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

Like the internet was 30 years ago, artificial intelligence (AI) is the next major technological shift that will reshape the economy. That also makes it a generational opportunity for investors to accrue wealth by buying and patiently holding the right growth stocks. Research from Morgan Stanley projects that AI could deliver operating efficiencies worth as much as $40 trillion to the global economy over the long term. 

Investors don't need to gamble on unproven companies and excessively risky stocks for the chance to profit from this trend. Simply sticking with leading tech stocks could help you achieve market-beating returns. After all, it's the world's largest and most profitable companies that are doing much of the work involved in enabling the wider adoption of AI. To position your portfolio to profit from this opportunity, I suggest adding shares of these two tech titans that will likely still be leading their respective industries 20 years from now. 

Nvidia

For those seeking to profit from the AI trend over the past few years, Nvidia (NASDAQ: NVDA) has been one of the best stocks to own, and the company's innovation and financial fortitude should keep it in the driver's seat. Its high-end graphics processing units (GPUs) are used by all the leading cloud infrastructure providers, and those data center GPUs are sold out for the foreseeable future.

Nvidia's data center revenue surged by 66% year over year last quarter to $51 billion. This high-growth trajectory reflects a long-term transition from traditional computing that relies more on central processing units (CPUs) to accelerated computing that demands massive quantities of parallel processors such as GPUs.

The good news for investors buying Nvidia stock today is that this transition will unfold over many years. Capital spending on AI infrastructure is expected to grow from $600 billion in 2026 to at least $3 trillion by 2030. This massive buildout portends significant growth for Nvidia.

Nvidia will have to continue innovating to maintain its lead over other semiconductor companies that are designing chips to handle AI workloads. However, in recent years, it has accelerated its pace of innovation, moving to a cadence of introducing new and better GPU architectures annually. That continually pushes its chips' performance to new levels, and will make it difficult for competitors to keep up. It is already preparing to launch its Vera Rubin chips in 2026 -- those will deliver significant performance improvements over its current Blackwell generation.

Facilitating Nvidia's steady innovation is its financial fortitude. It's one of the most profitable companies in the world, with net profits of $99 billion over the last four reported quarters on $187 billion in revenue.

In a world where AI is increasingly driving everything, Nvidia looks likely to remain a solid investment for the next 20 years. It is investing in solutions that will underpin the future economy, such as robots, autonomous vehicles, and AI agents. Analysts expect the company to experience 37% annualized earnings growth over the next few years, pointing to substantial returns ahead for shareholders.

Alphabet

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) delivered market-beating returns for investors over the last decade, driven by strong growth in advertising through Google Search and YouTube. The stock climbed 700%, but the next decade could see more returns as demand for AI and cloud computing takes off.

The stock rocketed to new highs in 2025 as investors started to recognize Google as a leader in AI, but that was likely just the beginning. Google Gemini is one of the most capable AI models, and it's being layered into all of Alphabet's services, including enterprise tools in Google Cloud. Revenue from its cloud segment increased 34% year over year in the third quarter.

Alphabet just surpassed $100 billion in quarterly revenue for the first time, as AI features are driving Google Search usage higher. The Gemini app has over 650 million monthly active users, making it the second-most-used AI model behind ChatGPT.

The company is benefiting from profitable revenue streams across its diverse business lines, including online advertising, subscription services (e.g., YouTube TV and Google One), and cloud services. This will support the hiring of top AI engineers and an expanding base of data centers that will help it maintain its leadership in AI.

The company was on course to spend more than $91 billion on capital expenditures in 2025, and plans a significant increase from that in 2026. It can cover those outlays through its operating cash flow, which totaled $151 billion over the last four reported quarters. These investments are strengthening its competitive position, paving the way for compounding returns for investors over the long term.

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

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John Ballard has positions in Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet and Nvidia. The Motley Fool Australia has recommended Alphabet and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

Tech stocks have experienced choppy trading patterns in recent weeks. However, the long-term outlook for top companies in the sector continues to position investors for excellent return potential.

The tech-centric Nasdaq Composite has returned 90% over the last five years, outperforming the S&P 500 and Dow Jones Industrial Average. Artificial intelligence (AI) has been a significant catalyst for the growth of the largest tech companies over the last few years, but it's just getting started.

The following AI stocks are excellent options to profit from the growth of this revolutionary technology. 

1. Advanced Micro Devices

Leading tech companies will continue to invest in advanced computing hardware until AI surpasses human intelligence. That's where the world is heading. The stakes are enormous, but to achieve this, these companies will need significantly more computing power. This is why investors should consider investing in Advanced Micro Devices (NASDAQ: AMD).

AMD has navigated through a slump in its growth over the past few years, but the investments it has made to catch up in the AI chip market are starting to pay off. Revenue grew 36% year over year in the third quarter, reaching $9.2 billion. It also reported a 30% year-over-year increase in adjusted earnings per share and record free cash flow, demonstrating how AMD is profitably scaling its business.

It's just getting started. The company is driving this accelerating growth by offering a superior cost-performance balance compared to competing chips. Its fifth-generation Epyc central processing units (CPUs) for servers continue to gain market share on Intel, while its MI300 series of graphics processing units (GPUs) are valued for their efficiency in handling AI inference workloads.

The launch of the MI450 GPU next year is expected to drive record revenue. OpenAI is slated to purchase a large cluster of MI450s in the second half of 2026. This is part of a long-term agreement that will make AMD a key strategic partner for the owner of ChatGPT.

These deals indicate further growth for AMD that could deliver substantial returns for investors. Analysts are currently projecting annualized free-cash-flow growth of 66% through 2029. This is why the stock rocketed to new highs and could offer significant upside.

2. Meta Platforms

Meta Platforms (NASDAQ: META) has over 3.5 billion people using its services daily, with more than 3 billion on Instagram alone. Meta is making these services even more profitable and engaging for users by leveraging AI. With substantial resources to expand its data center capacity, Meta is building an unstoppable competitive advantage around its tech infrastructure.

Its third-quarter financial results were outstanding, with revenue up 26% year over year. Its ad revenue is generating a significant operating margin of 43% on a trailing-12-month basis, contributing to $44 billion in free cash flow.

Meta has made improvements to its ad technology, where AI is driving better efficiency and more relevant ads shown to users. AI-driven ad tools are generating over $60 billion annually, accounting for approximately a third of the company's total revenue.

The stock is down 20% since the third-quarter earnings report, primarily due to the company's plan to accelerate capital spending over the next year. This is expected to put pressure on margins and profits. However, the additional GPUs and compute capacity will further expand its AI capabilities, potentially leading to lucrative opportunities to generate more profits in the future.

These investments will strengthen Meta's long-term competitive moat and potentially lead to the development of new AI-driven services. There is considerable long-term upside for Meta that is not fully reflected in its current valuation. The stock is trading at just 20 times 2026 earnings estimates, which appears to be a bargain for a leading tech company.

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

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John Ballard has positions in Advanced Micro Devices. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Advanced Micro Devices, Intel, and Meta Platforms. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: short November 2025 $21 puts on Intel. The Motley Fool Australia has recommended Advanced Micro Devices 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.

Microsoft (NASDAQ: MSFT) is one of the largest companies in the world, with a market cap of $3.81 trillion at the time of writing. Despite the company being around for a long time and creating tremendous wealth for shareholders, the stock is still showing the potential to deliver market-beating returns.

The stock is up about 23% year to date, roughly matching the return of the Nasdaq Composite. It has outperformed the Nasdaq over the last three- and five-year periods. One reason it's not too late to expect the stock to deliver superior returns is the accelerating growth in its cloud business. 

