Day: September 17, 2024

It’s no secret that Nvidia‘s (NASDAQ: NVDA) stock price has surged in recent years thanks largely to its association with artificial intelligence (AI), particularly the massive spending being done to expand data center computing power. Along with the price surge has come a surge in valuation for the stock.

If you are the type of investor who doesn’t like buying hot stocks at hefty valuations but still wants some exposure to the spending jump related to AI and data centers, Johnson Controls (NYSE: JCI) might be the answer. Here’s why this heating, ventilation, and air-conditioning (HVAC) specialist offers a great AI-related alternative to high-priced Nvidia.

Wall Street upgrades Johnson Controls

Johnson Controls stock received some positive ratings from heavyweight Wall Street investment companies recently. Bank of America analysts upgraded the stock to a buy rating and increased the price target to $80 (from $76), while Morgan Stanley analysts initiated coverage on Johnson Controls with an $85 price target and an overweight rating.

Analysts at both firms mentioned positive indicators involving end-market exposure for Johnson Controls. Bank of America’s analyst asserted that Johnson Controls will generate 14% of its revenue from data centers this year. At the same time, Morgan Stanley’s analyst said the company’s solutions help building owners create efficiency gains — a good theme as property owners seek to cut costs.

The AI/data center angle is relevant to the HVAC sector. Robust HVAC solutions are needed to maintain a controlled environment in data centers so equipment can perform optimally.

That’s one reason why HVAC companies’ shares have generally outperformed this year. However, Johnson Controls has underperformed its immediate peers, Trane Technologies (NYSE: TT) and Carrier Global (NYSE: CARR).

It also trades at a valuation discount to its peers.

Opportunities for a new CEO

One reason the stock underperformed the competition was management’s patchy record with guidance. Johnson Controls missed its own estimates on earnings in 2022 and sales in 2023. That pattern continued in its fiscal 2024 (which ended Sept. 30, 2024). During its fiscal Q2 earnings call in May, management maintained its guidance for full-year organic sales growth in the mid-single-digit range, only to cut it to approximately 3% in its Q3 report released on July 31.

It’s unclear if the company’s disappointing execution is why activist hedge funds are taking positions in the stock. Still, we know George Oliver announced he would retire as CEO in conjunction with that same third-quarter report. Hopefully, its next leader will be able to take advantage of the company’s significant growth opportunities.

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Why Johnson Controls can outperform

While organic sales growth of 3% isn’t what investors expected this year, the company’s orders and backlog continue to grow. Oliver noted “strong demand for our data center solutions,” and asserted, “We have built a leading position in data centers in North America, due to a unique and compelling customer value proposition.”

Alongside the growth in data center demand to support the computing power needs of AI, Johnson Controls has an excellent growth opportunity coming from the trend of retrofitting buildings as owners strive to cut costs and reduce their carbon footprint. These efficiency gains are also being driven by the increasing use of digital technology in buildings, and the company continues to see strong adoption of its OpenBlue digital platform.

Restructuring to focus on its core business

A third catalyst that could lift its stock price comes from the company restructuring to focus on its core commercial and industrial HVAC business, not least by agreeing to sell its residential and light commercial HVAC business to Bosch in a transaction valued at $8.1 billion. (Johnson Controls will receive $6.7 billion.)

Alongside the sale of its air distribution technologies business, Johnson Controls will divest businesses responsible for about 20% of its overall sales, becoming a much more focused company in the process.

A stock to buy

After those divestitures, an even larger share of the company’s revenue will come from data centers and AI, while the underlying growth from the race to net zero will continue to support order and backlog growth.

Johnson Controls may not be as exciting a stock as Nvidia, but the company looks undervalued given its potential. Investors can expect good returns from the stock if management delivers on the opportunities outlined above.

Should you invest $1,000 in Johnson Controls International right now?

Before you buy stock in Johnson Controls International, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Johnson Controls International wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $729,857!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 16, 2024

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and Nvidia. The Motley Fool recommends Johnson Controls International. The Motley Fool has a disclosure policy.

Forget Nvidia, Buy This Magnificent Stock Instead was originally published by The Motley Fool

Shares of Broadcom (NASDAQ: AVGO), Taiwan Semiconductor Manufacturing (NYSE: TSM), and Arm Holdings (NASDAQ: ARM) were down 3.3%, 2.5%, and 4.3% on Monday as of 11:30 a.m. ET. Shares of all three were down even more earlier in the morning.

All three of these companies are key suppliers to the Apple iPhone. This morning, a notable Asia-based Apple analyst wrote that initial orders for the iPhone 16 were weaker than expected. So, all three of these stocks fell in sympathy on the news.

