during the Great Financial Crisis. Not only that, but the statement also came with other language vowing to be more "active" in responding to economic downturns and boosting consumer demand while stabilizing the housing market.

China's downturn has been the result of the long "zero-COVID" lockdowns, the clampdown on the country's biggest tech companies, difficulties with foreign capital to get money in and out of the country, and perhaps most importantly, a big housing downturn that has decimated consumer confidence. Chinese consumers have a lot of their wealth tied up in their homes, so this has been a huge headwind to consumer demand.

While Beijing had responded to the downturn somewhat this summer, most measures to date had been in the form of interest rate cuts and indirect actions, which might not have a big effect if consumers aren't willing to borrow. Some critics have decried a lack of more forceful direct fiscal responses and getting cash into the hands of consumers, while giving them the confidence to restart spending. This has been due to the government's unwillingness to take on larger deficits.

However, the language in today's statement seems to suggest Beijing is now open to taking on those larger deficits to jolt the economy out of its slumber.

How these stocks would benefit

Better consumer spending and household wealth would benefit all three of these stocks.

Tencent has a portfolio of products that span both consumer and enterprise customers, but its biggest segments are still consumer-oriented in free-to-play video games, the giant social media platform WeChat, and its digital financial payments platform Tenpay. Baidu, meanwhile, is the largest search platform in China, and is therefore dependent on the economically sensitive advertising market, while the company is also advancing AI and self-driving car technology. And Futu is an online financial brokerage that facilitates trading for stocks, derivatives, and other assets. A healthier Chinese consumer would theoretically invest and trade more.

China stocks all clear? Not so fast

While today's news was certainly encouraging, investors should still take care to be cautious of Chinese stocks. While all three stocks are still well below their 2021 highs, they have all had quite a run this year, as these names surged a huge amount following this summer's initial statements promising more aggressive stimulus. However, after the summer's surge, some investors had been disappointed in the actual follow-through since then, and there's still uncertainty as to how the government will follow through on today's statements.

While today's announcements do indicate an incremental promise for a more forceful government response, China's lagging property sector, aging population, and likely higher tariffs on goods destined for the U.S. under the incoming Trump administration will be difficult to tackle all at once.

However, for those willing to take on the significant geopolitical and policy risks, China's big tech and consumer companies still remain cheaper than their U.S. counterparts -- though that gap has narrowed quite a bit over the past few months.

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

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Billy Duberstein and/or his clients have 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 Baidu and Tencent. 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.

Shares of Amazon (NASDAQ: AMZN) rallied 11.5% in November, according to data from S&P Global Market Intelligence.

Amazon's strong performance came on the heels of its third-quarter earnings report, which was delivered the evening of Oct. 31, setting up an exciting month that contained more product and partnership announcements.

A busy November for both sides of Amazon's empire

In the third quarter, Amazon grew revenue 11% to $158.9 billion, with earnings per share of $1.43. Both figures beat analyst expectations. Management also guided for between 7% and 11% growth for the fourth quarter with an eye-opening 36% rise in operating income, projecting more margin improvements that have propelled the stock all year.

What really stood out this quarter was the Amazon Web Services cloud computing segment. Even at a $102 billion revenue run-rate, AWS accelerated its growth rate to 19%, up from 12% in the year-ago quarter, while operating margins expanded from 30.3% to 38.1% over that time.

The acceleration and margin expansion indicated enterprises are back innovating on AWS after a couple of years of cost-cutting. It may also have indicated that Amazon is getting its fill of generative AI workloads, and that those workloads are coming in at high margins.

The good news continued throughout the month, with announcements on both the AWS and e-commerce sides of the business.

Amazon has invested in the generative AI start-up Anthropic as its main AI partner, and Anthropic made an exciting partnership announcement in November with AI software darling Palantir to provide Anthropic's Claude models to U.S. defense agencies. The clearing of Claude for highly sensitive workloads requiring "maximum protection" for the Defense Department seemed to validate Anthropic's capabilities.

Additionally, AWS announced a large five-year $475 million deal to provide IBM with Nvidia chips for artificial intelligence training. AWS is fairly popular among start-ups and tech companies, but IBM is fairly embedded in large traditional enterprises, perhaps giving AWS entry into these large company workloads.

On the e-commerce side, Amazon launched "Haul," a new store that sells bargain-priced items under $20. The new store is similar to China's Shein and Temu e-commerce stores that have been gaining favor with American consumers in recent years. Some investors had been worried about this low-priced competition, but the announcement was well received, as it showed Amazon taking those competitors head-on.

Own Amazon for the long haul

Amazon has actually been somewhat of a laggard among Magnificent Seven stocks over the past couple of years, as some feared Amazon may have fallen behind in artificial intelligence, with others noting the rise of these China e-commerce entrants. However, this month appeared to reassure investors on both of those fronts.

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, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Billy Duberstein and/or his clients have positions in Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, Nvidia, and Palantir Technologies. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended International Business Machines. The Motley Fool Australia has recommended Amazon 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.

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

Shares of auto leaders Tesla (NASDAQ: TSLA) and Toyota Motor (NYSE: TM), as well as auto-centered semiconductor stock Indie Semiconductor (NASDAQ: INDI) were rallying on Thursday, up 7.3%, 4.3%, and 3.5%, respectively, as of 2:14 p.m. ET.

The main driver for the rise in auto-related stocks today was the Federal Reserve's 50-basis-point cut to the federal funds rate late yesterday. Here's why that news was so important to autos, and why the sector is surging today -- especially electric vehicle (EV)-related stocks.

