Day: September 22, 2024

Wall Street has fallen in love with the artificial intelligence (AI) trend. This is not surprising, considering that PwC analysts expect AI to add nearly $15.7 trillion to the global economy annually by the end of 2030.

Semiconductor giant Nvidia‘s (NASDAQ: NVDA) shares have gained nearly 430% in the past three years. While the AI trend is still going strong, many analysts now view Nvidia’s shares as being priced for perfection. Challenges such as increasing competition, reduced pricing power, geopolitical and regulatory risks, and over-reliance on a few customers may negatively impact the company’s share price in the coming months.

Billionaire investors such as George Soros of Soros Fund Management, Stanley Druckenmiller of Duquesne Family Office, Lee Ainslie of Maverick Capital, and David Tepper of Appaloosa Management sold shares of Nvidia in the second quarter, according to their 13F filings with the Securities and Exchange Commission. At the same time, many billionaire investors have been putting money into more reasonably priced AI stocks such as Super Micro Computer (NASDAQ: SMCI) and Microsoft (NASDAQ: MSFT).

Those two billionaire picks could be smart buys for retail investors, too.

Super Micro Computer

Super Micro Computer, also known as Supermicro, is a leading provider of server and storage solutions for data centers. Its shares are up by nearly 1,110% over the past three years, even after the stock fell by almost 64% from its 52-week high in March — a slide mainly triggered by weak investor sentiment toward growth stocks. The company has delayed filing its 10K for its fiscal 2024, which did not go over well with investors, and an unfavorable report from short-seller Hindenburg Research also took a toll on the stock.

Despite this, increasing demand for AI-optimized infrastructure from data centers, enterprise customers, consumer internet companies, and governments remains a major growth catalyst. Bank of America expects the AI server market to grow at a 50% compound average rate over the next three years, and expects Supermicro’s share of the AI server market to grow from 10% in 2023 to 17% in 2026.

Supermicro’s servers stand out from other mass-produced servers because they are easily customizable to their owners’ changing requirements, energy efficient, and effective in thermal management. Goldman Sachs has projected that data center power demand will rise by nearly 160% from 2022 to 2030. With data centers estimated to account for a whopping 3% to 4% of global power consumption by 2030, demand for Supermicro’s AI-optimized servers integrated with liquid cooling technology should continue to rise.

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Supermicro also benefits from its close ties with major chip manufacturers like Nvidia, Advanced Micro Devices, and Intel. These relationships give it early access to advanced chip technologies, which it then embeds in its server solutions. Supermicro thus offers its clients early access to the newest advanced technologies.

Analysts now expect Supermicro’s revenues to grow by 88.3% year over year to $28.14 billion and adjusted earnings per share (EPS) to rise by 52.3% year over year to $33.65 in its fiscal 2025 (which will end in June 2025). Although analysts’ estimates for fiscal 2026 have been muted, that’s not surprising considering the high base they will be growing from. In fiscal 2026, Supermicro’s revenues and adjusted EPS are expected to grow by 10.8% and 30.2%, respectively.

Supermicro is trading at about 23 times earnings, far lower than its historical three-year average of 30.4 times. Considering the company’s focus on energy-efficient computing, its close relationships with chip manufacturers, and its reasonable valuation, Super Micro is a smart pick now.

Microsoft

Technology behemoth Microsoft was also a favorite buy among billionaire investors in the second quarter. While the stock did not soar even after the company reported a double beat in its fiscal 2024 fourth quarter (which ended June 30), it is still up by around 14.7% so far in 2024.

Investors were concerned about the slower-than-expected growth of the Azure cloud computing business last quarter, which was mainly attributed to the constrained capacity of AI services. However, this will most likely prove to be a short-term headwind. With demand for Azure AI services going strong, Microsoft expects increased capital expenditures in AI capacity will reaccelerate Azure’s growth by the second half of fiscal 2025.

Azure AI enables enterprises to build custom AI applications by giving them access to prebuilt models, advanced security features, collaboration tools, and other supporting infrastructure. These services are rapidly gaining popularity, as is evident from the 60,000-strong customer base of Azure AI at the end of the fiscal fourth quarter, up 60% on a year-over-year basis. Azure also remains a preferred choice for enterprises handling multicloud and hybrid workloads. This is apparent considering that Azure accounted for a 20% share of global cloud infrastructure services in the second quarter of 2024.

