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

Warren Buffett has earned a reputation as one of Wall Street's greatest investors. The many acquisitions and stock purchases he has engineered since assuming control of Berkshire Hathaway in 1965 have created immense wealth for shareholders. Berkshire stock has returned 20% annually over the last six decades, while the S&P 500 (SNPINDEX: ^GSPC) has gained 10.4% annually.

Nevertheless, I suspect many investors ignore one of his more prudent recommendations. Buffett has often advised investors to periodically buy and patiently hold an S&P 500 index fund. "I recommend the S&P 500 index fund, and have for a long, long time, to people," he said in 2021.

Here's how that advice could turn a $400 monthly investment into $851,800 over 30 years.

The Vanguard S&P 500 ETF provides exposure to influential companies like Apple, Nvidia, and Tesla

The S&P 500 measures the performance of 500 large and profitable U.S. companies that cover about 80% of domestic equities and 50% of global equities by market value. The Vanguard S&P 500 ETF (NYSEMKT: VOO) tracks the S&P 500, allowing investors to spread capital across many of the most influential businesses in the world.

The 10 largest positions in the Vanguard ETF are listed by weight below:

1. Apple: 6.7%
2. Microsoft: 6.2%
3. Nvidia: 5.6%
4. Amazon: 3.6%
5. Alphabet: 3.5%
6. Meta Platforms: 2.5%
7. Berkshire Hathaway: 2.1%
8. Broadcom: 1.9%
9. Tesla: 1.6%
10. Eli Lilly: 1.5%

Warren Buffett, in his 1993 letter to shareholders, wrote, "By periodically investing in an index fund, for example, the know-nothing investor can actually outperform most investment professionals." Indeed, only 15% of large-cap funds outperformed the S&P 500 over the last three years, meaning most professional money managers struggle to consistently beat the index.

Buffett added context in his 2016 shareholder letter. "American business -- and consequently a basket of stocks -- is virtually certain to be worth far more in the years ahead." An S&P 500 index fund satisfies that criterion. It is a readymade portfolio comprising hundreds of companies that form the foundation of the United States economy, which itself is the world's most prosperous and innovative large economy, according to JPMorgan Chase CEO Jamie Dimon.

Importantly, the Vanguard S&P 500 ETF has an expense ratio of 0.03%, meaning shareholders will pay $0.30 annually for every $1,000 invested in the fund. Comparatively, the average U.S. exchange-traded fund and mutual fund charged 0.34% last year, according to Morningstar.

The Vanguard S&P 500 ETF can turn $400 per month into $851,800 over three decades

The S&P 500 returned 1,860% in the last 30 years, equivalent to 10.4% annually. That period covers a broad range of market and economic environments, including more than a dozen corrections and three recessions, so investors can reasonably assume similar returns in the next 30 years.

With that in mind, assuming invested dollars compound at 10.4% annually, $400 contributed monthly to the Vanguard S&P 500 ETF would be worth $77,900 in one decade, $287,700 in two decades, and $851,800 in three decades.

Readers may wonder how to contribute $400 per month to the Vanguard S&P 500 ETF when the current share price is $549. There are two options. First, most brokerages support the purchase of fractional shares, meaning you could buy less than one share monthly. Second, for anyone who prefers to buy whole shares, you can simply add $400 to your account each month and make purchases as you accumulate sufficient cash.

Here's the bottom line: S&P 500 index funds (such as the Vanguard S&P 500 ETF) are a cheap and easy way for investors to gain exposure to hundreds of influential stocks, including Apple, Nvidia, and Tesla. Such investment products have created substantial wealth for patient shareholders in the past, and investors have every reason to believe the results will be similar in the future.

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

The post Warren Buffett says buy this index fund. It could turn $400 per month into $851,800 with help from Apple, Nvidia, and Tesla. appeared first on The Motley Fool Australia.

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

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

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JPMorgan Chase is an advertising partner of Motley Fool Money. John Mackey, former 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. 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. Trevor Jennewine has positions in Amazon, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Apple, Berkshire Hathaway, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Broadcom and has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

Warren Buffett has nearly 23% of Berkshire Hathaway's portfolio invested in two artificial intelligence (AI) stocks: 21.8% is allocated to Apple (NASDAQ: AAPL), a stock that soared 600% in the last decade, and 0.8% is allocated to Amazon (NASDAQ: AMZN), a stock that soared 900% in the last decade.

Here's what investors should know about Apple and Amazon.

Apple: 21.8% of Berkshire Hathaway's portfolio

The investment thesis for Apple has two parts. First, the company is the global leader in smartphone sales, a position it achieved through engineering expertise that spans hardware and software. Apple has cultivated a significant brand moat that affords the company great pricing power but must maintain its premium status with consumers to be a worthwhile investment.

Second, Apple aims to monetize its installed base exceeding 2.35 billion devices with add-on services like iCloud storage, Apple Care, Apple Pay, and App Store content, as well as subscription products like Apple TV+. Within the services segment, many analysts expect Apple to eventually monetize artificial intelligence.

To elaborate, late last year, the company introduced Apple Intelligence, a suite of AI features that CEO Tim Cook said would usher in a "new era for the iPhone." Apple Intelligence was initially free, but many analysts speculated Apple would eventually monetize more sophisticated features as a subscription offering.

However, consumers have been relatively unmoved by the platform. In fact, iPhone sales have essentially been flat over the last six months despite many pundits predicting a massive upgrade cycle. One reason for the lackluster response may be the absence of the much-touted upgrades to the conversational assistant Siri, including the ability to understand personal context and take action within other apps.

In May, Bloomberg reported that internal data showed Apple was years behind the competition in terms of developing a ChatGPT competitor, and the timeline for the Siri upgrades is still unknown. "The planned rollout was delayed until May and then indefinitely, even as features were still being promoted on commercials for the iPhone 16," according to Bloomberg.

Last month, Apple announced plans to open its Apple Intelligence large language models to third-party developers. Doing so should bring a wave of AI-powered applications to the App Store, letting Apple indirectly monetize AI. Of course, the ability to make money on AI is only part of the investment thesis, so prospective investors need to consider the big picture.

Wall Street has downwardly revised estimates due to tariff uncertainty, such that earnings are expected to grow at 6% annually through fiscal 2026, which ends in September 2026. That makes the current valuation of 28 times earnings look rather expensive. I think investors should pass on the stock until the price drops meaningfully or tariff uncertainty dissipates and earnings estimates increase.

Amazon: 0.8% of Berkshire Hathaway's portfolio

The investment thesis for Amazon centers on its strong position in three industries. First, it runs the largest e-commerce marketplace outside of China, and its market share in the United States is forecast to surpass 40% this year. Second, it's the largest retail advertising company in the world, with nearly 40% market share. And third, Amazon Web Services (AWS) is the largest public cloud in terms of infrastructure and platform services revenue, with 29% market share.

Amazon is using AI to improve efficiency and grow margins in its retail business. CEO Andy Jassy says the company is building about 1,000 generative AI applications, including tools to optimize coding, customer service, inventory allocation, last-mile delivery, and warehouse robots. Morgan Stanley recently called Amazon's retail business the "most underappreciated" generative AI beneficiary in the technology space.

Similarly, Amazon is leaning into demand for AI in its cloud computing business. The company has developed custom semiconductors for AI training and inference that offer better price performance than the leading graphics processing units (GPUs), according to management. AWS has also introduced a generative AI development platform called Bedrock, which complements its machine learning service SageMaker. Finally, AWS has introduced a coding and business assistant called Amazon Q.

Andy Jassy views AI as the most profound technology shift and business opportunity since the internet. "Our AI business has a multibillion-dollar annual revenue run rate, continues to grow triple-digit year-over-year percentages, and is still in its very early days," he told analysts on the first-quarter earnings call.

Wall Street estimates Amazon's earnings will increase at 10% annually through 2026. That makes the current valuation of 35 times earnings look expensive, but I think analysts are underestimating the company.

Amazon beat the consensus estimate by an average of 21% over the last six quarters. I think that trend will continue as investments in AI drive revenue growth and margin expansion.

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

The post Warren Buffett has 23% of Berkshire Hathaway's portfolio invested in 2 AI stocks up 600% and 900% in the last decade appeared first on The Motley Fool Australia.

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

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

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, Apple, and Berkshire Hathaway. The Motley Fool Australia has recommended Amazon, 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.

The S&P 500 (SP: .INX) has advanced 3% year to date due to expectations that its member companies will report accelerating earnings growth this year against a strong economic backdrop. The index currently trades within a percentage point of its record high.

However, Wall Street anticipates more gains and new highs in the remaining months of 2025. The S&P 500 has a median year-end target of 6,600 based on forecasts from 27 analysts. That implies about 9% upside from its current level of 6,060.

However, the S&P 500 also trades at a historically expensive valuation, which leaves investors with a difficult decision: Is it smart to buy stocks with the market trading near its record high? Consider this brilliant investing advice from Warren Buffett.

Be greedy when others are fearful, but fearful when others are greedy

Warren Buffett in 2008 authored a famous opinion piece for The New York Times. "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful," he wrote. Investors at the time were scared because the S&P 500 had fallen 40% from its record high amid the Great Recession, the worst economic downturn since the Great Depression.

Buffett's advice is still relevant today, though the market environment is much different. The S&P 500 returned more than 20% in each of the past two years, something it last did during the dot-com bubble in the late 1990s. The index now trades at a cyclically adjusted price-to-earnings (CAPE) ratio of 38, a valuation so expensive it has only been seen during two periods since the S&P 500 was created in March 1957.

Importantly, since its inception roughly 815 months ago, the S&P 500's monthly CAPE ratio has exceeded 37 only 37 times. Put differently, compared to the current valuation, the S&P 500 has been cheaper 95% of the time during its seven-decade history. Additionally, after a monthly CAPE reading above 37, the S&P 500 has declined by an average of 3% during the next year.

Let me be clear: That does not mean the S&P 500 is definitely going to decline over the next year. Following a monthly CAPE reading above 37, the index's one-year returns have ranged from negative 28% to positive 20%. So, what readers should take away from the current CAPE ratio is that stocks are historically expensive. That is a sign of greed, so caution is warranted in the current market environment.

