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

Meta Platforms (NASDAQ: META) stock has been on an impressive run over the past couple of years, rising from a low of $120 in early 2023 to a high of $790 earlier this year. Investors have been largely convinced the business has been on the right path, with sales growth looking solid and the company's investments and opportunities in artificial intelligence (AI) also appearing promising.

Recently, however, the company released its latest quarterly results, and the stock has been going on a bit of a tailspin ever since. On Nov. 6, it closed at just under $619 -- the lowest level it has been at since back in May. Could this be a great time to invest in the social media giant? 

Were Meta's earnings really that bad?

On Oct. 29, Meta reported its third-quarter earnings for the period ended Sept. 30. Net income fell a staggering 83% year over year to $2.7 billion. The chief reason for the decline was a one-time tax charge of over $15.9 billion, related to the One Big Beautiful Bill Act. On an adjusted basis, the company's earnings per share of $7.25 actually came in higher than analysts' estimates of $6.69. Revenue rose 26% to $51.2 billion, surpassing Wall Street expectations of $49.4 billion.

Investors may have been concerned with the company's continued heavy spending on AI. Meta boosted the low end of its guidance for capital expenditures this year, now expecting to spend at least $70 billion, versus $66 billion previously. This is as it's still spending heavily on its metaverse business, Reality Labs, which incurred a $4.4 billion operating loss for the period -- similar to what it reported in the same quarter last year.

At a time when investors may be growing concerned with rising valuations and the possibility of an AI bubble, Meta showing no signs of slowing down on spending could be a key reason why the stock has been under significant pressure of late.

A look at the stock's valuation

Currently, Meta Platforms' stock trades at a forward price-to-earnings (P/E) multiple of around 24, based on analysts' estimates. That's higher than what it has averaged in the past five years, despite its recent fall in value.

META PE Ratio (Forward) data by YCharts

By comparison, the average stock on the S&P 500 trades at 23 times its future earnings. Meta remains priced at a bit of a premium, but not by much. And with its high growth rate, investors may see justification in buying at these levels.

Analysts covering the tech stock largely lowered and downgraded their price targets for Meta recently. But even with the reductions, the consensus analyst price target is $827.60, suggesting an upside of around 35% from where it trades today.

Why I'd hold off on buying Meta at these levels

This recent decline in Meta's price isn't large enough to make the stock look like a bargain buy. The company's aggressive spending is a concern, as it already has a significant money pit in Reality Labs. Even though AI may enhance its ad business and lead to new growth opportunities, the payoff is still debatable.

Plus, economic conditions aren't ideal, and if a recession takes place in the near future, a reduction in advertising spend may take place, which will impact its financial results.

Meta's valuation, which remains relatively high, doesn't leave a whole lot of margin of safety for investors right now. Given the uncertainty and Meta's heavy spending on the latest trends, I wouldn't rush to buy the stock amid this recent tailspin.

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

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David Jagielski 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 Meta Platforms. The Motley Fool Australia has recommended Meta Platforms. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

Key Points

• The artificial intelligence (AI) trend has been the driving force behind many top stocks' performance over the past five years.
• In September 2020, Nvidia already had a market cap of more than $340 billion and was trading at high valuations.
• Super Micro Computer was worth less than $2 billion at that time, but has outperformed the chipmaker in the years since.

It's hard to imagine that any stock may have performed better than Nvidia (NASDAQ: NVDA) over the past five years. The company has been a huge winner due to the artificial intelligence (AI) trend, as its chips provide the majority of the processing power used to develop, train, and operate AI models.

Today, Nvidia is the most valuable company in the world, with a market cap of around $4.3 trillion. It has come a long way, but what may surprise you is that since September 2020, it has only been the second-best performing stock on the S&P 500. The award for first place goes to Super Micro Computer (NASDAQ: SMCI), also known as Supermicro. (This is based on five-year returns as of Sept. 1, and does not include stocks that weren't public five years earlier.)

Supermicro's stock has rallied by more than 1,400% in five years

As of Sept. 1, shares of Supermicro were up by more than 1,400% over the prior five years. Those gains beat the nearly 1,200% return that Nvidia generated during the same stretch by a considerable margin. In terms of dollars, a $10,000 investment in Supermicro would have grown to be worth more than $153,000 today, while a similar investment in Nvidia would be worth $126,000.

Either way, you'd still be up big, but your gains would have been far higher with Supermicro. It's also noteworthy that those are its gains after a particularly drastic drop. In the early part of 2024, the tech company had a falling out with its auditor, and there were questions about the reliability of its financial reports. The stock plunged, and it's still down by around 60% from its peak. So if not for those headwinds, the gap between Nvidia and Supermicro's returns could be far greater.

Why a better return doesn't mean one business is better than another

There are countless examples in the stock market of companies with valuations that don't seem to make sense. Hype and excitement can send a company's shares soaring to unjustifiable levels. And an important factor to consider is market cap. Even five years ago, Nvidia was a well-established megacap business with a market cap of more than $340 billion. Supermicro, at that time, was still a small cap, with a market cap of just $1.4 billion. But its performance lifted it rapidly out of that realm. It was added to the mid-cap S&P 400 index in December 2022 and was promoted again to the large-cap S&P 500 in March 2024. Now, it's worth about $27 billion.

It's a lot easier for a small-cap stock to have a huge rally than a large-cap or a megacap stock. Supermicro was still a relatively unknown company back in 2020, but the AI-driven surge in demand for its servers and related tech products transformed its business and put it on the map. The AI trend helped Nvidia enormously as well, but because it was already so large and trading at a loftier price-to-earnings ratio, its growth was a bit more constrained, relatively speaking.

That being said, Nvidia has achieved some fantastic returns, both in the medium term and the long term. And at a price-to-earnings (P/E) multiple of 50, it's still trading at a hefty premium, while Supermicro may look more reasonably priced at a P/E ratio of 27.

Nvidia is still the safer growth stock to own, by a mile

Supermicro may have generated stronger returns than Nvidia over the past five years, but that doesn't mean that pattern will continue.  Supermicro's valuation is much higher today than it was five years ago, but its shares have risen by just 5% over the past 12 months. Investors appear to be taking a more cautious view of the stock, which is justifiable given Supermicro's low margins and limited profitability.

Nvidia has a more robust business, and over the past 12 months, its free cash flow has totaled an incredible $72 billion (compared to $1.5 billion for Supermicro). Given that Nvidia remains the clear leader in the AI chip space and still has tremendously strong financials, it looks like a far better and safer growth stock to own from here than Supermicro. 

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

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David Jagielski 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.

Key Points

• Amazon's sales rose by 13% last quarter, which was largely in line with how it has done in previous years.
• Investors may have been expecting more of a jump in sales due to its significant investments in artificial intelligence.
• The stock is trading at a lower price-to-earnings multiple than normal.

The stock market is having another solid year, with the S&P 500 up by 14% as of Monday's close. What's a bit surprising is that tech giant Amazon (NASDAQ: AMZN), has risen by less than 4%. Despite being a big name in tech and investing in artificial intelligence (AI), there doesn't appear to be much hype around the stock these days.

Is there something wrong with Amazon's stock for it to have seemingly fallen out of favor with growth investors? Let's take a closer look at what's been going on with the business this year and if there is indeed a reason to avoid Amazon right now, or if instead, this could be a glorious time to buy it. 

Amazon's growth rate continues to be strong

Over the past three years, Amazon has averaged a growth rate of around 11%. There have been fluctuations from one period to another, but it has generally been a safe bet to grow by double digits. And in its most recent quarter, which ended on June 30, its top line rose by 13% to $167.7 billion.

AMZN Revenue (Quarterly YoY Growth) data by YCharts

Analysts, however, may have been expecting more from the business given its significant investments into AI. Amazon plans to spend up to $100 billion on AI this year. And with a guidance for the current quarter of $15.5 billion to $20.5 billion in operating income, that means the mid-point is less than Wall Street estimates of $19.5 billion. There's a growing concern that AI investments may not be paying off for companies, and those fears could be weighing on Amazon's stock, especially in light of its recent projections.

Has Amazon simply fallen out of favor with tech investors?