Microsoft's cloud business is booming

Microsoft's cloud revenue reached $49 billion last quarter, up 26% year over year. This made up 63% of its total business. The Azure enterprise cloud platform is experiencing impressive demand for artificial intelligence (AI) services. Azure's revenue was up 40% year over year, a slight uptick over the previous quarter's 39% growth rate.

Azure's momentum is very telling about the broader demand for AI. Microsoft posted this growth despite having limited data center capacity relative to demand. This means Microsoft left some revenue on the table. However, investors can see the demand across its cloud offering through its remaining performance obligations, which grew 50% year over year to almost $400 billion.

This echoes similar strength in demand from other cloud companies. This reveals that Microsoft's cloud business could see accelerating growth as it adds more data center capacity, which is fuel for the stock in 2026. Microsoft is one of the top cloud service providers, putting it in a solid position to capitalize on growing demand for AI and reward shareholders over the next decade.

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

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John Ballard 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 Microsoft. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Microsoft. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

It's no secret that buying and holding shares of high-growth companies can help you earn outstanding returns in the stock market. This approach usually requires you to spread your portfolio across many stocks to protect yourself in the event a company fails to live up to expectations.

However, in recent years, the most dominant and profitable tech companies in the world have also been some of the best growth stocks to buy and hold for wealth-building returns. Their vast resources and leading technology have fostered innovation in emerging opportunities like artificial intelligence (AI) and robotics.

With that in mind, the stock I would consider buying for the next five years is Amazon (NASDAQ: AMZN).

Why take chances on up-and-comers when you can beat the S&P 500 with Amazon?

If you look at Amazon's most recent quarterly sales growth, it's not impressive. Growth for its largest business, e-commerce, has slowed in recent years, bringing Amazon's total sales growth in Q1 to just 9% over the year-ago quarter. The stock has even underperformed the S&P 500 over the last five years, but it's easier to see where Amazon is headed by looking at its performance since 2022, when shares have more than doubled. There are good reasons why Amazon can continue climbing through 2030 and outperform the market.

First, the company is still delivering double-digit growth in businesses that generate high margins and fuel strong earnings. The billions of people visiting Amazon.com every month are turning into a lucrative opportunity in advertising. Revenue from advertising services grew 19% year over year last quarter, generating $58.3 billion of high-margin revenue for Amazon over the last year.

Amazon Web Services (AWS) is the leading enterprise cloud services provider. Custom AI chips and cutting-edge tools are helping client companies develop and build AI applications, driving incredible growth. AWS generated $111.8 billion in trailing-12-month revenue and grew 17% year over year last quarter.

Strong growth from advertising, cloud computing, and other non-retail services is improving Amazon's overall margin profile, which will be a key catalyst for market-beating returns over the next five years. But this is only part of the reason why Amazon's earnings jumped 62% last quarter.

Is robotics Amazon's next monster growth opportunity?

Amazon's more than 200 million Prime members may not realize many of their recent orders were picked and handled in a warehouse by a robot. While Amazon still employs thousands of humans, it has rolled out over 750,000 robots across its fulfillment centers since 2012. This is playing a key role in lowering costs and speeding up order processing in the retail segment.

The company is just getting started with robots too. As AI technology advances, so do the types of robots Amazon can use. Its Vulcan robot can sense the exact level of pressure to apply to an item to avoid damaging it. The arrival of humanoid robots that can walk and use synthetic hands for more intricate tasks could significantly increase productivity and lower costs for Amazon in the next decade or so.

Amazon has been testing its most advanced robotics technologies in its new fulfillment center in Shreveport, Louisiana. Management noted earlier this year that it was very encouraged by what they were seeing in terms of improving speed, lowering costs, and increasing efficiency. As these improvements roll out to more facilities, investors should see Amazon continue to expand its profit margins.

That said, investors shouldn't expect Amazon's earnings to grow in a straight line since it is also investing heavily in data centers and other infrastructure to support growth across its business, and such spending could result in lumpy profitability. But analysts currently expect Amazon's earnings to grow 16% annually over the next several years.

A leading tech stock at a reasonable valuation

Whether you look at price to sales, price to cash flow, or price to earnings, Amazon continues to trade within its historical valuation range and well below peak levels from the past few years. This suggest that investors may be overlooking Amazon's opportunity in areas like robotics, given how rapidly AI is advancing.

With this wide-moat business combining strong growth in high-margin businesses like advertising and cloud services with an improving cost structure thanks to AI and robotics, Amazon is a no-brainer stock to buy and hold for the next five years and more.

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

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard 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. 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.

The "Magnificent Seven" includes some of the most profitable and dominant tech companies in the world. These are financially strong companies with a long history of delivering market-beating returns for shareholders, which is why they have earned the label "magnificent."

The most recent quarterly Form 13Fs revealed two notable fund managers buying more shares of Microsoft (NASDAQ: MSFT) and Amazon (NASDAQ: AMZN) in the first quarter. Let's explore why these billionaires may favor these stocks in 2025.

1. Microsoft

One of the most widely held stocks by investment managers is Microsoft. Billionaires Stephen Mandel of Lone Pine Capital and Chase Coleman of Tiger Global Management have held large stakes in Microsoft for several years, and both investors were buying more shares in the first quarter.

One reason that may explain why billionaire fund managers like Microsoft right now is the momentum in the company's cloud computing business. Revenue from Microsoft Azure grew 33% year over year in the first quarter, accelerating over the prior quarter's 31% growth rate. "We continue to see strong demand for our cloud and AI offerings as they help customers drive productivity, increase efficiencies, and grow their businesses," Microsoft CFO Amy Hood said.

Microsoft Azure is one of the top cloud services providers, and it is building a solid competitive advantage. It continues to expand its data center capacity worldwide. This is helping Azure offer superior regional availability for companies using popular enterprise software vendors like Oracle and SAP.

Microsoft has certainly lived up to its label as a Magnificent Seven stock. Its dominance in the software market with Windows and Office has made it one of the most profitable companies in the world, and its growth opportunity in cloud services points to a bright future. Over the last five years, its revenue and earnings per share have roughly doubled, sending its stock higher.

However, Microsoft will need to prove to investors that it can translate booming demand for cloud services into higher profits down the road. The capital required to build these data centers has weighed on the company's margins and earnings growth over the past year. On that note, Microsoft came through last quarter, delivering year-over-year earnings growth of 18%.

The stock traded as low as 26 times this year's earnings during Q1, when Lone Pine Capital and Tiger Global may have been buying shares. The current forward earnings multiple of 34 is at the high end of the stock's previous trading history. Investors may want to wait for a better price before opening a position. But more results like Microsoft posted last quarter could support new highs.

2. Amazon

Stephen Mandel and Chase Coleman also bought more shares of Microsoft's competitor in the cloud market. Amazon dominates the e-commerce market while also operating the leading cloud business with Amazon Web Services. There are a few reasons why these investors like Amazon.

Like Microsoft, Amazon Web Services (AWS) has seen strong demand for cloud services. Revenue from AWS accelerated over the past year and grew 17% year over year in Q1. AWS is now generating trailing-12-month revenue of $112 billion, or 19% of Amazon's business.

Demand for AI-related services has been growing at triple-digit rates. Amazon is leading the cloud market for similar reasons to why it dominates the U.S. e-commerce market. It is focused on making AI more affordable for businesses by offering its proprietary AI chips, such as Trainium3, that help reduce costs. It also offers tools for building AI applications, such as Amazon Bedrock.