Buy stocks whose earnings are likely to increase substantially, but only if the price is right

Warren Buffett in his 1996 shareholder letter summarised the difficult process of picking stocks in simple terms: "Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, ten, and twenty years from now."

Notice Buffett did not mention the valuation of the broader stock market as a factor worth consideration. Investors should never hesitate to buy a stock that checks those three boxes — (1) understandable business, (2) compelling growth prospects, and (3) reasonable price — even if the broader stock market is trading at a historically expensive valuation.

Investors get into trouble when they chase momentum for fear of missing out on the next big winner. Buffett says that bad habit has become more common. "For whatever reason, markets now exhibit far more casino-like behaviour than they did when I was young," he wrote in his most recent shareholder letter.

Here is the bottom line: The S&P 500's current valuation is in the 95th percentile, meaning the index has only been more expensive 5% of the time since it was created. Consequently, investors should be very selective about which stocks they add to their portfolios, but not so selective that they miss good buying opportunities.

As a caveat, owning good stocks will not prevent losses during a market crash. Equities fall indiscriminately, such that even the best stocks usually suffer losses when the S&P 500 declines. The difference is good stocks will recover.

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

The post Is it smart to buy stocks with the S&P 500 near its record high? Warren Buffett has brilliant advice for investors appeared first on The Motley Fool Australia.

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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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.

Tesla (NASDAQ: TSLA) and Amazon (NASDAQ: AMZN) have been very rewarding long-term investments, but the hedge fund billionaires listed below bought Tesla and sold Amazon in the third quarter:

• Louis Bacon of Moore Capital Management bought 25,000 shares of Tesla, increasing his position by 19%. He also sold 616,475 shares of Amazon, reducing his position by 76%.
• Israel Englander of Millennium Management bought 225,760 shares of Tesla, increasing his position by 51%. He also sold 7.9 million shares of Amazon, reducing his position by 87%.
• Dan Loeb of Third Point bought 400,000 shares of Tesla, starting a new position. He also sold 1.4 million shares of Amazon, reducing his position by 27%.
• Chris Rokos at Rokos Capital Management bought 100,000 shares of Tesla, starting a new position. He also sold 755,165 shares of Amazon, reducing his position by 39%.

Importantly, while tracking the stocks hedge fund managers hold can provide inspiration, the trades listed above happened in the third quarter, which ended over three months ago, and the fourth-quarter update will not be available until mid-February. So, here's a more current look at Tesla and Amazon.

Tesla: The stock certain billionaires bought in the third quarter

Tesla shares fell sharply on January 2 when the company reported 495,570 fourth-quarter deliveries, about 10,000 units short of the consensus estimate. But the stock rebounded the next day on reports of strong sales in China and an upgrade from Canaccord. Importantly, while Tesla led the market in electric car sales through November, its market share has declined across all three of its major markets: U.S., Europe, and China.

Tesla has a few important catalysts on the horizon that could lead to upward revisions in earnings estimates, which may send shares higher. First, it plans to launch a sub-$30,000 vehicle (reportedly called the Model Q) in the first half of 2025. Second, touting a 1,000-fold improvement in its full self-driving (FSD) software this year, Tesla plans to launch an unsupervised version of the software in California and Texas next year.

Additionally, Tesla plans to launch an autonomous ride-sharing service in California and Texas in 2025, and potentially other states too, according to CEO Elon Musk. That could be an inflection point for the business. Musk has previously estimated robotaxis could push Tesla's gross margin to 70% or higher. Comparatively, its gross margin was about 20% in the most recent quarter.

Wall Street expects Tesla's adjusted earnings to increase 26% over the next four quarters. That makes its current valuation of 164 times adjusted earnings look outrageously expensive. But not all Wall Street analysts are pessimistic. Dan Ives at Wedbush on November 29 said, "Today, I view Tesla as the most undervalued AI name on the market."

Personally, I think the hedge funds that bought Tesla in the third quarter were making a bet on Donald Trump winning the presidential election. I would not be surprised if many sold down their positions during the fourth quarter, especially since the stock has skyrocketed post-election. Having said that, investors who are confident Tesla can disrupt the mobility and transportation industries should own a long-term position.

Amazon: The stock certain billionaires sold in the third quarter

Amazon has three growth engines in e-commerce, digital advertising, and public cloud services. The company not only has a strong position in those markets, but also it's using artificial intelligence (AI) to generate more revenue and improve efficiency across all three business segments.

For instance, Amazon operates the most visited online marketplace in the world, and it supports its merchants with a vast logistics network. Machine learning models informed by mountains of shopper data make product recommendations to improve sales on the marketplace. They also optimise inventory and delivery routes to make logistics more efficient.

Amazon is the third-largest ad tech company as measured by sales, and it's gaining market share so quickly it could take second place from Meta Platforms before 2030, according to eMarketer. Machine learning models informed by marketplace data help brands target ad campaigns, and generative AI helps brands create media content for those campaigns.

Finally, Amazon Web Services (AWS) is the largest public cloud as measured by revenue from infrastructure and platform services. Its 31% market share nearly equals the 33% market share Microsoft and Alphabet have combined. CEO Andy Jassy recently said, "In the last 18 months, AWS has released nearly twice as many machine learning and generative AI features as the other leading cloud providers combined."

Wall Street anticipates Amazon's adjusted earnings will increase 26% over the next four quarters. That makes the current valuation of 46 times adjusted earnings look reasonable. For that reason, I think the hedge fund billionaires who sold Amazon in the third quarter made a mistake. Indeed, the stock trades at $219 per share at the time of writing, which is 10% above its third-quarter high of $200 per share, and 36% above its third-quarter low of $161 per share.

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. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon and Tesla. 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.

Nvidia shares have surged over 180% since January 2024, and the stock accounted for nearly one-quarter of the gains in the S&P 500 (SNPINDEX: ^GSPC) during that period. The company is now worth $3.4 trillion and should continue to benefit from the artificial intelligence (AI) boom for many years to come. But public clouds may take the momentum lead in 2025.

Investments in AI infrastructure made in the last two years position cloud computing companies to benefit as businesses turn AI prototypes into products this year. That leaves room for Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) to surpass Nvidia's current market value before the end of 2025:

• Amazon is currently worth $2.3 trillion. The stock would need to return 52% for its market value to reach $3.5 trillion. That implies a share price of $338.
• Alphabet is currently worth $2.4 trillion. The stock would need to return 46% for its market value to reach $3.5 trillion. That implies a share price of $283.

Admittedly, both predictions are aggressive. But Bloomberg Intelligence estimates generative AI spending will grow 71% in 2025, and Wall Street may be underestimating how much Amazon and Alphabet will benefit.

Amazon: 52% upside required to attain a $3.5 trillion market value

Amazon reported solid financial results in the third quarter, beating expectations on the top and bottom lines. Revenue increased 11% to $159 billion on especially strong sales growth in cloud and advertising services. Operating margin expanded 5 percentage points to 9.8%, and non-GAAP (generally accepted accounting principles) earnings soared 52% to $1.43 per diluted share. Analysts expected earnings to grow 21%.

Amazon could continue to exceed estimates as artificial intelligence (AI) spending increases. Amazon Web Services (AWS) accounted for 31% of public cloud services spending in the third quarter, nearly as much as the 33% market share Microsoft and Alphabet had combined. That scale is a key advantage. With more customers and partners, AWS is better positioned to monetise AI.

However, Amazon is also investing aggressively in AI product development. Its custom AI chips, Trainium and Inferentia, provide a cheaper alternative to Nvidia graphics processing units (GPUs). Its Bedrock platform enables developers to fine-tune pretrained large language models and build generative AI applications. And its conversational assistant, Amazon Q, helps programmers code, test, and deploy software.

Wall Street estimates Amazon's earnings will increase 26% over the next four quarters. That consensus makes the current valuation of 47 times earnings look very reasonable. But the company's earnings could grow more quickly as demand for cloud AI services increases. In turn, that may justify a higher valuation and push the company's market value to $3.5 trillion.

For instance, if Amazon's earnings grow 35% in the next four quarters and shares trade at 54 times earnings (below its peak of 62 times earnings in the past year), its share price would increase 52% and its market value would reach $3.5 trillion. However, Amazon is a worthwhile long-term investment even if the company fails to surpass Nvidia's current market value by the end of 2025.

Alphabet: 46% upside required to attain a $3.5 trillion market value

Alphabet reported encouraging financial results in the third quarter, beating estimates on the top and bottom lines. Revenue increased 15% to $88 billion on especially strong sales growth in Google Cloud and modest growth in Google services (advertising). Meanwhile, GAAP net income increased 37% to $2.12 per diluted share. Analysts expected earnings to grow 19%.

Alphabet may continue to top estimates as demand for AI cloud services increases. Google Cloud gained 2 percentage points of market share in the past year, while Microsoft lost 3 percentage points. And Google's investments in AI product development may keep that trend in motion. Importantly, Google is the only company besides Amazon to deploy custom AI chips at scale, according to New Street Research.

More broadly, Google has a strong position in several AI product categories. Forrester Research recently recognised its leadership in AI infrastructure solutions, machine learning platforms, and foundational large language models. In one report, analyst Mike Gualtieri called Google the hyperscaler best positioned for AI and said the company offers enough differentiation that it may win clients from other public clouds.

Wall Street estimates Alphabet's earnings will increase 14% in the next four quarters, which makes its current valuation of 26 times earnings look fair. But generative AI spending could lead to above-consensus earnings, and the valuation multiple could expand once investors have more clarity on the outcome of the antitrust case involving Google Search later this year.

Collectively, those tailwinds could help Alphabet surpass Nvidia's current market value by the end of 2025. For instance, if earnings increase 25% over the next four quarters and the stock trades at 30 times earnings when that period ends, its share price would advance 46% and the company would be worth $3.5 trillion. However, Alphabet is a worthwhile long-term investment, even if my prediction doesn't pan out.

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

The post Prediction: 2 AI stocks will be worth more than Nvidia by year-end in 2025 appeared first on The Motley Fool Australia.

