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.

What happens when a company's largest customers become fierce competitors? Imagine that you own the largest chocolate chip company in the land. You sell to all the largest grocery chains because you have the best recipe. But every day, those stores pour money into finding the next-best recipe. If they create it, it could be a recipe for disaster (pardon the pun).

This is Nvidia's reality now. Companies like Microsoft, Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Meta Platforms, and Amazon are spending billions on Nvidia GPUs while also spending billions developing competing products. The key for Nvidia is to stay one step ahead. But it won't be easy with such deep-pocketed competitors.

Alphabet is serious competition

As shown below, the four massive tech companies mentioned above reportedly account for nearly 40% of Nvidia's revenue, which exploded to $96 billion over the past 12 months.

NVDA Revenue (TTM) data by YCharts

Of this, 85% comes from Nvidia's data center division. Whatever company can encroach on Nvidia's massive market share of reportedly 70% to 95% in artificial intelligence (AI) chips will benefit in two ways: increased income and reduced expenses. After all, much of that giant ramp in Nvidia's revenue, depicted above, comes from other big tech companies' pockets.

Nvidia is leading due to its groundbreaking H100 GPU, which delivers unparalleled performance. These units are critical for data centers, large language models, and generative AI, so Nvidia can't keep up with demand and the margins are gigantic.

Alphabet is developing and improving its competing AI product, the Tensor Processing Unit (TPU). It launched the sixth-generation TPU, Trillium, earlier this year. With five times more speed and 67% more energy efficiency, sixth-gen Trillium is a considerable leap over version five.

Trillium doesn't compete directly on the open market with Nvidia. Instead, customers rent space on Google Cloud, allowing Alphabet a broader customer base. The ability to rent space will be intense competition for Nvidia as companies can choose to rent rather than make capital investments. And, of course, Alphabet uses it internally.

Is Alphabet stock a buy now?

Alphabet can pour capital into AI projects because it is hugely profitable and generates massive cash flow from its core advertising (Google Search and YouTube) and Google Cloud segments. These segments generated $84 billion in sales last quarter, a 14% year-over-year increase that came with $27 billion in operating cash flow.

Also impressive is that the operating margin for Google Cloud increased from 5% to 11% year over year. The increase in margin is a clear indication of increased efficiency and growing demand. As you can see below, Google Cloud's growth has been remarkable in recent years.

Even after growing nearly fourfold since 2020, AI will increase Google Cloud's sales. For Alphabet, investments in AI, Google Cloud, and generative chatbots that rival ChatGPT, like Gemini, are crucial to the long-term path.

Microsoft Bing is challenging Google Search by harnessing ChatGPT through its billion-dollar investment in its creator, OpenAI. Plus, generative AI may encroach on the search market. However, there is no need to sound an alarm yet; Google Search grew 14% last quarter to $49 billion in revenue and remains far and away the market leader.

Alphabet stock looks like a bargain in a market where many tech stocks are trading well above historical valuations. As shown below, Microsoft trades 14% above its five-year average price-to-earnings (P/E) ratio, while Alphabet trades 12% below.

GOOG PE Ratio data by YCharts

The historical undervaluation, quality core business, and potential to compete for part of Nvidia's market dominance make Alphabet stock an intelligent buy for tech investors and those looking for GARP (growth at a reasonable price) companies.

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 Prediction: This major artificial intelligence (AI) stock could compete with Nvidia in the not-too-distant future 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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Bradley Guichard has positions in Amazon. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, 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.

Stock splits generate a ton of excitement among investors. A stock split does not directly affect the value of an investor's holdings but opens up other opportunities. There is often a lot of stock-price movement around the announcement and split dates. But what about afterward? Once the excitement dies down, the stock will start trading on economics again. With this in mind, which of these juggernauts is the better long-term play? 

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), the parent company of Google, and Tesla (NASDAQ: TSLA) are on the clock, with Alphabet's 20-for-1 split coming up on July 1 and Tesla's date still to be determined. Tesla will hold its shareholder meeting on August 4th when it is expected a 3-for-1 split will be approved. The execution of the split will likely follow shortly after. Based on recent prices, Alphabet will trade in the range of $115 per share and Tesla around $240 per share post-split. This could change drastically in today's topsy turvy market, of course.