Autos are rate-sensitive, EVs especially

Auto-related stocks have been punished this year as high interest rates have depressed growth. A vehicle is a big-ticket item, so many autos are financed. Hence the sensitivity to interest rates. Electric vehicle stocks have been especially depressed as higher rates made EVs -- which are generally higher-priced than their internal combustion engine (ICE) competitors -- less affordable. Given that auto companies concentrated on EVs had come into this period with higher valuation multiples, it's no surprise many declined over the past two years.

EVs have also seen a downshift in their medium-term growth expectations. It was recently reported Toyota plans to cut EV production by 30% by 2026 relative to prior targets, in favor of its hybrid vehicles and other alternative lower-carbon technologies. While Toyota will still increase its absolute EV production by that time, it's clearly seeing weaker growth for pure battery-powered EVs than before.

Recent data has also been discouraging. August sales figures out of Europe showed a staggering 18.3% auto sales decline relative to last year, headlined by a 44% drop in EV sales, according to the European Automobile Manufacturers' Association (ACEA). The same report showed Tesla European sales in August down 43.2%. Of course, Europe has been the worst auto market this year, as its economy has lagged the U.S. and others. But industry group Cox Automotive has also predicted a tepid U.S. market, forecasting a mere 1.3% growth over 2023.

Therefore, yesterday's announcement by Federal Reserve Chair Jay Powell of a 50-basis-point rate cut, larger than the 25-basis-point cut many had been expecting, caused a big bounce for these depressed auto-related stocks and cyclical stocks in general. As long as the economy doesn't fall into recession, the big cut yesterday and forecasts for further cuts signal the recent period of high inflation may be coming to an end. Given that the market is forward-looking, auto-related stocks jumped on prospects for relieved consumers and higher auto sales.

Additionally, rate cuts may especially help Indie Semiconductor, which is currently unprofitable. Lower interest rates tend to boost valuations of low-profit or no-profit growth stocks, given that the bulk of their theoretical profits are well out into the future. But the further out profits and cash flows are, the more the present-day value of those profits are discounted by higher interest rates.

While the majority of today's move in Tesla and other auto stocks was likely due to the larger rate cut, Tesla also received some mildly positive company-specific news. Rival General Motors announced that it would allow its EV customers to charge their vehicles at Tesla superchargers, by developing and distributing adapters for its EVs. Although that change would perhaps open up more competition for would-be Tesla purchases, Tesla also stands to make money on increased charging revenue. Of course, charging revenue usually pales in comparison to selling more vehicles.

The outlook

The auto industry is widely known to be very cyclical, and given the high price tags of autos generally, it's especially rate-sensitive. And for EV or auto-related tech stocks with lower profits today but high hopes for the future, they are triply sensitive to interest rates.

This is why yesterday's bigger rate cut was such a big deal for auto stocks and especially those concentrated in EVs or auto tech. For holders of these stocks, this high sensitivity to interest rates is something to consider as you hold these stocks.

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 Why the Tesla share price just rallied 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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Billy Duberstein and/or his clients have 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’s parent company Motley Fool Holdings Inc. has recommended General Motors and has recommended the following options: long January 2025 $25 calls on General Motors. 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.

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

There's no doubt Nvidia (NASDAQ: NVDA) has been the big winner of the first stage of the AI revolution. In the wake of OpenAI's ChatGPT debut in November 2022, virtually all businesses and cloud giants have clamoured for its market-leading GPUs to fuel generative AI.

Of course, as the outright leader, Nvidia was able to charge a pretty penny for its chips, as evidenced by its skyrocketing revenue and margins over the past 18 months.

But as a reaction, most cloud computing giants have begun investing in their own custom accelerators, which are partially co-designed by ASIC companies Broadcom (NASDAQ: AVGO) and Marvell Technologies.

Could the rise of custom ASICs crowd out demand for Nvidia? In its recent earnings release, Broadcom CEO Hock Tan offered words of caution.

'I flipped in my view last quarter'

Last week, Broadcom released its fiscal third-quarter earnings. Broadcom beat analyst expectations, though its guidance came in a little light.

As its name indicates, Broadcom has broad exposure to the chip industry, and many of its non-AI businesses are still mired in a two-year downturn. However, Broadcom's AI businesses across custom ASICs, networking, and optical interconnect are all booming. In terms of custom ASICs, CEO Hock Tan noted on the conference call with analysts that Broadcom's AI ASIC revenue grew 3.5 times over the past year.

Despite having this ASIC business, Tan used to say that the 'merchant' market, or rather neutral general third-party chipmakers like Nvidia, would eventually win the day in terms of the AI accelerator market, in keeping with the history of semiconductors.

But when asked by an analyst last Thursday, Tan noted, "I flipped in my view. And I did that, by the way, last quarter, maybe even six months ago."

Tan now says that he believes the cloud giants will increasingly train large language models on their own custom silicon ASICs, due to the cost advantages of making one's own chips, as well as the added advantage of taking some control back from Nvidia.

Those GPUs are much more -- or XPUs -- are much more important. And if that's the case, what better thing to do than bringing the control under the control of your own destiny by creating your own custom silicon accelerators?

And that's what I'm seeing all of them do. It's just doing it at different rates and they're starting at different times. But they all have started ... they will all go in that direction totally into ASIC or, as we call it, XPUs, custom silicon.

So, what could this mean for Nvidia?

On its call with analysts, Nvidia disclosed that 45% of its revenue currently comes from cloud hyper-scalers, and more than 50% came from large internet companies -- likely meaning Meta Platforms -- and other enterprises.