Perhaps the most important reason billionaires are buying Amazon shares is that it is growing profits at high rates. Amazon's earnings per share grew 62% year over year in Q1. This primarily reflects cost-saving measures, such as the use of robotics in warehouses to streamline Amazon's retail operation.

Amazon has a strong competitive advantage based on over 200 million Prime members, a delivery network, and data center infrastructure to support growing cloud demand. While Microsoft Azure is growing faster than Amazon Web Services, the cloud market is growing around 20% year over year. The insatiable demand for AI services is a rising tide that can lift all boats.

On the basis of Amazon's operating cash flow, the stock is trading at a multiple of 19, which is at the lower end of Amazon's trading history. Barring a sudden downturn in the stock market, investors should expect Amazon's stock to deliver solid returns in 2025 and beyond.

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

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard 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, Microsoft, and Oracle. 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 and Microsoft. 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 Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) are down 12% so far in 2025. The Google owner is underperforming the Nasdaq Composite, which has rallied in recent weeks and is only down about 1% year to date at the time of writing.

At first glance, the stock appears to be a no-brainer buy. This is one of the largest and most profitable companies in the world, with a very strong brand in Google. But some investors are questioning Google's competitive position, especially in search. More people seem to be using OpenAI's ChatGPT and other leading artificial intelligence (AI) models as a substitute for Google Search.

We'll explore what this means for Google. But I believe investors could be greatly underestimating the company's AI capabilities.

Google Search is facing a new level of competition

Top AI models like OpenAI's ChatGPT and xAI's Grok could be pulling users away from Google Search, since these models can be used as search engines. Alphabet stock fell sharply earlier in May after reports surfaced that Apple experienced a decline in Google Search volumes through its Safari browser for the first time in April, which Apple is blaming on AI.

Perplexity is one model that has taken a big step to compete with Google. It has a partnership with Shopify that allows users to buy products they find while using Perplexity. Shopify could reach a similar deal with OpenAI. This is a real risk for Google, since Search is widely used by people when shopping online.

Adding fuel to the negative sentiment around Alphabet, its first-quarter earnings report showed that paid clicks for the ads displayed in search results grew just 2% year over year, compared to 5% in the year-ago quarter. This is not what investors want to see, given that Search revenue comprised 56% of the company's total revenue last year.

But Google's AI is second to none

One problem with the market's reaction to the report about Apple is that Safari search volumes don't paint a complete picture of Google's competitive position. Google Search has over 2 billion users making over 5 trillion searches annually. Alphabet was quick to offer more detail for investors following the news on Apple. "We continue to see overall query growth in Search," the company said, while also noting: "That includes an increase in total queries coming from Apple's devices and platforms."

Alphabet's competitive position could be much stronger than investors realize. Google's Gemini is currently ranked the top AI model on Chatbot Arena's leaderboard. It scores very high in areas like science and mathematics, and also scores well in using a large amount of information at once. Gemini is powering the AI features across the company's products, including AI Overviews in Search, which has 1.5 billion monthly users.

While the 2% increase in paid clicks showed some softness in the advertising business, Alphabet's first-quarter financial results were solid. Revenue grew 14% year over year on a currency-neutral basis. CEO Sundar Pichai credited the strong results to Google's "unique full-stack approach to AI," which refers to the comprehensive solution it offers businesses wanting to use AI, such as hardware, software, and cloud services.

Why the stock is a buy

The heart of Google's advantage lies in its data centers and AI infrastructure, including its proprietary AI chips, or Tensor Processing Units. It's one of the leading hyperscalers (data center operators), and that positions the company for more growth as more businesses invest in cloud and AI services. Google Cloud's revenue surged 28% year over year last quarter to an annual run-rate of $49 billion.

Despite the increased competition in search, the stock appears undervalued. It's trading at just 19 times earnings -- a steep discount to the S&P 500 average of 28.

Despite near-term pressure on margins due to AI investments, analysts expect the company's earnings to grow at an annualized rate of nearly 15% in the coming years, which could potentially double an investment in Google over the next five years.

Investors should take the threat from ChatGPT, Perplexity, and other AI model makers seriously. A significant loss in users could hurt Google in the long run. However, there are not just 2 billion users in Search. Google has 2 billion users across seven services. Its ecosystem, including Gmail and YouTube, still gives the company a strong competitive advantage that could be nearly impossible for competitors to supplant.

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

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Ballard 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, Apple, and Shopify. The Motley Fool Australia has recommended Alphabet, Apple, and Shopify. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

Amazon (NASDAQ: AMZN) is known for its online store, but its investments in cutting-edge technologies like cloud computing and artificial intelligence (AI) are future-proofing the business for tomorrow's economy.

While tariffs, inflation, and soft consumer spending could weigh on Amazon stock in the near term, there are three reasons it's a no-brainer buy for a long-term investor right now.

1. Amazon is a growth machine

The global e-commerce market is massive, valued over $6 trillion and growing, according to eMarketer. This still gives Amazon a lot of opportunity for long-term growth, but investors should think of Amazon as more of a tech-driven, services business.

Despite Amazon's dominant position in the U.S. e-commerce market, online retail sales only account for 42% of its business. The majority of its revenue comes from various services, including cloud computing (Amazon Web Services), online advertising, subscriptions, and third-party fulfillment services. These revenue streams are growing much faster than Amazon's online store, increasing 15% to reach $370 billion in 2024.

Analysts project Amazon's total revenue to reach $847 billion by 2027, which will be driven by growing demand for Amazon Web Services and retail media advertising on Amazon's online store. These lucrative opportunities explain why investors place such a high value on Amazon's business, with its market cap (share price times total shares outstanding) currently sitting at over $2 trillion.

2. Technology is strengthening Amazon's business

Cloud services and AI are shaping Amazon's future. Amazon Web Services (AWS) is the leader in the cloud market, with $107 billion in trailing revenue. This is Amazon's fastest-growing business, with AWS revenue surging 19% year over year in Q4 2024.

The AI capabilities Amazon built for its cloud business are also benefiting its e-commerce operation. Since Amazon's acquisition of Kiva Systems in 2012, it has deployed over 750,000 robots across its operations. Its Sequoia robotics system uses AI and computer vision to more efficiently manage inventory and process orders. Faster order processing means higher inventory turnover, happy customers, and more sales opportunities.

Amazon's technology investments are fueling innovations behind the scenes that are ultimately strengthening its competitive advantage and growing the value of the business for shareholders. This is evident in the explosive growth of Amazon's net income and operating cash flow.

3. Wall Street is undervaluing Amazon's growing cash flow

The company's net income nearly doubled last year to $59 billion. This brings the stock's price-to-earnings multiple down to 35, which might look expensive, but it seems about right for a company with attractive prospects in cloud computing and AI.

Perhaps a better way to gauge the value of the stock is looking at Amazon's growing cash flow from operations. Other than a dip in 2021, cash from operations (CFO) has steadily grown over the last 10 years. it grew 36% to reach a record $115 billion last year. This has brought the stock's price-to-CFO multiple down to 18, well below its 10-year average multiple of 27.

The stock could climb 50% by returning to its previous average valuation multiple on a CFO basis. Cost reduction efforts in Amazon's retail business are providing more cash for management to invest in data centers and AI to stay on the cutting-edge of technology. Amazon seems unstoppable, and the stock's valuation looks very attractive to start a position 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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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. John Ballard 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. 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.

Over the last few years, Nvidia (NASDAQ: NVDA) benefited enormously from the increased investment in chips for artificial intelligence (AI), but news out of China is causing investors to wonder if the stock's high valuation is worth it ahead of potential risks to the massive investment big tech companies have put into data center infrastructure.

