While the Amelia acquisition helped bring scale and diversification, it also came with a significant step up in cost of sales. Management expects to realize some synergies between the businesses, resulting in some margin recovery, but SoundHound probably won’t return to the 75% gross margin business it operated previously.

Still, management plans to make the business profitable on an earnings before interest, taxes, depreciation, and amortization (EBITDA) basis by the end of the year. Profitability according to generally accepted accounting principles (GAAP) may be some years away, though.

SoundHound is growing quickly and making moves to cement its position across multiple industries. It’s executing well and in a position to scale rapidly and become profitable over time. The problem with the stock is its valuation. As of this writing the stock trades for a price-to-sales ratio of about 29 times the midpoint of management’s 2025 outlook. That’s incredibly expensive, even for a company growing as fast as SoundHound.

Palo Alto Networks is one of the leading enterprise cybersecurity providers. Its offerings include hardware and software services to protect clients’ networks from unauthorized access. It also provides cloud and endpoint security, enabling enterprises to use public clouds and securely access them from anywhere around the world.

As more and more enterprises shift operations from on-site storage and computing to a hybrid approach with the cloud, the opportunity for cyberattacks grows considerably. Add in more remote workers, and minimizing the chances of opening up a vulnerability or leaking important data becomes a highly complex challenge. As a result, there’s a growing demand for Palo Alto’s services.

Of course, Palo Alto needs to be able to stay one step ahead of cybersecurity challenges, and it uses machine learning to detect threats and close vulnerabilities quickly. One of the biggest challenges in developing an effective machine learning system is getting good data — and lots of it. As a leader in the cybersecurity space, Palo Alto is uniquely positioned to build effective machine learning algorithms. As a result, Palo Alto is winning more business from existing customers and attracting new customers, taking share from smaller competitors.

The companies’ remaining performance obligations grew 20% year over year in the first quarter of fiscal 2025. That indicates a strong pipeline of business for the company. Specifically, Palo Alto’s focused on growing its software-based next-gen security. Annual recurring revenue for those subscription offerings climbed 40% year over year, topping $4.5 billion in the quarter. Management expects that number to climb to $15 billion by 2030.

Palo Alto’s shift toward more software services should have a positive impact on its gross margin over time. As revenue grows, profits should grow even faster due to the leverage inherent in software sales.

As it stands, Palo Alto Networks trades for a price-to-sales ratio of about 12.2 times analysts’ 2025 consensus estimate as of this writing. That’s not particularly inexpensive, but it’s certainly more attractive than SoundHound’s stock price. Considering the improving profitability of the business and strong moat provided by its scale, it looks like a fair price to pay for the stock.

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SoundHound AI Stock vs. Palo Alto Networks Stock: Wall Street Says Only One Will Head Higher in 2025 was originally published by The Motley Fool

Shake Shack’s management is guiding for a 22% restaurant-level operating margin long term, which is only modestly lower than it is right now. But it’s worth pointing out that while the restaurant-level profit is good, the overall profit margin is not. Once factoring in other company expenses, its overall operating margin is only 3% and has declined for years.

Let me put it plainly: Shake Shack barely makes a profit today despite some otherwise decent restaurant-level numbers. However, its huge expansion plans will see some of these restaurant-level numbers get worse, not better, per management’s own guidance. Therefore, considering profits are already modest, future profits may be even scarcer.

A 2006 study from The Boston Consulting Group noted that revenue growth was the most important factor for stock performance over the long term. But not all growth companies do well. Among the underperformers were companies that grew but whose profit margins worsened. And that’s what Shake Shack risks with its massive growth plan.

For starters, there’s a big disparity between Shake Shack’s restaurant-level profit margin and its overall profit margin. If management can keep to a minimum the expenses not directly related to running its restaurants, the gap can start to close, boosting overall profitability. That would be good.

Moreover, Shake Shack is talking about changing up how it develops new locations. Future locations can be smaller, have drive-throughs, and be optimized for throughput. This might make suburban locations profit more with lower sales.

Low-margin restaurant stocks can trade at just one times sales. Higher-margin chains get higher valuations. Assuming Shake Shack reaches its 1,500 domestic company-owned restaurant goal, it’s not unreasonable to believe it could generate $5 billion in annual revenue. That’s an AUV of $3.3 million and doesn’t account for revenue from franchised locations.

Shake Shack’s market cap is almost $5 billion now. If it can squeeze out better unit volumes and if it can boost its overall profit margins, then the stock has clear long-term, multibagger potential, which is the reward. But personally I think the plan is risky considering volumes will likely drop and put pressure on profits.

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Shake Shack Announces Plans to Become as Big as Five Guys. Here’s Why This Is a Risky, High-Reward Vision That Investors Should Pay Attention To. was originally published by The Motley Fool

After a few years of holding its dividend steady, Citi raised its payout in 2023 and again last year. At recent prices, the stock offers a 2.8% yield. That isn’t a huge yield, but it’s more than double the amount you’d receive from the average stock in the S&P 500 index.