Amazon's growth rate is on par for the course and in line with how it has done in previous year. But that might not be enough, particularly at a time when other tech companies are growing at faster rates and when AI-related spending is coming more under the microscope.

There are also a growing number of AI stocks to invest in, and if Amazon isn't knocking it out of the park with its numbers and guidance the way data analytics stock Palantir Technologies is, investors may simply opt for other stocks. Palantir is not nearly as profitable as Amazon, yet it has experienced tremendous growth due to AI. Its shares are up over 135% this year. Data storage company Seagate, although not directly involved with AI, has benefited from an uptick in business due to AI-related spending. With its growth rate accelerating, Seagate has been one of the hottest stocks on the S&P 500 this year, up 166%.

Amazon, unfortunately, with little to show from its AI investments, may simply not be winning investors over anymore. It trades at a price-to-earnings multiple of 35, which is significantly lower than its historical average, when it wasn't uncommon to see it trade at more than 50 and 60 times its profits.

The question for investors is whether a lower premium is justifiable and should be the new norm for Amazon, or if it is a bargain buy.

Why I'd buy Amazon today

Other tech stocks may be experiencing faster growth than Amazon, but this company has many practical use cases for AI. From enhancing the online shopping experience to making the robots in its warehouses more efficient, Amazon is one stock where I don't doubt that it can benefit from AI in the long run.

Investments can take time to pay off, and given Amazon's impressive growth and results over the years, investors should trust in its processes and ability to unlock the most value for its shareholders. And that's why I think buying the stock at any type of discount can be a great move for the long haul.  

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

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon and Palantir Technologies. 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.

Netflix (NASDAQ: NFLX) recently reported another strong quarter, a testament to the company's ability to continually innovate and find ways to grow. It has been successful in making its own movies and shows, offering ads, and cracking down on password sharing -- all moves that may not have been all that convincing when they were first announced. And yet, the company continues to do well.

The company's dominance in the streaming business has propelled its stock to a valuation of over $500 billion. It has been a tremendous market-beating stock, and there's one stat that highlights just how truly special and impressive Netflix has been as a long-term investment in recent years.

Netflix stock is on track for at least a 20% gain for the seventh time in the past nine years

As of Tuesday's (22 July) close, shares of Netflix were up around 32% year to date. Unless the stock encounters some considerable headwinds later this year, odds are it will produce a return in excess of 20% yet again in 2025. And if that happens, that will be the seventh time it has done so in just nine years.

The lone exceptions were in 2021 and 2022, when concerns around inflation and interest rates were weighing on growth stocks. In 2021, Netflix rose in value but by just 11% as a late-year decline sent it into a tailspin, which continued into 2022, when it fell by more than 50% that year.

Aside from those blemishes, since 2017, the stock has routinely generated 20% gains or more annually. That's particularly impressive when you consider that the S&P 500's long-run average annual return is right around 10%. While the broad index has amassed returns totaling 185% since 2017, Netflix has blown past it with gains totaling more than 850%.

The company continues to impress with solid earnings numbers

Earlier this month, Netflix reported its latest earnings numbers, which continued to look strong. It beat analyst expectations for the second quarter (which ended on June 30), as revenue of $11.08 billion came in higher than forecasts of $11.07 billion. And its earnings per share of $7.19 came in comfortably higher than what Wall Street was looking for -- $7.08. Overall, its sales grew by 16% year over year.

The company, did, however, warn that its margins will decline a bit in the latter half of the year as sales and marketing costs increase as the company releases more content. But that's a trend that has become the norm for the business in previous years and shouldn't necessarily raise alarms for investors.

Should you buy Netflix stock today?

Netflix has been a tremendous growth stock to own for several years now. Even with a massive decline in 2022, it has generated fantastic returns for investors who have held on. The streaming stock is undoubtedly expensive today, as it trades at 50 times trailing earnings, a steep premium.

There is some risk of a correction in the near term, but with the company offering consumers a wealth of content and being a top streaming business to invest in, it's still hard not to like Netflix as a long-term investment. It may be due for a slowdown at some point, and it won't always generate 20% returns, but if you're willing to hang on, you can still generate great returns from investing in the business over the long haul.

As a leader in the streaming industry, Netflix can be a good stock to buy and forget about.

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

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

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David Jagielski 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 Netflix. The Motley Fool Australia has recommended Netflix. 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.

Has the excitement surrounding artificial intelligence (AI) stocks cooled off? Many top AI stocks are down this year, including Advanced Micro Devices (NASDAQ: AMD), better known as just AMD, and Nvidia (NASDAQ: NVDA). They have both declined around 15% thus far in 2025, which is worse than S&P 500's more modest drop of 4%.

There's still massive potential for AI to revolutionize businesses and entire industries, but investors have been starting to scale back their positions in AI. If, however, you're looking at the long haul, then now can be a great time to add a top AI stock to your portfolio. Which of these two chip stocks is the better option right now: AMD or Nvidia?

Comparing their valuations

Nvidia is one of the most valuable companies in the world, with a market cap of $2.8 trillion. That has come down a bit amid its recent decline (last year it was well above $3 trillion), but it's still close to 17 times the value of AMD, which has a market cap of around $165 billion. While AMD isn't a small company by any means, when compared to Nvidia, it looks tiny.

While you might think that Nvidia is the pricier of the two stocks given its massive valuation, based on earnings, it's actually the cheaper stock.

NVDA PE Ratio data by YCharts

Last year, AMD reported $1.6 billion in profit, while Nvidia, which has a fiscal year that ends in January, has generated an incredible $72.9 billion in earnings over its last four quarters. Not only has its business been experiencing explosive growth, but Nvidia's bottom line has been growing quickly as its profit margin has averaged 56%. That has enabled its price-to-earnings (P/E) multiple to remain relatively low.

By comparison, AMD's profit margin is just 6%. And with a more modest bottom line, it's the more expensive stock of the two when taking into account its earnings per share.

Which AI stock may have the most upside?

Both stocks have been struggling this year but when looking at the past 12 months, Nvidia is still up around 29% while AMD has fallen by 33%. A case could be made that AMD may be due for a rally, especially if its AI chips prove to offer formidable competition to Nvidia's high-priced options. AMD CEO Lisa Su previously forecast that the company could generate "tens of billions of dollars in annual revenue" in the near future due to its AI chips.

If AMD can generate that much growth, it can certainly help attract more investors and propel the stock to a much higher valuation. Thus far, it's lagged behind Nvidia in a big way. Last year, AMD's sales rose by 14%, while Nvidia more than doubled its revenue during its most recent fiscal year. But what also matters are AMD's margins, which need improvement. Otherwise, its P/E multiple may not come down significantly even if its growth rate accelerates. And a high premium could deter investors.

Nvidia is in pole position today, dominating the market and still innovating and coming up with new AI chips. AMD has to prove that it can put up some formidable competition. And until it does, that could limit its upside both in the near term and the long term.

Nvidia is the stock I'd go with today

AMD can potentially be a great long-term investment but it has a lot of question marks around its operations; it's far from a slam-dunk buy at this stage and it comes with some risk. Not only does it need to show that its chips can provide real competition to Nvidia, but the company also has to improve upon its single-digit profit margin.

With much stronger financials, a more attractive valuation, and a more dominant position in the market, Nvidia is the better AI stock to buy today.

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

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

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company, Motley Fool Holdings Inc., has positions in and has recommended Advanced Micro Devices and Nvidia. The Motley Fool Australia has recommended Advanced Micro Devices 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.

One of the most intriguing growth opportunities for Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) these days is in robotaxis, via its Waymo business. It has the potential to revolutionize the taxi industry. Last year, it averaged 150,000 trips per week, and that number is going to climb even higher this year, as the service expands into more markets.

But despite Waymo's promising potential, here's why I think it's highly likely that Alphabet will spin off the business within the next five years.

Alphabet is already spending heavily on artificial intelligence

Creating and maintaining a growing fleet of robotaxis is going to be expensive. And the danger for Alphabet is that as Waymo grows in size, Alphabet's operations may get much more complex and costly amid that process. It's already operating in multiple cities, including Los Angeles, San Francisco, Austin, and Phoenix. However, Waymo has recently announced plans for more cities, with Atlanta, Washington, D.C., and Tokyo being on the list of markets it wants to expand into in the near future.