We'll look at potential pitfalls for Nvidia in the new year, before considering why Advanced Micro Devices (NASDAQ: AMD) might be a better buy right now.

Growth is starting to slow

When OpenAI released ChatGPT in 2022, companies started spending billions on GPUs to train AI models. Nvidia led the market for graphics processing units (GPUs), so it was the right company at the right time to deliver monster returns to investors.

In 2023, Nvidia's revenue and share price soared. In two years, grew into a very large company with trailing-12-month revenue of $113 billion. It's naturally going to get more challenging to keep growing at high rates with such large revenue figures.

Analysts still expect revenue to grow 52% in calendar 2025, according to Yahoo! Finance -- about half the rate it delivered over the past year. One risk that could cause the company to fail to meet those estimates is supply chain constraints limiting the production of its new Blackwell computing platform, which starts shipping this quarter.

Nvidia reported robust demand for its H200, which could pick up the slack until Blackwell revenue kicks in. But investors should be aware that Nvidia needs operators of data centers to keep spending more money every year in order to sell more chips, and there are questions about how sustainable this spending will be in the next few years.

Could China's DeepSeek be the catalyst for less spending?

China's DeepSeek says its AI model can perform on par with the best models from American AI companies, including OpenAI's ChatGPT, but the catch is that it cost less than $6 million to develop, which is incredibly cheap in the world of AI research. While there are analysts raising doubts about the start-up's claims, investors worry that big tech companies may start looking for ways to do more with less, as DeepSeek claimed it did. Since Nvidia is the leading GPU supplier for data centers, lower spending would have a direct impact on Nvidia's growth.

The data center market previously experienced cycles in growth that hurt Nvidia's business and sent the stock down a few times in the last 10 years. Big tech companies spent billions on data centers over the last few years, and there's a risk of too much investment leading to a surplus of computing capacity. That boom could lead to a corresponding downturn in data center spending, which would hurt Nvidia's bottom line.

All said, everything has to go right to justify the stock's valuation, which even after the recent dip on the DeepSeek news is still expensive at a forward price-to-earnings multiple (P/E) of 42. However, investors don't have to take on that risk when Nvidia's GPU competitor is trading at a much lower valuation.

More growth for half the price

AMD stock returned nearly 5,000% over the last 10 years and has more than doubled in the last five. The stock is trading at a lower P/E than Nvidia but offers comparable growth potential based on analyst estimates. It faces the same risk as Nvidia, but AMD's revenue from data center GPUs is expected to total just 20% of its total revenue this year. What's more, the stock's lower valuation offers a better risk-to-reward ratio.

Data by YCharts; PE = price to earnings, EPS = earnings per share.

There's one advantage for AMD that might give it an edge over Nvidia, and that's the company's focus on designing its GPUs for AI inferencing. AI training helps models digest mountains of data; inferencing is the process that allows AI models to process new information and make decisions in real time, which is essential for self-driving cars and AI agents.

AMD's MI300X chip has been used by Microsoft for its Azure cloud business, but the chipmaker says its new MI325X version delivers up to 20% higher performance for AI inference than Nvidia's H200.

AMD could be in a solid position to see tremendous growth for its data center GPUs in the coming years, and investors can buy the stock at just 24 times this year's earnings estimate. That is almost half the earnings multiple investors are paying for Nvidia shares, yet analysts expect AMD's earnings to grow over 44% annually over the next few years -- higher than the 38% they expect Nvidia's earnings to grow per year.

Given the high expectations built into Nvidia's share price ahead of near-term risks that could send the stock down, AMD stock seems a better bet. If data centers continue their rapid pace of investment in AI hardware, AMD could outperform its top rival. But if data center spending on GPUs slows down, AMD's lower P/E multiple will soften the blow, while the company could still see strong growth in other chip products, including central processing units (CPUs) for PCs.

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

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John Ballard has positions in Advanced Micro Devices and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Advanced Micro Devices, 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 Advanced Micro Devices, 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.

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

If you want to invest like a billionaire, you have to be willing to buy shares when a company is experiencing temporary problems. It's only when the near-term outlook is gloomy that you can invest in a great business below what it's worth.

Pershing Square's Bill Ackman and Berkshire Hathaway CEO Warren Buffett have executed a value-based strategy to amass multi-billion-dollar fortunes. While Wall Street chases hot tech stocks, Ackman and Buffett are finding great value in these top retail brands. Let's see perhaps why.

1. Nike

Pershing Square disclosed a portfolio of U.S.-based stocks worth $10 billion in the second quarter. It added two new stocks to the portfolio, including Nike (NYSE: NKE). Ackman's investment strategy involves buying stakes of large, profitable companies when they are on sale, and Nike certainly fits the bill. It dominates the sportswear market with $51 billion in trailing revenue -- and footwear generates two-thirds of that amount.

Nike didn't get to where it is today without plenty of ups and downs over the past 50 years. For an apparel business, revenue can falter during economic recessions or periods of soft consumer demand. High inflation and interest rates have taken a toll on the consumer over the last few years, and Nike felt the sting. The company's revenue fell 2% year over year in the May-ending fiscal fourth quarter.

Management is calling fiscal 2025 a transition year as it repositions itself for long-term growth.

Ackman's purchase is timely. Nike stock is trading at its lowest price-to-earnings (P/E) multiple since 2017. Before the recent revenue decline, Wall Street analysts were expecting Nike to grow earnings at double-digit rates over the long term. Nike can still achieve that pace.

Importantly, most of Nike's problem stems from its lifestyle products. Revenue from performance products, such as running and basketball shoes, grew at healthy rates in the quarter. Demand for fitness products was a positive contributor to the apparel business, and management likes the specific opportunity it sees in women's apparel.

The global sports apparel market is expected to reach $293 billion by 2030. That's an incremental increase of $70 billion over 2023, which is greater than Nike's annual revenue. As a leading brand with a large marketing budget, Nike will undoubtedly grow again, so buying the stock at these lower share prices could pay off handsomely in five years.

2. Ulta Beauty

Warren Buffett's company disclosed a new stake in leading cosmetics retailer Ulta Beauty (NASDAQ: ULTA) last quarter. It's another example of a great investor pouncing on an opportunity to buy an industry-leading business at a fire sale price.

The beauty industry was booming coming out of the pandemic, and it's forecast to grow over the next several years. As an industry leader, Ulta has a competitive advantage based on a wide selection of products across salon styling, skincare, fragrance, and cosmetics. It operates over 1,400 stores that are strategically positioned in high-traffic areas.

The company delivered annualised revenue growth of 15% over the past 10 years, with earnings clocking in at a robust 23% per year, which speaks to the opportunities for this leading retailer to expand and gain market share. However, comparable-store sales fell 1% year over year in the recent quarter, sending the stock down 31% off its previous high.

The strong growth in the beauty market over the last few years has brought more competition. Management noted there are more places to buy beauty products, with over 1,000 new points of distribution opened in the last few years. This has pressured Ulta Beauty's market share.

Still, Buffett or one of his investing deputies is clearly focusing on Ulta Beauty's brand and ability to use that advantage to regain market share. It starts with Ulta's loyalty program, which grew 5% year over year last quarter to 43.9 million members. Offering more value through its loyalty program is a big opportunity for Ulta Beauty to navigate the near-term headwinds in consumer spending and come out on top over the next few years.

