The adult-use ballot question could potentially allow cannabis sales in the third-largest U.S. state, with a population of more than 22 million people.
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Fidelity Investments is planning to charge investors a $100 servicing fee when placing buy orders on exchange-traded funds issued by nine firms.
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The new servicing charge — which may be imposed on ETFs issued by Simplify Asset Management, AXS Investments, Day Hagan, Sterling Capital, Cambiar, Regents Park, Rayliant, Adaptive and Running Oak — is set to take effect on June 3, according to a Bloomberg News report. A Fidelity spokesperson confirmed that the report is accurate.
The new fee will apply to ETFs issued by a small group of asset managers that don’t participate in a maintenance arrangement with Fidelity, according to Bloomberg.
“We remain committed to providing clients choice with an open-architecture investment platform,” the Fidelity spokesperson told MarketWatch in an email Monday. “Support fees help maintain the technology and service operations needed to ensure a secure and positive experience for investors.”
Fidelity may periodically update its “Surcharge-Eligible ETF” list, which could change again before June 3, according to the Bloomberg report.
At the end of March, U.S.-listed ETFs had a total $8.9 trillion of assets under management, according to a research note from Citigroup on Monday. Last month, investors poured more capital into domestic equity ETFs as the S&P 500 index SPX broke past 5,200 points, Citi Research said.
ETFs managed by State Street, Vanguard and BlackRock attracted the biggest inflows last month — including the SPDR S&P 500 ETF Trust SPY, Vanguard S&P 500 ETF VOO and iShares S&P 500 Growth ETFIVW, according to the Citi note.
Read: ETF flows in first quarter reflect investor hopes for ‘soft landing’
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As April gets underway, Bank of America (BAC -1.05%) stock trades around $37.50 per share, quite close to its 52-week high.
Although some analysts can get jittery when a stock approaches a near-term peak, one of Bank of America’s fellow lending giants doesn’t appear to be. In fact, it recently raised its price target on BofA stock by 10% and maintained its equivalent of a buy recommendation.
Is this enthusiasm realistic, though?
All’s well, according to Wells
The banking peer providing the price target boost was Wells Fargo. As March came to a close, its prognosticator Mike Mayo upped his Bank of America price target to $44 per share over the next 12 months or so, from the preceding $40. In doing so, he kept his overweight rating intact on the stock.
Mayo’s move came on the back of the analyst’s uptick in his estimate for Bank of America’s current (first) quarter per-share earnings figure.
He said one factor in this was more-robust-than-expected capital markets — the company is energetically active in investment banking. In fact, it set new revenue records for both the fourth quarter and full year 2023 in its global markets division. Other bright spots, in Mayo’s view, include what he termed the bank’s “solid” credit and expense management. All should result in a return on average tangible common equity (ROTCE) of around 13%.
A bank for believers
Banks are cyclical businesses, so if you’re a believer in the near future of the U.S. economy, Bank of America is a good stock play. It’s not the most efficient or dynamic of the big four — for my money, JPMorgan Chase tops it in both respects — but it’s an influential lender that’s effectively managed and should continue to do well as long as our economy keeps humming.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America and JPMorgan Chase. The Motley Fool has a disclosure policy.
Amazon parcels are prepared for delivery at Amazon’s Robotic Fulfillment Centre on December 19, 2023 in Sutton Coldfield, England.
Nathan Stirk | Getty Images News | Getty Images
Every year, the U.S. goes through enough cardboard boxes for shipping to pave a one-mile-wide road from New York City to Los Angeles three times, or build a mile-high cardboard wall around the entire continental U.S.
Among the primary targets to help reduce this mountain of packaging, the most notable may be the Amazon shipping box or envelope. In 2022, 11% of Amazon orders worldwide were sent in original manufacturer packaging. The company has yet to release its 2023 figure for the initiative designed to get rid of Amazon’s signature brown box, called the Ships in Product Packaging program.
It identifies products that might work, contacts vendors and then, to ensure that packages won’t be damaged during delivery, Amazon works with those companies to test products in a lab. Packages need to be able to survive drops off a conveyor belt, vibrations and shaking on the truck or the delivery person accidentally dropping the package while walking to the door.
“We qualify products ahead of time to make sure that they are going to deliver to customers without damage. Then we simulate the ecommerce fulfillment process as part of that testing process so as products are enrolled in the program, we make sure they meet that minimum standard to arrive safely,” said Kayla Fenton, Amazon senior manager of packaging innovation.