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

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Trevor Jennewine has positions in Amazon and Nvidia. 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, Amazon, Microsoft, and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, 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.

Nvidia (NASDAQ: NVDA) was the single best-performing stock in the S&P 500 (SP: .INX) in 2023, and it ranks as the fourth-best performing member of the index year to date in 2024. Its share price has increased 845% during that period due to strong earnings growth driven by tremendous demand for its graphics processing units (GPUs).

Nvidia is once again poised to generate market-beating returns for shareholders in 2025. The most obvious reason is its leadership in artificial intelligence (AI) accelerators, a market where spending is projected to grow at 29% annually through 2030, according to Grand View Research. But there are less obvious factors at play, too.

Read on to learn more.

Nvidia says demand for its Blackwell GPU is "staggering"

Forrester Research analysts led by Mike Gualtieri recently wrote, "Without Nvidia's GPUs, modern AI wouldn't be possible." There are two reasons for the company has become so dominant: (1) Nvidia GPUs are supported by an unmatched ecosystem of software development tools called CUDA, and (2) Nvidia GPUs consistently outperform rival chips at AI training and inference tasks.

Building on that second point, Nvidia is currently ramping up production of its next-generation Blackwell GPU, which offers up to 4 times faster AI training and 30 times faster AI inferencing versus the previous Hopper GPU architecture. CFO Colette Kress recently told analysts that "Blackwell demand is staggering." Indeed, the new chip is already sold out for 12 months.

Additionally, CEO Jensen Huang has said the Blackwell GPU architecture may be the most successful product in company history, and perhaps the history of the entire computing industry. That sets Nvidia shares up for market-beating returns as Blackwell sales hit the top line next year.

Nvidia expects gross margin to stabilise after the Blackwell ramp

Nvidia's gross margin peaked at 78.4% in the first quarter of fiscal 2025, which ended in April 2024. That figure has since contracted to 74.6%. Bears attribute that margin decline to an erosion in pricing power brought on by competition, overlooking the fact that Nvidia's operating margin is 18 percentage points above that of the next closest Magnificent Seven company.

Admittedly, Nvidia does face competition from other chipmakers and even some of its own customers. For instance, Amazon, Microsoft, and Alphabet have developed custom AI accelerators. But those competitors lack a software development ecosystem that rivals CUDA, something Nvidia has been building for nearly two decades. That ultimately makes competing chips much less useful to developers.

So, Nvidia shareholders have little to fear from competition in the near term. Indeed, CFO Colette Kress says Blackwell gross margins should be in the mid-70% range after the production ramp. In other words, while gross margin may drop a little more in the next quarter or two, it should rebound thereafter. That pokes a hole in the theory that Nvidia is in imminent danger of losing pricing power.

Indeed, Morgan Stanley analyst Joseph Moore recently commented, "The market tends to underestimate the difficulty of competing with Nvidia." That should become increasingly clear next year, and the stock could soar as investors fully appreciate Nvidia's dominance.

President-elect Trump wants to cut the corporate tax rate

President-elect Donald Trump has proposed lowering the federal corporate income tax rate to 15%. While a lower corporate tax rate has not always led to a boom in the broader stock market, it could move the needle for individual companies by boosting profit margins. In turn, excess capital could be returned to shareholders through stock buybacks and dividends.

Importantly, Nvidia repurchased about $26 billion worth of its stock during the 12-month period that ended in June 2024. Only three other companies in the S&P 500 allocated more to share buybacks during that period: Apple spent $96 billion, Alphabet spent $63 billion, and Meta Platforms spent $41 billion, according to S&P Global.

Nvidia could lean further into stock buybacks if the corporate tax rate was lowered. That would accelerate earnings-per-share growth by reducing the outstanding share count. So, a reduction in corporate taxes could result in Nvidia's earnings growing more quickly than Wall Street analysts anticipate, which could drive shares higher.

Admittedly, while the Trump administration could get legislation through Congress in 2025, any changes would not take effect until the next year. That means Nvidia would not see any benefit in 2025 even in the best case scenario. But the stock market is forward-looking, so if investors believe the tax rate will decline, the impact could be priced into the stock next year.

Nvidia stock is surprisingly inexpensive at its current valuation

Nvidia's market value has increased more than nine-fold since the beginning of 2023, but the company's stock still trades at a surprisingly reasonable valuation, especially in comparison to other AI companies.

Wall Street expects Nvidia's adjusted earnings to grow 50% over the next year, and the stock currently trades at 52.7 times adjusted earnings. Those numbers give a price-to-earnings-to-growth (PEG) ratio slightly above 1. Listed below are PEG ratios (calculated in exactly the same manner) for other popular AI stocks:

• Alphabet: 1.6
• Amazon: 1.7
• Apple: 3.5
• Meta Platforms: 1.8
• Microsoft: 3.9
• Palantir: 6.2

In general, PEG ratios below 1 are considered cheap, and values between 1 and 2 are seen as reasonable. In that context, Nvidia shares are remarkably inexpensive at their current share price of $138, which positions the stock for market-beating returns next year.

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

The post Prediction: Why Nvidia stock will soar in 2025 appeared first on The Motley Fool Australia.

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 Trevor Jennewine has positions in Amazon, Nvidia, and Palantir Technologies. 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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, and S&P Global. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

Warren Buffett took control of Berkshire Hathaway in 1965, and its Class A share price has since increased 5,500,000%. Meanwhile, the S&P 500 has returned 38,400%. Inspired by that outperformance, many investors carefully track the stocks Buffett buys and sells using the Forms 13F filed quarterly by Berkshire.

With that in mind, the company's stock purchases totalled $4.3 billion and its stock sales totalled $97.1 billion in the first half of 2024. That means Berkshire's net stock sales reached a record $93 billion through the June quarter. On the surface, that $93 billion warning signals a lack of buying opportunities in the current market environment, which itself hints at a possible drawdown.

That conclusion is further supported by the fact that Berkshire had $277 billion in cash and U.S. Treasuries on its balance sheet as of the June quarter, another record for the company. Finally, Buffett repurchased a mere $345 million in Berkshire stock during the June quarter, which marks his smallest allocation to stock buybacks in six years.

All of those clues point to an overvalued market, but the S&P 500 has historically delivered robust returns during the 12 months following years in which Berkshire Hathaway was a net seller of stocks. Here's what investors should know.

Warren Buffett's 'warnings' have often preceded large gains in the S&P 500

Since 2010, Warren Buffett's Berkshire Hathaway has been a net seller of stocks — meaning the total value of its equity security sales exceeded the total value of its equity security purchases — in seven years. In some cases, those events foreshadowed below-average returns in the S&P 500 in the subsequent year. But more often than not, the opposite was true.

The chart below shows (1) each year in which Berkshire was a net seller of stocks, (2) the total value of the stocks sold by Berkshire during the year, and (3) the S&P 500's return in the next year. For instance, Berkshire's net equity security sales totalled $1.6 billion in 2010, and the S&P 500 returned 0% in 2011.

As shown above, since 2010, the S&P 500 has returned a median of 19% during the 12-month period following years in which Berkshire Hathaway was a net seller of stocks. But we need to consider the other side of the situation to truly appreciate what Buffett's $93 billion warning might mean for the S&P 500 in 2025.

The chart below shows (1) each year in which Berkshire was a net buyer of stocks, (2) the total value of stocks purchased by Berkshire during the year, and (3) the S&P 500's return in the subsequent year. For instance, Berkshire's net stock purchases totalled $14.2 billion in 2011, and the S&P 500 gained 13% in 2012.

As shown above, since 2010, the S&P 500 has returned a median of 13% during the 12-month period following years in which Berkshire was a net buyer of stocks. That means the index has actually performed better after years in which Berkshire was a net seller.

With that in mind, assuming Berkshire is still a net seller when the year ends, history says the S&P 500 will advance 19% in 2025. Of course, past performance is never a guarantee of future results, but that statistic should give investors pause. It would be nonsensical to avoid the market (or sell stocks) simply because Berkshire Hathaway was a net seller through the first half of 2024.

How investors should interpret Warren Buffett's $93 billion warning

Berkshire Hathaway's GAAP net worth, also known as book value, currently stands at $602 billion. By that measure, it is the most valuable company in the S&P 500, which limits the number of stocks that could have a material impact on its bottom line. Warren Buffett said as much in his latest shareholder letter:

There remain only a handful of companies in this country capable of truly moving the needle at Berkshire, and they have been endlessly picked over by us and by others. Some we can value; some we can't. And, if we can, they have to be attractively priced. Outside the U.S., there are essentially no candidates that are meaningful options for capital deployment at Berkshire. All in all, we have no possibility of eye-popping performance.

In that context, Buffett's $93 billion warning takes on new meaning. The fact that Berkshire was a net seller of stocks through the first half of 2024 may say more about its size than the current market environment. That does not mean investors should throw money at the market. Valuations are indeed elevated. The S&P 500 trades at 21.4 times forward earnings, a premium to the 10-year average of 18 times forward earnings.

However, Buffett's $93 billion warning is not cause for avoiding the market, nor is it a reason to sell large amounts of stock. Instead, investors should interpret it as a reminder to carefully consider valuations when buying stocks in the current market environment.

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

The post Warren Buffett sent Wall Street a $93 billion warning. History says the stock market will do this next appeared first on The Motley Fool Australia.

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

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

Nvidia (NASDAQ: NVDA) will announce its second-quarter results after the closing bell rings on Wednesday, August 28, 2024. The semiconductor company topped consensus estimates with its last four reports, so Wall Street analysts may have inflated expectations. But there is another reason the stakes are particularly high this time around.

Nvidia shares have advanced 126% year to date, making it the second-best performing stock in the S&P 500 behind Super Micro Computer. Investors are clearly excited about artificial intelligence (AI), perhaps too excited. Valuations are creeping higher and some experts think the "AI bubble" will burst in the not-too-distant future, at least temporarily.

In short, Nvidia shares could decline sharply following its second-quarter report on Aug. 28, either because the company misses estimates or because the market is nervous about the durability of AI spending. Is it safe to buy the stock right now?