The stock currently trades at a forward price-to-earnings ratio of 16 based on next year's earnings estimate. Ulta has tremendous long-term potential. It generates just $11 billion in annual revenue in an industry expected to reach $129 billion by 2028, according to Statista. The stock can deliver excellent returns from here.

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

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

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John Ballard has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway, Nike, and Ulta Beauty. The Motley Fool Australia has recommended Berkshire Hathaway and Nike. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

Shares of Amazon (NASDAQ: AMZN) were down 3.5% as of 11:16 a.m. ET on Wednesday following a disappointing earnings report from Google parent Alphabet after the market close on Tuesday.

Investors have high hopes that the recent spending push for artificial intelligence (AI) technology can drive strong growth for the cloud computing leaders, including Amazon. While Alphabet's report disappointed, a strong report from Microsoft's cloud business suggests the opportunity is starting to ramp up.

Here's why Wall Street soured on Amazon today

Amazon's cloud services business (Amazon Web Services) has nearly doubled its annual revenue from 2020 through 2022. The business made up 16% of the company's total revenue in the second quarter. But growth has slowed this year as customers tighten spending in an uncertain macro environment. This dynamic is still affecting Google Cloud's growth.

Alphabet's third-quarter earnings report showed that companies are still reluctant to spend big on cloud services in an uncertain business environment. Google Cloud's year-over-year (YOY) growth decelerated to 22% from 28% in the previous quarter.

However, Microsoft Azure posted strong growth of 29% YOY, which suggests the bull case is still alive for the cloud leaders.

Why Amazon stock is still a buy

Long-term investors shouldn't be concerned about near-term demand trends in cloud spending. Comparing growth rates from one quarter to the next just creates confusion and noise that doesn't matter in the grand scheme of things. Investors should be encouraged because it is still early days for the cloud market, especially as companies are just starting to figure out how to use AI with their data.

As the leader in cloud services, Amazon Web Services has a huge amount of data that customers will want to use with AI applications. That spells a big opportunity for Amazon over the long term. 

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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet and Amazon. The Motley Fool Australia has recommended Alphabet and Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

What happened

Shares of Tesla (NASDAQ: TSLA) were up by more than 3% soon after the market opened Tuesday, but as of 1 p.m. ET, the shares were up by about 0.8%. The stock moved higher after a Reuters article reported that the electric vehicle leader could begin mass production of its Cybertruck by the end of 2023. 

Also boosting Tesla's stock price was a report Monday from JPMorgan Chase's top market strategist predicting that the Federal Reserve could be nearly finished with its interest rate hikes. Rising interest rates have weighed on tech stock valuations throughout 2022, and Tesla is down 35% year to date. 

So what

CEO Elon Musk previously said that the Cybertruck could be the company's "best product ever." He originally unveiled the vehicle in 2019, but delays have pushed back its production. On the third-quarter earnings call in October, Musk said the company was in the "final lap" with the Cybertruck. 

The matter of securing enough batteries had been one concern as the company looked to manufacture the truck at production scale, but Musk said in January that batteries likely wouldn't be the limiting factor. Instead, he noted, the main issue was that it would "take some time to work through" all the advanced technology going into it. He also pointed to the challenge of making the vehicles available at affordable prices. It appears Tesla may have solved those issues.

Now what

Musk wants his company to manufacture at least 250,000 Cybertrucks per year, but it will take time to bring production up to that level. For perspective, Tesla produced more than 1.2 million vehicles over the last four quarters across its four currently available models. 

The arrival on the market of perhaps the most highly anticipated vehicle in years, along with plateauing interest rates, could be huge catalysts for the top electric vehicle maker in the near term. 

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

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John Ballard has no position in any of the stocks mentioned. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended JPMorgan Chase and 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.

What happened

Shares of Meta Platforms (NASDAQ: META) were trading down 22% at 11:35 a.m. on Thursday after the company delivered third-quarter financial results. The social media giant beat the Street's revenue estimates but missed on earnings. 

Based on analysts' comments following the earnings report, the problem is not so much the weak numbers as management's plan to continue aggressively investing in growth initiatives, such as the metaverse, instead of firming up the bottom line.

So what

After posting a 1% year-over-year increase in revenue last quarter, Meta saw revenue decline 4% this quarter. Wall Street is looking at the slowing economy and advertising market, which is what social media companies use to make money, and not seeing much growth over the next year. That's why the stock is down 70% this year, in a nutshell.

The stock would probably be holding up much better if management were prioritizing profits over investments in artificial intelligence and the metaverse. But that's not the way CEO Mark Zuckerberg runs the company, and a long-term investor shouldn't want it any other way.

Instead of pulling back, the company said it would spend up to $33 billion in capital expenditures next year, which is roughly the same as previous guidance. Wall Street didn't want to hear that, especially after earnings per share (EPS) fell 49% year over year in the quarter.

Now what

On the earnings call, Zuckerberg mentioned that engagement trends have been positive across the family of apps, including Instagram and WhatsApp. He also noted the company can still "meaningfully" grow operating income over the long term, while still making investments in AI and Reality Labs (e.g., the metaverse and virtual reality).  

The stock was already cheap on a price-to-earnings basis going into earnings, and now it's 22% cheaper. What's certain is that with over 3 billion monthly active people across the family of apps, Meta is not a worthless company. Revenue growth will pick up in a healthier economy, when advertisers will feel more comfortable opening up their wallets.

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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John Ballard 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, 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.

What happened

Shares of Tesla (NASDAQ: TSLA) were up as high as 4.8% this morning before cooling off by the afternoon. By market close, the stock had still managed to hold a 0.38% gain on the day, slightly trailing the broader market. Year to date, the stock has fallen 37%.

Wolfe Research released its findings on the potential impact of the electric vehicle incentives included in the Inflation Reduction Act. Plus, Tesla is looking to add almost 7,000 jobs, despite weakening auto sales across the industry year to date.

So what

Wolfe Research analyst Rod Lache said that the Inflation Reduction Act (IRA) could benefit the larger EV makers such as Tesla. A week ago, Goldman Sachs labeled Tesla and General Motors as its favorite picks in the auto space due to the catalysts with the IRA.

It's also a positive indicator for Tesla's near-term demand that it is looking to hire thousands of employees. The job listings reportedly represent a 50% jump from June. Most of the job openings are spread across its factories in the U.S., with over 200 openings listed for its China factory in Shanghai.

Now what

Tesla said that it delivered over 343,000 vehicles in the third quarter, which missed estimates and sent the stock down at the start of October. Investors initially saw the delivery miss as a sign that Tesla's demand was plunging with the rest of the industry.  But it noted that there were cars still in transit at the end of September that skewed the delivery total downward.

Investors will get more clarity on demand when Tesla reports third-quarter results on Wednesday 19 October.

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

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John Ballard 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 Goldman Sachs and 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.

What happened

Shares of Apple Inc. (NASDAQ: AAPL) started Tuesday's trading session up 2.6% before giving back some of those gains later in the morning. By market close, the Apple share price was sitting 0.66% higher. Worries over higher interest rates and the economy have sent Apple shares down by around 17% year to date.

There were reports out of China that demand for iPhone 14 Pro was strong and that there was lower demand for lower-priced models. Here's what that might mean for Apple's business.

So what

Reports surfaced Monday evening that Foxconn Technology Group, the manufacturer of iPhones in China, was shifting production to Pro models instead of the lower-priced standard iPhone 14. Investors should always take supply chain reports with a grain of salt, but this news could be legit, since it echoes similar reports of consumer demand trends in the U.S. for the new iPhones.

