Day: October 9, 2024

Under Warren Buffett’s leadership as CEO, the Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) investment company has delivered a compound annual return of 19.8% since 1965. That would have been enough to turn an investment of $1,000 back then into a whopping $44.7 million today. By comparison, the same investment in the S&P 500 would have grown to just $338,311 over the same period. That’s why investors closely monitor Berkshire’s every move.

The conglomerate’s success stems from Buffett’s simple investment strategy: He likes companies with steady growth, robust profitability, strong management teams, and shareholder-friendly initiatives like stock buyback programs and dividend schemes. One thing Buffett and his team never do is chase the latest stock market trend, so you won’t find Berkshire piling into red-hot artificial intelligence (AI) stocks.

With that said, three existing stocks in Berkshire’s $315 billion portfolio of publicly listed securities are deploying AI into their legacy businesses in unique ways.

1. Amazon: 0.6% of Berkshire Hathaway’s portfolio

E-commerce is Amazon‘s (NASDAQ: AMZN) core business, but the company is also home to the world’s largest cloud computing platform, Amazon Web Services (AWS). Amazon is using AWS to build a dominant presence across the three core layers of AI:

1. Infrastructure: AWS designed its own data center chips for AI development. One of them is called Trainium, which offers cost savings of up to 50% during the AI training process, compared to infrastructure powered by competing chips like those supplied by Nvidia.

2. Large language models (LLMs): AWS developed a family of LLMs called Titan. Businesses can use them to accelerate the build-out of their own AI software applications. Titan LLMs are available on the Bedrock platform through AWS, along with a selection of other models from third-party AI start-ups like Anthropic.

3. AI software: AWS offers a powerful AI virtual assistant called Q. It’s capable of generating computer code to help developers accelerate their software projects, and businesses can also use it to extract valuable insights from their internal data.

But Amazon is also integrating AI into its e-commerce segment. It developed a virtual assistant called Rufus, which can answer shoppers’ questions and even help them with product comparisons. Plus, Amazon launched Project Private Investigator in its fulfillment centers during the recent second quarter of 2024, which uses AI and computer vision to identify defective products before they are shipped to customers. That could be a huge cost saver over the long term, because it will reduce the number of orders that are returned for a refund.

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Berkshire bought Amazon stock in 2019, but Buffett has often expressed regret for failing to identify the opportunity sooner. Still, as long as Berkshire continues to hold the stock, it will likely benefit from Amazon’s fast-growing presence in the AI space.

2. Coca-Cola: 8.9% of Berkshire Hathaway’s portfolio

Coca-Cola (NYSE: KO) is the world’s largest soda company, and it likes to experiment with technology to help improve efficiency, connect with customers, and create new opportunities to generate revenue. The company is now deploying AI in a variety of ways, and it even appointed a “head of generative AI” last year to oversee its efforts.

So far, Coca-Cola has used AI to craft marketing campaigns, and even to design a promotional version of its flagship soda. Coca-Cola Y3000 captures what the drink might taste like in the year 3000 by using AI to analyze mountains of customer data.

But back in April, Coca-Cola made its largest AI commitment to date. It agreed to spend $1.1 billion on Microsoft‘s Azure AI cloud services platform over five years, to help improve workplace productivity, supply chains, marketing, and more.

Berkshire spent $1.3 billion building its stake in Coca-Cola stock between 1987 and 1994, and it has never sold a single share. That position is now worth a whopping $28 billion. Plus, Berkshire is on track to earn $776 million in dividend payments from the beverage giant this year alone.

Although there was no way Buffett could have foreseen the AI revolution back then, his investment conglomerate will reap substantial rewards if this technology drives more revenue and earnings for Coca-Cola.

3. Apple: 28.8% of Berkshire Hathaway’s portfolio

Apple (NASDAQ: AAPL) is the largest company in the world, with a market capitalization of $3.4 trillion. The company is rolling out its Apple Intelligence software, which it developed in partnership with OpenAI to bring AI to the latest generation of iPhones, iPads, and Mac computers.

Apple Intelligence can interpret messages and emails, and draft responses on command. It can also summarize content with a single tap, and prioritize notifications based on what is important to each individual user. Plus, Apple Intelligence will empower the Siri voice assistant with the knowledge and capabilities of OpenAI’s ChatGPT application, which will make it more useful than ever.

Apple Intelligence will utilize Apple’s latest chips, including the A18 Pro (for the iPhone), and the new M4 (for the iPad and Mac computers), which were specifically designed in-house for processing AI workloads. They allow AI features to function on-device, which creates a faster user experience because they don’t have to send requests to external data centers for processing.