The short-term outlook for Nvidia is clouded by high expectations and other concerns

Nvidia topped Wall Street's consensus revenue and earnings forecasts in each of the last four quarters. But the company beat estimates by increasingly small margins with each subsequent report. If that trend persists, Nvidia could miss expectations when it announces financial results for the second quarter of fiscal 2025 on Aug. 28.

The chart below shows how Wall Street's consensus revenue and non-GAAP earnings per share (EPS) forecasts compare to Nvidia's actual results last year.

Even if Nvidia beats estimates, the stock could still decline following the report if the market is disappointed with guidance. Businesses are currently spending heavily on artificial intelligence (AI) infrastructure, but spending could slow if return on investment (ROI) metrics fail to impress. Bank of America analysts recently wrote, "End-user companies and their investors will soon look for revenue to justify the [money] already spent."

However, Nvidia CFO Colette Kress plans to share ROI metrics on the upcoming earnings. That implies the company is not only aware that investors are concerned about the sustainability of AI spending, but also that it has encouraging data that could allay those concerns. It seems unlikely that Nvidia would tout ROI data under other circumstances.

Analysts at Goldman Sachs have a similar outlook. In a recent note, they expressed confidence the AI spending cycle is sustainable and that Nvidia will hold its "leadership position through consistent and rapid innovation across compute, networking, and software." The analysts also think Nvidia will beat consensus estimates when it announces second-quarter results.

That brings me to a third problem. Even if Nvidia beats estimates and provides convincing data about the sustainability of AI spending, the stock may still decline simply because investors take profits. Remember, Nvidia beat estimates in each of the last four quarters, but the stock did not always move higher on the news. Listed below is the price action on the trading day following the last four earnings reports.

• Q2 2024: The stock increased 0.1% on August 23, 2023.
• Q3 2024: The stock declined 2.5% on November 22, 2023.
• Q4 2024: The stock increased 16.4% on February 22, 2024.
• Q1 2025: The stock increased 9.3% on May 23, 2024.

Regarding the upcoming report, pricing data from the options market implies post-earnings share price volatility of 11%. In other words, options investors believe Nvidia stock could rise or fall by as much as 11% on Aug. 29. That figure is subject to change with each trading day between now and then.

The long-term outlook for Nvidia remains upbeat due to its durable competitive advantage in AI chips

Investors interested in owning Nvidia stock should ignore the potential volatility surrounding its second-quarter report. Instead, they should focus on the long-term investment thesis and the current valuation.

Nvidia is the market leader in graphics processing units (GPUs), semiconductors that have become the industry standard in speeding up compute-intensive data center workloads like analytics and machine learning. As a result, Nvidia also dominates the market for AI accelerators. "Nvidia's chips underpin all of the most advanced AI systems, giving the company a market share estimated at more than 80%," according to The Wall Street Journal.

Moreover, Nvidia is well positioned to maintain its leadership because there are no good alternatives to its CUDA platform, an ecosystem of software libraries and developer services that streamline data preparation, model training, and AI application development. Ben Colello at Morningstar recently wrote, "We believe Nvidia not only has a hardware lead, but benefits from high customer switching costs around CUDA, making it unlikely for another GPU vendor to emerge as a leader in AI training."

With that in mind, Wall Street expects Nvidia to grow adjusted EPS at 51% annually through fiscal 2026 (ends January 2026). That consensus estimate makes the current valuation of 62 times adjusted earnings look relatively reasonable. I say that because it gives Nvidia a PEG ratio of 1.2.

For context, using the same methodology, Microsoft currently carries a PEG ratio of 3, Arm Holdings has a PEG ratio of 4.1, and Palantir Technologies has a PEG ratio of 4.3. So the market is affording other AI companies higher valuation multiples. That does not mean Nvidia is cheap, but it does indicate that its current valuation is not an absurd deviation from other AI stocks.

Here's the bottom line: Investors looking for guaranteed short-term gains should avoid Nvidia stock. The near-term outlook is clouded by high expectations and uncertainty regarding the sustainability of AI spending. But investors focused on long-term gains should consider buying a small position. If Nvidia shares slip after the second-quarter report, they can treat it as a buying opportunity and build a slightly larger position (within their comfort zones).

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

The post Should investors buy AI stock Nvidia before August 28? appeared first on The Motley Fool Australia.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine has positions in Nvidia and Palantir Technologies. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bank of America, Goldman Sachs Group, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Microsoft and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

Nvidia Corp (NASDAQ: NVDA) and Alphabet Inc (NASDAQ: GOOG) (NASDAQ: GOOGL) delivered what can only be described as monster returns for shareholders over the last five years. The stocks surged 2,490% and 195%, respectively, while the S&P 500 Index (SP: .INX) advanced a mere 80%.

Better yet, that outperformance could continue in the coming years. Nvidia and Alphabet should benefit as businesses invest in artificial intelligence infrastructure, so much so that they could join Microsoft Corp (NASDAQ: MSFT) and Apple Inc (NASDAQ: AAPL) as members of the elite $3 trillion club in the near future.

Here's what investors should know.

Nvidia could be a $3 trillion company by the end of 2024

Nvidia currently has a market capitalization of $2.7 trillion, meaning shares would need to increase 11% for the company to reach a $3 trillion valuation. That could happen by the end of 2024. My reasoning is simple: Nvidia graphics processing units (GPUs) are the industry standard in accelerating complex data center workloads like artificial intelligence (AI), and businesses are spending money hand over first where AI is concerned.

Case in point, five large cloud computing companies — Alphabet, Amazon, Meta Platforms, Microsoft, and Oracle — will record $181 billion in capital expenditures (capex) this year, according to JPMorgan Chase estimates. That implies 36% growth in capex spending, a substantial acceleration from 10% growth last year, primarily due to AI infrastructure buildouts.

Few (if any) companies will benefit more than Nvidia. The chipmaker holds 98% market share in data center GPUs and up to 95% market share in AI processors, according to Mizuho Securities. Nvidia is also gaining momentum in other data center hardware categories. Its Grace central processing unit (CPU) is ramping toward a multibillion-dollar product line, and its InfiniBand/Ethernet networking platforms are already a multibillion-dollar business.

Indeed, Nvidia could cross the $3 trillion threshold when it announces second-quarter results on Aug. 28. Wall Street underestimated sales and earnings growth in each of the last four quarters. Another low estimate could cause the stock to pop, and such an outcome seems plausible. CFO Colette Kress recently said that demand for H200 and Blackwell GPUs is "well ahead of supply, and we expect demand may exceed supply well into next year."

Blackwell GPUs are state-of-the-art chips that can accelerate AI training and inference by factors of four and 30, respectively, compared to the previous Hopper generation. They are also more power efficient, such that they reduce the total cost of ownership by a factor of 25. CEO Jensen Huang recently told investors, "The Blackwell architecture platform will likely be the most successful product in our history."

Going forward, Wall Street expects Nvidia to grow earnings per share at 34% annually over the next three years. That makes its current valuation of 66 times earnings seem fairly reasonable, and it puts a $3 trillion valuation within easy reach. In fact, assuming earnings grow as quickly as analysts expect, Nvidia would be a $4 trillion company in 2026, even if shares trade at a more reasonable 45 times earnings.

Alphabet could be a $3 trillion company by the end of 2025

Alphabet currently has a market capitalization of $2.1 trillion, meaning shares would need to increase 43% for the company to achieve a $3 trillion valuation. That could happen by the end of 2025. Alphabet is the largest adtech company and third-largest cloud infrastructure provider worldwide. Grand View Research expects those markets to grow at annual rates of 22% and 21%, respectively, through 2030.

Building on that, Alphabet has invested billions of dollars in AI product development over the years. Indeed, Forrester Research recently recognized its dominance in AI infrastructure solutions, and the company is bringing that expertise to bear on its adtech and cloud computing businesses.

Alphabet recently added a conversational feature in Google Ads that lets brands create campaigns with natural language. It also introduced AI-powered image generation and profit-optimization tools to boost conversion rates. Those innovations should keep Google top of mind for advertisers. Additionally, CEO Sundar Pichai says AI Overviews in Google Search are boosting engagement and increasing user satisfaction, which should allay concerns about the company losing share in internet search.

Additionally, Alphabet has drawn more than 1.5 million developers to Google Cloud with Gemini, a multimodal model that can process language, images, video, audio, and computer code. The company is monetizing Gemini in several ways. For instance, Gemini powers a conversational assistant that automates tasks in Google Workspace applications, and it powers a conversational assistant that accelerates coding projects. Also, Gemini can be fine-tuned and used to build custom generative AI applications.

Investment bank UBS recently published a report (Artificial Intelligence: Sizing and Seizing the Investment Opportunity) that divides the AI value chain into three layers: the enabling layer, the intelligence layer, and the application layer. UBS analysts wrote, "We see the largest near-term opportunities in the enabling layer," which includes semiconductor companies like Nvidia and cloud computing companies like Alphabet.

With that in mind, Wall Street expects Alphabet to grow earnings per share at 17% annually over the next three years, yet shares trade at a relatively inexpensive valuation of 24 times earnings. By comparison, Wall Street expects Microsoft to grow earnings per share at 14% annually, yet the stock commands a relatively pricey valuation of 37 times earnings.

If Alphabet meets those expectations and the market affords the stock the same valuation as Microsoft, it would be a $4 trillion company by the end of 2025. In that context, reaching $3 trillion is easily achievable, and investors should consider buying a position in this stock today.

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

The post 2 monster AI growth stocks to buy before they join Microsoft and Apple as U$3 trillion companies 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. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. 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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Apple, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, 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 Alphabet, Amazon, Apple, 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 Nasdaq Composite has plunged deep into bear market territory, dragged down by deteriorating investor sentiment in the face of high inflation and rising interest rates. In fact, the tech-heavy index is now 34% off its high, marking its steepest decline in the last decade.

On the bright side, that broad downturn has created a wealth of buying opportunities for patient investors. For instance, in spite of temporary macroeconomic headwinds, the future looks bright for Microsoft (NASDAQ: MSFT) and Arista Networks (NYSE: ANET), and both stocks are trading at discounted valuations compared to historical price-to-earnings multiples.