When the iPhone 14 first launched over a week ago, Apple's website showed longer wait times for the high-end Pro models than for the standard models. Many stores sold out of their initial inventory of the Pro version, while some stores had plenty of lower-priced models.

Now what

Higher demand for the pricier Pro models could benefit Apple's margins, but sales of iPhone 14 might be down overall. Specifically, Jefferies analyst Edison Lee noted that iPhone 14 sales in China are down 10.5% from the iPhone 13, based on new data.

Apple's iPhone and services posted record revenue in the fiscal third quarter, which ended in June, with the active installed base of devices hitting new highs across all product categories. At least through the recent quarter, inflation didn't seem to be affecting Apple customers' ability to buy new iPhones, but management cited weakness in digital advertising with the services business and across its products.

While it's still too early to know whether the iPhone 14 is a hit with customers, Apple doesn't necessarily have to grow iPhone revenue to win. But it needs to keep growing its installed base of devices, which tends to lead to more sales of apps and other high-margin services.

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

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

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

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John Ballard 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. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

What happened

Shares of Tesla, Inc. (NASDAQ: TSLA) were trading up over 4% earlier this morning before giving back some of those gains by early afternoon. By market close, the EV stock was up 2.51%.

What probably got the market off on a positive note was a small pullback in interest rates at the start of trading on Tuesday. Long-term U.S. Treasury rates have more than doubled year to date, which has pressured the valuations of expensive growth stocks like Tesla.

However, later in the morning, Reuters reported that Tesla planned to hold production at its Shanghai plant below full capacity. The market is trying to figure out what this might mean for Tesla's business.

So what

Ongoing semiconductor shortages, resulting in many completed cars having to wait on chips before they can finish production, has been a big problem for car manufacturers. The chip shortage is expected to last into 2023, causing Honda Motor to cut 40% of its production recently, according to reports.

Reuters reported that Tesla plans to hold production at its Shanghai plant at 93% of capacity. Whether this signals production challenges or a lack of consumer demand is anyone's guess at this point. What is certain is that the recent rise in interest rates is making it more expensive to purchase new vehicles, but this might not be a problem for high-income individuals who are interested in Tesla's cars.

Now what

In July, CEO Elon Musk expressed optimism about the second half of the year, noting the potential for "record-breaking" results after achieving production records at the Fremont and Shanghai plants during the second quarter. Of course, that was before more data came out showing that inflation is still running too high. The Federal Reserve recently raised the fed funds rate again, with more rate hikes likely on the way.

Analysts expect Tesla to report record deliveries of 350,000 units for the third quarter. Investors will get new information about demand trends when the company releases the next update on deliveries, which should come out by Oct. 2.

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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• Guess which ASX All Ords stock is jumping higher today on big Tesla news

John Ballard 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.

A five-year chart of The Kraft Heinz (NASDAQ: KHC) stock offers a near-perfect reversed reflection of the S&P 500 index's performance over the same time frame. Share prices of the food product giant have declined nearly 57% over the last five years, underperforming the 46% gain from the index. But Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A)(NYSE: BRK.B) has held to its shares in the company throughout that half-decade.

Berkshire is one of the company's largest shareholders. As of March 2022, Berkshire owned 26.6% of Kraft Heinz. 

Why has Buffett continued to hold an underperforming stock? Well, for one thing, it's not like there haven't been any good reasons to sell. Here are a few things that went wrong following the merger between Kraft Foods and H.J. Heinz:

• Kraft saw its market share erode against the growth of private-label brands, leading to a decline in sales.
• In 2018, the company disclosed an SEC investigation into its accounting policies over supplier agreements.
• Kraft also cut its quarterly dividend to address more than $30 billion of long-term debt it held as of 2018. 

Most investors would have sold Kraft Heinz long ago, but not Buffett. In early 2019, Buffett told CNBC he would be happy to own the stock 10 years from now. 

Buffett has cut loose several stocks over the past several years that failed to perform to his expectations. He closed Berkshire's position in IBM in 2017, after he bought $10.8 billion worth of shares in the computer hardware maker in 2011. But there is clearly something about Kraft Heinz that he values. Let's look at three possible reasons why he has remained patient with this one.

1. Buffett likes to do business with people he trusts

Buffett admitted in 2019 he misjudged the competitive position of packaged food brands against Wal-mart Stores, Inc. (NYSE: WMT) and other retailers' efforts to promote their own private labels. That was a big reason why Kraft saw its sales and profits decline through 2019. 

However, Buffett went into the Kraft Heinz merger in 2015 with a valued partner. Berkshire and 3G Capital own a combined 42% of Kraft Heinz. Buffett has been friends with 3G founder Jorge Paulo Lemann for many years. He first met Lemann while serving on the board at Gillette before it was acquired by Procter & Gamble. 

3G Capital has a long record of doing deals across industries and improving performance at the businesses it controls. The Brazilian investment firm famously orchestrated the combination of Anheuser-Busch Inbev in 2008. Buffett has always believed in doing business with people you trust, and that certainly applies to his investment in Kraft Heinz.

2. Kraft has "very, very strong brands"

While certain Kraft brands, such as Oscar Mayer, Jell-O, and CapriSun, no longer have the competitive edges they did many years ago, brands like H.J. Heinz, Kraft Mac & Cheese, Lunchables, and Philadelphia cream cheese still generate strong sales. Buffett has called these "very, very strong brands." 

Indeed, these products have remained immune to the pull of private labels. Over the last three years, they delivered annualized growth in adjusted sales of 8%. 

3. Sales are growing under Kraft Heinz's new CEO

To turn things around starting, Kraft Heinz turned to 3G's farm team. In 2019, Kraft appoint former Anheuser-Busch Inbev's Chief Marketing Officer, Miguel Patricio, as CEO. The results have been outstanding.

Patricio sold off underperforming brands, made improvements to Kraft's packaging, marketing, and operating efficiency, and paid down debt. Not only have adjusted sales improved, but Kraft demonstrated excellent pricing power in this inflationary environment.

One reason Buffett favors investing in top brands is the ability to raise prices over time to offset the long-term erosion to shareholder returns caused by inflation. In the second quarter, Kraft reported a 10% year-over-year increase in adjusted sales, completely driven by higher selling prices. 

Kraft Heinz stock has outperformed the S&P 500 in 2022

Kraft appears to be finally performing to Buffett's expectations. Under Patricio, Kraft stock is up 28% since the end of June 2019, including dividend reinvestment. That puts Kraft stock just ahead of the S&P 500's 23.4% return over that three-year period. 

Kraft stock is outperforming the market year-to-date, down 6.6% compared to the S&P 500's decline of 23.3%. Given Kraft's improved business performance, Buffett probably won't be selling out anytime soon. 

It's not too late to buy Kraft Heinz stock. The business is positioned for more growth under Patricio. The stock also pays a dividend yield of 4.77%, and trades at a delicious price-to-earnings ratio of 12.6 based on this year's earnings estimates, which is a discount to the S&P 500's forward P/E of 17. 

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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• Market meltdown? Follow Warren Buffett's 5-step investing strategy

John Ballard 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 Walmart Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended The Kraft Heinz Company. 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.

At the time of writing, Apple, Microsoft, Alphabet, and Amazon are the only four U.S. companies with a market capitalization of $1 trillion or greater. Tesla is not far behind, with a market cap of $907 million.

These are elite businesses that have earned shareholders tremendous gains. It goes without saying that these companies all had much smaller market caps not too long ago. Amazon's market cap was $105 billion exactly 10 years ago. 

