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

Berkshire Hathaway (NYSE: BRK.B) has long been synonymous with its legendary leader, Warren Buffett. The conglomerate recently received a downgrade from KBW, citing concerns over Buffett's exit, as well as problems in some of its key areas of business. Overall, I think that any pullback in the stock is a buying opportunity. To think that Warren Buffett has been the only one making decisions at Berkshire Hathaway seems a bit naive. His cohort is good at what they do. Moreover, the thing that gets ignored about Buffett's succession is how much money the Oracle of Omaha is leaving on the table for investment. Buffett has amassed a giant cash pile, which gives the company a great deal of maneuverability in the coming years in terms of investment options.

A downgrade rooted in succession anxiety

According to CNBC, KBW's downgrade reflects mounting worries about Berkshire's ability to sustain performance without Buffett's steady hand. The firm pointed to ongoing challenges in its core operating units, which include its railroad division and its insurance businesses. While the firm could certainly be correct that there are headwinds facing these areas of Berkshire's business, they aren't necessarily permanent, and they don't change the fundamental strength of Berkshire's diversified model.

A prime example here was the performance displayed in the third quarter. Despite concerns from KBW, Berkshire's most recent results, which came out on Saturday, imply good things. Berkshire reported a whopping 34% increase in operating profit within its wholly owned businesses. These include Berkshire's insurance businesses and railroads. One of the main areas of strength was insurance underwriting income. This key area for Berkshire saw income increase to $2.37 billion. 

Some seem to forget that Buffett hasn't been making decisions in a vacuum. His successors have been quietly shaping the company's operations for years. Greg Abel, Buffett's chosen heir for the CEO role, has overseen Berkshire's non-insurance operations since 2018. Abel has earned Buffett's trust and the trust of many inside the company. The idea that Berkshire's success vanishes the moment Buffett leaves seems a bit short-sighted.

The power of $381 billion

Perhaps the key element of Berkshire's future potential is its enormous cash pile -- now sitting at a record $381.6 billion. This war chest gives Berkshire virtually unmatched flexibility in deploying capital during market downturns or periods of economic stress. In fact, Buffett's own conservative approach to investing in recent years may be setting the stage for significant opportunity under new leadership.

That cash reserve is more than just a number -- it's a strategic weapon. Should markets experience a correction, Berkshire will be in an ideal position to make large, opportunistic acquisitions or buy distressed assets at attractive valuations.

I seriously doubt that Abel will act too quickly on this cash pile, but for long-term-oriented investors, it's hard to pass up a company that has so much "fresh powder" at its disposal. Buffett himself has preached a philosophy of focusing on buying "businesses" rather than stocks. To follow that mantra, it's not hard to invest in Berkshire. How many companies do you know that carry over $380 billion in buying power? For perspective, Berkshire has so much money in its hands that it could buy General Motors (NYSE: GM) almost six times over.

A slow moment for Berkshire

I'll admit this is a slow time for the stock. With Buffett leaving, investors might be less eager to pay that "Buffett premium" for his investing prowess, as evidenced in the conglomerate's stock performance so far in 2025, with only 5.86% gains. By comparison, simply being invested in the S&P 500 has created returns of 16.56%. This seems to be motivated by simple uncertainty. Change is hard, and it seems likely that investors will be critical of Greg Abel's new management for a little while. Still, I don't think these troubles warrant avoiding the stock if you have a long-term mindset.

Uncertainty often breeds fear. But Berkshire's strength has always been its structure: a collection of durable, cash-generating businesses led by disciplined capital allocators. Buffett's departure will undoubtedly mark the end of an era, but it doesn't mark the end of Berkshire's success story. With the capital at its disposal, and a cohort of investors that have learned from the greatest of all time, I think Berkshire has a bright future, and buying on weakness makes sense. 

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

The post Will Berkshire Hathaway succeed after Warren Buffett leaves? 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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David Butler 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 Berkshire Hathaway. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended General Motors. The Motley Fool Australia has recommended 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.

The past few years have witnessed an unprecedented expansion of artificial intelligence (AI) into various aspects of life. Cashing in on this expansion, companies involved in this space are most certainly at the forefront of the next big thing in AI applications.

Of all the key players, Nvidia  (NASDAQ: NVDA) has clearly been the one to watch, gaining a jaw-dropping 2,100% increase over the past five years (at the time of this writing), cementing its position as one of the most remarkable growth stories in the technology space. Importantly, investors have been eager to capitalise on its success as the company rides the AI wave with chips for data centres and graphics.

The stock's 160% one-year return is a testament to its continued relevance in the artificial intelligence space, fueled by the explosive demand for GPUs (graphics processing units) that help power AI models. These are now integral to industries ranging from cloud computing to finance and healthcare. With companies scrambling to integrate AI into their operations, Nvidia's products are in high demand, and the company has positioned itself well to be the key supplier for the graphics side of infrastructure.

But with its stock now trading near all-time highs, and at a decent premium, the question is whether Nvidia stock's rally is done for a while, or is there still plenty of room left to run?