Microsoft: An arsenal of critical software and cloud services  

Microsoft breaks its operations into three segments, each packed with widely adopted products. The first is Productivity and Business Processes, at the heart of which is Microsoft 365, the most popular collection of enterprise applications on the planet. In addition to the well-known Office software suite, Microsoft 365 includes market-leading products like Defender and Azure Active Directory for cybersecurity, and Microsoft Teams for communications.

The second segment is Intelligent Cloud, which houses Microsoft SQL Server, the third-most-popular database. But cloud computing platform Microsoft Azure is the heart of this segment. Azure captured 21% market share in cloud infrastructure services in the second quarter, second only to Amazon Web Services. 

The final segment is More Personal Computing, which features Xbox hardware and content, the ubiquitous Windows operating system, and the Bing search engine. But the most exciting part of this segment is advertising. Last year, Microsoft acquired ad tech platform Xandr from AT&T, and Netflix recently selected Microsoft as the ad tech vendor that will power its soon-to-launch ad-supported streaming service.

Broadly speaking, Microsoft's arsenal of critical software products and cloud services makes it resilient, and that advantage has helped the company churn out solid financial results in spite of the difficult economic environment. Over the past year, revenue rose 18% to $198 billion, while free cash flow ticked up 16% to $65 billion. But Microsoft still has room to expand, especially in cybersecurity, cloud computing, and digital advertising.

In fact, the cybersecurity market will grow 12% annually to reach $500 billion by 2030, while the cloud computing market will grow 16% annually to reach $1.5 trillion, according to Grand View Research. Meanwhile, online video advertising spend will increase 14% annually to reach $362 billion by 2027, according to Omdia. Netflix is expected to be a key player in that market, which bodes well for Microsoft.

Currently, Microsoft stock is 32% off its high, and shares trade at 23.7 times earnings, a bargain compared to its five-year average of 35.1 times earnings. That's why investors may regret passing on this growth stock.  

Arista Networks: Technology that powers the cloud

Arista has become the gold standard in high-speed data center networking. Its portfolio includes switching and routing platforms, wireless access points, and adjacent software for network automation, monitoring, and security. Those technologies allow customers to deploy a seamless network across public clouds, private clouds, and enterprise campus environments.

Arista says its principal innovation is the Extensible Operating System (EOS), the uniquely programmable software that runs across every piece of its hardware. That programmability makes Arista's networking platforms very flexible, allowing customers to easily integrate and deploy third-party applications. Additionally, by running a single version of EOS across every switch and router, Arista makes network management less complex and costly compared to vendors like Cisco, which requires customers to run different versions of multiple operating systems across its hardware.

In short, Arista's networking platforms offer industry-leading speed and power efficiency at a lower total cost of ownership. Those selling points have helped it win more than 8,000 customers, including cloud computing giants like Microsoft and Meta Platforms. In turn, Arista has delivered solid financial results on a relatively consistent basis. Revenue climbed 33% to $3.5 billion over the past year, and earnings soared 41% to $3.24 per diluted share.

Looking ahead, Arista is well positioned to maintain that momentum. Data centers will need faster networks to support the ongoing adoption of cloud computing, the growing number of connected devices (e.g. the Internet of Things), and the development of data-intensive applications (e.g. artificial intelligence). That should drive demand for Arista's networking products in the coming years. In fact, management says its addressable market will grow from $23 billion in 2021 to $35 billion by 2025.

Currently, Arista stock is down 27% from its high, and shares trade at 30.8 times earnings, a slight discount to its three-year average of 33.5 times earnings. That's why this growth stock looks like a buy right now. 

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

The post Nasdaq bear market: 2 magnificent US growth stocks you'll regret not buying on the dip 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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Trevor Jennewine has positions in Amazon and Arista Networks. 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, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, Arista Networks, Cisco Systems, Meta Platforms, Inc., Microsoft, and Netflix. The Motley Fool Australia has recommended Amazon, Arista Networks, Meta Platforms, Inc., and Netflix. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Since buying his first stock at age 11, Warren Buffett has amassed $90 billion in wealth and become one of the best-known figures in finance. Buffett's ability to pick winning investments is nothing short of extraordinary, and Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) has achieved immense success under his leadership. In fact, Berkshire stock skyrocketed more than 3,600,000% between 1964 and 2021, and Buffett had racked up more than $177 billion in unrealized gains through Berkshire's portfolio as of June 30, 2022.

With credentials like that, it's no surprise that Buffett has become a legend in his own time. Upward of 40,000 people flock to Nebraska each year to attend the annual Berkshire shareholders meeting, eager to hear Buffett -- known as the 'Oracle of Omaha' -- share his thoughts on investing philosophy and the broader economy.

Naturally, Buffett has offered up many pearls of wisdom over the years, but one piece of advice is particularly relevant right now.

Warren Buffett made a big bet in 2007 (and won)

Buffett issued a challenge to the investing world in December 2007. He wagered $500,000 that no professional investor could select a set of five hedge funds -- actively managed investment products with high fees -- that would outperform a passively managed S&P 500 index fund over the following 10 years.

Only one advisory firm, Protégé Partners, accepted that challenge. The firm tasked five professional investors (each of whom employed dozens of investing experts) with managing one hedge fund a piece. In total, Protégé had 200-plus hedge fund managers bent on beating Buffett.

The bet started in January 2008 -- as the S&P 500 was collapsing under the weight of the Great Recession, an event that ultimately erased 56% of its value -- and it ran through December 2017. Buffett emerged victorious, and he won by a wide margin. The S&P 500 delivered a total return of 125.8% during that period, while the best-performing Protégé fund was up just 87.7%. It's worth noting the worst-performing Protégé fund did so poorly it was liquidated in 2017.

An S&P 500 index fund is a great option for most investors

Investors can learn a lot from that story. Buffett beat hundreds of highly-trained professional investors, and he beat them without doing any work. A passively-managed S&P 500 index fund simply mirrors the composition (and, therefore, tracks the performance) of the S&P 500. Meanwhile, Protégé had hundreds of hedge fund managers actively buying and selling investments throughout the 10-year period. They did a lot of work and they achieved a worse result.

That anecdote explains why Buffett has consistently recommended a low-cost S&P 500 index fund for most investors. In 2017, he urged investors to "keep buying [an S&P 500 index fund] through thick and thin, and especially through thin."

That advice is still relevant today -- in fact, it's especially relevant in this challenging environment. High inflation and rising interest rates have sent the stock market tumbling, and the S&P 500 is currently 25% off its high. That puts the index in a bear market, or a clear example of the "thin" times Buffett previously mentioned, and investors would do well to take Buffett's advice regarding an S&P 500 index fund.

Another option for investors

Over the past decade, Berkshire Hathaway stock has virtually mirrored the performance of the S&P 500. But Berkshire stock has a five-year beta of 0.89, meaning it tends to rise and fall less dramatically than the overall market. That makes Berkshire stock a reasonable investment option for Buffett fans who find an S&P 500 index fund a little too volatile.

Berkshire has accumulated a number of businesses that operate across several critical industries, including insurance company GEICO, railway operator Burlington Northern Santa Fe, and industrial specialists Precision Castparts and Lubrizol, among others. Berkshire also owns 92% of Berkshire Hathaway Energy, which itself has several subsidiaries involved in electricity and natural gas utilities.

That diversification makes Berkshire financially resilient. Case in point: It has increased free cash flow per share at 6% annually over the past 15 years, despite weathering a couple of recessions during that time. Of course, no company is immune to an economic downturn, but Berkshire’s resilience is an advantage in the current environment.

In addition, the company has more than $105 billion in cash and short-term investments on its balance sheet. That war chest leaves Buffett with plenty of capital to deploy should he come across any bargain investments in the bear market.

Of course, investors don’t have to choose between an S&P 500 index fund and Berkshire. It’s OK to own both -- I doubt Buffett would disapprove.

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

The post Looking for the best stocks to buy in a bear market? Here's Warren Buffett's advice 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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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares). The Motley Fool 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 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 held over $327 billion in equity securities through Berkshire Hathaway at the end of the second quarter, and more than half of that sum was invested in just three companies: Apple, Bank of America, and Coca-Cola, all of which have been huge winners for Buffett. But certain Wall Street analysts see a lot of upside for some of Berkshire's smaller holdings.

For instance, John Blackledge of Cowen Group has a price target of $215 per share on Amazon (NASDAQ: AMZN), which implies 91% upside from its current price. Similarly, Keith Weiss of Morgan Stanley has a price target of $274 per share on Snowflake (NYSE: SNOW), which implies 80% upside from its current price.

Of course, investors should never put too much weight on Wall Street's near-term price targets, but both of these Warren Buffett stocks are still worth buying today. Here's why.

Amazon: Retail, cloud computing, and digital advertising

High inflation has hit many retailers hard in the past year, and Amazon is no exception. The rising cost of fuel and labor, compounded by continued investments in fulfillment infrastructure, have weighed heavily on its financial performance. In fact, Amazon has now posted a GAAP loss for two consecutive quarters. But its struggles are the result of temporary macroeconomic headwinds, not a broken investment thesis. The future still looks very bright for Amazon.

Global retail e-commerce sales are expected to increase at 10% per year to reach $7.4 trillion by 2025, according to eMarketer, and Amazon is the most popular online marketplace in the world as measured by monthly visitors. That significant scale is the foundation of a powerful network effect. Specifically, sellers naturally gravitate to the most popular marketplace, and that tends to bring more buyers to the platform, creating a virtuous cycle. That should keep Amazon on the leading edge of the e-commerce industry for years to come.

Additionally, cloud computing spending is expected to grow faster than 15% per year to surpass $1.5 trillion by 2030, according to Grand View Research, and Amazon Web Services (AWS) led the cloud infrastructure space with 34% market share in the second quarter. Better yet, research company Gartner says AWS has consistently positioned itself as the innovation leader, and that attribute should keep it ahead of the competition for years to come.