The problem is that by expanding into more markets, Waymo's costs are going to rise significantly at a time when Alphabet is investing heavily in artificial intelligence (AI). This year alone, Alphabet expects to spend $75 billion on building out its AI infrastructure.

In the midst of an AI battle involving many other tech companies, Alphabet is looking to protect its search dominance -- and it's investing in its Gemini chatbot to ensure that at least if users are relying on chatbots rather than Google Search, it's Gemini that they are using. The company is facing a considerable risk in its core business, one that it hasn't had to worry about in the past. AI chatbots could give other companies a way to finally wrestle away some valuable market share and ad spend from Alphabet.

Waymo may unlock billions in value for Alphabet

By spinning off Waymo, Alphabet may also be able to unlock a lot more value for itself and investors. Last year, Waymo was reportedly estimated to be worth more than $45 billion, based on a recent funding round. But with the business expanding and reaching more markets throughout the country, it's probable that Waymo's valuation will go much higher in the future.

That money could help Alphabet pursue other acquisitions that are more complementary to AI and its core operations. Plus, by spinning it off, the company may also be able to save billions by not having to spend more money in expanding and growing Waymo's business. By focusing on their core competencies and strengths, individually, businesses can sometimes achieve greater efficiencies and results in the long run than if they are all under the same umbrella.

Alphabet has gotten Waymo to this point, but the more compelling move may be to retain a stake in the car company and let it operate as a separate entity.

Why this could be a win-win for investors

A stock spinoff of Waymo could allow investors to have a stake in two fast-growing businesses: Alphabet and Waymo. And if you end up preferring one over the other, you could always sell your holdings in one of them. You only have to look at the excitement around Tesla and its robotaxis to see why investors may be thrilled with a Waymo spinoff as the stock could generate a lot of bullishness itself, and may even lure some investors away from Tesla if it's able to demonstrate superior results.

Right now, investors have to take the whole package -- Alphabet with all of its other businesses. By spinning off Waymo, investors will have more choice, and that could result in a much higher valuation for the two businesses combined rather than where Alphabet sits today.

Regardless of what ends up happening, you may want to consider buying and holding Alphabet stock, especially given its modest valuation; it's trading at 18 times its trailing earnings. Either way, whether the company spins off Waymo or it doesn't, you can stand to benefit from its future growth. Under the best-case scenario, a spin-off does end up taking place and you'll have two terrific growth stocks in your portfolio.

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. David Jagielski has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet and 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.

The impact that tariffs and trade wars may have on the economy looks to be weighing on the markets of late. In the past three months, since the presidential election, there has been a lot of turbulence in the market with the S&P 500's gains over that stretch up around just 1%. President Trump has threatened multiple countries with tariffs, but there's still a lot of uncertainty as to how all that will play out.

However, investors don't need to get out of the market due to that uncertainty. It can be nerve-racking, and some stocks have been falling due to the potential havoc that tariffs could impose on their businesses. But selling your holdings and possibly getting out of the market because of this can prove to be a costly mistake, and here's why.

Government policies can be impossible to predict and shouldn't be a factor for long-term investors

When you're investing for the long haul, focusing on the bigger picture is of far greater importance while ignoring short-term disruptions like tariffs and policy changes.

Furthermore, predicting what the government may or may not do is difficult, if not impossible. After all, legislation can take time, and it can change from one administration to the next.

If you're investing in a business that may be so vulnerable to tariffs that they may cripple its ability to compete in the long run, endangering its long-term survival, that may be an important sign that perhaps that business isn't a good choice.

Billionaire investor Warren Buffett doesn't worry about economic trends and forecasts. He remains invested and has faith in the long-term growth of the economy.

In one of his annual letters, he wrote that "despite some severe interruptions, our country's economic progress has been breathtaking." Betting on the market and its long-term growth is something Buffett firmly believes in, and long-term investors would also be wise to focus on the bigger picture and not worry about what might happen with the economy in the next year or two.

Not sure what to invest in? Go with an exchange-traded fund

You might still be apprehensive about holding stocks you're not sure about. If so, there's an easy way to remain invested in the market without having to worry about picking individual stocks: hold an exchange-traded fund (ETF).

ETFs can drastically simplify investing for you and give you exposure to many stocks -- sometimes hundreds or even thousands -- through a single investment. That way, you won't depend on just one stock's performance, and you can still stand to benefit from the market's overall performance.

A good option for long-term investors is the Vanguard Growth ETF (NYSEMKT: VUG). The fund has a low expense ratio of 0.04% which means that fees won't have a big effect on your overall returns.

And the ETF will give you exposure to the top growth stocks in the country, including Tesla, Meta Platforms, Nvidia, and many others. There are around 180 stocks in the fund, with tech stocks accounting for 59% of all holdings.

There can be some risk with the ETF from one year to the next, especially given how volatile tech stocks can be sometimes. But over the long haul, this fund has trounced the S&P 500, achieving returns of nearly 300% over the past five years, while the broader index's gains are around 190%.

^SPX data by YCharts.

Investors should keep calm, and remain invested in the market

It can be worrisome to invest when there is economic or political uncertainty. But trying to time the market and pick the optimal moment to invest can be a costly strategy that doesn't pay off.

Instead, if you're not sure what to invest in, putting your money into an ETF like the Vanguard Growth Index can be a much safer option to consider. It may go down in the short term, but you can be fairly confident that in the long run, it'll rise in value.

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

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

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David Jagielski has no position in any of the stocks mentioned. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Meta Platforms, Nvidia, Tesla, and Vanguard Index Funds – Vanguard Growth ETF. 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.

Meta Platforms' CEO Mark Zuckerberg isn't a big fan of Apple (NASDAQ: AAPL). In a recent interview with podcast host Joe Rogan, he was critical of the company and its lack of innovation over the years.

And Zuckerberg really isn't necessarily wrong. Apple has been relying on making minor improvements to its iPhones and iPads over the years, and there hasn't been a major innovation from the company in a long time.

Apple definitely feels like a different company under CEO Tim Cook than it did under the late Steve Jobs. But Cook hasn't failed by any means. The business is worth well over $3 trillion today, and it could be on track to be the first company to hit a $4 trillion valuation. However, it hasn't come without challenges.

Apple has struggled to innovate in recent years

Apple hasn't been coming out with new life-changing inventions like the iPhone, but that's because those aren't easy ideas to come up with and bring to market. Investing heavily into research and development to come out with the next big tech product can be an incredibly costly endeavour, and the risk is that it may not even pay off.

Last year, Apple abandoned plans to make an electric car, a project that it had been working on for a decade.

There are also reports the company has recently stopped producing its Vision Pro headsets due to a lack of demand. It hasn't given up on making mixed-reality headsets, but it is rumoured to be working on lower-priced options (the Vision Pro starts at $3,499) that may appeal to a wider consumer base.

The lack of innovative success might be a concern for a regular company trying to grow its sales and profits, but that isn't the case for Apple.

The tech giant already has a massive customer base, and there are 2.2 billion active Apple devices in the world. Innovating new products would be a huge bonus, but it may not be necessary for the business to grow in value.

Building out its service business may be the better long-term strategy

Apple's high-priced iPhones and iPads could make it difficult for consumers to justify upgrading their devices on a yearly basis or even after a couple of years. Users may not see a reason to make a big expenditure for seemingly modest improvements like enhanced cameras, better battery life, and other nominal changes it makes to its phones every year.

And that's why the key to the company's long-term growth may ultimately depend on how well it can grow its services business.

In the company's most recent fiscal year, which ended on 28 September, 2024, product revenue actually declined by just over 1%. While it was still massive at nearly $295 billion and it accounted for three-quarters of its overall revenue, the reason the business generated positive growth during the year was due to services.

Services revenue came in above $96 billion for the fiscal year and rose by 13%. For Apple, there's a lot more potential here to expand its offerings in the long run. It will likely be easier to convince someone to spend $20 per month for new artificial intelligence (AI) capabilities on phones or other applications rather than buying a whole new phone.