When one looks at the 45% of revenue from the cloud operators and then additional revenue from Meta, which is also ramping its own custom accelerators with Broadcom, that's a good chunk of Nvidia's revenue going to customers who are currently looking for in-house alternatives.

Now, Nvidia investors shouldn't panic that all of its cloud demand will go to zero. We still appear to be in the early innings of the AI buildout, and many customers of cloud companies still like to use Nvidia's latest and greatest chips, with their developers familiar with Nvidia's CUDA software.

Some cloud vendors have been developing custom ASICs for years but are still clearly buying many Nvidia GPUs. Nvidia's new Blackwell chip, set to be released around the end of the year, will offer a step-change in performance from the current Hopper line.

So, there will still be demand for Nvidia chips, even from the cloud vendors.

But will Nvidia's margins and multiple suffer?

While there will continue to be demand for Nvidia's offerings, Nvidia likely won't retain the 90%-plus of the AI chip market it has garnered to date. It's also possible cloud companies will demand lower prices in the future, with perhaps more bargaining power, as they ramp up their custom ASIC offerings and offer them to customers at much lower prices.

One reason why Nvidia may have dipped after its recent earnings report is that its gross margins ticked down off their highs, perhaps suggesting limits to the company's pricing power, which seemed limitless throughout 2023 and earlier this year.

After this pullback, Nvidia stock trades at 48 times trailing and 36 times forward earnings estimates. So it's not as expensive as it once was and does not have an outlandish valuation for its quality.

But it still isn't a 'cheap' stock, which makes Nvidia vulnerable to any setback or hang-up. So, any deceleration, whether caused by ASIC competition or some other factor affecting the AI market generally could limit the stock's gains.

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 Should Nvidia investors be worried about this statement from Broadcom's CEO? 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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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 Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Broadcom and Marvell Technology. The Motley Fool Australia has recommended 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.

Shares of Nvidia (NASDAQ: NVDA) were dropping Wednesday, down by as much as 4.5% before recovering to a 2.1% decline as of 12:41 p.m. ET. But even the mild decline was notable in light of the overall S&P 500 being up today by about 0.5% at the same time.

Nvidia held its third-quarter earnings release and conference call last night, with its typical amazing growth numbers that handily beat expectations. But since this beat appears to have been largely anticipated, as Nvidia's stock had already appreciated some 25% off its recent bottom on Oct. 31, it appears the solid numbers precipitated a "sell the news" round of profit-taking.

Nvidia continues to post unbelievable growth rates

In the quarter, Nvidia posted $18.1 billion in revenue, up a staggering 206% year over year, and beating analysts' estimates by just over $2 billion! Adjusted (non-GAAP) earnings per share came in at $4.02, up 593%, also beating expectations by a hefty $0.63.

Obviously, the cornerstone of this incredible performance is Nvidia's data center revenue, which totaled just over $14.5 billion, up 279% and 41% quarter over quarter. That's no surprise, as Nvidia has a big lead in artificial intelligence (AI) GPUs, which are still supply constrained and sought after by every business, cloud provider, supercomputer and government in the world right now.

Meanwhile, Nvidia is only accelerating its pace of innovation. The company announced TensorRT LLM, an open-source software library that increases the inferencing power of Nvidia GPUs. And next year, Nvidia will release the H200, which will also double Nvidia chips' inferencing power. Last month, Nvidia announced it was doubling its pace of innovation, and will now come out with a new chip architecture every year, as opposed to every two years.

So why have investors sold today? Potentially for two combined reasons. First, Nvidia doesn't "look" like a cheap stock, with a P/E ratio of 116. Of course, it looks much cheaper on a forward-looking basis at 32 times next year's earnings estimates. But given its recent string of beats, I think Nvidia is going to handily beat the current $17.38 estimate for fiscal 2025, which ends in January 2025.

Another factor may be that Nvidia guided for "only" $20 billion in revenue next quarter, or about a 10% increase over Q3. That would obviously mark a big deceleration from the 34% quarter-over-quarter gain in the prior quarter.

However, there are a couple of things to consider here. One, Nvidia anticipates a decline in its China revenue due to new U.S. export restrictions for its data center chips. Management noted China accounted for 20% to 25% of its revenue prior, and that will decline significantly. In addition, management anticipated its gaming revenue will decline quarter over quarter, due to the anticipated post-holiday seasonal decline in notebooks. Gaming made up a not insignificant 16% of revenue last quarter.

So, achieving 10% quarterly growth in spite of those two large headwinds is actually impressive.

Don't worry about Nvidia because of today's reaction

There was nothing wrong with Nvidia's numbers or guidance that longer-term investors should worry about in last night's release. Today's decline is likely noise, and perhaps due to some professional investors locking in profits before the end of the year.

Based on its outlook and slew of innovations and product releases, it appears Nvidia's strength in the all-important AI market is as strong as ever.

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

The post Why Nvidia stock dropped today 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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Billy Duberstein 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. 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.

While international stocks have been quite tumultuous this year, the story of South African investment company Naspers (OTC: NPSNY) and its associated investee, Prosus (OTC: PROSY), keeps getting better.

While investors in this conglomerate have had a difficult few years, both Naspers and Prosus have greatly outperformed both the KraneShares CSI Chinese Internet ETF (NYSEMKT: KWEB) as well as the Vanguard FTSE Emerging Markets ETF (NYSEMKT: VWO) over the past six months.