What is the outlook for Alphabet?

Alphabet had a tremendous 2021 by nearly any measure. As shown below, sales and cash from operations rose 41% to $257.6 billion and $91.7 billion, respectively. And the company's diluted earnings per share (EPS) reached $112.20 on over 90% growth. 

Data source: Alphabet. Chart by author.

The company followed up this performance with a strong first-quarter 2022 in which sales, cash from operations, and EPS increased year over year. But what about the future? With a potential recession around the corner, investors are rightly concerned that ad budgets will be cut, which could hurt Alphabet's results. 

Alphabet has a few aces up its sleeve to weather an economic slowdown. First, Google Search currently holds a market share of over 85%, according to Statista. The Federal Trade Commission (FTC) believes it is a monopoly, but unless Congress passes comprehensive legislation, Alphabet will continue to dominate. This gives the company tremendous pricing power, which is critical to maintaining profitability. 

Alphabet also has two other fast-growing revenue streams in YouTube and the Google Cloud. YouTube revenues spiked 46% in 2021 partly due to people staying in more due to COVID-19. The growth slowed to 14% year over year in Q1 2022 as the pandemic waned, but the upward trend remains.

Google Cloud may be the most important segment to watch moving forward. This segment competes with Amazon's Amazon Web Services (AWS) and Microsoft's Azure. Cloud computing is expected to continue its explosive growth in the foreseeable future. Sales for Google Cloud grew 47% in 2021 to $19.2 billion. The rub is that this segment isn't profitable, while AWS produces enormous operating profits for Amazon. If Alphabet can scale to profitability, it will be a giant boon for profits and shareholders.

On the valuation front, Alphabet trades for its lowest price-to-earnings (P/E) ratio since the beginning of 2019, as shown below. 

GOOG PE Ratio data by YCharts.

Even if the company experiences short-term headwinds, this price looks enticing for long-term investors. 

What is the outlook for Tesla?

Let's face it, whatever we think of Tesla's valuation (it's high!) or outspoken CEO Elon Musk (he's polarizing!), the company's rise has been absolutely phenomenal. And shareholders have been richly rewarded. An investment of $10,000 in Tesla stock 10 years ago would be worth over $1 million today, while the same investment five years ago would be worth more than $95,000. 

There are positive and negative factors on the horizon for Tesla. Gas prices are shocking Americans at the pump. This could lead many to consider an electric vehicle maybe for the first time. Tesla is experiencing massive demand already, with many cars sold out until 2023.

The big question is whether this demand can continue in a potential recession.

Consumer sentiment is generally a leading indicator of upcoming consumer spending. As shown below, sentiment is not only lower than in March 2020, but it is far lower than even during the Great Recession. This is disturbing for any company that relies upon consumer spending. 

US Index of Consumer Sentiment data by YCharts.

Competition is heating up. For years, Tesla has enjoyed an incredible first-mover advantage. Tesla was laser-focused on electric vehicles while other automakers scuffled along. That's changing quickly as traditional automakers invest billions in electrifying large parts of their fleets in the coming years.

The final concern is the valuation. Tesla has a larger market cap than the following seven largest automakers combined. Tesla crushes most of these on growth and profitability, and investors have been willing to pay a premium on the stock for years. Still, caution is warranted with an economic storm on the horizon. Companies with high valuations may fare worse than others. 

Which has the stronger bull case?

Alphabet has a few advantages over Tesla in an inflationary environment and with an economic slowdown likely. Alphabet relies on business spending while Tesla relies on consumers. Business spending may prove more durable because advertisers must continue to invest to grab limited consumer dollars. Due to inflation, Tesla also has to contend with rising costs for raw materials. One of Tesla's draws is its profitability, and its margins could be crimped. A manufacturing company will be more affected by this than a tech company.

This all adds up to Alphabet stock being the better bet currently. That said, Tesla likely has a higher long-term ceiling but much more risk. Long-term investors could consider both stocks and weigh them according to their risk tolerance.  