So much for the iPhone “Supercycle?”

This morning, TF International Securities analyst Ming-Chi Kuo wrote a blog post on Medium outlining a pessimistic early take on the iPhone 16. Kuo wrote that based on early channel checks with suppliers and pre-order data scraped from Apple’s websites, he estimates Apple’s first weekend preorder sales were just 37 million. That would be down 12.7% from last year, with the difference being lower “Pro” model preorders relative to 2023.

That may have surprised some who were expecting an iPhone “Supercycle,” due to the introduction Apple’s artificial intelligence (AI) platform, Apple Intelligence. However, Kuo points out that Apple Intelligence won’t be available at launch this month, so that could explain the low preorders for the Pro model. The first Apple Intelligence features won’t be available until the release of iOS 18.1 in October. And even then, all of the AI features discussed at the June WWDC conference likely won’t be available at that point.

In addition to the Apple Intelligence explanation, Kuo also believes a weak Chinese economy and intense domestic Chinese competition have played a role in tepid iPhone preorders. China accounted for 17.2% of Apple’s total revenue last quarter.

TSMC, the largest foundry in the world, makes Apple’s A-series phone processors, which are based on the Arm architecture. Broadcom also uses TSMC and designs the film bulk acoustic resonator (FBAR), Wi-Fi, Bluetooth, and fast-charging chips in the iPhone. So Apple is a key customer of all three companies. Hence the uniform downturn in shares today after each had a strong week last week.

iPhone rumors always abound this time of year

Before you abandon these stocks en masse, you should be aware this is the time of year when all sorts of Apple rumors and tea-leaf readings emerge from analysts based in Asia. Sometimes they turn out to be true, but other times, they don’t.

Furthermore, with short-term interest rates still high, consumers may be holding off on large-ticket purchases, like a new iPhone, unless necessary. Beyond deep-pocketed early adopters, it’s possible many are holding off on preordering a phone until they hear and see what friends and others are experiencing with Apple Intelligence. As noted, those features won’t be introduced until October.

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Therefore, even if preorders are weak today, the rollout of Apple Intelligence and the likely interest rate cuts beginning this week could be catalysts for the iPhone later during the holiday season. So, I would regard today’s news as noise. But should demand remain weak even after rate cuts and Apple Intelligence is introduced, that may be more of a reason to worry.

Meanwhile, each of these Apple suppliers also have strong AI growth potential outside the iPhone. Broadcom makes the key networking chips for AI data centers, as well as custom ASICs for several cloud giants’ self-designed AI accelerators. Arm was also upgraded last week on the prospects for increased edge AI data center penetration. Meanwhile, TSMC recently reported strong August sales figures, likely on the back of strong AI-related data center GPU orders.

Should you invest $1,000 in Broadcom right now?

Before you buy stock in Broadcom, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Broadcom wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $729,857!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 16, 2024

Billy Duberstein and/or his clients have positions in Apple, Broadcom, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Apple and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

Why Broadcom, Taiwan Semiconductor, and Arm Holdings Fell on Monday was originally published by The Motley Fool

Roughly 70% of top executives believe artificial intelligence (AI) will transform the way their organizations create value over the next three years, according to a survey by consulting firm PwC published earlier this year. In PwC’s report, it projects AI technology will add a whopping $15.7 trillion to the global economy by 2030.

Events like the dot-com boom and bust in the late 1990s and early 2000s suggest that picking winners and losers in new industries like AI won’t be easy. Not every AI company will survive, let alone thrive. That’s why buying an AI-focused exchange-traded fund (ETF) can be a great option for investors. It can offer exposure to a broad variety of AI stocks neatly packaged into one security, and it is far less susceptible to catastrophic losses if one or two fail.

The iShares Expanded Tech Sector ETF (NYSEMKT: IGM) owns 281 different stocks, but it holds a high concentration of the most popular AI names.

The iShares ETF recently completed a stock split

The iShares ETF delivered a compound annual return of 20.2% over the last 10 years, crushing the 13.2% average annual gain in the S&P 500 index over the same period.

The powerful returns propelled the ETF to a price per share of more than $510 in March, which made it somewhat inaccessible to smaller investors. As a result, iShares executed a 6-for-1 stock split, which increased the number of shares in circulation sixfold and organically reduced the price per share by a proportional amount. Now, investors can buy the ETF for roughly $92.