NPSNY data by YCharts

These two companies have a somewhat complex cross-holding structure, but they are essentially large part-owners in the same set of assets, with Prosus shareholders owning 57% of the portfolio, and Naspers owning about 43%.

The largest asset of the combined company is its 27.3% ownership in Chinese internet giant Tencent (OTC: TCEHY), which accounts for about 75% of the portfolio. However, Naspers/Prosus also owns a portfolio of other growth businesses, including online classifieds and food delivery companies in Europe and South America, fintech assets in India, and education technology companies in both the U.S. and internationally.

The company's earnings report for the first half of fiscal 2023 had good news on just about every single front. Assuming the combined company can execute on its plans, its outperformance may just be getting started.

The new sale and buyback strategy is all going according to plan

Despite management's best efforts, the discount at which Naspers/Prosus trade in relation to their assets had widened over the years, much to the frustration of its investors, Yours Truly included.

Yet Naspers/Prosus' recent outperformance came after management announced a decisive step in June. Starting in June, management began selling little bits of its Tencent stake and simultaneously repurchasing shares of both Prosus and Naspers. Given that Prosus and Naspers stocks were trading at huge discounts the value of their Tencent stake at the time – never mind all the other assets – that move immediately added to the per-share value of the company.

Since then, management has been able to repurchase 7% of Prosus' and 5% of Naspers' shares outstanding, while selling a lower percentage of Tencent. So while the company's overall stake in Tencent fell, Naspers and Prosus shareholders actually now have 1.4% more exposure to Tencent on a per-share basis than five months ago.

It also helps that Tencent has begun repurchasing its own stock in significant quantities this year as its share price has fallen. So Naspers and Prosus aren't even losing as much exposure to Tencent as their sales would indicate.

A near-7% stock dividend is coming

The news gets even better, since Tencent recently announced it would be spinning off its 17% stake in Chinese food delivery and travel platform Meituan (OTC: MPNG.Y) to shareholders, probably because of regulatory pressure from the government. Prosus' management estimates it will receive roughly $5.4 billion worth of Meituan shares when the spinoff happens next March.

That would increase Prosus' asset base by 4.3%, but given that Prosus shares currently trade at a 33% discount to its estimated net asset value, the upcoming Meituan dividend will amount to a nearly 7% dividend of Meituan shares, based on where Prosus shares trade now.

The other businesses will turn profitable by mid-2024

As Prosus/Naspers is now selling down its Tencent stake, management hopes to refocus the company on its other assets. These consist of a collection of both wholly owned businesses, as well as large stakes in other publicly traded companies across online classifieds, food delivery, fintech, education tech, and e-retail.

That conglomerate setup is not unlike Warren Buffett's Berkshire Hathaway, except for one thing -- Prosus' other big segments aren't profitable. So, the company has had to feed these businesses, with the only cash coming from Tencent's dividend or other asset sales. That's different from Buffett's Berkshire, which has profitable operating and insurance businesses that constantly kick cash back to headquarters for redeployment. 

However, given the current economic environment, Prosus management is looking to change that. For the first time, Prosus' management gave specific projections for when consolidated operations -- those being its wholly owned or majority-owned businesses -- would become profitable.

The target for profitability is the first half of fiscal 2025, which is the March-September 2024 quarter.

To that end, management increased some investments in its most promising markets while pulling out of others. For instance, while Prosus just bought out the remaining 33.3% stake in Brazil's iFood for another $1.5 billion, it also pulled out of iFood's Colombia business. Prosus also exited its OLX auto trading platform in Peru and Ecuador.

While the non-Tencent segments collectively grew revenue an impressive 35.2% to $5.2 billion over the past six months, despite the strong dollar, their trading losses also expanded from ($522 million) to ($998 million). However, management pledged that profitability would improve from here going forward, as some one-time investments were accelerated in the last half-year.

We'll see if management is able to hit that profitability target in time; however, given the strong revenue growth across those segments despite economic troubles abroad, it seems a decent bet that those profit targets can be hit with greater scale -- especially now that management is laser-focused on profits.

What will it mean for the stock?

If management can get the non-Tencent parts of the business to become profitable, it could be a big deal. Not only will Prosus get a stream of regular profits to either repurchase stock or make new investments, instead of having to sell more Tencent, but perhaps it would cause investors to view the conglomerate as something more than just a derivative play on Tencent.

If that happens, the outsized gains of the past six months could be a sign of things to come, especially given the still-huge discount to net asset value. 

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

The post The best way to invest in emerging markets just got even better 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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Billy Duberstein has positions in Berkshire Hathaway (B shares), Naspers Limited (ADR), and Prosus. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway (B shares), Tencent Holdings, and Vanguard International Equity Index Funds. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). 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.

What happened

Shares of e-commerce giant Amazon (NASDAQ: AMZN) were down more than the markets today, declining 2.9% as of 11:30 a.m. EDT.

While the broader tech indexes were down as investors appeared to be trimming gains from the recent run-up in stocks, Amazon fell more, perhaps due to a negative Wall Street Journal article on the e-commerce giant regarding some recent customer satisfaction surveys.

So what

On Monday, the Wall Street Journal published an article on its home page whose thesis is that customer satisfaction at Amazon's e-commerce unit might be waning. Right ahead of the holidays, that's not a great headline, certainly for a company that preaches "customer obsession."

The article cited three broad customer satisfaction surveys.