Testing varies depending on what the product is. Liquid items are more tricky than a stuffed animal. “Our tests are designed to react to the particular product type and its inherent fragility,” Fenton said. The test results are then fed into machine learning models which go through the Amazon catalog for more items that can be added to the program. For example, if a vendor sells a red tee-shirt, chances are the blue tee-shirt will perform just as well, Fenton said.
Products get tested five times, and each time something breaks, it helps the machine learning models evaluate what went wrong and how to fix it. Feedback from customers also gets fed into the system. If customers complain about damage and return more items because of it, Amazon can go back to using boxes.
Go North Group, a Fulfilled by Amazon aggregator that sells a wide range of home and garden goods, health, sports and pet products, was among those asked to join Amazon’s ships in packaging program. Johan Stellansson, Go North’s supply chain director, said the testing revealed that 80% of the company’s products can be shipped without additional packaging, including its MalsiPree portable water bottle for dogs.
In some cases, an extra piece of tape was enough to add some extra stability to the box so it could go through the shipping process undamaged, including some of the company’s pet stain and odor remover products, which come in bottles that are then packed in boxes. Bigger products that require a lot of padding didn’t make it into the program and Stellansson said it caused the company to reconsider whether it should continue selling the product on Amazon. “We wouldn’t develop a new product unless we can ship it in the manufacturer’s boxes,” he said.
Many efforts to reduce packaging remains works in progress, but a simple strategy Amazon is making more use of which reduces packaging use is boxes direct from companies including Clorox, McDonalds, and Starbucks with no additional Amazon cardboard.
Amazon
Amazon initially opened the program to vendors and has since opened it to sellers. Vendors are more like suppliers to Amazon while sellers operate more independently.
Fenton noted that as Amazon’s warehouse network has developed and gotten closer to customers in some areas, the delivery process is shorter, which allows the company to ship even more items with no packaging. Also, not all items make it into the program. Some never will. Personal items, such as adult diapers or sexual wellness products, will not be shipped without boxes or mailers for privacy reasons. Also, Fenton emphasized that customers can choose at checkout whether or not to ship in the manufacturer’s packaging.
Not all items can ship without a box or mailer. For that, Amazon has been working to reduce packaging, especially plastic — swapping out plastic bubble mailers with paper mailers and plastic bubbles with paper. It recently converted a fulfillment center outside of Cleveland, Ohio, from plastic to 100% curbside recyclable paper. The center uses a machine that scans items and then creates a box or envelope that is precisely the right size, reducing the amount of air and using less packaging, which adds weight.
Automation and machine learning play a role in minimizing packaging. “The more that we can automate, the more control we have over ‘right-sizing.’ We can really wrap or box to any size, dimension or product, provided that we can measure it properly with the cameras,” said Pat Lindner, vice president of mechatronics and sustainable packaging at Amazon. Ultimately, the move to reduce packaging has multiple benefits, saving money and reducing waste.
“We think this is good for the environment. We think this is good for the customers because it’s less material to have to deal with at home,” Lindner said.
Consumer habits remain tough to change
The move to reduce or eliminate extra packaging is just part of the solution. Another is reusable packaging. Amazon has experimented with reusables in the past — mainly through Amazon Fresh grocery deliveries — but discovered that too few customers returned the insulated totes.
Asking people to change their usual habits by returning packaging is an uphill battle. Even so, some companies are introducing reusable packaging, said Michael Newman, CEO of Returnity Innovations, which provides reusable boxes and bags for companies such as Rent the Runway and clothing brand Vuori.
Newman said that reusables work best when people don’t have to change habits. These circumstances include when people are already returning something or when they’re buying several sizes of the same item to try on at home. Reusable packaging can also work when goods are shipped to a retail store, and employees are responsible for returning the boxes.
“It doesn’t require behavior change from consumers,” he said.
Packaging is designed to withstand the average number of reuses, which could vary from five to 20 times, depending on the company. Newman said that for reusables to work from a carbon footprint perspective, customer return rates need to be 90% to 95%. Reusables typically use more resources, they’re thicker plastic, so if they are thrown out or not reused often enough, the environmental impact can be worse than using single-use plastic.