Supply versus demand equation

As fellow Fool writer Adria Cimino pointed out, Nvidia is sitting on 80% market share for its products. That's a pretty pleasant spot to be in.

Nvidia's graphics cards are the backbone of many AI systems, and as demand for AI technology surges, the need for these graphics cards becomes even more useful. Digitaltrends.com has warned that there is likely to be a GPU shortage, especially for gamers. This supply and demand imbalance creates a unique opportunity for Nvidia. As long as the demand for AI and machine learning chips continues to grow and supply remains constrained, this stock should remain strong. This is heavily demonstrated by how quickly Nvidia's revenues took off in fiscal 2024 compared to fiscal 2023. Companies need their GPUs.

Financials continue to impress

The company's most recent stats are what you dream of in a growth stock. On a GAAP basis, Nvidia's most recent quarter saw year-over-year revenue growth of 94% to $35.08 billion. Nvidia also had earnings growth of 111% year over year to $0.78 per diluted share, equal to roughly $19.3 billion.

I often put a big emphasis on earnings, and rightfully so, as they are the backbone of long-term stock performance. In the instance of Nvidia, I certainly still care about the earnings potential and overall revenue growth potential, as the two coincide over the long term. The below chart confirms that: Over the last five years, Nvidia's stock price actually grew almost lock step with its GAAP earnings per share.

NVDA data by YCharts.

But one of the big things I loved about Nvidia's third-quarter results was its fourth-quarter GAAP estimates on margins, which the company anticipates to be 73%. This is a high-margin business, and I love it!

Is Nvidia's ride done?

The short answer? No way. To reiterate my earlier point, the unprecedented expansion of AI means it's not going anywhere.

The factors here are many. If you look in Nvidia's third quarter press release, you'll see announcements in new areas of growth including launching a supercomputer in Denmark that runs on over 1,500 Nvidia GPUs, the introduction of an AI aerial platform that has already begun working with T-Mobile, Ericsson and Nokia, along with Nvidia computing being used in things like new Volvo SUVs. That's just to name a few of a very broad list of areas in which Nvidia's resources are being allocated.

Looking ahead, Wall Street analysts are expecting Nvidia to finish fiscal 2025 with $2.95 per share. That would give it a forward price-to-earnings (P/E) ratio of 47.2 times fiscal 2025 earnings. Now, when you consider that something like Tesla trades at almost 100 times earnings, or Cava, a stock I love by the way, trades at over 300 times earnings, a premium of 47 times earnings for Nvidia shares doesn't seem that extreme given the long-term potential and its current dominance within its space.

This is a company that is far from done. In fact, the best years for Nvidia are very likely in the future. My recommendation is to not be afraid to buy at current levels.

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

The post After gaining 2,100%, is Nvidia stock done? appeared first on The Motley Fool Australia.

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David Butler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Nvidia and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Cava Group and T-Mobile US. The Motley Fool Australia has recommended Nvidia and T-Mobile US. 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.

Coca-Cola (NYSE: KO) has made a turn in 2019 after five fiscal years of declining revenues. The stock lagged the S&P 500, offering only its dividend as an incentive for ownership. It speaks strongly to the loyalty that Coca-Cola has garnered over time that shares were not down more. This year, Coca-Cola is righting itself in terms of the growth story.

A shift in focus from old-school soda to things like water, flavored water, and more flavored cola options, as well as acquisitions into segments like coffee, has helped the company regain momentum heading into its third-quarter earnings report release on Friday. Through the first six months of the year, Coca-Cola's revenues are up 5% year over year to $18.69 billion. Gross profits are up 3% to $11.4 billion, while net income attributable to shareholders is up 16% to $4.29 billion. Diluted earnings per share are up a comparable 16% to $1.00 in the first half of the year.

Coffee, energy drinks give company a jolt

In the second quarter, strength stemmed from success within the Coca-Cola lineup as well as from growing strength within the new coffee business. Coca-Cola completed its acquisition of Costa Coffee back in January. Headquartered in London, the coffee chain is the second largest in the world. The deal was worth $4.9 billion, taking Coca-Cola headfirst into the coffee industry.

Q2 results included the announced launch of the segment's first ready-to-drink coffee beverage. First rolled out in Great Britain, the product is anticipated to be sold in more markets through the year. Though the coffee market is increasingly competitive, the move was a wise one. I'll be very interested to see any commentary on its progress in the Q3 conference call.

Coca-Cola also hopped in on the energy drink market overseas in the second quarter. Coming to the United States in 2020, Coke Energy is planned to have four varieties, and will carry the same stimulant as about one cup of coffee. This has been an area that many are targeting, as customers look for that quick "pick me up" in the store. Starbucks has a full lineup of energy/coffee drinks for retail sale, and it seems to do quite well. I'm encouraged to see where this leads, as it could offer an entirely new avenue for growth.