• First, Evercore ISI held its regular survey of Amazon customers, revealing that the proportion of customers that considered themselves "extremely" or "very satisfied" with Amazon came in at "just" 79%. While that's higher than in the depths of the pandemic, when there were widespread delays, it is down from the peak rate of 88% from one decade ago.
• Furthermore, a different survey from the American Customer Satisfaction Index gave Amazon a score of 78 out of 100, its worst performance since 2000.
• Finally, consulting firm Brooks Bell also conducted a study of 1,000 Amazon customers, finding that roughly one-third reported late deliveries or products of low quality.

The findings are certainly concerning, since the general step-down in satisfaction is showing up in three different surveys. Of course, the effects of the pandemic are still being felt in terms of labor shortages and other factors. Furthermore, competing e-commerce sites don't have nearly the volume that Amazon does, nor do they make the promises Amazon does, such as the recent push for one-day shipping. Amazon has kept ratcheting up its promises, giving it a higher bar to clear.

Still, there might be real problems here. The increase in third-party sellers on the platform could be causing some issues with product quality. Also, the ramp-up in advertising on the website could complicate customer searches if results are overloaded with ads from irrelevant or lower-tier brands. And the automation of customer service could be frustrating to people who wish to easily speak with a human being.

Amazon likely can't afford to pull back on those elements, because third-party sales have grown at a higher pace than first-party items, and advertising revenues have been one of the bright spots in Amazon's earnings results over the past few quarters, even as e-commerce has struggled more broadly. The e-commerce unit has also dipped back into losses, so investing heavily in more in-person customer service would also increase costs.

AMZN PS Ratio data by YCharts.

Now what

The recent survey results aren't a reason for long-term Amazon investors to panic even though the stock is down more than the market today. The WSJ notes that Amazon spent $1 billion last year combating counterfeiters, fraud, fake reviews, and other bad actors on the platform. Just a couple weeks ago, Amazon's Counterfeit Crimes Unit helped identify and disrupt three major counterfeit networks in China, where 240,000 fake items were seized by authorities. Commenting on the WSJ article, an Amazon spokesperson also noted high ratings for its mobile app.

Amazon also has a history of tackling problems head-on and doing the difficult work to overcome them, which is why it's enjoyed such long-term success. However, investors should keep a watch on these customer surveys as well as announcements from Amazon and its management team about how they are going to improve on these issues.

After a brutal year for tech stocks and with a potential recession looming, Amazon's valuation on a price-to-sales basis is now the lowest it's been since early 2015, just before it broke out the results from Amazon Web Services. As long as Amazon isn't in terminal decline -- and I don't think it is -- shares are looking like quite the deal these days for long-term-oriented investors. 

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

The post Why Amazon stock fell today 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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Billy Duberstein has positions in Amazon. John Mackey, 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 Amazon. 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.

What happened

Shares of many Chinese stocks -- among them, Alibaba (NYSE: BABA), Kanzhun (NASDAQ: BZ), and Full Truck Alliance (NYSE: YMM) -- were up strongly Monday even as US indices were down. Those three stocks were trading higher by 1.9%, 6.4%, and 10.7%, respectively, as of 1:24 p.m. ET.

The broad gains among US-listed Chinese stocks were likely propelled in part by some positive moves made by the Chinese government.

Authorities announced measures to contain the decline in the country's massive property sector, and on Monday, Chinese President Xi Jinping and US President Joe Biden met in person for the first time since Biden's election, a meeting that could perhaps pave the way for less strained relations between their two countries.

Additionally, China appears to be relaxing some of its most intensive zero-COVID policies. Those news items combined to give a boost to the beaten-down valuations of Chinese stocks.

So what

On Sunday, the People's Bank of China, in conjunction with the China Banking and Insurance Regulatory Commission, sent a directive to the country's financial institutions that featured 16 steps aimed at supporting the nation's property sector.

Investment bank Jefferies estimated that the new measures would inject around $184 billion into the sector, which should stave off developer defaults for another year, allowing the healthiest developers to continue operating and preventing the whole sector from freezing up.

Home prices across 100 Chinese cities have fallen for four straight months, threatening the country's economy.

In addition, China began relaxing some aspects of its zero-COVID policy, though cases are rising in the country as the weather cools.

While the zero-COVID policy is likely to remain in place until spring, investors applauded the easing of quarantine rules and the end of routine mandatory community testing, and the shifts likely show that authorities are reassessing the economic trade-offs the policy demands.

In any case, the new measures seemed to light a fire under some of China's more economically sensitive stocks.

Full Truck Alliance is a digital freight platform that connects shippers with truckers in the country. Kanzhun is a digital employment marketplace that links job-seekers and employers. Increased economic activity, consumption, and employment growth would be positives for each of these companies.

China's unemployment rate came in at 5.5% in September, higher than expected, and unemployment in the 16- to 24-year-old demographic clocked in at a whopping 17.9%. That's high by historical standards, and Kanzhun has felt the impact. Its share price is down 69% year to date -- a worse decline than Full Truck's 43% slide or Alibaba's 46% tumble.

Alibaba shares also gained ground Monday, though by a smaller percentage than these other companies. That perhaps reflects its size as well as its status as a prime target of regulators.

Chinese e-commerce companies last week held their annual Singles' Day, which is a retail event similar in scope to America's Black Friday.

Alibaba and other e-commerce players chose not to publicize the details of their Singles' Day results for the first time ever, leading some to believe China's current economic malaise may have led to a poor showing.

Instead, Alibaba only noted that this year's sales figures were roughly "in line with last year's GMV performance, despite macro challenges and Covid-related impact".

Alibaba also noted that Singles' Day ran completely on its cloud for the second year in a row, and pointed to an 8% decline in computing cost per resource unit compared with last year.