Matt Semmelhack, CEO and co-founder of Boox, supplies largely luxury direct-to-home brands like Goop and Rhode with reusable shipping boxes, but since the boxes have to be returned in a separate step, the return rate is lower, at 20%. Still, he is optimistic that with legislation, consumer habits will change. “There’s going to be an inflection point, and it’s probably going to be when Walmart or Amazon starts doing it,” he said.
Nvidia and Broadcom shares are BofA’s leading ways to play the AI trend within the chip sector, but several other players could carve out a “profitable niche.”
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You’ve been Rickrolled by a mildly plausible article title. Those keyword-packed headlines work, don’t they?
But there’s no guaranteed market-beating stock idea here. Legendary growth investor Buckminister Goldshanks hasn’t found “the eighth wonder of the world,” preparing to mortgage his mansion and buy more.
It’s just The Motley Fool, back with an April Fool’s joke. And you bought it!
Let’s be honest, we ALL want that magical stock that’s cheap, poised for world domination, AND endorsed by investing legends. But as tempting as those headlines are, they’re usually a recipe for April Fool’s style disappointment.
While we at The Motley Fool are all for hunting down those magnificent, no-brainer stocks set to soar, it’s crucial to remember the Foolish principles of investing. Diversify, think long-term, and yes, even on April Fool’s Day — especially on April Fool’s Day — keep your skepticism handy.
To be clear, no stock is truly worthy of the breathless promotion that brought you here. Cathie Wood’s and Warren Buffett’s stock portfolios have some stocks in common, but none that match our headline. For example, one name that they have in common dabbles in AI-driven financial services, but it has nearly tripled in 52 weeks and trades at 56 times earnings, so there’s no “beaten-down” quality and we wouldn’t call it a “no-brainer” buy today. (If you must know, the stock in question is Nu Holdings. Interested? Here’s a Foolish primer on how to research stocks.)
The reality is that no single stock can deliver every investor’s dream scenario. Let’s say someone actually made an unbelievable number of eyeball-magnet promises about a single stock in a headline that wasn’t meant as a joke. You would probably assume they had a nice bridge to sell you. And the stock should do your dishes, too.
99% of the time, you’d be right.
The Motley Fool way
That doesn’t mean there aren’t fantastic opportunities out there. Instead of chasing the impossible, our analysts and contributors focus on a realistic set of tactics that add up to a healthy investing strategy.
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Diversification for the win: Serious investors should hold at least a couple of dozen stocks in their portfolios, spread across various industries, geographic markets, and company-size cohorts.
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Undervalued potential: Great companies that have hit a rough patch can create a buying opportunity for long-term investors.
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The right mix: It can pay off to find stocks with some of the qualities Buffett loves (solid fundamentals) and a dash of the growth potential that thrills Wood.
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A long-term mindset: Buffett’s favorite holding period is “forever,” and The Motley Fool tends to agree. The real magic of long-term buy-and-hold investing comes from compound returns over many years as you let your winners run.
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Doing your homework: No stock is worth a blind bet. Research is key to separating long-term winners from flash-in-the-pan hype. The more you know, the better you’ll get at picking great investments. Remember, Buffett has said he reads 500 pages of financial filings a day. He didn’t become the Oracle of Omaha by blind luck.
Find your Foolish treasure
Investing shouldn’t be about chasing get-rich-quick schemes. If you can focus on building wealth over time through smart choices, you’ll be much better off.
And there is plenty to be excited about in this market, even if there aren’t any magic-wand ideas ready to make everyone smarter, happier, and richer all at once. Wall Street entered an official bull market in January, stretching back to the last bear market’s bottom in October 2022. Everyone is excited about AI stocks, stock splits, and initial public offerings. Even the crypto market sprang back to life recently, driving the leading digital assets to fresh all-time highs.
Investors are feeling the joy. The American Association of Individual Investors’ (AAII) latest investment sentiment survey saw the market mood leaning heavily bullish. It’s springtime for stock investors, and there’s no telling how far this bull market will run. Just keep a Foolish mindset and do your homework before hitting the “buy” button on any particular stock idea. Remember, great investors aren’t trying to time the market — they just give their money a lot of time in the market.
Happy April Fool’s Day, and happy stock hunting!
Where to invest $1,000 right now
When our analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has nearly tripled the market.*
They just revealed what they believe are the 10 best stocks for investors to buy right now…
*Stock Advisor returns as of March 25, 2024
Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends Nu. The Motley Fool has a disclosure policy.