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

The post Better stock-split buy: Alphabet or Tesla? 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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Bradley Guichard has positions in Alphabet (C shares). Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. 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 Alphabet (A shares), Alphabet (C shares), Amazon, Microsoft, and Tesla. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), and Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

It's official. Last week the S&P 500 joined the Nasdaq Composite and fell firmly into bear market territory, meaning it is more than 20% down from its recent high. For many investors, it's unnerving to be in the midst of a collapsing market. It seems like every day there is doom and gloom and another "expert" with another hot take on why it's down and when it will go back up.

What you need to know is that no one knows when the downturn will end. The best assurance we can offer is that it will end. When the bull returns, you need to be ready to take it by the horns. Long-term investors can use a bear market to their distinct advantage. After all, good investors don't want to buy high and sell low, right?

Let's look at the qualities you are likely to find in a down-trending stock that will help it rise again. Qualities like profits, cash flow, seasoned management, and growth opportunities all come to mind. Microsoft (NASDAQ: MSFT) has all of these in spades. 

Microsoft has seasoned management for turbulent times

Microsoft CEO Satya Nadella heads up a team that has done impressive work recently. We need only go back to March 2020 to see this leadership in action. With significant economic uncertainty, Microsoft posted record revenue and operating profits for shareholders. 

 

Data source: Microsoft. Chart by author.

The company has built on these gains through the first three quarters of fiscal 2022 (Microsoft's fiscal year ends in June). One of the biggest testaments to a well-run organization is its profitability. Microsoft is hugely profitable and continues to grow margins, as shown below. For comparison, Alphabet posted an operating margin of 31% in 2021 -- a very successful year for the company. 

 

Data source: Microsoft. Chart by author.

Microsoft's management team has proven its mettle to navigate our current economic challenges.

Microsoft has its head in the clouds

Microsoft continues to dominate the software industry with its leading Office and Windows products, but its future resides in the cloud. Cloud infrastructure spending is exploding, and it is forecast to grow 20% this year, according to Gartner. Microsoft's cloud infrastructure platform Azure is locked in a battle for supremacy with Amazon's AWS.

This sector is highly lucrative. Microsoft's Azure and other cloud services segment grew an astounding 46% year over year in the last quarter to go along with the company's server products and cloud services' 29% growth. In total, the Intelligent Cloud revenue stream produced $54.3 billion of Microsoft's $146.4 billion in sales through Q3 FY22. 

Another terrific quality of Microsoft is that the company never allows itself to become stagnant. Rather than be satisfied with recent results, the company announced the blockbuster acquisition of Activision Blizzard (NASDAQ: ATVI) for $69 billion earlier this year.

Activision will bring popular gaming franchises like Call of Duty, Candy Crush, and StarCraft. It will make Microsoft the third-largest gaming company by revenue if the deal receives regulatory approval. These impressive forays into cloud computing and gaming make Microsoft a leader in two more fast-growing fields.    

Microsoft is generating its cheapest valuation in years

Microsoft stock isn't immune to the market swoon, even though its results remain stellar. The stock is down over 25% this year. This has brought the price-to-earnings (P/E) ratio down to its lowest level since the March 2020 crash and, before that, early 2019. Meanwhile, earnings continue to rise, as shown below.

MSFT PE Ratio data by YCharts

Investors can also pocket a small but growing dividend. The company's dividend has increased annually since 2006 and is yielding around 1% at the moment. 

No stock is without risk as recession fears linger on the horizon, and Microsoft stock could continue to decline with the market. It's unlikely to catch a stock at its lowest price; predicting this accurately is nearly impossible. An incremental buying strategy, like dollar-cost averaging, is an excellent way to mitigate short-term market risk. 

Microsoft has all the qualities investors look for in a long-term winner and is firing on all cylinders. The stock has rewarded long-term shareholders for years, which appears ready to continue once the bear goes back into hibernation. 

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

The post Profit off the bear market with Microsoft stock 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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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Bradley Guichard has positions in Alphabet (C shares), Amazon, and Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Activision Blizzard, Alphabet (A shares), Alphabet (C shares), Amazon, and Microsoft. The Motley Fool Australia has recommended Activision Blizzard, Alphabet (A shares), Alphabet (C shares), and Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.