In the case of AI, an upgrade may be necessary to use the latest technologies, but it can still be a more sustainable growth strategy to focus more heavily on services. This can help the company increase its margins in the process rather than innovating new products.

Is Apple still a good long-term buy?

Apple may not be the exciting growth stock it was years ago, but the business is more stable and consistent these days. The company isn't rushing out to launch the newest AI features on its phones. Instead, it's taking a slower, measured approach to be more selective in where it invests its resources to get the best bang for its buck.

Although it's a high-priced stock and its market cap is massive at $3.5 trillion, if you're looking for an investment to hang on to for years and potentially decades, Apple looks like a solid option.

With a vast user base to tap into and huge profits and free cash flow every year, this is a company that isn't likely to run out of ways to grow in the long term. Its valuation could mean limited returns in the short term, but if you're a buy-and-hold investor, it's hard to go wrong with Apple's stock.

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

The post Mark Zuckerberg may be right about Apple's lack of innovation. But here's why that shouldn't matter to investors. appeared first on The Motley Fool Australia.

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

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

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

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

If you're investing in the long term, growth stocks can help you maximise your gains. They can offer superior gains to dividend stocks, which often prioritise making recurring payments over growing their operations at high rates.

The downside with growth stocks is that they can experience a lot of volatility from one year to the next. But if you're investing for not only years but decades, it can make a lot of sense to focus on growth stocks since over the long haul they're likely to outperform dividend stocks.

Rather than picking individual growth stocks, you may want to put money into an exchange-traded fund (ETF), which gives you broad exposure to many of them through just a single investment. Two popular options include the Invesco QQQ Trust (NASDAQ: QQQ), which tracks the Nasdaq-100 index, and the Vanguard S&P 500 Growth Index Fund ETF (NYSEMKT: VOOG) which focuses on growth companies within the S&P 500.

Which one is the better option for your portfolio today? Let's dive in and find out.

Over the past decade, the Invesco fund has delivered superior returns

Both of these funds have made for good, market-beating investments over the past 10 years. But by focusing on the Nasdaq-100, which includes the top non-financial stocks on the exchange, the Invesco fund has been the far better investment during that stretch.

QQQ Total Return Level data by YCharts.

There are many similarities between the two funds. Apple, Nvidia, and Microsoft make up the top three positions in both ETFs. However, in the Invesco fund they account for about 26% of the total holdings, versus 35% of the Vanguard fund. While the Invesco fund focuses on the Nasdaq 100, the Vanguard S&P 500 Growth Index Fund ETF has more than 230 stocks in total, making it a much more diverse option.

A potential slowdown in the markets could hurt both ETFs

The stock market has been red hot over the past couple of years, and the risk is that future returns may be limited. That can make both of these funds vulnerable to declines in the near term.

The Vanguard fund, due to its broader mix of stocks, may be less susceptible to a decline. But with more exposure to heavyweights such as Apple, Nvidia, and Microsoft, should those stocks struggle the most due to their high valuations, then the Invesco fund, which has less exposure to them, may be less vulnerable.

When looking at the long run, both of these funds can make for promising long-term investments regardless of short-term trends in the market. There is a lot of overlap between them. It may ultimately come down to how diverse an investment you are seeking and the exposure you want to tech.

Within the Vanguard fund, just under 50% of the holdings are in tech stocks, versus around 60% in the Invesco ETF. Tech stocks can sometimes generate far superior returns, but they can also be susceptible to big sell-offs, especially when their valuations soar to unsustainable levels.

For the long run, it's hard to go wrong with the Invesco ETF

The Invesco fund isn't as diverse as the Vanguard fund, which can be a disadvantage in the short run. But over the long haul, it's likely to outperform, because focusing on a narrower range of growth stocks can set it up for greater returns. Too much diversification can limit the returns an ETF can achieve.

While you don't necessarily want exposure to just a handful of stocks, which can increase your overall risk, I think the Invesco fund strikes a good balance. Its largest holding (Apple) only accounts for 9% of its entire portfolio. As long as you're OK with short-term volatility, the Invesco fund looks like it may remain the better investment option for the long term.

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

The post What's the better long-term investment: The Nasdaq-100 or the top S&P 500 growth stocks? 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 Jagielski has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, 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 Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

Shares of chipmaker Nvidia (NASDAQ: NVDA) have soared more than 2,400% in just the past five years. The stock has proven to be a growth machine due to advancements in artificial intelligence (AI) and the importance the company's chips play in next-gen technologies.

But with the company now among the most valuable in the world and amassing such incredible gains, is it too late to invest in Nvidia? Can this still be an exceptional long-term investment, one that could potentially turn a $25,000 investment into more than $1 million over the long haul?

Why investors can remain bullish on Nvidia

Investing in a stock that has already achieved such out-of-this-world returns as Nvidia will discourage many investors. After all, if it has climbed by so much so quickly, you may be wondering just how much more upside it can have.

But if you're bullish on AI, there's reason to be optimistic that Nvidia can continue to rally. And that's because it dominates the AI chip market; its share of the market is north of 70%, and many companies developing AI models need to turn to Nvidia.

Even as other tech companies are building out custom chips, demand remains robust for Nvidia. There's no better proof of that than by looking at the numbers; Nvidia's growth rate remains impressive.

NVDA Operating Revenue (Quarterly YoY Growth) data by YCharts

While its growth rate has come down a bit, it would be hard for any company to continue tripling its sales. But averaging an annual growth rate of about 80% during a five-year period is astounding.

And what's promising is that AI demand may remain strong for years. Analysts at Grand View Research project that the AI chipset market could be worth $323 billion by 2030, estimating that it will expand at a compound annual growth rate (CAGR) of 28.9% until then. Nvidia is a key benefactor of those growth opportunities, and as a result, there could still be much more room for the business to become even more valuable in the future.

Can Nvidia's stock be a 40-bagger investment?

There's no doubt Nvidia can become much more valuable in the future. But the big question is whether it can produce 40-fold returns, because that would be needed for the stock to turn a $25,000 investment into at least $1 million. To put that into perspective, consider whether you think Nvidia may one day be worth about $150 trillion — 40 times its current market cap.

That likely won't happen anytime soon, but when you're talking about a period of 20-plus years, that includes a lot of future growth. Nvidia's stock would need to generate an average return of about 20.3% for it to grow to such a valuation. If you're looking at a period of 25 years, then the growth rate would need to be a bit lighter at 15.9%.

Such a growth rate may be more manageable, but it still involves Nvidia completely dominating and outperforming the market — the S&P 500's long-run average is an annual return of about 10%. Whether you think that is a realistic scenario depends heavily on your expectations for AI. If companies are going to spend feverishly on new technologies and Nvidia remains a top AI vendor, it's definitely possible.

Personally, I'm a bit more sceptical about the hype in AI and expect that many companies may not see the value in developing their own AI chatbots and models. The potential for this to be another tech bubble is why I'd be more cautious in expecting sky-high returns for Nvidia over the long run. I'm also not convinced the business is just going to continually generate fantastic numbers for decades, and that it can produce 40-fold returns for investors.

Nvidia may still be worth investing in anyway

Even if Nvidia may not have what it takes to be a millionaire-making investment in the long run, that doesn't mean it can't still be a good investment to add to your portfolio today. It's growing at a fast rate, and its valuation isn't egregious; it's trading at less than 60 times its trailing earnings, which may not be all that outlandish for a company generating the type of growth Nvidia is.

It's a top business to invest in, but investors should temper their expectations. While Nvidia has produced some terrific gains in recent years, that doesn't mean the trend is simply going to continue for the long term. Nvidia can be a good growth stock to buy and hold, but I don't think it's going to generate life-changing returns for investors who buy it today.

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

The post Can a $25,000 Iinvestment in Nvidia stock today turn into $1 million by the time you retire? appeared first on The Motley Fool Australia.

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David Jagielski 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.

Apple (NASDAQ: AAPL) has been a top Warren Buffett stock for years. The company's strong brand and loyal customer base give it a wide moat, making it relatively easy for the business to grow and become more valuable over the years, which is why Buffett loves the business.