Berkshire spent approximately $38 billion buying Apple stock between 2016 and 2023. Earlier this year, that position was worth over $170 billion, which accounted for almost half of the conglomerate’s entire stock portfolio (by value). However, Berkshire sold 13% of its stake during the first quarter, which Buffett said was for tax reasons, and then it sold 49% of its remaining position in the second quarter.

It’s possible the gigantic sales reflect Buffett’s cautious view on the stock market overall, because the S&P 500 index is currently trading at a price-to-earnings ratio of 28.2, which is 55% more expensive than its long-term average of 18.1. Berkshire is now sitting on a record $277 billion in cash, so Buffett and his team might be waiting to pounce in the event of a market correction.

Nevertheless, Apple remains Berkshire’s largest holding, so the conglomerate will still benefit nicely if Apple Intelligence pushes consumers to upgrade to the latest devices to access its features.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $20,363!*

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*Stock Advisor returns as of October 7, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, 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 Amazon, Apple, Berkshire Hathaway, Microsoft, and Nvidia. 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.

38.3% of Warren Buffett’s $315 Billion Portfolio Is Invested in 3 Artificial Intelligence (AI) Stocks was originally published by The Motley Fool

For almost two years, artificial intelligence (AI) has been the top trend powering Wall Street’s major stock indexes higher. But over the last nine months, excitement surrounding stock splits has played an equally important role in boosting the value of select market-leading companies.

A stock split gives publicly traded companies the option of superficially adjusting their share price and outstanding share count by the same magnitude. These changes are surface-scratching in the sense that they have no impact on a company’s market cap or operating performance.

Since retail juggernaut Walmart kicked off stock-split euphoria in late January, north of a dozen prominent businesses have announced or completed a split. All but one of these are of the forward-split variety, which is designed to make shares more nominally affordable for retail investors who lack access to fractional-share purchases through their broker.

Today, Oct. 9, marks the arrival of Wall Street’s newest stock split, as well as paves the way for another market-leading business to potentially follow in its footsteps.

Wall Street’s newest stock-split stock is ready to shine

Nearly five months ago, in mid-May, Japan-based consumer electronics colossus Sony Group (NYSE: SONY) revealed plans to conduct a 5-for-1 forward split. Although the effective date for this split was Oct. 1 in Japan, it was a week later (Oct. 8) for its American depositary receipts (ADRs) listed in the U.S. When trading commences today, Sony’s stock should be close to $19 per share, down from $95 per share, where it began the week.

Sony is best-known for its gaming prowess. The company’s PlayStation 5 (PS5) is the top-selling ninth-generation gaming console. Although the PS5 has been on retail shelves for almost four years, Sony recently announced plans to increase the price of its top-selling console by 19% in Japan. On top of raising additional revenue, this demonstrates just how commanding of a position Sony holds in the gaming arena.

Furthermore, revenue for the company’s PlayStation Plus subscription has been climbing. PlayStation Plus is the multitiered subscription service that allows users to save their gaming data in the cloud, game with their friends, and access exclusive gaming titles. This considerably higher-margin segment is perhaps the best way for Sony to counter the staleness of having its PS5 in stores for nearly four years.

Based on what history tells us, Sony’s next-generation console should be available in two to three years. It wouldn’t be a surprise to see Sony’s stock rally in advance of this release.

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But as I pointed out earlier this week, Sony Group is about more than just gaming. Its Imaging and Sensing Solutions (ISS) segment is currently growing by double digits. What’s powering this growth in ISS is strong demand for the company’s image sensors, which are used in smartphones. Wireless carriers upgrading and expanding the coverage of their networks to support 5G download speeds have encouraged consumers to upgrade their wireless devices.

Sony also has a shareholder-friendly capital-return program. As of Sept. 30, it had completed the repurchase of 14.67 million shares of its common stock for 194.5 billion yen, which equates to roughly $131.5 million U.S. For companies with steady or growing net income, such as Sony, share repurchases can improve earnings per share and make their stock more attractive to investors.

The $64,000 question is: Which company is set to follow in Sony’s footsteps and become Wall Street’s next stock-split stock?

This generational business might be Wall Street’s next stock-split stock

While there are quite a few standout businesses that appear ripe for a stock split, including warehouse club Costco Wholesale, software company Adobe, and pharmaceutical giant Eli Lilly, the one that may be the likeliest to walk in Sony’s footsteps and announce a split is social media leader Meta Platforms (NASDAQ: META).

Interestingly enough, Meta is the only member of the “Magnificent Seven” to have never completed a stock split. But with its shares topping $600 on an intra-day basis to open this week, there’s a clear reason to make its stock more nominally affordable for everyday investors.

Meta is best-known as the parent of leading social media destinations Facebook, WhatsApp, Instagram, and Facebook Messenger, among other sites. During the June-ended quarter, Meta attracted 3.27 billion people to its apps on a daily basis. No social media company comes remotely close to luring this many daily active users (DAUs).