Microsoft has also embedded OpenAI’s generative AI capabilities to build its AI-powered Copilot agent, which it has integrated across many of its products and services. Since it became generally available, more than 77,000 organizations have adopted Copilot. Copilot for its Microsoft 365 productivity suite saw a 60% quarter-over-quarter increase in customer count in fiscal Q4. Furthermore, the increasing adoption of Copilot has played a pivotal role in doubling the number of large enterprise customers with more than 10,000 seats for Microsoft 365 on a quarter-over-quarter basis.

Besides cloud computing, business productivity, and AI, Microsoft also has a solid presence in cybersecurity, gaming, and professional networking. The company posted impressive financial results in fiscal 2024, with revenues and earnings jumping 16% and 20%, respectively. That’s why it makes sense for retail investors to piggyback on billionaire investors’ enthusiasm and purchase at least a small stake in this diversified technology giant.

Should you invest $1,000 in Super Micro Computer right now?

Before you buy stock in Super Micro Computer, 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 Super Micro Computer 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 $722,320!*

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*.

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*Stock Advisor returns as of September 16, 2024

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Bank of America, Goldman Sachs Group, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.

Move Over, Nvidia: Billionaires Are Selling Its Shares and Buying Up These 2 Artificial Intelligence (AI) Stocks Instead was originally published by The Motley Fool

No company has been a bigger winner than Nvidia (NASDAQ: NVDA) as nearly every tech company has collectively poured billions of dollars into developing their generative AI (artificial intelligence) capabilities. The company has added $2.5 trillion to its market cap over the last two years as sales and profits exploded with the demand for its GPUs.

The chipmaker has shown incredible pricing power amid the strong demand. That’s evidenced by its gross margin expanding into the upper 70% range. And with the booming sales growth, it’s seen very high operating leverage, which translates into massive bottom-line growth. To be sure, Nvidia’s performance as a business, not just a stock, over the last two years has been nothing short of phenomenal.

But Nvidia isn’t the only AI chip stock in the market. And CEO Jensen Huang just explained why another company may be worth owning, perhaps even more so than his own company.

“The world’s best by an incredible margin”

At an investor conference earlier this month, Huang had high praise for one of Nvidia’s biggest business partners: Taiwan Semiconductor Manufacturing (NYSE: TSM), known as TSMC.

TSMC is the largest semiconductor foundry, or fab, in the world. When a company like Nvidia designs a new chip, it takes it to TSMC to actually print the design on a silicon wafer. That takes incredible precision and innovative technical capabilities. TSMC is the top choice for many chip designers, including Nvidia. TSMC commands over 60% of global spending at chip foundries.

“We’re fabbing out of TSMC because it’s the world’s best,” Huang said. “And it’s the world’s best not by a small margin, it’s the world’s best by an incredible margin.”

That’s why Nvidia and almost anyone else that needs to produce cutting-edge chips picks TSMC over its competitors. Huang did say Nvidia could switch to another foundry if it had to. But he also said competitors’ capabilities can’t match TSMC’s and it would result in less performance or higher cost.

He also praised TSMC’s ability to scale its operations. When Nvidia saw demand for its chips skyrocket, TSMC was able to help it meet that growing demand so it could take advantage of the opportunity. Any business that needs to be able to scale up needs to work with TSMC.

Importantly, TSMC’s position as the market leader, winning the majority of revenue in the industry, ensures it’ll stay in its leading position. It has more money to reinvest in R&D and create the next generation of processes. The virtuous cycle leads to more and more big contracts with big tech companies designing super high-end chips over time.

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TSMC still has a lot of growth left

TSMC might be the biggest company in the industry, but there’s still a ton of growth for it to capture.

Tech companies are all planning to ramp up their spending on AI systems in data centers. Total spending on AI chip content and related systems is forecast to reach $193.3 billion in 2027, according to estimates from IDC. That’s up from $117.5 billion this year, translating into an 18% compound annual growth rate over the next three years.

Importantly, TSMC is highly agnostic to that growth. Whether that growth comes from Nvidia, one of its competitors, or custom chips designed by its biggest customers, TSMC is likely winning the bulk of those contracts. In fact, the virtuous cycle and TSMC’s leadership in cutting-edge chips means it could grow that part of its business even faster than the industry. On top of that, TSMC has room to improve its margins.

That’s all reflected in analysts’ forecasts for the company over the next five years. The average analyst expects TSMC to grow earnings over 20% per year for the next half-decade. But you don’t have to pay up for that growth. Shares currently trade at just over 20 times the consensus 2025 earnings forecast.