But lately, the Oracle of Omaha has been selling shares of the iPhone maker. Apple no longer accounts for close to half of Berkshire Hathaway's portfolio, as the billionaire investor has been unloading shares of the company for multiple quarters -- the streak has now hit four consecutive periods.

What could be behind these moves, and should this raise red flags for investors holding Apple stock or those considering buying it today?

Berkshire has been loading up on cash

While investors have been buying up shares of stocks feverishly this year, one investor has been much more cautious -- Warren Buffett. And that's evident through Berkshire's growing cash balance, which as of the end of September totaled more than $325 billion. That's more than the $277 billion it reported just a few months earlier.

It could be a sign that Buffett isn't seeing many attractive buying opportunities in the market right now. And not only is Buffett not buying, he's also selling shares of Apple. This past quarter marked the fourth consecutive period where Berkshire reduced its position in the company. Although it is still the top holding in its portfolio, at just under $70 billion, that's nowhere near the more than $170 billion of Apple stock Berkshire held at the end of 2023.

Is this bad news for Apple investors?

Entering this week, shares of Apple were up around 15% since the start of the year. While that's not as strong as the S&P 500's gains of 26% during that stretch, Berkshire's sales haven't crippled the consumer goods stock by any means.

At $3.4 trillion, Apple is one of the most valuable stocks in the world, and Buffett may simply be looking to cash out some profits, especially as he voiced concerns in the past that the government may raise the tax rate on capital gains in the near future. For Buffett, the move could be more about protecting shareholders' returns than worries about Apple's rising valuation or its growth prospects.

That being said, Apple is by no means a cheap stock to buy -- it's trading at 37 times its trailing earnings, and its net sales have risen by just 2% over the past 12 months, totaling $391 billion. While that's a massive amount of revenue, for that kind of multiple, growth investors would typically be demanding much more growth.

Should you buy Apple stock?

Berkshire selling Apple stock shouldn't raise red flags for investors, but its valuation should have you thinking twice about investing in it today. The company's new Apple Intelligence capabilities aren't all that impressive, and the new iPhone may not end up being the huge growth catalyst for the business many analysts hoped it would be. And that can be a problem for a highly priced stock such as Apple, because its growth rate simply hasn't been all that strong this year.

If you're a long-term investor and are willing to hold on to Apple stock for years, then it can still be a solid investment, as given its vast user base and large ecosystem, it's likely to grow in the long run. Otherwise, you may be better off waiting on the sidelines or pursuing cheaper growth stocks instead, as it could be a bumpy ride for Apple in the months ahead.

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

The post Billionaire investor Warren Buffett sold Apple shares for a fourth straight quarter. Should investors be worried? 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 Jagielski has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple and Berkshire Hathaway. The Motley Fool Australia has recommended 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.

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

Warren Buffett's company, Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), is known for its ability to find value in the markets. That's why when it makes a move to buy a stock, many investors often follow suit, feeling confident that Buffett or Berkshire's other managers saw some considerable value there.

On the flip side, investors may grow concerned when they don't see a lot of buying activity, and Berkshire's cash balance has been growing instead. They may be reading into that trend as a sign of cause for concern in the markets. And with Berkshire's cash balance indeed rising, should investors be worried about the stock market?

Is this a time to sell off your stocks and wait for better economic conditions?

Berkshire's cash reaches a new record

It's no secret that Berkshire Hathaway's cash balance has been growing. Every quarter, it reports on its cash and short-term investments, and in the past Buffett has suggested that he wouldn't be surprised to see the balance continue to rise. And that has indeed been happening -- its cash was at record levels of around $277 billion as of June 30.

BRK.A Cash and Short-Term Investments (Quarterly) data by YCharts.

This sharp increase in Berkshire's cash comes as the company has been selling off shares of multiple companies, including Apple and Bank of America. Tech company and iPhone maker Apple has accounted for close to half of Berkshire's holdings in the past. Today, it makes up a more modest 29% of all investments.

Is this a sign that Buffett is worried about the markets?

Selling shares of some of his top investments may seem alarming to investors, especially with recent concerns of a recession on the rise. Economic conditions are worsening, and now expectations are that the Federal Reserve will cut rates in the near future -- it's just a matter of how steep and how many cuts there will be rather than whether there will be any at all this year.

But Buffett has remained invested in stocks throughout worse and more concerning periods in the past (even wars). He doesn't sell due to economic conditions or forecasts. His stock sale of Apple, for instance, may have more to do with concerns about capital gains taxes increasing and what effect that may have on Berkshire's shareholders than anything else. There's no indication to suggest that he suddenly thinks Apple has become a worse company to invest in or that it has somehow lost its competitive moat and ability to dominate the market. It is, after all, still the top holding in Berkshire's portfolio.

What is notable is that amid all the selling of Apple and, to a lesser extent, Bank of America stock, Berkshire is simply holding onto its cash load; it isn't taking big positions in new companies. It has added Ulta Beauty to its portfolio recently, but for the most part Berkshire hasn't been buying up shares of other stocks. This could be a sign that Buffett isn't seeing tremendous buying opportunities right now, perhaps because valuations have become too inflated.

S&P 500 P/E Ratio data by YCharts. P/E = price to earnings.

Aside from 2020, which was an unusual time in the markets due to the emergence of COVID-19, the S&P 500 does appear to be trading at a fairly high valuation today. And if that weren't the case, I would certainly have expected Buffett to be buying up more stocks with all that cash on hand.

Investors shouldn't ignore valuations when picking stocks

Even if you're bullish on a company's long-term prospects, that doesn't mean you should ignore its valuation. A stock that trades at a high premium could mean it takes a while for you to earn a good return on your investment because investors have already paid for and priced a lot of future growth into its valuation. There's also minimal, if any, margin of safety that comes with stocks that are trading at high premiums.

Investors shouldn't try timing the markets or waiting for Berkshire to make big moves before deciding to buy stocks. But it would be prudent and worthwhile to consider the premium you might pay for a stock before adding it to your portfolio. If it looks excessive, it may be better to put that investment on a watchlist rather than buy it.

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 Warren Buffett is selling stocks and loading up on cash. Is that a red flag for investors? appeared first on The Motley Fool Australia.

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

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

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. David Jagielski has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, Bank of America, Berkshire Hathaway, and Ulta Beauty. The Motley Fool Australia has recommended 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.

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

Apple Inc (NASDAQ: AAPL) is one of Warren Buffett's favorite stocks; there's no secret about that. He has previously referred to it as "probably the best business I know in the world." And within Berkshire Hathaway's portfolio, it normally accounts for a considerable percentage of the stock holdings. It's still in the top spot today, but the percentage has dropped significantly after Buffett recently sold a big chunk of Apple stock.

Is this a bad omen for the highly valued stock, that perhaps its valuation is too high? And could it be a sign that Buffett is worried about future economic conditions? Here's a closer look at what it may mean for investors, and whether you should consider following suit to sell shares of Apple as well.

Buffett sold Apple stock earlier this year, too

Earlier this month, investors learned through a filing that Berkshire has reduced its stake in Apple stock -- by nearly 50%. It's a massive stock sale, and it comes after a sale in the first quarter where the holdings were reduced by 13%. This sale is on a much larger scale, and thus, is much more noteworthy for investors. It is typical for investors to sell a few shares of a highly successful investment and take some of the profit. But such a mammoth reduction has investors wondering about the reason behind the move.

One thing to note, however, is that despite the sale, Apple remains the top holding in Berkshire's portfolio. But at less than 30%, it's not nearly as high as it has been in the past when it accounted for about half of Berkshire's stock investments.

Does the sale of Apple stock mean Buffett is worried about the future, or the stock's valuation?

Investors don't know the reason for the stock sale, but that doesn't mean we can't take a closer look at some possible reasons and determine how probable each one is in explaining Buffett's recent move.

The first is valuation. Valuation is important for investors because if a growth stock reaches an egregious price point, it may be difficult to expect more of a return from owning the stock. But that's not a probable reason for the stock sale, simply because Apple's valuation has actually been coming down recently. If Buffett was concerned with its price, he could have opted to make a big sale back in 2021 when shares of Apple were trading at more than 40 times their trailing earnings.