Generally, a good place to look for the next home-run stocks are growing companies with a market cap between $100 billion to $500 billion. But in this case, let's first look at Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), which has a higher market cap but could be a timely buy right now.

For higher return prospects, you'll want to consider Advanced Micro Devices (NASDAQ: AMD) and Salesforce (NYSE: CRM). These are solid growth stories that still have years to play out.

1. Berkshire Hathaway

Berkshire Hathaway is one of the safest stocks you can hold for the long term. After rising 50% over the last five years, it carries a market cap of $653 billion. That puts it within shooting distance of the $1 trillion milestone. There are a few reasons Berkshire will keep growing in value.

Berkshire has a sterling balance sheet with $122 billion of cash and fixed securities. The company has a large stock portfolio worth $327 billion at the end of the second quarter. Buffett's investment vehicle holds large stakes in Apple, Bank of America, and Coca-Cola, among other stocks. Buffett has most recently been adding to large stakes in Chevron, Occidental Petroleum, and leading PC brand HP (formerly Hewlett-Packard). 

Another piece of Berkshire's intrinsic value is its dozens of privately held businesses. The company's subsidiaries span everything from candy to railroads. It also owns several insurance companies that provide $147 billion in float, or money that Berkshire collects from insurance premiums that it can reinvest in stocks, bonds, or acquisitions. Many of these Berkshire-held businesses tend to be immune from the changes in technology, which adds a degree of predictability to their long-term performance -- something Buffett no doubt considered.

One of Buffett's best stock ideas lately has been Berkshire Hathaway itself. Through the first half of 2022, he bought $4 billion worth of the company's shares -- a sign that Buffett sees the stock as undervalued. The stock's price has tripled over the last decade and could repeat that return, which would push Berkshire's market cap over $1 trillion by 2032.

2. Advanced Micro Devices

Owning companies that serve megatrends in technology, such as spending on data centers, cloud computing, and other advanced computing needs could pay off big. Advanced Micro Devices has emerged as a key supplier of high-performance chips in these markets.

There is a reason why AMD CEO Lisa Su is considered one of the top business leaders right now. Su has done a marvelous job guiding this underdog to industry leadership, and its best days are still ahead.

AMD currently sports a low forward price-to-earnings ratio of 23, based on 2022 earnings estimates, and has a market cap of $159 billion. To reach $1 trillion in 10 years, the share price needs to climb at a compound annual rate of 20%. That is achievable for this fast-growing chipmaker.

For a long time, AMD was the underdog in the semiconductor industry. It's always played the role of a low-cost alternative to leaders like Intel and Nvidia, but not anymore.

While AMD is still way behind Intel in central processing units (CPUs) and Nvidia in graphics processing units (GPUs), it is winning over customers with its renewed focus on designing high-performance chips. Data center operators are now looking at AMD's Epyc server chips as a viable alternative to Intel. In the last quarter, AMD again gained market share over its CPU rival. Revenue grew 70% year over year in the second quarter, driven by strong growth in data center chips and consumer chips for notebooks and gaming.

The data center accelerator market, which includes spending on CPUs and GPUs, is expected to grow at a compound annual rate of 34% through 2027, reaching $75 billion. AMD just completed the acquisition of Xilinx, a leading supplier of field-programmable gate array (FPGA) chips, which fills out its product lineup to tackle this enormous opportunity. The strong tailwind in the data center market, along with AMD's modest valuation, could deliver market-beating returns to investors over the long term.

3. Salesforce

The name Salesforce doesn't sound like a growth tech stock that is worthy of the elite club of $1 trillion companies, but every investor should know about this amazing business.

Former Oracle executive Marc Benioff co-founded Salesforce in 1999 and currently serves as the company's chairman and co-CEO. Salesforce pioneered the software-as-a-service business model. Companies save money by subscribing to Salesforce's cloud-based software, which lowers in-house expenses by maintaining, installing, and keeping systems updated.

Salesforce has grown tremendously and has been ranked the No. 1 customer relationship management (CRM) software provider for nine years. Its flagship product is the artificial intelligence (AI)-powered Customer 360 platform, which offers a suite of software that helps companies manage sales, marketing, and e-commerce, and it continues to expand into new categories.

It has reinvested its growing profitability into strategic acquisitions that expand its offering and competitive lead in the market. Last year, it acquired Slack Technologies, which offers a communication platform for employees, for $27 billion. 

What's most remarkable about Salesforce is its consistency, which speaks volumes about the size of its long-term growth opportunity. After two decades of high revenue growth, Salesforce is still growing quarterly revenue over 20% year over year. 

It generated $27 billion in revenue over the last four quarters, but the total addressable market for the company's services is expected to reach $284 billion by 2026, according to Gartner Research. It can grow for a long time. However, if Salesforce continues its record of strategic acquisitions, its addressable market could widen even more as it expands its product offering.

With a market cap of $189 billion, Salesforce is well on its way toward $1 trillion. It has the industry leadership and massive market opportunity to deliver market-beating returns to investors.

Now is the perfect time to buy shares. At a price-to-sales ratio of 6.8, the stock is near its cheapest valuation in the last 10 years. 

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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• Market meltdown? Follow Warren Buffett's 5-step investing strategy

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Bank of America is an advertising partner of The Ascent, a Motley Fool company. John Ballard has positions in Amazon, Nvidia, and Salesforce, Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Advanced Micro Devices, Berkshire Hathaway (B shares), and Salesforce, Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares) and Salesforce, 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.

The tech-heavy Nasdaq Composite index is officially in a bear market after dropping 26% year to date, but some investors are on the hunt for bargains that could spike in value once more optimism returns to the markets. Looking specifically at the 100 largest non-financial companies listed -- otherwise known as the Nasdaq 100 -- Facebook parent Meta Platforms (NASDAQ: META) and Netflix (NASDAQ: NFLX) rank toward the bottom of the list in year-to-date performance.

Both companies are facing their share of near-term headwinds. Revenue growth is decelerating at Meta due to weakening trends in the advertising market, while investors are wondering if Netflix can resume growing subscribers in a more competitive streaming market.

Still, if these ubiquitous brands recover, both stocks could rebound sharply once general market sentiment improves. Let's explore why it's a bet worth making.

Meta Platforms

Shares of the Facebook parent are down 56% from the 52-week high of $384 after the social media giant reported disappointing earnings results to start the year. Investors are worried about slowing growth amid a weak advertising environment, which is the primary revenue source for the company, but a slow ad market is only half of Wall Street's concern.

CEO Mark Zuckerberg has made a big bet on virtual reality (VR) with the company's Oculus brand of headsets. Management sees the metaverse as a major opportunity that creates a perfect pairing with Oculus VR. But the market doesn't like that these long-term bets are taking a bite out of the bottom line in the near term.

On top of weak single-digit revenue growth in the first quarter, Meta also reported a 25% year-over-year drop in operating profit. Total expenses increased 31% year over year, driven by technology infrastructure and hiring to support growth initiatives in the family of apps (Facebook, Instagram, etc.) and Reality Labs (virtual reality).

Zuckerberg and his team are confident these investments are going to lead to something promising as previous bets on mobile and the Stories feature eventually put Facebook on a solid growth trajectory years ago.

Meanwhile, the stock is a steal trading at a low price-to-earnings (P/E) ratio of 13. At this valuation, the market is basically saying Meta's days of growth are over, but is that expectation reasonable?

At this valuation level, investors don't need Meta to grow at high rates to earn a decent return on investment. Whether Zuckerberg is right about the metaverse doesn't matter at this point. The stock will likely rebound once advertising spending comes back, and that's a good bet given the 2.87 billion daily active users across Meta's family of apps.