Citigroup’s present CEO, Jane Fraser, took the helm in 2021 with a multiyear strategy to simplify and modernize the bank. Last December, the bank took a big step forward with the separation of its institutional banking business in Mexico from Banamex, a collection of consumer, small-market, and middle-market businesses.

The institutional banking separation paves the way for a proposed initial public offering (IPO) of Banamex. Timelines for the complicated IPO aren’t set in stone yet. Odds are good, though, that Buffett, Druckenmiller, and the rest of Citigroup’s shareholders will have new shares of Banamex in their portfolios by the end of 2025.

Citigroup has made a lot of progress since announcing a plan to exit consumer banking in 14 markets around the globe in 2021. The bank has since closed operations in nine of those markets, and a sales process is under way in Poland. Plus, the company is nearly finished winding down consumer-focused operations in China, South Korea, and Russia.

In addition to a new $20 billion share-reduction program, Citigroup shareholders can look forward to significant payout raises over the next few years. The bank earned $5.94 per share last year, which is heaps more than it needs to meet a dividend obligation currently set at an annualized $2.24 per share.

It looks as if years of lackluster returns related to a sprawling operation are nearly over. Citigroup reported a return on tangible common equity that rose 2.1% year over year to 7%, and the gains aren’t expected to stop there. Management expects this metric to reach a range between 10% and 11% in 2026 and continue rising.

Some dividend-focused investors might avoid Citigroup stock because it’s yielding less than 3% at the moment. With profitability metrics moving in the right direction, avoiding this stock because of a lackluster dividend seems like a bad idea. With plenty of extra profit to reduce its share count and raise its payout, adding some Citigroup shares to a diversified portfolio now looks like a smart move for most investors.

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:

• Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $357,084!*

• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,554!*

• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $462,766!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of January 13, 2025

JPMorgan Chase is an advertising partner of Motley Fool Money. Citigroup is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America, Berkshire Hathaway, and JPMorgan Chase. The Motley Fool has a disclosure policy.

Billionaire Stanley Druckenmiller Is Buying a High-Yield Warren Buffett Stock That Looks Like a Bargain Now was originally published by The Motley Fool

Now, on to that guide…

Big bank CEOs: The biggest names in banking, such as JPMorgan (JPM) CEO Jamie Dimon, Bank of America (BAC) CEO Brian Moynihan, Goldman Sachs (GS) CEO David Solomon, Citi (C) CEO Jane Fraser, and Morgan Stanley (MS) CEO Ted Pick will be in attendance. While this group will all get asked about Trump policies, it’s going to be their outlook on interest rates that will be most key to market sentiment. Most have not spoken publicly since the Fed signaled a likely halt in rate cuts last month, and they will want to be heard ahead of the Fed’s Jan. 28-29 policy meeting.

The tariff CEOs: Retail will have a nice showing at Davos, with the CEOs of Polo Ralph Lauren (RL), Williams Sonoma (WSM), and Gap (GAP) (their CEO’s first time at the event) making the rounds. These companies are right in the middle of the tariff debate. I’ll be interested in how they are preparing for Trump tariffs from a supply chain perspective. I am also interested in how much they could raise prices post-tariffs — it could offer up valuable insight into the 2025 inflation outlook and Fed policy.

The race to catch Nvidia: It will be another year of AI chatter throughout the halls of Davos. This time, I think the discussions will take two forms. First, unlike last year, where the AI discussions were mostly about potential, investors are going to want to see clear lines to revenue and profits. So I encourage AI CEOs to bring it. And two, we will probably hear more about how Big Tech players in Microsoft (MSFT) and Alphabet (GOOGL) are aiming to develop their own high-powered AI chips to catch Nvidia (NVDA), or at least make good enough chips to diversify. Leaders from OpenAI and Anthropic will also be in attendance, and their thoughts on chips could be key. I’ll be watching Nvidia’s stock price like a hawk this week, and you should be as well.

Crypto delegation: The crypto industry has had a solid presence at Davos in the past five years. This year the industry is expected to be out in force, headlined by an appearance from Coinbase (COIN) CEO Brian Armstrong. I’ll be quite attuned to what the crypto crowd thinks about the latest volatility in bitcoin, MicroStrategy’s (MSTR) bitcoin buying binge, what they are hearing from the pro-crypto Trump administration, and early assessments on Paul Atkins as the likely next SEC chairman.

And of course, the new Trump coin that debuted to much fanfare (and market cap) on Friday.

The token quickly rose to a market cap of $73 billion in about 48 hours, surpassing DOGE as the largest meme coin so far.

The market cap of the crypto has since dropped to $12 billion from its launch, according to CoinMarketCap.

Stocks: Stocks are beginning to look top-heavy (especially the Magnificent 7), as I have reported. I’m eager to hear from market pros such as JPMorgan’s Mary Erdoes and economic experts like Nouriel Roubini on if they are seeing red flags on the horizon. Any calls they make at this Davos may hold greater weight given more volatile market conditions and increased Trump policy uncertainty.