The ETF has large holdings in leading AI stocks like Meta Platforms, Apple, Microsoft, and Nvidia, which are likely to continue driving its gains. Here’s how those stocks can help this ETF turn a $200,000 investment into $1 million over the long term — but don’t worry, investors with any starting balance can earn a fivefold return if this scenario plays out.

Every popular technology stock, packed into one ETF

As I mentioned at the top, the iShares ETF holds 281 different stocks. It was established in 2001 so it has helped investors navigate several technology cycles from the internet to cloud computing to enterprise software.

AI is the dominant theme in the tech sector right now. The top four holdings in the iShares ETF account for 34.3% of the total value of its entire portfolio, and each of them has a dominant presence in AI:

Data source: iShares. Portfolio weightings are accurate as of Sept. 12, 2024, and are subject to change.

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Meta Platforms might be a social media giant, but it has also built the most popular open-source large language model (LLM), called Llama. It’s at the foundation of new AI features on Facebook and Instagram like Meta AI, a chatbot that can answer complex questions and generate images. Llama will enable the company to roll out AI agents for businesses in the future, which will be capable of handling incoming messages from customers, and potentially even processing sales.

Apple recently developed Apple Intelligence in partnership with OpenAI, which will launch on the iOS 18 operating system later this year. It will give iPhone, iPad, and Mac users new writing tools that can rapidly summarize and generate text content for messages and emails. Plus, the Siri voice assistant will be upgraded with the knowledge of ChatGPT, making it more capable than ever before. With 2.2 billion active devices worldwide, Apple could become the largest distributor of AI to consumers.

Microsoft is a multifaceted AI company. It developed a virtual assistant called Copilot, which is embedded in many of its flagship software products like Windows, 365 (Word, PowerPoint, and Excel), Edge, and Bing. Microsoft is also a leading provider of AI services through its Azure cloud platform. Businesses can access ready-made LLMs on Azure to help them deploy AI into their operations, and they can also tap into Microsoft’s data centers to develop their own AI applications.

Finally, none of the above would be possible without Nvidia’s graphics processors (GPUs) for the data center. The company can’t keep up with demand for its chips, which is driving a surge in its revenue and earnings. That trend looks set to continue for at least the next year as Nvidia begins shipping a new generation of GPUs based on its Blackwell architecture, which will enable developers to create the most advanced AI apps to date.

Outside of those top four holdings, the iShares ETF has positions in a number of other important AI stocks like Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Oracle, and Advanced Micro Devices. But it also owns small stakes in leading technology stocks like Netflix, Salesforce, and Palo Alto Networks, which are using AI even though it isn’t their core product.

Turning $200,000 into $1 million

The iShares ETF has generated a compound annual return of 10.9% since its inception in 2001. As I touched on earlier, it delivered an accelerated annual return of 20.2% over the last 10 years, because that’s the period in which technologies like the smartphone, cloud computing, enterprise software, and AI experienced widespread adoption.

The below table shows how long it could take the ETF to turn an investment of $200,000 into $1 million based on a range of returns:

Calculations by author.

It will be extremely difficult for the ETF to sustain a return of more than 20% over the long term. Its top four holdings have a combined market capitalization of $10.8 trillion, and each one is likely to experience decelerating revenue growth over time because of its sheer size. Meta, for example, already has 3.2 billion daily active users, so the company will inevitably hit a growth ceiling unless the world’s population expands significantly. Apple and Microsoft are in similar positions, serving at least 1 billion customers each already.

However, even if the ETF reverts back to its average annual gain of 10.9%, it can still deliver a fivefold return for investors over 16 years. The ETF could unlock greater returns if new tech companies emerge and create significant value, or if the AI industry becomes larger than firms like PwC expect (which is a real possibility).

But the reverse is also true. If AI fails to live up to the hype, stocks like Meta, Nvidia, Apple, and Microsoft could suffer declines that will drive a period of poor performance for the iShares ETF. That’s a good argument for owning the ETF as part of a balanced portfolio.

Should you invest $1,000 in iShares Trust – iShares Expanded Tech Sector ETF right now?

Before you buy stock in iShares Trust – iShares Expanded Tech Sector ETF, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and iShares Trust – iShares Expanded Tech Sector ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $729,857!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of September 16, 2024

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. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, Meta Platforms, Microsoft, Netflix, Nvidia, Oracle, Palo Alto Networks, and Salesforce. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Nvidia, Meta, Apple, and Microsoft Could Help This Stock-Split ETF Turn $200,000 Into $1 Million was originally published by The Motley Fool

On news that a potentially resource-draining lawsuit against the company had been dismissed, units of master limited partnership Icahn Enterprises (NASDAQ: IEP) leaped almost 15% in price on Monday. This occurred on a rather sleepy trading session for stocks, with the S&P 500 index only bumping 0.1% higher.