The advantage of having more than 3.2 billion DAUs is that advertisers will often pay a premium to get their message(s) in front of consumers. Since economic expansions last considerably longer, on average, than recessions, an ad-driven operating model like Meta is usually able to command exceptionally strong ad-pricing power.

But Meta is also gearing up for a future that should feature sustained double-digit growth potential. It’s aggressively investing in its AI ambitions by spending in the neighborhood of $10.5 billion to purchase 350,000 AI-graphics processing units (GPUs) from Nvidia. These chips will power Meta’s AI-accelerated data centers.

Meanwhile, the company’s money-losing Reality Labs segment is building on CEO Mark Zuckerberg’s metaverse vision behind the scenes. Meta is positioning itself to be a key on-ramp to the metaverse, although it could take years before the company’s investments yields meaningful revenue.

To add, Meta Platforms is sitting on a truly enviable amount of cash. It closed out the midpoint of 2024 with $58.1 billion in cash, cash equivalents, and marketable securities, and is pacing north of $77 billion in net cash generated from its operations for the current year. Meta’s balance sheet affords it the luxury of taking risks.

Perhaps no company is primed to become Wall Street’s next stock-split stock more than Meta Platforms.

Should you invest $1,000 in Sony Group right now?

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*Stock Advisor returns as of October 7, 2024

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. Sean Williams has positions in Meta Platforms. The Motley Fool has positions in and recommends Adobe, Costco Wholesale, Meta Platforms, Nvidia, and Walmart. The Motley Fool has a disclosure policy.

Wall Street’s Newest Stock-Split Stock Has Arrived — and Here’s the Magnificent Stock Likely to Follow in Its Footsteps was originally published by The Motley Fool

There are many ways to define “the fastest-growing” stocks. You can focus on market returns, sales growth, or profits, and you can look at proven results or future expectations. Traditionalists may prefer analyzing reported results and historical market data. Growth-oriented investors can lean into forward-looking projections, based on rapid top-line growth or beefy long-term profit targets.

Today, I’m looking at the fastest-growing artificial intelligence (AI) stocks of the last three years, in terms of estimated revenue growth. This way, I’ll zoom in on companies with plenty of business growth expected in the years ahead, no matter what they did in the early days of the generative AI boom.

So here are the top three names of that analysis, based on their top-line sales’ expected compound annual growth rate (CAGR) in the next three years.

1. Nvidia: 50.4% estimated CAGR

It’s no secret that semiconductor designer Nvidia (NASDAQ: NVDA) has grown like wildfire in recent years. Its trailing 3-year revenue growth stands at a spine-chilling CAGR of 63.8% at the moment. OpenAI introduced its groundbreaking ChatGPT system in November 2022. As the primary provider of AI accelerator hardware for that platform, Nvidia has enjoyed skyrocketing sales ever since.

And analysts see no end to that trend. Your average analyst firm expect Nvidia to deliver annual sales growth of roughly 50.4% over the next three years.

I agree that Nvidia should deliver strong sales growth in this AI boom. However, it gets harder and harder to maintain these skyrocketing growth rates as the base figure for each year-over-year comparison increases. Moreover, I’m not convinced that the analyst community gives enough respect to Nvidia’s current and potential rivals. If nothing else, having plenty of high-powered AI accelerator chips available could limit Nvidia’s gross profit margins over time.

So Nvidia looks overpriced to me, since Wall Street’s growth targets seem a bit too optimistic. I cashed in some of my paper gains on this stock several months ago. Yet, the analysts might be right. I’d be kicking myself if Nvidia continues to dominate the AI hardware space and my portfolio had no connection to that opportunity. You should check your risk tolerance before backing away from Nvidia’s soaring stock — or doubling down on it.

2. Super Micro Computers: 36% estimated CAGR

Nvidia is the leading seller of AI accelerator chips, and Super Micro Computers (NASDAQ: SMCI) sells a ton of custom server systems using those chips. As a result, Supermicro’s sales growth is trailing slightly behind Nvidia’s. In an alternate universe where this was the only builder of AI servers, Supermicro could have shown growth equal to or even greater than Nvidia’s.

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In this world, Supermicro started this surge from a much lower revenue level than Nvidia, as is currently raising its long-term growth rate faster. Supermicro stands out in the system-building market with a combination of unique cooling solutions and relatively low system prices.

That being said, Supermicro’s target market is even more fragmented than Nvidia’s. Hewlett Packard Enterprise (NYSE: HPE) and Dell (NYSE: DELL) sell far more servers than Supermicro, even in the AI server niche. On the upside, this situation gives Supermicro more room to take market share from rivals, outgrowing its peers in the process. On the downside, the HPs and Dells out there won’t simply stand back and let Supermicro win.