Looking ahead

When Coca-Cola reports on Friday, investors will be looking to see the positive story continue. Analyst estimates are looking for earnings of $0.56 per share in the third quarter. Full-year earnings estimates are $2.10 per share. Going off of that, the stock is trading at roughly 25 times forward earnings. Ordinarily, I'd be critical of the valuation in terms of estimating the stock's ability to maintain the bullish run it has had through the first half of the year. With Coca-Cola, however, there's something else to be said.

The company has such a history of strong dividends and investor loyalty that I think the bullish case is intact. The forward P/E isn't too off base with the company's historical price-to-earnings valuations, and I think there's room to run given the right earnings. Berkshire Hathaway CEO Warren Buffett has been a fan of the stock over the long run, and so am I. Were the company not making moves in directions outside of traditional soda pop, I'd have different feelings. But Coca-Cola is being proactive.

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

The post Can Coca-Cola keep the growth story going? 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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David Butler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares) and Starbucks. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares) and short January 2021 $200 puts on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares) and Starbucks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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.

Netflix (NASDAQ: NFLX) reports earnings on Tuesday in what some consider to be one of its most pivotal quarters in several years. The market is awaiting the November launch of Disney's (NYSE: DIS) Disney+ streaming service and it marks a significant new challenge to Netflix's dominance among streaming services.

Ahead of that added competition coming online, Netflix needs this week's earnings release to go well. If membership growth for the quarter does not meet or exceed market expectations, the downside potential for the stock will increase dramatically.

All about subscription growth

Proof of increased demand for the streaming service will be a focus in the upcoming report. While the company is profitable, its free cash flow has been increasingly negative as Netflix continues to run up big bills creating its original content and paying for expansion efforts. Free cash flow for the second quarter was negative $594 million. Full-year guidance from Netflix projects free cash flow at negative $3.5 billion. Because of this, demonstrable subscription and revenue growth are all the more important for the company to scale itself into a profitable enterprise.

I fall into the camp that believes rising competition from rivals will diminish Netflix's ability to derive new membership growth. Signs of weakness prior to the real ramp-up from streaming competition will only make things worse.

The guidance provided in the second-quarter earnings release suggests earnings will be $1.04 per diluted share. That would mark a 16.8% increase from Q3 2018 earnings of $0.89 per share. Subscription growth rates and subsequent revenue increases weren't as positive. The guidance calls for slowing membership growth, with expectations of 21.6% global growth year over year compared to gains of 25.4% in Q3 2018. Revenue is expected to grow 31.3% year over year to $5.25 billion. That's slower than Q3 2018 revenue growth of 34%. These metrics slowed down in the second quarter as well.

Of course, this doesn't mean that Netflix isn't creating gains. On the contrary; operating margins and earnings are forecast to continue improving. The earnings simply are not nearly close to being able to justify the share pricing. Because of Netflix's high stock valuation, the streaming giant has to keep producing membership gains that indicate future revenues and earnings will justify paying the big stock price premium now. This disparity is why Netflix shares have been trading down roughly 36% over the past six months.

It will only get tougher

I suspect Netflix will come pretty close to its guidance for the third quarter because the competition hasn't really taken hold yet. Overall, I'm very curious to see what Netflix forecasts for its fourth-quarter results. Disney+ should be up and running by then. Apple will have Apple TV+ launching as well with a $4.99/month price tag. Hulu (majority-owned and wholly operated by Disney) is offering bundling discounts when paired with Disney+ and ESPN+ to further undercut Netflix, all while amassing a huge content library. Amazon is also in contention, but the effects of that service on Netflix has already been priced in.

Netflix cannot disappoint. Current-year estimates have Netflix reporting earnings of $3.20 per share. That would mean the company is trading at roughly 86 times forward earnings, a premium that means Netflix cannot slip up on growth.

Netflix will keep things steady in the short term. As consumers are given more and more options in the streaming industry, growth rates are likely to slow down significantly. And I think the current stock price is still too high. This week's earnings will be pivotal in determining the bull/bear case for Netflix through the end of 2019. The negative sentiment is there right now, and I don't think it would take much to cause another dip.

It's looking like Netflix is finished with its long bull run. The company has been relatively unchallenged in its space. With the advent of multiple new players entering the industry with lower pricing points, Netflix will have a hard time operating the way it has. Disney+, in particular, is a big threat to Netflix (and all the other streaming plans operating or coming soon). Regardless of which way the earnings news takes Netflix stock price, I don't see a buying opportunity coming. Its current high valuation makes it unappealing -- not only on a price-earnings basis as mentioned above but also on an asset basis. Netflix has shareholder's equity of $6.1 billion on the books, and the shares are trading at a market capitalization of around $122 billion. I simply don't see the appeal. 

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

The post Earnings Preview: Can Netflix Keep Growing Memberships? appeared first on The Motley Fool Australia.

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

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

More reading

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Butler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon, Apple, Netflix, and Walt Disney. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has the following options: long January 2021 $60 calls on Walt Disney, short October 2019 $125 calls on Walt Disney, short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool Australia has recommended Amazon, Apple, Netflix, and Walt Disney. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.