Few other companies offer that same level of potential growth at that price. So, not only is it the world’s best fab by an incredible margin, investors can buy a stake in it right now at an incredible price.

Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?

Before you buy stock in Taiwan Semiconductor Manufacturing, 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 Taiwan Semiconductor Manufacturing 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 $722,320!*

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

Adam Levy has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

Nvidia’s CEO Just Explained Why This Is the Artificial Intelligence (AI) Chip Stock to Own was originally published by The Motley Fool

(Bloomberg) — The Federal Reserve’s preferred price metric and a snapshot of consumer demand are seen corroborating both the central bank’s aggressive interest-rate cut and Chair Jerome Powell’s view that the economy remains strong.

Most Read from Bloomberg

Economists see the personal consumption expenditures price index rising just 0.1% in August for the second time in three months. The inflation gauge probably climbed 2.3% from a year earlier, the smallest annual gain since early 2021 and a shade higher than the central bank’s 2% goal.

The slowdown in inflation from a year ago reflects falling energy and weaker food prices, along with moderating core costs. The PCE price gauge excluding food and fuel probably rose 0.2% for a third month, economists expect government data to show Friday.

The step-down in inflationary pressures from earlier this year provided Fed policymakers with enough confidence to lower rates on Sept. 18 by a half percentage point. The cut was the first in more than four years, and represented a pivot in the central bank’s policy toward averting a deterioration in the job market.

Investors will parse remarks from a large number of Fed officials in the coming week. Governors Michelle Bowman, Adriana Kugler and Lisa Cook, along with regional presidents Raphael Bostic and Austan Goolsbee, are among those set to appear at various events.

The August inflation figures will be accompanied by data on personal spending and income, and economists project another solid advance in household outlays. Sustained consumer spending growth helps raise the chances that the economy will continue expanding.

Other economic data include August new-home sales, second-quarter gross domestic product along with annual GDP revisions back to 2019, weekly jobless claims, and August orders for durable goods.

What Bloomberg Economics Says:

“In our view, the Fed’s jumbo cut increases the chance of a soft landing, but by no means ensures it. Our baseline is still for the unemployment rate to reach 4.5% before the end of 2024, before rising to 5% next year.”

— Anna Wong, Stuart Paul, Eliza Winger, Estelle Ou and Chris G. Collins, economists. For full analysis, click here

In Canada, GDP data for July and a flash estimate for August are expected to show weak growth in the third quarter, likely below the Bank of Canada’s forecast of 2.8% annualized expansion. Meanwhile, the central bank’s governor, Tiff Macklem, will speak at a banking conference in Toronto.

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Elsewhere, the OECD will reveal new economic forecasts on Wednesday, central banks in Switzerland and Sweden may deliver rate cuts, and their Australian counterpart is anticipated to stay on hold.

Click here for what happened in the past week and below is our wrap of what’s coming up in the global economy.

Asia

The Reserve Bank of Australia is expected to keep its cash rate target unchanged at 4.35% when the board meets on Tuesday, with the focus likely to fall on whether Governor Michele Bullock retains her hawkish tone after solid labor figures prompted traders to pare bets on a December rate cut.

Bloomberg Economics still sees a path to potential RBA easing in the fourth quarter. Authorities will have to wait until Wednesday to see if Australian inflation cooled for a third month in August.

Speaking on Sunday, Australian Treasurer Jim Chalmers said he expects upcoming data to show encouraging progress in combating inflation but acknowledged the central bank may not be ready to cut interest rates this week.

Other nations releasing inflation updates include Malaysia and Singapore, where price growth is forecast to have slowed in August.

Japan gets fresh inflation data with the release Friday of Tokyo consumer prices, which are expected to have risen at a pace exceeding the Bank of Japan’s 2% target in September.

Purchasing manager indexes for September are due from Australia and India on Monday and from Japan a day later.

In China, the 1-year medium term lending facility rate is expected to be held unchanged at 2.3%, and data Friday will show whether industrial profit growth maintained momentum in August after rising at the fastest clip in five months in July.

Trade statistics are due from South Korea, Thailand and Hong Kong.

Europe, Middle East, Africa

Four central bank decisions are scheduled in Europe, where investors may question the appetite of policymakers to follow in the footsteps of the Fed with a half-point cut.

That’s certainly the case with the Swiss National Bank on Thursday. While a majority of economists foresee a quarter-point move, observers do reckon the US reduction has increased the chances of a step of the same size as officials confront the persistent strength of the franc. This is the final meeting for President Thomas Jordan, whose term concludes at the end of the month.