A good day in court

Before market open, Icahn Enterprises announced — no doubt with immense satisfaction — that a district court judge had dismissed the suit. In the legal action, the company’s chairman and namesake Carl Icahn was accused of defrauding its unitholders in order to obtain significant amounts of personal loans.

That accusation came shortly after a report published by short-seller Hindenburg Research that said Icahn and company management had committed a range of transgressions.

The famed activist investor, who owns 85% of Icahn Enterprises, was quoted by his company as saying after the verdict, “We are pleased that the spurious claims of various unscrupulous characters, working together in a coordinated and clandestine network, have been debunked.”

The company and Icahn also took the opportunity to assert that the veteran investor has no intention of selling Icahn Enterprises units. Following the publication of a recent financial prospectus by the company, speculation had been rife that Icahn would raise money via unit sales.

Doubts will remain

Icahn Enterprises’ unit price took a lasting hit after the Hindenburg Research report was disseminated by the market. This indicates that more than a few market players take the allegations seriously. While the ruling by the court is indisputably positive for the company, it’s probable that some of those doubts will linger, and limit the potential for future pops in the price.

Should you invest $1,000 in Icahn Enterprises right now?

Before you buy stock in Icahn Enterprises, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Icahn Enterprises wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $729,857!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

Story continues

See the 10 stocks »

*Stock Advisor returns as of September 16, 2024

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Why Icahn Enterprises Blasted Nearly 15% Higher on Monday was originally published by The Motley Fool

Shares mostly advanced in Europe and Asia on Tuesday as world markets awaited an expected interest rate cut by the Federal Reserve.

Oil prices were mixed and U.S. futures edged higher.

Apart from the Federal Reserve’s most anticipated meeting in years, which wraps up on Wednesday, traders also were awaiting U.S. retail sales data that will provide a glimpse into the state of the economy.

Germany’s DAX rose 0.% to 18,704.36 and the CAC 40 in Paris climbed 0.5% to 7,485.77. In London, the FTSE 100 surged 0.7% to 8,338.42.

The futures for the S&P 500 and the Dow Jones Industrial Average edged 0.2% higher.

In Asian trading, Tokyo’s Nikkei index fell 1% to 36,203.22 and the Hang Seng in Hong Kong advanced 1.4% to 17,660.02.

Markets in mainland China and South Korea were closed.

Australia’s S&P/ASX 200 gained 0.2% to 8,140.90.

Markets have been eagerly awaiting the decision by the Fed, which is expected to cut its key rate for the first time in more than four years after keeping rates high to tamp down inflation. The main question is how much relief for the economy the Fed will deliver.

“The warning is that markets steeped in rich policy expectations are ripe for volatility,” Mizuho Bank said in a commentary. “Accordingly, it may be best to be braced for (policy) curveballs that could potentially force market re-pricing.”

On Monday, the Dow rose 0.6% to surpass its prior all-time high set a few weeks ago. It closed at 41,622.08.

The S&P 500 index, which is much more comprehensive and widely followed on Wall Street, ticked up by 0.1%, ending at 5,633.09.

The Nasdaq composite slipped 0.5% to 17,592.13 as big technology stocks and other market superstars gave back a bit of their big gains from recent years.

Most stocks rose, and Oracle’s 5.1% gain helped lead the market. The software company continued a strong run that began last week with a better-than-expected profit report.

Traders are shifting bets toward a larger-than-usual rate cut by the Fed of half a percentage point, according to data from CME Group. The difference between a half-point cut and a quarter may sound academic, but it can have far-ranging effects. Lower rates relieve pressure on the economy, but they can also fuel inflation.

Inflation has eased substantially from its peak two summers ago, and the Fed has said it can now focus on supporting the slowing job market and economy. Some critics say it may be moving too late, increasing the risk of a possible recession.

In other dealings, the dollar fell to 140.56 Japanese yen from 140.61 yen. The yen has strengthened against teh dollar with expectations that the Bank of Japan will persist in raising rates after keeping them near zero for years, although it is expected to stand pat at its policy meeting this week.

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“The Bank of Japan’s upcoming policy meeting is expected to reaffirm its commitment to gradual rate hikes, which could further bolster the yen soon,” Luca Santos, currency analyst at ACY Securities, said in a commentary.

The euro rose to $1.1140 from $1.1135.

U.S. benchmark crude oil rose 10 cents to $70.20 a barrel. Brent crude, the international standard, shed 2 cents to $72.73 a barrel.