Now what

Alibaba will report its third-quarter earnings later this week, and analysts project that it will reveal that its sales increased by only 4.3%. However, analysts also expect to hear that its margins improved compared to the past few quarters thanks to cost-cutting moves and layoffs that took place earlier this year.

With the potential for an economic rebound in 2023, it's no wonder Chinese stocks are rising off their beaten-down valuations.

Also, the meeting between Biden and Xi is expanding the communication between their two diplomatic teams. Xi cut off some areas of dialogue between the nations after US Speaker of the House Nancy Pelosi visited Taiwan in August.

However, significant tensions still remain between China and the US, especially over the issue of Taiwan, as well as recently imposed restrictions on semiconductor sales to China.

Investors should remember that investments in Chinese companies come with added risks, as the government there can and does clamp down on private enterprise at will, and the geopolitical risks of US-China tensions will continue to be an overhang on US-listed Chinese stocks.

Chinese stocks may have room to run from their current low valuations given Monday's incrementally "less bad" news, but for the longer term, the picture is much murkier.

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

The post Why Chinese stocks were surging today 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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Billy Duberstein 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 Jefferies Financial Group Inc. 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.

What happened

Shares of big tech stocks Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Intel (NASDAQ: INTC) all moved significantly higher today, rocketing 6.2%, 6.6%, and 5.5%, respectively, as of 12:33 p.m. ET.

Those are massive moves for companies that big, but today was no ordinary day. After basically a year of negative surprises in the monthly Consumer Price Index (CPI) releases, with some exceptions, today's CPI print was lower than expected, fueling hopes of a Federal Reserve pause on its aggressive interest rate hikes.

These tech giants are each at least partially exposed to the troubled PC sector, which has been one of the hardest-hit areas of tech. While enterprise spending on cloud and servers has been hanging in, the prospect of more interest rate hikes or recession had led to fears another shoe was to drop. So today's print was especially positive, given that the sooner inflation declines, the sooner the Fed can stop hiking interest rates, and the greater the possibility of avoiding a recession. 

So what

Obviously, Apple and Microsoft make the two main operating systems for virtually all PCs, and Intel's largest business segment is its PC processors. Therefore, each stock had seen a big sell-off this year, despite their size, moats, and relatively limited competition.

Of note, technology research firm Gartner projects that third-quarter PC shipments were down a stunning 19.5% year over year -- the biggest drop since it began tracking PC shipments in the 1990s.

So why is today's CPI print so important in relation to PC sales? Well, the rapidly rising interest rate hikes tend to hit interest rate-sensitive items hardest first, which are usually big-ticket items like housing, autos, home electronics, and business fixed investments, which these days include data centers and enterprise PCs.

Add to that the fact that so many consumers bought new computers during the 2020-2021 timeframe, and could therefore defer the purchase of a new computer, and the rapid shift in rates led to a huge air pocket in PC sales. So, the potential for a pause in interest rate hikes could give big-ticket items a boost from their current severe downturn. 

Apple has held up much better than others, as it had fallen "only" 23.6% this year, as opposed to 32.8% for Microsoft and 44.5% for Intel.

AAPL Year-to-Date Total Returns (Daily) data by YCharts

It's somewhat surprising that Apple has done better than Microsoft, given that it was thought consumer spending on electronics is generally weaker than enterprise spending. Microsoft's More Personal Computing segment, which is geared toward consumer-facing PCs, video games, and Bing digital advertising, is only 30% or so of the business, as opposed to Apple being predominantly a consumer-facing company, so it's strange that Apple had held up better than Microsoft this year. The outperformance does go to show how strong Apple's brand is and how much of a staple the iPhone is.

Intel has really been feeling the pain of the PC downturn this year, because that had been the company's cash cow. New Intel CEO Pat Gelsinger has ambitious plans to catch up to Taiwan Semiconductor Manufacturing in leading-edge semiconductors by achieving five node transitions in four years, while also building out a massive foundry ecosystem to serve third-party chip designers.

That's incredibly hard and very expensive to do, which is why the plummet in PC sales has been so harmful to Intel this year, as it deprived the company of needed cash to execute its investment plans. That's why Intel has traded down to just a single-digit P/E ratio this year.

Given the shellacking these stocks have already taken, and given that the market is forward looking, it's no surprise they are ripping higher at the prospect of inflation cooling off.

Now what

Given the lags with which the Fed's economic policy operates, investors should know that while inflation is slowing, it's because the economy is also slowing. Over the coming months, the Fed will try to keep rates high enough to cool inflation further, without tipping the economy into a recession. Despite today's rally, that's still a tricky proposition. 

A recession would be bad news for all stocks, but of these three, especially Intel, since it is in a capital-intensive hardware business.

On the other hand, today's promising CPI print could allow the Fed to slow down or even stop its rate increases. That would be good for all economically sensitive stocks, as long as the economy doesn't have too bad of a downturn.

As is often the case, Apple and Microsoft still look like strong core holdings for the long term, even in spite of this year's declines. With Intel, an investment really comes down to your belief in CEO Pat Gelsinger's vision and ability to execute. If the turnaround works, Intel stands to have the most upside of these three names; however, if all that spending doesn't result in solid returns or Intel catching up to Taiwan Semi in leading-edge technology, it could be a problem, even if Intel's stock does look cheap today.