Netflix

One of the most-followed Nasdaq stocks has taken a beating like no other in this bearish environment. Netflix reported its first subscriber decline in years last quarter, leading the stock to nosedive.

Buying shares of this top entertainment stock might take some guts at this point, especially with management guiding for another loss of two million subscribers for the second quarter. Like Meta Platforms, investors don't have much to lose by adding a small position in Netflix at these levels, while the upside could be big.

The global streaming market is still on an upward trajectory. In fact, the Motion Picture Association's 2021 Theatrical and Home Entertainment Market Environment (THEME) report mentioned that the digital streaming marketplace accounted for 72% of the combined theatrical and home entertainment market, representing a sharp increase from 46% in 2019.

As the largest streaming provider with a growing library of content, that is good for Netflix. The company is more profitable than it's ever been with an operating profit margin hovering around 20%. The stock's P/E is also a modest 17.3 -- the cheapest Netflix has traded on a P/E basis in nearly a decade.

Investors are underestimating how that improved profitability will provide management with more resources to invest in content and other initiatives to accelerate growth and win over more subscribers. The streamer's entry into video games only gives investors a hint of how Netflix might evolve over the long term.

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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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 Ballard has positions in Netflix. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and recommends Meta Platforms, Inc. and 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.

With many top stocks on sale right now, every investor needs to know about one of the best-kept secrets on Wall Street.

Within 45 days of the last day of the previous calendar quarter, professional money managers who oversee $100 million or more in assets are required to disclose their holdings on Form 13F with the Securities and Exchange Commission. This public disclosure requirement gives others (including retail investors) the ability to peek at the recent moves of some of the most successful investors in the world, and it can be super valuable in times like these.

When market volatility hits abnormal extremes like it has in the last few months, it's not surprising to see some of these top investors picking up their buying and selling activity. Let's look at two popular stocks that could be significantly undervalued right now and have gotten some attention from top-level investors.

1. Meta Platforms

Facebook operator Meta Platforms (NASDAQ: FB) has seen its stock plummet this year over several issues. The war in Ukraine and uncertainty about the US. economy have caused advertisers to rethink their spending budgets, hurting social media companies that generate revenue primarily from advertising.

Facebook has also taken a hit from Apple's privacy changes in iOS that restrict app developers from tracking users' activity for the purpose of delivering more relevant ads. 

Investors want to see more of the 20%-plus revenue growth that Meta Platforms was reporting through 2021, but the company reported top-line year-over-year growth of just 7% in the first quarter. Wall Street is more focused on making money now, so regardless of how great Meta's prospects look over the long term, the stock is down primarily due to a weak outlook for growth in 2022. This gives patient investors a great opportunity to buy this tech giant at a deeply discounted valuation.

A few investors adding to their position in the first quarter were Pat Dorsey of Dorsey Asset Management, Michael Burry of Scion Asset Management (who famously predicted the 2008 mortgage crisis), and the investment firm Ruane, Cunniff & Goldfarb, which manages the Sequoia Fund.  

These investors obviously believe Meta is undervalued and should trade for a much higher price. Speaking to the company's long-term value, CEO Mark Zuckerberg mentioned during the first-quarter earnings call that more people are using the company's services than ever before. Meta's apps, including Facebook and Instagram, are massively popular and still give the company opportunities to grow, especially as more users are starting to shop in online stores through Instagram.

The company is directing more investment toward short-form video, which is more in demand by users, and also investing more in artificial-intelligence-driven recommendation models to deliver more relevant results for users and advertisers over the next few years. "On the Family of Apps side, I am confident that we can return to better revenue growth rates over time and sustain high operating margins," Zuckerberg said. 

Meta also offers additional upside potential if Zuckerberg's vision of the metaverse comes to fruition. It's for these reasons that the sell-off in the shares looks like a great buying opportunity.

2. PayPal Holdings

Share prices of PayPal Holdings (NASDAQ: PYPL) are down 57% year to date. The digital payments leader is experiencing slowing growth, which can be attributed to soft e-commerce spending compared to a year ago when people were receiving stimulus checks. More people are also returning to local stores to shop, which is dampening the volume that PayPal normally sees from people using its online checkout services. 

In the first quarter, PayPal reported growth in total payment volume of just 13% year over year, which is well below the 20%-plus numbers that the company has consistently reported for many years. The company generates revenue from fees charged on each transaction, so revenue growth has decelerated too.

But there is still a lot to like here if you're focused on the long-term value of the business -- and the most successful managers usually buy and sell stocks with a focus on a company's long-term intrinsic value. PayPal is well entrenched in the digital payment landscape, with 426 million active customer accounts. It also has 34 million businesses using its services for checkout. 

PayPal has a ubiquitous brand in e-commerce, which no one thinks is going to stop growing over the coming decades. Research from eMarketer projects e-commerce spending to grow 50% to $7.4 trillion by 2025 and PayPal will almost certainly ride that wave, along with its many competitors in mobile payments.

This outlook for growth explains why several notable value investors were buying shares in the first quarter, including Pat Dorsey, David Rolfe of Wedgewood Partners, and David Katz of Matrix Advisors Value. 

CEO Dan Schulman said he believes that PayPal will bounce back and deliver more growth. During the recent earnings call, he mentioned that we're going to see economic cycles come and go, but "that does not take away at all the fundamental secular tailwinds that we're going to benefit from long term, which are the increasing proliferation of e-commerce and digital payments." 

The stock's sell-off means the market has much lower expectations for growth. This is setting up the potential for PayPal to deliver better-than-expected results over the next year, which could make it a great investment from these lows.

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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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 Ballard has positions in Sequoia Fund. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Meta Platforms, Inc. and PayPal Holdings. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Meta Platforms, Inc. and PayPal Holdings. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

What happened?

Shares of Amazon (NASDAQ: AMZN) were trading up 2.7% as of 1:21 p.m. ET on Tuesday. By comparison, the Nasdaq Composite index was up 1.7%.

While the tech giant's upward move is coming during a broadly positive day for the markets, a Reuters article suggests that Amazon might be days away from closing its acquisition of the iconic Hollywood film studio MGM.

So what?

Amazon announced its $8.45 billion offer to buy the studio and its catalog of more than 4,000 films, including classic franchises James Bond and The Pink Panther, in May 2021. Amazon received regulatory approval for the deal from the European Union's antitrust regulator Tuesday. The U.S. Federal Trade Commission is also expected to approve the purchase within days, according to Reuters.

Now what?

MGM's deep catalog would give Amazon's Prime Video service a wealth of added content to keep customers engaged, and Prime has already picked up a lot of momentum during the pandemic. The tech juggernaut reported that customers were engaging with Prime's benefits in record numbers during the fourth quarter. This fall, Amazon will release the highly anticipated original series The Lord of the Rings: The Rings of Power, which could attract more viewers to the service.

All the major streaming video services are competing to secure exclusive rights to content in their efforts to win more subscribers in a market that could hit 1.7 billion users by 2026, according to Digital TV Research. Amazon Prime is expected to rank along with Netflix and Walt Disney as one of the top streaming providers by 2026. Digital TV Research forecasts that Prime Video will have 245 million users by that year, compared to 275 million for Netflix.

Moreover, securing the MGM deal might further justify Amazon's recent move to raise the monthly cost of Prime by $2 to $14.99.

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

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

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

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John Ballard owns Amazon, Netflix, and Walt Disney. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Amazon, Netflix, and Walt Disney. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool Australia has recommended Amazon, Netflix, and Walt Disney. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.