AAPL PE Ratio data by YCharts

Next, there are concerns about Apple's slowing growth rate, which could weigh on Buffett's decision. Apple, however, hasn't always been a fast-growing business and while its growth rate has been slowing down, revenue for the period ending June 29 was up 5%, totaling $85.8 billion. And diluted earnings per share of $1.40 rose by 11%. The business is still doing well, and with new artificial intelligence capabilities coming to its new iPhones, there's reason to be bullish that its sales growth could accelerate in the near future.

Lastly, there are concerns about the economy. While Apple may be doing well, a recession could happen soon, and that may impact the business. Buffett, however, has held on to investments during recessions, wars, and all sorts of economic headwinds. And in the past, he has made it abundantly clear he isn't concerned about forecasts for the future, stating that, "forecasts may tell you a great deal about the forecaster; they tell you nothing about the future."

Ultimately, Buffett looks out for Berkshire's shareholders. When discussing the Apple stock sale earlier this year, he alluded to it potentially having to do with tax reasons and that selling shares now could benefit Berkshire shareholders if there's a possible increase in the capital gains tax in the future. Given Apple's sizable 340% returns over the past five years, Buffett may have simply found it prudent to realize some of those profits now.

Investors shouldn't read too much into Buffett's sale of Apple stock

Without confirmation from Buffett, investors won't know the real reason behind the recent sale of Apple stock. But it should be related to doing what's best for Berkshire shareholders more than anything else. Berkshire hasn't dumped all of its stake in Apple, and there's no reason to suggest that the business has somehow become a worse buy, as its valuation has come down and its growth prospects may improve in the near future. If you're holding Apple stock, this isn't a reason to worry or to sell your shares. It's still a good investment to hang on to.

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 Warren Buffett just sold a huge chunk of Apple Stock. Should you do the same? 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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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple and Berkshire Hathaway. The Motley Fool Australia has recommended 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. David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Berkshire Hathaway.

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

Nvidia Corp (NASDAQ: NVDA) has been a scorching-hot buy over the past couple of years, largely due to the key role it plays in artificial intelligence (AI). The company's AI chips are crucial for companies that are developing AI models. And Nvidia has a commanding 80% market share when it comes to AI chips. That's part of the reason why investors have remained bullish on the stock -- it's arguably the best-positioned stock to benefit from growing demand for AI.

But given how lucrative the opportunities are in AI, it's only a matter of time before more competitors emerge and fight for market share. Apple Inc (NASDAQ: AAPL) has recently turned to one of those unexpected competitors to source chips for its new AI-powered iPhones.

Apple has bought chips from Alphabet

One of the companies that has been developing its own chips is Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL). And Apple has been training its new AI system, called "Apple Intelligence," using Alphabet's custom chips, according to a research paper. The company used two versions of Google's tensor processing unit to develop its AI models, which gives iPhone users access to generative AI features, including advanced writing tools, the ability to generate images, and a Siri assistant with "all-new superpowers."

Could more competition be on the way?

Alphabet is a potentially strong competitor for Nvidia to worry about. The company has plenty of resources to work with. Last year, Alphabet generated more than $69 billion in free cash flow. It has been investing in its AI chatbot Gemini, and AI chips could provide it with yet another growth opportunity to pile money into.

The courts recently found that the company's search engine, Google, has an illegal monopoly. And depending on what the consequences of that finding are, Alphabet may soon see a huge incentive to find a new growth opportunity to pursue, as the ruling may have a detrimental effect on a key part of its business.

Beyond Alphabet, however, there are other competitors for Nvidia to worry about. Meta Platforms has been working on an AI chip of its own, as has Amazon. And investors also shouldn't forget about AMD, which is a more traditional rival for Nvidia. Although it has been late to the game, AMD has made it clear that AI is a big priority for the business, and it could also take away some sizable market share from Nvidia in the future.

Should Nvidia investors be worried?

Nvidia has generated incredible gains due to its dominance in the AI chip space. And it is working on innovating and coming out with more advanced chips to ensure it remains on top. But maintaining such a large market share can be incredibly difficult, especially with so many big tech companies out there with deep pockets to contend with. They aren't simply going to ignore such a massive opportunity in AI chips.

The company's revenue has taken off over the past year, with Nvidia's growth rate in recent quarters being well in excess of 200%. Those kinds of numbers, while extremely impressive, are also extremely difficult to maintain. At some point, Nvidia's growth rate will start to come down, especially if more competition emerges in the field. And its high-priced chips may also need to come down in price if that's the case, which may lead to both a slowing growth rate and smaller profit margins than the 50%-plus margins it has been averaging of late.

Is Nvidia's stock still a buy?

Nvidia's stock has been giving back some gains in recent weeks, but it's still a top company to invest in if you want exposure to the red-hot AI market. While other companies may try to take market share from Nvidia, that doesn't mean that they will be able to do so overnight.

Nvidia is still in an excellent position to continue growing, but I would expect its growth rate and margins to come down a bit in future quarters, especially as companies potentially reduce AI spending due to a possible economic slowdown. Nvidia's stock may struggle in the near term, but as long you're willing to hang on for the long term, it can still make for a good buy. Still, you should brace for some challenges ahead.

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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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. David Jagielski has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, and Nvidia. The Motley Fool Australia has recommended Advanced Micro Devices, Alphabet, Amazon, Apple, 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.

Nvidia Corp (NASDAQ: NVDA) stock has been giving back some gains lately as investors have started to pull away from high-flying tech stocks. It's still at a market cap of around $3 trillion, and Nvidia remains one of the top stocks in the world, but investors are definitely more apprehensive about buying the stock these days. While its growth opportunities are plentiful, determining a fair valuation for the stock can be difficult.

Is this recent pullback in Nvidia's stock price just a temporary setback for the chipmaker, and could now be a good time to invest in the business? Or is this a sign that Nvidia's stock has finally reached a peak and that more of a decline could follow in the near future?

Is this just part of a broader tech stock slump?

A dip in price just isn't typical for Nvidia, which has been the ultimate growth stock to own over the past year and a half. Its sales have been tripling, demand continues to be strong, and analysts remain bullish on what lies ahead in the realm of artificial intelligence (AI).

In the past month, Nvidia's stock has declined by more than 3%. The Technology Select Sector SPDR Fund (NYSEMKT: XLK) has also been down more than 1% during this period, as it hasn't been just Nvidia that has seen a recent pullback — other tech stocks have also been struggling. Amazon Inc (NASDAQ: AMZN) has declined by 1.5%, and Meta Platforms (NASDAQ: META) has fallen by 1%, as has Microsoft Corp (NASDAQ: MSFT).

This recent bearishness doesn't appear to be limited to Nvidia's stock. And while these aren't huge declines, any sort of drop in value for Nvidia could ignite investor concerns, especially since this isn't a cheap stock to own.

Is Nvidia's stock too expensive?

A big reason investors haven't been too concerned about Nvidia's rising valuation up until now is that they know the company's sales and profits will soar due to a significant increase in demand for its AI chips and other data center products. In its first-quarter results for fiscal 2025 (which ended on April 28), Nvidia's net income skyrocketed from $2 billion a year ago to now nearly $15 billion. It's not too shabby for a three-month period.

That type of explosive growth can make it easy to justify paying such a steep premium for the business, knowing that the company's profits will be quite rich thanks to AI. But it's also unlikely that Nvidia will continue growing at such a high pace. In the meantime, investors still pay a hefty premium for the business.

At more than 70 times its trailing earnings, the stock is priced a fair bit higher than its 10-year average price-to-earnings (P/E) multiple of 57.

NVDA PE RATIO DATA BY YCHARTS

Investors appear to be willing to pay more of a premium for the stock than they have been in the past, but those limits have been tested in the past (back in 2021 when the P/E multiple was north of 80) before the valuation would end up coming down.

A brief drop in price isn't indicative that there will be a similar pushback now, but it's a question that many investors are likely wondering about — whether this may be the start of a much larger decline for Nvidia's soaring stock.

However, I wouldn't be overly concerned, simply because its earnings are still likely to climb far higher in the future. Even if the P/E multiple investors are willing to pay for Nvidia stock comes down a bit, an increase in the bottom line could offset that and help Nvidia's valuation rise higher in the end.