Finally, global digital ad spend is expected to climb at 10% per year to reach $876 billion by 2026, according to eMarketer, and Amazon has quietly become an advertising powerhouse. In fact, it is the fourth-largest digital advertiser in the world, behind Alphabet, Meta Platforms, and Alibaba. That success stems primarily from the popularity of its online marketplace, though its streaming platform (Amazon Fire TV) has also played a role. In both cases, investors have good reason to believe Amazon will retain its strong market position, meaning the company is well-positioned to gain ground in digital advertising.

Shares currently trade at 2.4 times sales, a bargain compared to the three-year average of 3.8 times sales. Investors should jump on this opportunity and buy a few shares of this Warren Buffet stock. That said, 91% upside in the near term may be a bit optimistic, especially in the current macroeconomic environment. 

Snowflake: Big data analytics

Snowflake helps businesses harness the power of big data. Its platform supports a range of workloads that would otherwise require multiple point solutions, including data ingestion, transformation, storage, and analytics. The Snowflake Data Cloud also enables customers to share data across their organizations, and it includes developer tools that simplify the building of data-intensive applications. That broad utility gives Snowflake an edge over other vendors.

Additionally, Snowflake offers industry-specific versions of its Data Cloud. For example, its Financial Services Data Cloud includes data sets and solutions tailored to financial service providers, and it has seen adoption by companies like Block and Mastercard. That portion of Snowflake's go-to-market strategy reduces friction for customers and accelerates time to value, and it has helped drive demand.

Snowflake increased its customer count 36% to 6,808 over the past year, and the average customer upped their spending by 71% during that time. In turn, revenue soared 92% to $1.6 billion, and the company generated positive free cash flow of $293 million, up from a loss of $43 million in the prior year.

Going forward, Snowflake puts its market opportunity at $248 billion by 2026, and given its strong financial track record investors have good reason to be bullish. Shares currently trade at 29.2 times sales -- not a cheap valuation by any means, but still a discount to the average of 86.6 times sales since Snowflake went public in 2020. That creates a buying opportunity for risk-tolerant investors, though I would keep your position small (no more than 2% of a portfolio) at the present time, and I certainly wouldn't count on 57% 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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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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revor Jennewine has positions in Amazon, Block, Inc., and Mastercard.  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. Bank of America is an advertising partner of The Ascent, a Motley Fool company. 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. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Block, Inc., Mastercard, Meta Platforms, Inc., and Snowflake Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2024 $47.50 calls on Coca-Cola, long March 2023 $120 calls on Apple, and short March 2023 $130 calls on Apple. The Motley Fool Australia has positions in and has recommended Block, Inc. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Mastercard, and 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.

The stock market has been rocked by high inflation and rising interest rates this year. The broad-based S&P 500 and the tech-heavy Nasdaq Composite have fallen for three consecutive quarters, marking their longest losing streak since the tail end of the Great Recession in 2009. Both indexes have dropped into a bear market with the S&P 500 currently 22% off its high and the Nasdaq Composite down 31%.

Losses of that magnitude can leave investors feeling uncertain or even fearful. Those emotions often lead to poor judgment, and that can result in lasting damage to your portfolio. Fortunately, Warren Buffett and Peter Lynch have imparted some relevant wisdom over the years, and investors would do well to consider their advice.

Advice from Warren Buffett

Warren Buffett is often called the "Oracle of Omaha," a reference to his uncanny stock-picking abilities and his residence in Nebraska. Buffett built that reputation over several decades, using Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) to fund his investing activities. Berkshire stock is up more than 3,600,000% since he took the helm in 1964, and the company has grown into a $600 billion behemoth. Not surprisingly, Buffett has become a sort of North Star for many investors.

During the Great Recession, Buffett wrote an opinion piece for The New York Times, and one quote, in particular, has become part of investing lore. He first mentioned the abysmal state of the stock market, then went on to say, "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful." Those words have been repeated countless times since then, but they are especially relevant in the current bear market.

Fear is everywhere right now. Inflation hit a 40-year high earlier this summer, interest rates are rising at a pace not seen since the 1980s, and several other scary things -- geopolitical conflict, supply chain disruptions, and pandemic lockdowns -- have left the financial world in a state of alarm. But historical data suggests bear markets are the best time to buy stocks, and Buffett's words echo that sentiment.

To be clear, the stock market downturn may drag on for months or even years, but Buffett has consistently advocated for a long-term mentality. In his op-ed piece, he noted investors were right to be worried about businesses in weak competitive positions, but "fears regarding the long-term prosperity of the nation's many sound companies make no sense." And there are plenty of sound companies around today.

Advice from Peter Lynch

Peter Lynch became an investing legend while managing the Magellan Fund at Fidelity. Under his stewardship, the fund earned an annualized return of 29.2%, growing more than twice as fast as the S&P 500. That took place between 1977 and 1990, a period in history defined by global oil shocks, rampant inflation, and high interest rates. Sound familiar?

Lynch led the Magellan Fund for just 13 years, but he battled two bear markets and six market corrections during that time. That makes his outperformance even more impressive, and it makes his opinions all the more credible. With that in mind, Lynch once said, "The real key to making money in stocks is not to get scared out of them."

The stock market is currently in a state of disarray, and many investors may be tempted to cut their losses by cashing out. But I think Lynch would recommend the opposite. He once said, "A correction is a wonderful opportunity to buy your favorite companies at a bargain price." 

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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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares). The Motley Fool 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.    

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

Countless factors affect stock prices on a daily basis. Some are very broad like global events and macroeconomic trends. Others are more narrow: company-specific news or changes to analyst price targets. But all of those things affect investor sentiment to some degree, making it impossible to predict which direction a stock (or even the broad market) will move in the short term.

You may hear stories about day traders who made a fortune overnight. Well, some lucky people have also become millionaires by playing the lottery, but that doesn't mean you should invest your money in lottery tickets. Several studies have shown the vast majority of day traders actually lose money, and the ones who manage to turn a profit often make less than minimum wage.

Put simply, the best way to make money in the stock market is a long-term investment strategy. For instance, the S&P 500 has produced a positive return 100% of the time over any 20-year window between 1919 and 2021, according to Crestmont Research. That means patient investors who held an S&P 500 index fund for at least two consecutive decades (at any point over the last century) always made money.

Here is one way to benefit from that information.

A simple way to make money in the stock market

The Vanguard S&P 500 ETF (NYSEMKT: IVOO) is a passively managed fund that tracks the performance of the S&P 500, which includes 500 of the largest U.S. companies. That may be less exciting than buying individual stocks, but there are several advantages to this strategy investors should consider.

First, the Vanguard S&P 500 ETF offers instant diversification across all 11 market sectors, and investors get exposure to some of the most valuable brands in the world. For instance, the top 20 holdings include industry-leading names like Apple, Inc. (NASDAQ: AAPL), Microsoft Corporation (NASDAQ: MSFT), Amazon.com, Inc.(NASDAQ: AMZN), The Home Depot, Inc.(NYSE: HD), Mastercard Incorporated(NYSE:MA), Visa Inc. (NYSE: V), UnitedHealth Group (NYSE: UNH), Johnson & Johnson (NYSE: JNJ), Tesla Corp Ltd (NASDAQ: TSLA), Alphabet Inc. (NASDAQ: GOOG) (NASDAQ: GOOGL), and ExxonMobil Corporation (NYSE: XOM).

Second, the Vanguard S&P 500 ETF is cheap and time-efficient. It bears an expense ratio of 0.03%, meaning investors would pay only $1.50 per year in fees on a $5,000 portfolio. Additionally, it requires very little work, because there is no need to research specific companies or stay up to date on financial results. Investors can simply buy the ETF and forget about it.

In short, while it may be boring, buying an S&P 500 index fund is a simple, inexpensive, and time-tested path to making money in the stock market. That's why Warren Buffett has often advocated for this investment strategy.

Third, the Vanguard S&P 500 has generated a total return of 206% over the last decade, which is equivalent to an annualized return of 11.8%. At that pace, $100 invested on a weekly basis would grow into a $1 million portfolio in 28 years, and it would grow into a $2 million portfolio in 34 years.

How I manage my portfolio

An S&P 500 index fund does not have to be your only investment. Personally, I keep a certain percentage of my portfolio in the Vanguard S&P 500 ETF, but I also own dozens of individual growth stocks. I think of the S&P 500 index fund as a sort of safety net, a reliable money maker in the long run.

Of course, nothing is truly guaranteed when it comes to the stock market, but the S&P 500 has undeniably produced a positive return over every rolling 20-year period since 1919. And that knowledge makes me feel comfortable taking a little more risk with my other investments.

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. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon, Mastercard, Tesla, Vanguard S&P 500 ETF, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Home Depot, Mastercard, Microsoft, Tesla, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Johnson & Johnson and UnitedHealth Group and 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 Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Mastercard. 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.

Tesla (NASDAQ: TSLA) recently hosted its annual meeting in Texas, where shareholders voted in favor of a 3-for-1 stock split. The split itself has yet to be scheduled, but it will be Tesla's second stock split in just over two years, and many investors see that as a bullish sign.

The pending stock split may have been the headline for some investors, but the most important part of the shareholder meeting was the commentary provided by CEO Elon Musk. He first touted Tesla's profitability, noting that the company had achieved an industry-leading operating margin over the past year. That success stems from a relentless pursuit of efficiency through factory design and automation, and innovations like single-piece casting and low-cost battery cells. And Tesla is set to become even more efficient in the future.

To be clear, splitting a stock has no impact on a company's market cap, a share's intrinsic value, or important fundamentals like profitability. Splits simply make a stock more accessible by lowering the share price. But lowering the price is only necessary after significant share price appreciation, which implies strong execution from a business perspective.

Looking ahead, Musk says Tesla could achieve a production run-rate of 2 million vehicles by the end of this year, and he reiterated the goal of 20 million vehicles by the end of the decade. To make that happen, Tesla plans to build 10 to 12 Gigafactories over time, and the next factory location could be announced later this year.

With that in mind, is it time to buy Tesla stock?