The previous day, Sweden’s Riksbank is expected to lower borrowing costs by a quarter point for the third time this year, taking the rate to 3.25%, and to outline a path to additional cuts.

The current guidance is for two or three more moves in 2024 — including on Wednesday. Policymakers talked about a half-point cut at last month’s meeting, and while that discussion could come up again, most economists believe the central bank would more likely wait until November to do a bigger move.

In Eastern Europe, meanwhile, both the Hungarian central bank on Tuesday and its Czech counterpart on Thursday are expected to deliver quarter-point reductions.

In the euro zone and the UK, an initial look at purchasing managers indexes for September will be released on Monday, signaling the state of private-sector activity at the end of the third quarter.

With Germany’s weakness a focal point for investors, the Ifo business confidence gauge will be a highlight on Tuesday, the same day Bundesbank President Joachim Nagel is due to speak on the economy. New forecasts from the country’s economic institutes are scheduled for Thursday.

France’s data will be closely watched both by investors and the country’s new finance minister, Antoine Armand. PMIs for the euro area’s No. 2 economy got an Olympic boost in August, but that effect is expected to have faded this month. Consumer confidence numbers are also due.

Readings of French and Spanish inflation for September will draw attention on Friday, hinting at the overall outcome for the region due the following week. Economists predict both countries’ readings will drop below 2%.

Aside from Nagel, more than half a dozen euro-zone policymakers are scheduled to speak, including European Central Bank President Christine Lagarde, chief economist Philip Lane, and Spain’s new central bank chief Jose Luis Escriva.

Across the African continent, various central bank decisions are also scheduled:

• Nigerian officials on Tuesday will likely pause a tightening cycle that’s lifted the rate to 26.75% from 11.5% in just over two years. They’ll be encouraged by inflation cooling to a six-month low as they weigh the impact of floods in the country and a steep increase in gasoline costs on price growth.

• Morocco’s central bank will probably hold its rate at 2.75% to allow time for June’s surprise cut to seep through the domestic market. The kingdom needs low rates to facilitate investment and contain unemployment. It has massive investment plans for reconstruction of earthquake-hit areas and infrastructure ahead of the FIFA World Cup in 2030.

• In southern Africa, officials in Lesotho may diverge from South Africa’s rate cut and leave borrowing costs at 7.75%, as inflation stays elevated. While Lesotho tends to mirror the policy of its neighbor, its key rate is already 25 basis points lower.

Elsewhere, Zambia’s Finance Minister Situmbeko Musokotwane will on Friday announce plans to help the economy bounce back from one of the toughest years it’s faced this century when he unveils his 2025 budget for Africa’s second largest copper producer.

Latin America

Brazil watchers will have a lot to digest, with minutes of the central bank’s September rate meeting and a quarterly inflation report taking center stage.

The former may provide a more detailed policy road-map after a quarter-point hike on Sept. 18, to 10.75%, while the latter updates all manner of economic estimates and scenarios. Look for the BCB to mark up forecasts for inflation, the key rate, and GDP growth.

Rounding out the week for Latin America’s biggest economy, jobs data will likely show Brazil’s labor market remains at historically tight levels while mid-month inflation may have stalled near the top of the central bank’s target range.

Argentina is slated to post GDP-proxy readings for July, which may build support for the view that the economy is past its 2024 nadir and is beginning a second-half recovery.

In Mexico, downshifting domestic demand may see another set of soft retail sales prints — on the heels of June’s negative annual and monthly readings — while mid-month inflation data aren’t likely to provide policymakers with a slam dunk cause to cut or hold when Banxico meets a few days later.

The early consensus expects a quarter-point cut to 10.5%, though some analysts see a possible half-point reduction to stay on pace with the Fed.

–With assistance from Brian Fowler, Robert Jameson, Niclas Rolander, Monique Vanek, Piotr Skolimowski, Matthew Hill and Souhail Karam.

(Updates with Australia Treasurer in Asia section, France in EMEA section)

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.

If you’re looking to boost your dividend income, you almost can’t go wrong by investing in Dividend Kings. These are stocks that have increased their dividend for at least 50 consecutive years. Obviously, a company with such a stellar dividend record must have solid financials and growth prospects, or it wouldn’t be able to sustain dividend increases over several decades.

Coca-Cola (NYSE: KO), Philip Morris (NYSE: PM), and Realty Income (NYSE: O) are three Dividend Kings to buy right now, according to these fool.com contributors. Here’s why.