Is it too late to invest in Nvidia's stock?

I don't think Nvidia's stock has peaked simply because it's still a leader in the AI chip market. While there will be rivals down the road that will try to take some market share from Nvidia in the future, it has built up such a strong position that it could take a while before that happens. As long as companies continue to spend heavily on AI, Nvidia's results may continue to remain impressive in the foreseeable future, given its dominance in the industry.

Until there's a crack in Nvidia's armor that suggests demand is starting to waver or there's an increase in competition on the horizon, this can still make for a good stock to buy and hold right now.

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

The post Has Nvidia's stock finally peaked? appeared first on The Motley Fool Australia.

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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. 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. David Jagielski has no position in any of the stocks mentioned.  The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, 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 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.

The Magnificent Seven stocks are some of the best and brightest growth stocks investors can buy. But many of them have amassed some incredible gains over the past year and a half, pushing their valuations to levels that are concerning for many investors.

However, electric vehicle maker Tesla Inc (NASDAQ: TSLA) has been a bit of an underperformer in 2024. Year to date, it's up only 2%, and that would have been much worse if not for a recent rally.

But in the latter half of the year, this could make for an underrated investment to hang on to, and it has the potential to be the best of the Magnificent Seven stocks to buy right now.

The company's reduced valuation could set investors up for bigger gains down the road

In 2021, Tesla hit a market cap of $1 trillion as it became one of the most valuable stocks in the world. Today, its valuation is around $800 billion. Tesla usually commands a premium, and with a reduced price tag, there could be a lot more upside for the stock in the second half of the year.

Although the stock is trading at more than 60 times earnings, that's still less of a premium than what investors have paid for the business in the past.

The company may be due for some better-than-expected quarters

One reason investors have been bearish on the stock of late is due to a weak outlook for the auto business, particularly as Chinese competitors offer cheaper-priced vehicles to compete with Tesla. But the company recently reported some encouraging delivery numbers. In the second quarter, Tesla delivered just under 444,000 vehicles, which is far higher than Wall Street estimates of 420,000.

Another potential growth catalyst is its battery business. Tesla also reported that it deployed 9.4 gigawatt hours (GWh) of its energy storage products during the quarter — a new record for the business and more than double the less-than-4.1 GWh it reported in the first quarter.

Given these strong numbers, it looks probable that Tesla's upcoming quarterly numbers could be a lot better than many investors expect them to be. And it may result in upgraded guidance as well.

Investors were underwhelmed with the company's first-quarter results this year, with sales falling by 9% year over year and profits declining by 55%. An improvement on the top and bottom lines could re-energise the stock.

Tesla's robotaxi event could be a huge catalyst

Later this year, Tesla also plans to unveil its robotaxi, a driverless taxi that could unlock yet another new growth catalyst for the company. Initially, Tesla aimed to do the unveiling in August, but it has recently pushed that back until October.

Depending on how the event goes, it has the potential to be a catalyst that generates even more bullishness and excitement surrounding Tesla's stock. The driverless vehicles can revolutionize the ride-hailing industry, and if investors see them in action and they prove to be the real deal, that could definitely light a fire under Tesla's share price in the second half.

Should you buy Tesla stock right now?

Tesla has the potential to be a top growth stock to own not just in the second half of 2024 but in the long run as well. However, there is always going to be some risk with the stock, as Tesla's financial results don't always match up to the hype surrounding its business.

But it may be a risk worth taking. The stock is trading at a reduced valuation, and a lot of bearishness is already priced into its share price.

Tesla may have a lot of potential upside, and it may be the best Magnificent Seven stock to own in the latter half of the year, as it could get a huge boost from a strong quarter, and its upcoming robotaxi event could provide the stock with yet another catalyst in the second half.

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

The post Why Tesla could be the best 'Magnificent Seven' stock to own in the second half of 2024 appeared first on The Motley Fool Australia.

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

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

Billionaire investor Warren Buffett and his company Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) had their annual meeting earlier this month. As always, the event was full of insights for investors, who often mimic Buffett's investing moves. This time around, what stuck out to me wasn't what Buffett was saying or which stocks he was buying, but about what he was not doing. And that's evident through one number.

Berkshire's cash pile to top $200 billion this quarter

As of the end of March, Berkshire had $189 billion in cash and equivalents on its books, which is a record for the company. And Buffett says that figure is likely to grow even higher. "It's a fair assumption that they'll probably be at about $200 billion at the end of this quarter," he said.

Perhaps equally surprising is that Berkshire has also been reducing its position in iPhone and iPad maker Apple, selling 13% of its shares in the business. Apple, however, remains Berkshire's largest holding, accounting for approximately 40% of its overall portfolio.

Why isn't Buffett loading up on stocks?

With Berkshire's record levels of cash on hand, investors may find it odd that the billionaire investor isn't on a buying spree, especially at a time when the markets appear to be hot. It's definitely a notable development at a time when investors generally seem bullish. Year to date, the S&P 500 has risen more than 9% and has been hitting record levels of its own.

But Buffett isn't seeing great buying opportunities out there. "We'd love to spend it, but we won't spend it unless we think they're doing something that has very little risk and can make us a lot of money," he said.

Buffett is a value investor at heart and if he's not seeing much in the way of buying opportunities out there, and that should raise flags for investors. He always preaches that investors should be "fearful when others are greedy." And given the greed in the markets over the past year, it may not be a bad idea for investors to rethink which buying opportunities are actually good ones in the markets these days.

Have valuations become excessive?

The S&P 500 is averaging a price-to-earnings multiple of 27 right now. While that is higher than it has been in the past, it's below the 30 times earnings it was averaging in 2020 when meme stocks were starting to take off.

Many stocks, however, have been hot buys over the past year and are now trading at some high earnings multiples. These stocks have been the S&P 500's top performers in the past 12 months:

Data source: YCharts. Returns as of May 13, 2024.

Not only have the returns for some of these stocks become sky high, but the majority of their earnings multiples are now in excess of 40. Finding good quality stocks is becoming more challenging for investors. While a stock such as Nvidia certainly has a lot of long-term potential and that future growth may be worth paying a premium for, it also makes the stock vulnerable to a sell-off if it falls short of expectations given the high expectations that come with such inflated prices.

Now may be an optimal time for investors to reassess their positions

Buffett has trimmed his stake in Apple and taken some profits, and investors may want to consider doing the same with their own holdings. While you may not necessarily want to try timing the market, it's important to always consider valuations when buying and holding stocks because there is an opportunity cost associated with tying up money in an investment that may not be optimal.

There are many good, cheap stocks out there to buy. And unless you're incredibly bullish on a growth stock that's trading at a high multiple, you may want to consider other options. 

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

The post 1 concerning number from Warren Buffett's annual shareholder meeting that should raise flags for investors appeared first on The Motley Fool Australia.

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

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

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, Constellation Energy, and Nvidia. The Motley Fool has a disclosure policy. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway, Constellation Energy, and Nvidia. The Motley Fool Australia has recommended Berkshire Hathaway 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.

Billionaire investor Warren Buffett has been invested in stocks for decades, and has seen many presidents come and go during that time. And if you're investing for the long haul, you have to be prepared for the reality that your preferred party won't always be in power.

You don't need to get in and out of stocks depending on election results or changes in power. Buffett hasn't let that affect his long-term strategy, and investors would do well to follow a similar approach.

Buffett simply bets on America

Buffett has said in the past that politics don't necessarily weigh on his investing decisions: "I won't say if my candidate doesn't win, and probably half the time they haven't, I'm going to take my ball and go home." In general, Buffett is just bullish on America and the economy's ability to continue growing and progressing over the long term.

Presidents, after all, can serve just two terms, so unless you're investing for a shorter time frame than that, there can still be time for your investments to bounce back if policies during that stretch negatively impacted businesses in your portfolio.  

Investors should focus on fundamentals, not elections

Even if an election turns out favorably, that still doesn't guarantee that certain policies will be put in place or that certain stocks will soar. Take the cannabis industry as an example. When President Biden won the 2020 election, shares of pot stocks took off on the expectation that marijuana reform would be inevitable. In November 2020, shares of cannabis producer Tilray Brands (NASDAQ: TLRY) skyrocketed 58%.