Details from the Tesla shareholder meeting

The recently opened Gigafactory Berlin will reduce logistics costs by localizing the company's European operations, meaning fewer cars will need to be shipped to Europe from the factories in the U.S. and China. Tesla also plans to implement 4680-style battery cells in earnest next year, a technology that will cut battery production costs in half. That's especially impressive because Tesla already pays less to produce battery packs than any other automaker, according to Cairn Energy Research Advisors, and battery packs are the most expensive part of an electric car.

Tesla has an ambitious roadmap

Financially, Tesla is firing on all cylinders. Strong demand and unrivaled efficiency have fueled truly impressive growth over the past year. Trailing-12-month revenue rose 60% from the prior year to $67.2 billion and free cash flow soared 165% to $6.9 billion. But those figures account for a small fraction of what the company could be.

During the shareholder event, Musk noted that Tesla is equal parts software company and hardware company, echoing his belief that full self-driving (FSD) software will eventually be the most important source of profitability for the car business.

On that note, Tesla has a significant edge in FSD technology. Its vehicles have been equipped with autopilot hardware for years, enabling the company to capture more than 35 million miles (and counting) worth of autonomous driving data. That's more than any other automaker, and high-quality data is the cornerstone of artificial intelligence.

Tesla currently trades at 15.1 times sales, an incredibly rich valuation for a car company. But Tesla may look more like a software company a decade down the road, which would make its current valuation quite reasonable. With that in mind, patient investors should consider buying a few shares of this growth stock right now.

With that in mind, Tesla has a robotaxi slated for volume production in 2024, and the company eventually plans to start an autonomous ride-hailing service. That could dramatically change the nature of the business. Robotaxis would likely generate huge sums of recurring revenue at very high margins. In fact, analysts at UBS Investment Bank say the robotaxi market will be worth at least $2 trillion by 2030, while Ark Invest analysts project ride-hailing platforms could generate $2 trillion in profits by 2030.

There is one more piece of the puzzle: the autonomous humanoid robot codenamed Optimus. Musk believes Optimus will ultimately be worth more than the car business, and that its success will make Tesla the most valuable company in the world in time.

Is Tesla's stock a buy?

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

The post Tesla shareholders approved a 3-for-1 stock split — is the stock a buy? 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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Trevor Jennewine has positions in Tesla.  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.

Recession fears have weighed heavily on the stock market through the first half of the year. In fact, the broad S&P 500 had its worst first half since 1970, and the Nasdaq Composite is currently 25% off its high, putting the tech-heavy index in bear market territory.

On the bright side, tumbling prices mean that many stocks are now trading at discounts to their historical valuations, and that creates an opportunity for patient investors. Here are two growth stocks worth buying right now.

1. Roku

Roku (NASDAQ: ROKU) helped pioneer the streaming industry. In 2008, it brought the first streaming player to market, not long after Netflix introduced the first streaming service. Today, RokuOS is still the only operating system purpose-built for television, and its viewer-friendly reputation has led to partnerships with a growing number of television manufacturers. That has helped Roku position itself as the most popular streaming platform in the US, Canada, and Mexico.

Meanwhile, Roku has also built a powerful ad tech platform, OneView, which enables advertisers to deliver targeted campaigns across connected TV (CTV), mobile, and desktop devices. That means Roku can monetize advertising whether or not it owns the inventory.

In the first quarter, Roku reported a 14% increase in streaming hours, marking a deceleration in engagement. But that came on the back of a pandemic-driven acceleration in the prior year, when viewing time soared 49%. More importantly, Roku still outpaced the industry average of 10% growth, meaning it gained market share. That led to reasonably strong financial results, as revenue rose 44% to $2.9 billion and cash from operations climbed 18% to $234 million.

Turning to the future, investors have good reason to be bullish. US viewers currently spend 46% of their television time on streaming, but advertisers spend just 18% of their television budgets on streaming. In the coming years, investors should expect more ad dollars to shift to streaming platforms, and Roku is well-positioned to benefit from that trend.

On that note, global television ad spend will reach $344 billion by 2026, according to IMARC Group, and Roku CEO Anthony Wood believes all television advertising will eventually be streamed. That creates a tremendous opportunity for the company.

Shares currently trade at 4.7 times sales, much cheaper than the three-year average of 15.5 times sales. That's why this growth stock is a screaming buy.

2. Block

Block (NYSE: SQ) breaks its business into two segments: Square and Cash App. Through the Square ecosystem, sellers can provision all of the hardware, software, and services they need to run a business across online and offline locations. That differentiates Block from traditional merchant acquirers (e.g. banks), which often bundle products from different vendors, leaving merchants with a patchwork of solutions that must be manually integrated.

The Cash App ecosystem takes a similarly disruptive approach. Consumers can deposit, send, spend, and invest money from a single mobile app, and they can file their taxes for free. Better yet, where banks with physical branches typically pay at least $300 to acquire a new customer, Block pays just $10 to acquire a new Cash App user, making its business model much more efficient.

In short, Block is disrupting the financial services industry for both merchants and consumers, and that has translated into strong financial results. In the past year, gross profit climbed 50% to $4.8 billion and the company generated $965 million in free cash flow, up from a loss of $344 million in the prior year.

Looking ahead, Block is well-positioned to grow its business. The company is working to unlock synergies between Square and Cash App by integrating Afterpay -- its recently acquired "buy now, pay later" (BNPL) platform -- into both ecosystems.

Specifically, Square sellers will be able to accept BNPL online and in person. That should drive sales growth, simply because BNPL tends to boost transaction volume. But those sellers will also be able to use shopper data to deliver targeted recommendations to consumers through the Cash App, which could further boost sales.

Currently, Block puts its addressable market in the U.S. at $190 billion in gross profit, but the company also operates in Canada, Japan, Australia, and the U.K., and it recently entered Ireland, Spain, and France. That means Block has a long runway for growth, and with shares trading at 2.3 times sales -- near the cheapest valuation in the past five years -- now is a great time to buy this growth stock.

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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Trevor Jennewine has positions in Block, Inc. and Roku. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Block, Inc., Netflix, and Roku. The Motley Fool Australia has positions in and has recommended Block, Inc. 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.

Tesla (NASDAQ: TSLA) battled several headwinds in the second quarter ended June 30, including a difficult macroeconomic environment and COVID-related lockdowns leading to a three-week closure at Gigafactory Shanghai in China. But the trouble didn't stop there. Shortly after the factory reopened, supply chain problems brought production to a near-standstill in May. Collectively, those obstacles caused a substantial deceleration in production and delivery totals compared to the prior year, and both metrics declined sequentially. 

On a related note, uncertainty surrounding the COVID situation in China led Tesla's management to sell about 75% of its Bitcoin. That move bolstered its balance sheet with $936 billion in additional cash, but Bitcoin was still a headwind to profitability, as its value dropped sharply during the ongoing crypto market crash.

Even so, Tesla beat Wall Street's estimates on both the top and bottom lines. Revenue climbed 42% to $16.9 billion and non-GAAP earnings soared 57% to $2.27 per diluted share. After that solid performance, is the stock a buy?

Manufacturing efficiency

CEO Elon Musk has often said manufacturing efficiency will be Tesla's strongest competitive advantage and the company is making good on that promise. Tesla delivered an industry-leading operating margin of 14.6% in Q3 2021, and the company hit that mark again in Q2 2022, despite inflationary pressure and the cost of scaling new factories in Germany and Texas. 

What's driving that efficiency? In the shareholder letter, management noted that innovations like large casting and parts consolidated led to a 70% drop in robot count per unit of capacity in the new factories. Tesla also pays less to produce battery packs -- the most expensive part of an electric car -- than any other automaker, giving the company a cost advantage. Better yet, Tesla plans to more aggressively integrate its proprietary 4680 battery cells into vehicles next year, further extend its competitive edge.

Additionally, Gigafactory Shanghai has localized production in China, lowering logistics costs for Tesla by reducing the number of vehicles shipped across the ocean on boats. Tesla should see a similar benefit in Europe as Gigafactory Berlin continues to scale throughout the year.

Here's the bottom line: Under the circumstances, Tesla posted impressive financial results in the second quarter. More importantly, the company is still guiding for 50% annual growth in deliveries over the long term, and several upcoming catalysts should make Tesla even more efficient. But with a P/S ratio of 14.3 times sales, the stock still looks very expensive compared to other automakers.

Artificial intelligence and robotics

Musk believes people will eventually think of Tesla as an artificial intelligence and robots company, not just an automaker or an energy company. To support that claim, Tesla has become highly proficient in semiconductor and supercomputer design, and with more than 2 million autopilot-enabled vehicles on the road, Tesla has more data (i.e. more autonomous driving miles) than any rival, which gives the company an edge in the race to build a fully autonomous car.

That's important because management says full self-driving (FSD) technology will ultimately be the largest source of profitably for the company. On that note, Tesla plans to make its FSD Beta software generally available across North America by the end of the year. Better yet, it has a robotaxi slated for production in 2024, and it plans to launch an autonomous ride-hailing network in the future, entering a market that Ark Invest believes could generate $2 trillion in profits per year by 2030.

Perhaps more exciting, Musk believes Optimus -- an autonomous human robot -- could eventually eclipse the car business in terms of value. Tesla is set to host an AI Day later this year, and I bet management will have a lot to say on the subject.

Is the stock a buy?

Tesla is currently an $824 billion business, which means the company is worth more than the next 10 automakers combined. Investors clearly expect great things and those expectations are baked into the stock price, at least to some degree. That makes the stock especially risky in the short term.

However, Tesla has demonstrated its capacity for innovation on countless occasions, and the company is well positioned to revolutionize the transportation industry in the coming years. For that reason, I think it's worth buying this growth stock, though I wouldn't make it more than 3% of my portfolio. 

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

The post Tesla beats earnings estimates and sells Bitcoin — Is the stock a buy? 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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Trevor Jennewine has positions in Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin and Tesla. The Motley Fool Australia owns and has recommended Bitcoin. 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 May 2021, Warren Buffett offered advice to investors at Berkshire Hathaway's annual meeting. For context, the stock market was soaring at the time -- the S&P 500 had climbed 48% in the previous 12 months -- fueled by unbridled enthusiasm brought on by stimulus checks, low interest rates, and the reopening of businesses in the wake of the pandemic. But Buffett's words were sobering. 