A resilient consumer brand

John Ballard (Coca-Cola): Coca-Cola is a dominant global beverage brand that has paid 62 consecutive years of growing dividends. The stock is up 21% year to date following strong financial results in the first half of 2024.

Consumers have tightened their spending, but the beverage industry has remained resilient. Coca-Cola reported a 2% year-over-year increase in unit case volume last quarter, and it also achieved double-digit organic revenue growth and higher margins.

Coca-Cola has a diversified portfolio of brands across teas, juices, and carbonated drinks. Across all these brands, it generates a robust operating profit margin of 21%, which management is working to increase by refranchising its bottling operations. The profitable lineup gives the company a lot of sales opportunities for different occasions, while generating a healthy profit to pay growing dividends.

The company is paying out about 75% of its annual earnings in dividends. The quarterly dividend is currently $0.485 per share, up 21% over the last five years. This puts the forward-dividend yield at an attractive 2.71% compared to just 1.32% for the S&P 500.

The stock’s performance reflects the strength of the brand and the opportunities to keep growing over the long term. Coca-Cola’s fastest-growing markets in the second quarter were Latin America and Asia Pacific. The stock’s above-average yield offers investors great value with more growth to come.

This longtime dividend payer is still heating up

Jeremy Bowman (Philip Morris): Philip Morris might seem like an odd choice for a long-term dividend stock.

After all, everyone knows that smoking is on the decline, but these days, Philip Morris’ business is much more than just cigarettes. The company has successfully diversified into next-gen products, including the IQOS heat-not-burn sticks that function like vapes but use tobacco instead of e-liquid, and Zyn nicotine pouches, which it gained in its acquisition of Swedish Match in 2022.

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Thanks in large part to the success of those two products, the tobacco stock now generates roughly 40% of revenue from next-gen, smoke-free products, and because those products generate even wider margins than cigarettes, they now produce more than 40% of Philip Morris’ gross profit. Demand has been so strong for Zyn that the company recently announced new investments to expand capacity in Colorado and Kentucky.

Since Philip Morris also only sells cigarettes in international markets, the company is still growing its cigarette category as organic revenue from combustibles, which are primarily cigarettes, was up 4.8% in its most recent quarter. Even shipments of cigarettes were up 0.4% in the quarter.

Altogether, organic revenue rose 9.6% to $9.5 billion in the quarter and organic-operating income was up 12.5%, which are excellent numbers for a seemingly mature dividend stock.

Philip Morris also just raised its quarterly payout by 3.8% to $1.35. While the company is not technically a Dividend King, if you include its history as part of Altria, then it’s raised its dividend for the last 55 years.

Currently, the company offers a 4.4% dividend yield, and it looks poised to hike its payout for years ahead.

Monthly, high-yielding dividends

Jennifer Saibil (Realty Income): Few dividend stocks on the market can match Realty Income. It has everything a passive-income investor could want in a stock: The dividend has a high yield, it’s reliable, it’s growing, and the company pays monthly, an extra perk.

Realty Income is a retail real estate investment trust (REIT), which means it leases properties to retailers. However, it has massively expanded over the past few years and is well diversified by industry. Retail properties still make up 79.4%, and within retail, it caters to essentials categories like grocery stores, convenience stores, and dollar stores, which give it resilience during pressured times like pandemics and inflation. Together, these categories represent more than 26% of the total portfolio.

Through two recent acquisitions as well as buying new properties, it’s more than doubled its property count over the past few years to 15,450. It has entered gaming and industrials, which together account for almost 18% of the portfolio and provide the diversification necessary to offset the risk of concentrating in one area.

REITs pay out most of their earnings as dividends, which is why they’re usually excellent dividend stocks. Realty Income has paid a dividend for more than 50 years, and it’s raised it for 108 straight quarters. It yields nearly 5% at the current price, which is higher than its average of about 4%, and nearly four times the S&P 500 average. Realty Income stock fell when there was pessimism surrounding the real estate industry and high interest rates, and the dividend yield went up as a result. But investors are becoming more confident, and the price has risen over the past few weeks.

Realty Income is a sure bet for a lifetime of passive income, and now is an excellent time to buy before the price increases and the yield goes back down.

Should you invest $1,000 in Coca-Cola right now?

Before you buy stock in Coca-Cola, 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 Coca-Cola 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 $710,860!*

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

Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman has no position in any of the stocks mentioned. John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Realty Income. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.

3 Dividend Kings to Add to Your Portfolio for a Lifetime of Passive Income was originally published by The Motley Fool