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

The post Why big US tech stocks ripped higher today 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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Billy Duberstein has positions in Apple, Microsoft, and Taiwan Semiconductor Manufacturing and has the following options: short January 2023 $210 calls on Apple. His clients may own shares of the companies mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, Intel, Microsoft, and Taiwan Semiconductor Manufacturing. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Gartner and has recommended the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, long March 2023 $120 calls on Apple, short January 2023 $57.50 puts on Intel, short January 2025 $45 puts on Intel, and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple. 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.

What happened

Shares of Amazon.com (NASDAQ: AMZN) were falling hard on Tuesday, down 5.4% as of 12:45 p.m. ET.

There wasn't much company-specific news today. Indeed, the only announcement from Amazon was a press release announcing that it was expanding Amazon Music's ad-free offerings for Prime members, who will now get 100 million songs and top podcasts ad-free with their Prime membership.

That all sounds great for Prime members, but investors may be more concerned with Amazon's bottom line, and probably macroeconomic factors to a larger extent. It appears large funds may be continuing to lower their positions in Amazon and other large-cap tech names following last week's earnings reports, which disappointed many investors.

Another likely reason for the decline today was a hotter-than-expected job openings number that came out this morning. More open jobs translate to a stronger economy, which means the Federal Reserve may have to continue hiking rates aggressively to bring inflation under control.

So what

As long as inflation and interest rates are the overwhelming focus of investors, it appears as though we will be in a "good news is bad news" market. Since inflation has remained surprisingly high throughout the year, and since the Federal Reserve has embarked on an aggressive path of interest rate hikes, investors actually would like to see things cool down. If the economy cools, inflation should come down, and the Fed won't have to continue its aggressive tightening to the same extent.

Yet this morning, the September Job Openings and Labor Turnover Survey (JOLTS) came out, showing that job openings actually increased to 10.72 million, an increase over the August figure, and well above estimates of 9.85 million. That still signals a very strong economy and many more openings than unemployed people, which is not a great data point for wage inflation.

All things being equal, the JOLTS data likely means the Federal Reserve won't waver from its path of higher interest rates. That could especially harm less-profitable growth stocks like Amazon, with the bulk of their earnings well out into the future. Higher interest rates will discount future earnings by a greater amount, making them worth less in present-dollar terms, all else being equal.

A rapid rise in interest rates would also raise the risk of the Fed making a policy error and going too far, sending the economy into recession next year. That probably wouldn't be good for Amazon either. While some parts of Amazon, such as groceries and consumer staple item sales, will probably make it through a recession just fine, parts of its business, such as advertising and cloud computing, are somewhat sensitive to economic conditions.

Additionally, a strong dollar, brought on by the US Fed hiking at a more aggressive pace than the rest of the world, is wreaking havoc on Amazon's international business. Amazon's international sales saw a stunning 17-point negative growth swing in the third quarter, logging a 5% revenue decline, while it would have been 12-point growth in constant currency.

In last week's earnings report, Amazon Web Services did see a bigger deceleration than analysts had anticipated. On the post-earnings conference call with analysts, CFO Brian Olsavsky noted cloud customers were looking for ways to limit spending in anticipation of leaner times, by moving some cloud workloads to cheaper tiers of compute and storage.

The AWS slowdown combined with conservative fourth-quarter guidance is likely what sent Amazon stock down following the report, despite some other bright spots. Now, a continued aggressive Federal Reserve may keep consumer and enterprise spending in check. Thus, Amazon investors are seeing a follow-through on last week's disappointment. 

Now what

Many investors are hoping for the Federal Reserve to signal a slowdown in the pace of its rate increases, or 'pivot', at the Federal Open Market Committee tomorrow. That could explain some of the recent rally in stocks over the past few weeks.

However, today's JOLTS data may dispel that hope, with economically sensitive growth stocks vulnerable to a more hawkish Fed posture. Investors will have to see what Chair Jay Powell says tomorrow, but hotter jobs data combined with last month's disappointing inflation report seem likely to keep the Fed on its current course.

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

The post Why Amazon is plunging today 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. Billy Duberstein has positions in Amazon. His clients may own shares of the companies mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon. 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.

What happened

Shares of fintech stocks Upstart (NASDAQ: UPST), Affirm (NASDAQ: AFRM), and SoFi (NASDAQ: SOFI) were in crash mode today, with each down between 8% and 9% as of 2:27 p.m. ET.   

Lately, these beaten-down fintech stocks have been among the most volatile to both the upside and the downside, and their movements are largely based on macroeconomic news.

Today happened to be a big down day in the market following yesterday's big rally, as interest rate and recession fears, along with perhaps some end-of-quarter liquidations by hedge funds, likely played a role in their synchronous decline.

So what

Stocks have been in free fall in September, especially technology growth stocks following a recent spike in long-term Treasury bond yields, and fintech stocks appear to be caught up in the selling.   

Young, high-growth fintech stocks appear to be seen as a risk-on trade by investors, and investors are fleeing risk today amid so much global uncertainty. Today, U.S. jobless claims came in lower than expected, reflecting the very tight job market and potentially fueling "sticky" inflation. That could spur the Federal Reserve to continue hiking interest rates at a rapid pace.

If inflation and interest rates continue their rapid rise, higher interest rates may actually help some mature, profitable banks with low funding costs, but smaller, unprofitable fintechs will likely see their value diminish, since their profitability is still well into the future.

On the other hand, there is also another danger that central banks "overdo it" in their fight against inflation, pushing rates higher until we have a broad recession. That could lead to joblessness and higher charge-offs for loans. Investors will likely also take a skeptical stance with these three stocks, as they don't have as long a history of underwriting as large, older banks. This is especially true for Upstart, which claims its AI models are a new and better way to underwrite loans than traditional FICO scores.