He told his audience that many new investors were essentially gambling. Buffett also expressed his belief that index funds were a better option than individual stocks for the average person. Specifically, he recommended holding an index fund comprised of a diversified group of U.S. equities over a long time horizon.

Of course, the macroeconomic environment looks much different today. Rampant inflation and rising interest rates have caused the S&P 500 to crater, sending the benchmark index into bear market territory. But inflation hit a fresh 40-year high in May, so things may get worse before they get better. The S&P 500 is currently 23% off its high, but there have been six bear markets in the last 50 years, and the index dropped by over 45% on three of those occasions. 

Building on Buffett's advice, here is one investment strategy that could help your portfolio weather the current downturn.

A diversified index of dividend stocks

Many dividend stocks outperform the market during downturns, especially those that regularly raise their payouts. The reason for that is simple. Only high-quality businesses generate enough cash to consistently pay shareholders a dividend that increases over time. If you reconcile that idea with Buffett's advice, the Vanguard High Dividend Yield ETF (NYSEMKT: VYM) looks like an attractive investment idea right now. 

The Vanguard High Dividend Yield ETF comprises 443 U.S. stocks that span 10 market sectors, though 55% of the fund is allocated to consumer staples, energy, utilities, industrials, and healthcare, all of which tend to outperform in inflationary environments. Another 20% of the fund is invested in the financial sector, which tends to outperform in rising interest rate environments. To that end, the Vanguard High Dividend Yield ETF is currently just 14% off its high, easily outpacing the 23% decline in the broader S&P 500.

Also noteworthy, four of the index fund's top 10 positions are stocks Buffett owns through Berkshire Hathaway. That includes Chevron and Bank of America, which account for 19% of Berkshire's investment portfolio. Better yet, the Vanguard High Dividend Yield ETF bears an expense ratio of just 0.06%, meaning you would pay just $6 on a $10,000 portfolio, and its dividend yield currently sits at 2.72%, meaning a $10,000 portfolio would generate $272 in passive income each year.

As a caveat, while the Vanguard High Dividend Yield ETF has significantly outperformed the broader S&P 500 over the past year, especially when accounting for dividend payments, the S&P 500 typically wins in the long run. For instance, the S&P 500 has generated a total return of 65% over the past five years, while the Vanguard High Dividend Yield ETF has generated a total return of 47%.

However, you can't put a price on peace of mind. If your current portfolio composition has you worried about the impact of runaway inflation, consider starting a position in this index fund. I think Warren Buffett would like the idea. 

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

The post Worried about inflation? 1 investment strategy that Warren Buffett likes 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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Trevor Jennewine has no position in any of the stocks mentioned. Bank of America is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended 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), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

The Nasdaq Composite fell 9% in the first quarter, as many investors weighed concerns about the strength of the economy. Even so, a wave of Form 13-Fs recently filed with the US Securities and Exchange Commission suggests that some asset managers remain bullish on growth stocks.

In the first quarter, billionaire Chase Coleman of Tiger Global Management added over a million shares of CrowdStrike Holdings (NASDAQ: CRWD) to his hedge fund, making it the third-largest position in the portfolio. Likewise, billionaire James Simons of Renaissance Technologies doubled down on Tesla (NASDAQ: TSLA), and the stock now ranks as the second-largest holding in his hedge fund.

Clearly, these professional money managers see something they like in both companies. But let's take a closer look before you add them to your own portfolio. Here's what you should know.

1. CrowdStrike Holdings

CrowdStrike is the gold standard in endpoint and cloud workload security. Its cloud-native architecture is the foundation of that success, as it allows the company to crowdsource tremendous amounts of data from the devices on its network. In fact, its Falcon platform captures trillions of security signals each week, and it leans on artificial intelligence (AI) to surface insights and prevent cyberattacks.

That forms a powerful network effect. Each new data point makes CrowdStrike's AI models a little better at identifying malicious activity, meaning each new customer creates incremental value for all existing customers and vice versa. To add, CrowdStrike has further differentiated itself with a broad suite of software beyond endpoint and cloud workload security, including solutions for identity protection, threat intelligence, and managed services.

Financially, CrowdStrike is firing on all cylinders. Its customer base jumped 65% to 16,325 in the past year, and the average customer spent 24% more, evidencing the successful execution of its land-and-expand growth strategy. In turn, revenue climbed 66% to $1.4 billion and free cash flow jumped 51% to $442 million.

Looking ahead, CrowdStrike is well-positioned to maintain that momentum. The company puts its market opportunity at $67 billion by 2024, and its capacity for innovation should keep it on the cutting edge of cybersecurity. For example, CrowdStrike recently debuted the industry's first fully managed identity threat protection service. That means organizations that lack the time or talent to handle their own security can outsource it to CrowdStrike. And adding identity protection to that service is especially significant because 80% of cyberattacks start with compromised credentials.

In summary, CrowdStrike has a strong presence in a critical industry, and its market opportunity should only get bigger as digital transformation creates more attack surfaces for hackers. With that in mind, Coleman's decision to add shares to his hedge fund makes a lot of sense. More importantly, with the stock price down 50% from its high, now is a great time to buy a few shares for your own portfolio.

2. Tesla

In the first quarter, Tesla once again ranked as the leading electric vehicle (EV) brand, capturing a 15.5% market share. The company also continued to take share in total car sales across its three core geographies: China, Europe, and the US. But the real story was Tesla's operating margin.

In the first quarter, revenue rose 81% to $18.8 billion, but GAAP earnings surged 633% to $2.68 per diluted share. What drove that accelerated growth on the bottom line? Tesla posted an industry-leading operating margin of 19.2%, fueled by increased production, pricing power, and initiatives like single-piece casting. That figure is likely to drop in the near term as production scales at the new factories in Berlin and Texas, but that uptick in capacity should make Tesla even more efficient in the long run.

Even more exciting, CEO Elon Musk announced plans for an EV robotaxi. The company aims to reach volume production by 2024, which puts Tesla one step closer to realizing its goal of launching an autonomous ride-hailing platform. On that note, Musk believes the company's full self-driving software will be safer than a human driver by the end of the year, paving the way for software to become the most important source of profitability for Tesla's car business.

Asset manager Ark Invest has a similar outlook. In a recent report, the firm says autonomous ride-hailing platforms could generate $2 trillion in profits by 2030, while boosting global economic output by $26 trillion. On that note, Tesla has more real-world driving data than any rival, which arguably makes it a frontrunner in the race to build a fully autonomous car.

If you think self-driving cars sound like science fiction, what about intelligent machines? Musk believes Tesla's autonomous humanoid robot (known as Optimus) will ultimately be worth more than the car business. The company could have a prototype as early as this year, and full-scale production could start next year.

The biggest argument against Tesla is valuation. It's currently worth more than the next seven automakers combined, and the stock trades for 12.8 times sales. But if Tesla executes on its vision of robotaxis and autonomous robots, that multiple may look cheap in hindsight. Renaissance Technologies clearly believes in the company, but should you add the stock to your own portfolio? That depends on your risk tolerance. If you can handle volatility and you believe in Tesla's vision, I think it's worth buying a few shares. For what it's worth, I own the stock and I have no plans to sell. 

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

The post Nasdaq sell-off: 2 growth stocks billionaires were buying in Q1 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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Trevor Jennewine has positions in CrowdStrike Holdings, Inc. and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CrowdStrike Holdings, Inc. and Tesla. The Motley Fool Australia has recommended CrowdStrike Holdings, Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

What happened

Earlier this month, the Terra (CRYPTO: LUNA) blockchain effectively collapsed. The breakdown started when stablecoin TerraUSD (CRYPTO: UST) lost its peg to the U.S. dollar and the built-in arbitrage mechanism failed to resolve the problem. At that point, panicked investors started selling Luna and TerraUSD hand over fist.

However, Terraform Labs founder Do Kwon has a plan to revive the broken blockchain, and optimism surrounding that plan has both coins soaring today. As of 3:00 pm ET, Luna and UST were up 62% and 25%, respectively, in the last 24 hours.

So what

Kwon discussed his revival plan for Terra in a recent blog post. Specifically, the blockchain will be forked to create a new chain, but the new chain will not include the UST stablecoin. Kwon's plan also outlines the creation of 1 billion new Luna coins, which will be distributed among developers alongside pre- and post-crash holders of Luna and UST.

The voting period is still open, but the proposal has already surpassed the threshold for adoption, and the fork is set to take place on May 27. At that time, the old chain and cryptocurrency will be known as Terra Classic and Luna Classic, while the new chain and cryptocurrency will be known as Terra and Luna. Of course, Kwon's proposal does not guarantee that investors will recoup all crash-related losses. The market will have to decide what the new Luna coin is worth.

Now what

Terra was once a thriving ecosystem of decentralized finance (DeFi) services. Anchor (CRYPTO: ANC) was the crown jewel, a lending protocol that paid 20% interest on UST deposits. But the platform included a number of other noteworthy applications. The Mirror protocol allowed investors to trade synthetic assets, and the Chai payments app had over 2 million users in South Korea.

After the blockchain's collapse, the future of the Terra ecosystem is questionable at best. The relationship between UST and Luna was the primary source of value. DeFi products like Anchor were designed to drive demand for UST, and Luna was designed to absorb stablecoin price volatility. To that end, Luna was supposed to become more valuable as demand for UST increased. Instead, the opposite happened and investors lost over $40 billion.

Even if the new blockchain earns the trust of the crypto community, Terra won't be the same without its native stablecoin. For that reason, I think this is a "watch and wait" situation. Terra may regain its former glory, or it may fade into the background of the crypto industry. 

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

The post Why Terra (Luna) just clawed back some losses appeared first on The Motley Fool Australia.

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

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

More reading

• What are the best Australian shares to buy now to try and make a million?
• The superannuation balance you actually need at 65 to retire without the Age Pension
• This ASX lithium company could more than double in value one broker says, after a "transformational" funding deal
• Wesfarmers shares: Buy, hold or sell?
• After falling 43% in a week, are Cochlear shares now a buy?

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