The political wild cards: As of this writing, contacts have told me President-elect Donald Trump plans to send delegates to Davos. Who precisely gets the nod is the wild card. (I fancy it will be potential Commerce Secretary Howard Lutnick, a Davos party scene regular for many years. Elon has long hated Davos, so hard to see him appearing). Trump himself is slated to give a speech remotely on Thursday, a source told Yahoo Finance.

But who ultimately shows up from Trump’s orbit — and what they say once touching down — could set the tone on US international relations right out of the gate. If a delegate arrives at Davos days after Trump takes actions that could weigh on the economic growth of foreign countries and then aims to explain the actions, best believe the inevitable headlines may not be so market-friendly.

—

Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on X @BrianSozzi, Instagram and on LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com. Three times each week, Sozzi fields insight-filled conversations with the biggest names in business and markets on Yahoo Finance’s Opening Bid podcast. Find more episodes on our video hub. Watch on your preferred streaming service. Or listen and subscribe on Apple Podcasts, Spotify, or wherever you find your favorite podcasts.

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Last week we noted a hotter-than-expected December jobs report had some debating whether or not Fed rate hikes would come back into the discussion.

A cooler-than-expected inflation reading for December eased those fears. Bank of America Securities senior US economist Aditya Bhave wrote in a note to clients on Jan. 10 that the Fed conversation was “moving toward hikes.”

After the December inflation data was released on Jan. 15, Bhave told Yahoo Finance the report “trims the tail risks of a hike.” His team still believes the Fed will remain on hold for the foreseeable future, though.

Read more: What the Fed rate cut means for bank accounts, CDs, loans, and credit cards

Markets will likely have a breather from the Fed discussion in the week ahead as no major economic data releases are expected and the central bank enters its “blackout period,” during which no officials speak publicly ahead of its next policy decision on Jan. 29.

As of Friday afternoon, markets were pricing in a range of one to two Fed rate cuts this year, per Bloomberg data.

Fourth quarter earnings season kicked off in earnest last week with reports from the nation’s largest banks. Largely, company results were better than expected. FactSet data shows the S&P 500 is now pacing for 12.5% year-over-year earnings growth this quarter compared to the 11.5% expected last week.

“While early, it’s a great start to a reporting period where we expect a larger than average aggregate beat and remain positive on the earnings outlook,” Citi US equity strategist Scott Chronert wrote in a note to clients on Friday.

Earnings season will roll on this week with 43 S&P 500 companies reporting, headlined by large-cap tech giant Netflix. But whether or not earnings will truly be the focus in the coming weeks will be tested as political headlines are expected to pile in as Trump is sworn into office on Monday.

“We expect policy noise to pick up next week with the inauguration Monday and a number of executive orders reportedly planned,” Chronert added. “Short term, markets will have to contend with building fiscal, trade, and monetary policy uncertainty, even if [earnings] reports are solid.”

For now, at least one of the market’s headwinds has cooled off. In the past week, the 10-year Treasury yield (^TNX), which had been ripping higher and weighing on stocks, dropped nearly 20 basis points to 4.61%.

Whether or not the conversation around Trump’s policies sends bond yields higher once again will be a key narrative to watch in the coming week.

‘

Monday

Markets closed for Martin Luther King Jr. Day while President Trump will be sworn into office.

Tuesday:

Economic data: No notable economic data releases.

Earnings: Netflix (NFLX), 3M Company (MMM), Capital One (COF), Charles Schwab (SCHW), D.R. Horton (DHI), KeyCorp (KEY), Interactive Brokers Group (IBKR), United Airlines (UAL), Zions Bancorporation (ZION)

Wednesday

Economic data: MBA Mortgage Applications, week ending Jan. 17 (+33.3% previously); Leading Index, December (-0.1% expected, +0.3% prior)

Earnings: Alcoa (AA), Abbott Labs (ABT), Ally Financial (ALLY), Comerica (CMA), Discover Financial Services (DFS), GE Vernova (GEV), Johnson & Johnson (JNJ), Halliburton (HAL), Procter & Gamble (PG), Steel Dynamics (STLD), Travelers (TRV)

Economic data: Initial jobless claims, week ending Jan. 18 (217,000 previously); Kansas City Fed. Manufacturing Activity, January (-4 prior);

Earnings: American Airlines (AAL), Alaska Airlines (ALK), CSX Corporation (CSX), Freeport-McMoRan (FCX), GE Aerospace (GE), Intuitive Surgical (ISRG), Texas Instruments (TXN), Union Pacific Corporation (UNP)

Economic data: S&P Global US manufacturing PMI, January preliminary (49.4 prior); S&P Global Services PMI, January preliminary (56.8 prior); S&P Global US composite PMI, January (55.4 prior); Univesity of Michigan consumer sentiment, January final (73.2 prior); Existing home sales, December (1.2% expected, 4.8% prior)

Earnings: American Express (AXP), First Citizens BancShares (FCNCA), NextEra Energy (NEE), Verizon (VZ)

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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