Fintech stocks also have the problem of funding their loans when rates rise. Large, national banks such as Bank of America (NYSE: BAC), for instance, can charge very low deposit rates due to their size, national scale, and recognizable brand. That allows them to generate lots of leverage in net interest income as rates rise, as they can charge higher interest rates without having to raise deposit rates as much. 

That's not the case with fintechs. For instance, Upstart had to resort to using its balance sheet this year to fund some of its loans. That was a departure from its initial business model of selling all loans to third-party banks and credit unions, as loan buyers balked when interest rates rose rapidly.

For its funding, Affirm relies on warehouse facilities, securitizations, and other forward-flow commitments. These are generally higher-rate options than bank deposits.

Yet even SoFi, which acquired a bank charter earlier this year that gave it access to deposits, has had to raise its deposit rate APY up to 2% as of August, up from 1.5% as recently as June, in order to attract depositors.

Basically, the smaller you are and the earlier you are in your corporate life as a financial company, the higher your funding costs will be relative to large institutions. That tends to put these companies further out on the risk curve, which opens them up to charge-offs.

Now what

With these stocks down so much from their highs, between 82% and 95%, they could have substantial upside if the economy avoids a recession and interest rates moderate. However, there is significant uncertainty on those fronts, with most economists skeptical the Fed can engineer a "soft landing."

Thus, these former highfliers remain high-risk, high-upside bets that a recession will either be avoided or that it will be shallow and mild. They remain appropriate only for investors comfortable making volatile, high-upside bets that could also yield very big losses.     

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

The post Why US Fintech stocks crashed today 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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Billy Duberstein has positions in Bank of America. Bank of America is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Affirm Holdings, Inc. and Upstart Holdings, Inc. 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.

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

What happened

Shares of Apple (NASDAQ: AAPL) were plummeting on Thursday morning, down 4.4% as of 10:30 a.m. ET. That was even greater than the broader tech-heavy Nasdaq Composite, which was down a little over 3% at that time.  

With the broader markets down a lot, it's no surprise Apple is down as well, but it is surprising to see this stock, which has held up better than most tech stocks, underperform to such a degree.

Apple actually received both an upgrade and a rare downgrade from Wall Street analysts today. Given that Apple still trades at a premium multiple amid an overall bear market, it's no surprise to see the stock falling back to Earth.

So what

On Thursday, Bank of America analyst Wamsi Mohan downgraded Apple from "buy" to "neutral," while lowering his price target from $185 to $160.

The downgrade wasn't particularly difficult to figure out, as global inflation, geopolitical conflict, and higher interest rates makes Mohan believe consumer spending will be low in the near term. Additionally, the very strong dollar against foreign currencies means Apple's revenue could be pressured as well next quarter, while the post-pandemic hangover in PC sales could bring Mac and iPad sales back down to 2019 levels. When you combine that with Apple's relatively high valuation at 24 times earnings and the fact it hasn't fallen as much as other big tech stocks this year, it's pretty easy for an analyst to become bearish, even on this blue chip name.

The downgrade follows yesterday's Bloomberg story that Apple has asked some suppliers to pull back on production of the iPhone 14. Citing unnamed people "familiar with the matter," Bloomberg's sources concluded that Apple had reversed a request from earlier this summer to increase iPhone 14 production amid weakening global demand.

Investors should keep in mind that Apple rumors always tend to circulate but don't always come to pass. Moreover, not every analyst is bearish. In addition to the BofA downgrade, Apple actually received an upgrade from Rosenblatt Securities today. Rosenblatt nearly perfectly reversed Mohan's call, upgrading the stock to "buy" from "neutral," and raising its price target from $160 to $189.

Encouragingly, the analyst based his upgrade on a recent 1,100-person U.S. survey, which showed "substantial interest" in the iPhone Pro Max and new Apple Watch Ultra.

So who to believe? There could be room for both positive and negative analyst opinions to be somewhat correct here, based on the relative strength of the U.S. consumer versus other countries, as well as wealthy customers versus those at the lower end of the spectrum.

"We see reason to believe that consumers in other countries share this enthusiasm, prompting us to embrace more constructive near-term and long-term estimates," Rosenblatt posited. Rosenbaltt also noted a clear preference for the premium models of the iPhone and Watch.

And therein lies the rub: Sure, consumers are excited about Apple's premium devices, but do high inflation and potential recession, especially overseas, limit these enthusiastic customers' ability to purchase a new phone or watch this fall? 

Interestingly, the markets are falling today after this week's initial jobless claims fell to 193,000, the lowest reading since April. In normal times, falling jobless claims and record-low unemployment would be a great thing for consumers and Apple; however, the Federal Reserve is trying desperately to bring down inflation, which was also revised upwards in the second quarter today. So, a "good" jobs number actually makes the Fed's job harder. Hence, this is why tech stocks are falling broadly.

Now what

Many in the investing community may be wary of Apple stock now, as its relative outperformance versus other technology could spur more selling. Bear markets often end when even the "generals," or the most-loved names, fall back to earth. This means Bank of America's call could be right in the near term.

However, it's hard to bet against a company and brand that generates the enthusiasm seen in the Rosenblatt survey. Therefore, while Apple stock may be a dubious buy in the near term, the stock likely won't stay down for long. It's a blue chip name investors can own for the long term, just as Warren Buffett is doing.     

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

The post Why Apple stock plunged today 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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Billy Duberstein has positions in Apple and Bank of America and has the following options: short January 2023 $210 calls on Apple. Bank of America is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple. 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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.