So this is another challenging growth target. At the same time, Supermicro comes with lofty valuation ratios for this subsector. As such, it’s far from my favorite buying idea among AI stocks.

3. Cloudflare: 27.7% estimated CAGR

Finally, network security and performance specialist Cloudflare (NYSE: NET) trails behind Supermicro’s revenue growth due to a significant slowdown in the last two years.

Cloudflare isn’t a pure-play AI investment, but the company has strong ties to the emerging AI space. You can already buy AI-oriented edge computing services directly from Cloudflare, using its global network of servers and AI accelerators to deliver results near the end user. Its cybersecurity and network acceleration features are also quite valuable for AI service providers. For example, ChatGPT’s services always pass through Cloudflare’s content delivery and data security tools.

So Cloudflare is a serious AI investment with robust revenue growth. The company is also boosting its AI computing infrastructure over time. Meanwhile, Cloudflare recently revamped its sales department, boosting both its revenue growth per sales agent and operating margin.

The stock is far from cheap, but Cloudflare is perhaps the most convincing long-term growth story on this list. This company is pulling several levers to keep the growth fires burning, and the best chapters of Cloudflare’s story may still be unwritten.

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

Before you buy stock in Cloudflare, 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 Cloudflare 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 $782,682!*

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 October 7, 2024

Anders Bylund has positions in Nvidia. The Motley Fool has positions in and recommends Cloudflare and Nvidia. The Motley Fool has a disclosure policy.

These Are the 3 Fastest-Growing Artificial Intelligence (AI) Stocks was originally published by The Motley Fool

Investing in stocks of strong companies that offer unusually high yields relative to their dividend-paying history can help you populate your portfolio with winners. Here are two dividend stocks that are paying their highest yield in years. You might want to give them added consideration. Here’s why.

1. Nike

Right now, investors have the opportunity to buy shares of one of the most iconic brands in the world while they trade at a discount. Sports apparel conglomerate Nike (NYSE: NKE) generates $50 billion in annual revenue making it, among other things, the global leader in footwear. But Nike’s stock price has fallen 54% from its previous peak over weak consumer spending. The lower share price pushed Nike’s forward dividend yield up to an above-average 1.83% based on a current quarterly per-share payout of $0.37 — the highest yield since 2009.

It’s a challenging year for Nike. Sales fell by double-digit rates year-over-year in the most recent quarter. However, Nike continues to remain profitable while management implements a new strategy to turn sales around. Its current quarterly dividend is about half its quarterly earnings, which gives the company a cushion to sustain dividends even during a challenging retail environment.

Nike recently hired former company veteran Elliott Hill as its new CEO. The hire has the company’s teams upbeat about the future, which is a great sign. While a return to growth is expected to take some time, Hill’s experience in leading the company’s commercial and marketing operations for Nike and Jordan Brand across four geographies should be valuable in engineering a turnaround.

Nike is in the process of shifting its product portfolio away from lifestyle products to a focus on sports, which is the heart of the brand. The company has already seen early progress, with growth across men’s fitness, global football, and running footwear in the fiscal first quarter of 2025.

With the global athletic wear market expected to keep growing to $293 billion by 2029, according to Statista, investing in Nike should pay off with good returns and many years of passive income.

2. Verizon Communications

The leading telecom operators make great dividend investments thanks to their recurring revenue streams from wireless and broadband subscribers. Verizon Communications (NYSE: VZ) reported healthy increases in postpaid phone net additions recently that sent the stock up 16% this year, but the shares still offer a high forward dividend yield of 6.16% — Verizon’s highest yield in over a decade.

The concerns Wall Street had about telecom growth amid the macroeconomic challenges this year were muted last quarter. Verizon reported a solid 12% year-over-year increase in consumer postpaid phone net additions, which refers to those customers who pay for their wireless plan with a monthly charge. Verizon could be well positioned to ride the coattails of Apple as it launches new artificial intelligence (AI)-optimized iPhones that are expected to drive strong sales.

The secret to Verizon’s growth strategy is that it offers attractive add-on services to win customers to its wireless service, including deals on subscriptions to top digital entertainment services. These compelling add-ons will be valuable tools in retaining customers and driving strong financial results to support the dividend.

Verizon has paid a dividend every year for 40 years, including all the companies that were merged over the years to create what is today Verizon Communications. The current per-share quarterly dividend is $0.6775, representing a payout ratio of 60% based on adjusted earnings guidance for 2024. With strong demand expected for AI-enabled smartphones over the next several years, buying Verizon shares at their current high yield should lead to excellent returns for investors.

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

Before you buy stock in Nike, 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 Nike 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 $782,682!*

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 October 7, 2024

John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Nike. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

2 Dividend Stocks to Double Up on Right Now was originally published by The Motley Fool