But no significant marijuana reform has taken place since then. And now with the Republican party regaining control of the House, it may be difficult for anything to happen over the next two years. And so despite all the hype and optimism for Tilray, the stock has gone on to decline 55% since the start of Biden's term in 2021.

Investors would have been better off focusing on the company's fundamentals, which remain problematic. Tilray has consistently reported operating losses and negative cash flow from its day-to-day operations, two things that should have served as significant red flags for investors.   

Data by YCharts.

This should have served as a reason to be wary of the pot stock, as opposed to hoping that favorable election results would make up for the company's shortcomings and poor financials. After all, while a president can help create new opportunities, a company still has to be in a good position to take advantage of them should they come up, and Tilray certainly isn't.

Another example of where fears haven't lived up to reality is in the tech world, where many tech investors were concerned that a Democratic win in 2020 could have meant the breakup of companies, including Meta Platforms (NASDAQ: META), which owns Instagram, WhatsApp, and Facebook. Meta still owns all of those businesses despite what may have seemed like an unfavorable election result. While that doesn't mean a breakup won't happen in the future, it's yet another reminder of why investors shouldn't read too much into elections.

Although Meta's stock hasn't performed all that well of late and is down 60% since 2021, those losses are primarily due to the current bear market and macro conditions in the tech industry that are weighing down many stocks. But with strong fundamentals that include $26 billion in free cash flow over the trailing 12 months and a profit margin of 24%, Meta remains in good shape and may be an attractive stock for long-term investors to add to their portfolios today.  

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

The post Why Warren Buffett doesn't worry about election results 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 Jagielski has positions in Meta Platforms, Inc. 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, Inc. The Motley Fool Australia has recommended Meta Platforms, 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.

In 2020, billionaire investor Warren Buffett said Apple (NASDAQ: AAPL) is "probably the best business I know in the world." Following this sentiment, Apple is the largest stock holding that Buffett's company, Berkshire Hathaway, has in its portfolio.

That's high praise from a well known and highly successful investor, but the tech giant's stock has been declining this year. While that might worry some investors, now could actually be an opportune time to add it to your portfolio. After all, the business's fundamentals are solid and impressive despite the adversity in the economy right now. Here are four charts that help illustrate why this is a fantastic stock for investors to buy and hold.

1. Revenue has continued to grow amid inflation

One thing that never ceases to amaze me over the years is that despite its products not being cheap or even changing all that much, consumers still are continually eager to buy Apple's iPhones and other products. The company's top line has generated impressive growth, even now, with inflation testing consumers' budgets.

AAPL Revenue (Quarterly YoY Growth) data by YCharts

This resilience in the business demonstrates the brand loyalty the company enjoys and why it could continue to do well next year, even if inflation doesn't go away. If not for the impact of foreign exchange, the company's growth rate last quarter (for the period ending Sept. 24) would have been in the double digits.

Some analysts are worried that Apple's sales will decline next year, especially with production issues in China impacting iPhone shipments. And while that could happen, based on Apple's track record, I wouldn't expect to see a huge drop in revenue. It's still likely to do better than other tech companies.

2. Free cash flow has been rising in recent years

Investors should always focus on free cash flow. That can tell investors how safe a dividend is and how likely it is that a company can afford to buy back shares (which has a bullish impact on the stock) or pursue growth opportunities. In Apple's case, free cash flow has been stellar.   

AAPL Free Cash Flow (Quarterly) data by YCharts

3. High profit margin gives the company flexibility

Thanks to its high-priced products, Apple also rakes in some terrific profits, with its net margin normally at 20% or better of revenue. 

AAPL Profit Margin (Quarterly) data by YCharts

Margins like these give the company the flexibility to battle inflation and absorb the impact of higher costs without necessarily passing that off to customers in the way of price increases. 

4. Its earnings multiple is at a more reasonable valuation

Since the start of the year, shares of Apple have fallen 17%, which is about in line with the S&P 500's performance. Investors may want to consider buying the stock on the dip because, with respect to earnings, Apple is trading right around its five-year average, which may be a deal for this top growth stock.

AAPL PE Ratio data by YCharts

Apple's stock isn't trading at a huge discount by any means. But at the same time, investors could be waiting a long time if they expect a strong business like Apple's to fall much lower than where it is. A lower valuation could entice more investors to buy shares of Apple.

Apple is a safe stock to park your money in right now

A business with a strong cash position and brand loyalty, like Apple's, makes for a no-brainer type of investment. Although its yield of 0.6% isn't significant, between the buybacks and continued new iPhones, growth in Apple+, and the entire Apple ecosystem, there are plenty of reasons to be bullish on the company's future. Its fundamentals are sound and with a loyal fanbase, Apple is a safe stock to buy and hold for years. 

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

The post 4 charts that show why Apple could outperform the markets in 2023 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 Jagielski has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple and Berkshire Hathaway (B shares). 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), long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple and 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.

Warren Buffett has been a prolific investor for decades, soundly beating the markets on a consistent basis.

What's noteworthy is that he hasn't generally done it by betting on big tech or emerging growth stocks in high-risk industries. His strategy centres around safety and not about taking oversized risks.

There are two Buffett rules in particular that investors would do well to always keep in mind when buying stocks. Let's look at them both.

Never lose money

This rule is so important that even his second rule is to not forget the first one. Not losing money in the stock market can seem impossible, especially in the current bear market. Even Buffett's business, Berkshire Hathaway, has lost money on its investments in the past and has even underperformed the S&P 500 Index (SP: .INX) in some years.

The nature of the stock market is that there will always be some risk. The key takeaway from Buffett's rule is to not take unnecessary or excessive risks and that the desire to avoid losing money should guide investors to making more calculated, strategic investment decisions, as opposed to jumping onto the latest meme stock.

Stop digging

This leads to another great Buffett quote: "The most important thing to do if you find yourself in a hole is to stop digging."

In other words, if you've taken on too much stock risk and gotten yourself into a hole (e.g., your portfolio is deep in the red), the temptation may be to take on even greater risk and swing for a 10-bagger investment that gets you out of the hole. But by doing so, you could end up with even greater losses.

By minimizing losses to begin with, investors can avoid the temptation to take on excessive risks entirely. One industry where you can find many safer stocks is healthcare.

Healthcare stocks for long-term investors

Not all industries have performed poorly during the current downturn in the markets. One segment that has bucked the trend is healthcare.

Consider healthcare giant Bristol-Myers Squibb (NYSE: BMY), a top-performing stock in 2022. Year to date, the stock is up an impressive 17%, while the S&P has declined by 21%.

Bristol-Myers is a top drugmaker that has solid fundamentals. Last year, the company had three products that generated more than $5 billion in revenue for the business: Revlimid, Eliquis, and Opdivo. And they all reported positive year-over-year growth of at least 6%.

The healthcare company has grown, in part, via acquisitions and in 2021 reported revenue of $46 billion -- more than double its $23 billion tally in 2018. It has also posted free cash flow of at least $13 billion for two consecutive years.

Another top healthcare stock that has performed reasonably well this year is Johnson & Johnson (NYSE: JNJ). Year to date, its shares are flat, but that would still satisfy Buffett's first and second investing rules by avoiding losses.

The popular drug manufacturer and medical device company recently reported encouraging earnings numbers.

Sales totaled $23.8 billion for its most recent quarter (ended in September) and rose 1.9% year over year. The business expects to generate operational sales growth, which excludes the impact of acquisitions/divestitures and translating foreign currency, of up to 7.2% this year.

These businesses are safe and are excellent examples of the types of companies to invest in if your priority is to avoid losing money.

Over the past decade, Bristol-Myers and Johnson & Johnson have generated total returns (which include dividends) of 190% and 213%, respectively. That's not far from the S&P 500 total returns of 223% over that time frame. And if the recent trends continue, the two healthcare stocks could continue to shrink that gap.

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

The post Two Warren Buffett rules you should never forget 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 Jagielski has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and recommends Berkshire Hathaway (B shares) and Bristol Myers Squibb. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Johnson & Johnson and recommends 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 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.