Are You Looking to Buy a Beaten-Down, Magnificent, No-Brainer Stock Owned by Warren Buffett and Cathie Wood That’s Set to Soar Like an AI-Powered Rocket Today? was originally published by The Motley Fool
The first thing Nike (NKE -1.51%) tells you on its investor relations page is that it’s a growth company. Its recent results, however, say the opposite. Revenue at Nike was flat in its fiscal third quarter at $12.4 billion, and was up just 1% in the first three quarters of the year.
Nike is facing a number of challenges that have led to its growth stalling. It’s losing market share, especially in running, to upstart competitors like On Holding and Deckers’ Hoka brand. It also said it was pulling back its supply of styles like the Air Force 1 and Pegasus running shoes, a sign that it’s leaned too hard on classic brands. It also continues to be impacted by parting ways with Kyrie Irving, one of its biggest basketball stars, over a year ago.
As a result of those challenges, Nike stock is down 20% over the past year even as the broad market has soared, and it’s off nearly 50% from its pandemic-era peak. It’s easy to see why Nike stock has fallen as the stock is still priced for growth. However, Nike is now shifting its strategy in order to rebuild business momentum. Here’s how.
Image source: Nike.
Shifting back to the wholesale channel
CEO John Donahoe said the company aims to “build a multiyear cycle of new innovation, sharpen our brand storytelling, and work with our wholesale partners to elevate and grow the marketplace.”
The focus on the wholesale channel is new for Nike. In recent years, its strategy has been to shift away from wholesale and build its own direct-to-consumer brands. The company had said earlier that it would de-prioritize retailers who didn’t elevate its brand, and aimed to take more control of its customer relationships. It also cut 50% of its wholesale partners, especially small independent stores, effectively cutting them off from Nike products.
However, it may have leaned too hard on that strategy as brand digital sales were down 3% in the quarter, and it now seems to have rediscovered the advantage of the wholesale channel.
Donahoe said on the earnings call, “We recognize that our wholesale partners help us scale our innovation and newness in physical stores and connect our brands in the path of the consumer.” It was something of a mea culpa for a company that had stunned the footwear retail industry years ago by pulling its product from thousands of stores. However, it’s the right move for Nike.
Can wholesale drive a comeback for Nike?
On some level, drawing back from the wholesale channel made sense. Direct-to-consumer sales tend to have higher margins, and the growth of the mobile economy set up an opportunity for Nike to build customer relationships through apps like SNKRS, Nike, and Nike Training Club.
However, dumping dedicated retail partners now seems like a mistake and is part of the reason why competitors like On and Hoka have been able to gain traction and take market share.
Nike forgot that it still holds the cards in these wholesale relationships. Foot Locker, for example, brought in roughly 65% of its revenue from Nike in 2022, and those businesses deliver customers for Nike. They also absorb some of the marketing and overhead costs in selling footwear and have the advantage of thousands of stores.
Recently, Nike has resumed its relationship with retailers like Macy’s and DSW, which control billions of dollars in spending. Nike forgot that those relationships were a competitive advantage, and shelf space in those stores is an asset.
There’s an argument for scarcity and exclusivity in some products. For example, Nike has employed that tactic well with its Jordan brand, but overall Nike is a mass-market brand. It makes sense for it to be available where consumers shop for sneakers.
Is Nike a buy?
It’s likely to take time for the wholesale strategy to pay off, and Nike’s guidance was part of the reason the stock sold off on the earnings report.
Management called for revenue to be slightly higher in the fourth quarter, but sees revenue down low single digits in the first half of fiscal 2025 as it cuts back on classics and other top brands before a return to growth in the second half of the fiscal year.
Given that forecast, investors are bettering off waiting for clearer signs of a recovery, but the decision to reinvest in the wholesale channel is the right move for the business, and it should pay off down the road.
Jeremy Bowman has positions in Nike. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends Designer Brands, Foot Locker, and On Holding and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
Artificial intelligence stocks have already made plenty of millionaires.
After all, Nvidia alone added nearly $2 trillion in market cap since the start of 2023, and there have been trillions of dollars in market value created among the “Magnificent Seven” and beyond.
However, according to industry insiders, artificial intelligence is still in its infancy, and some have likened the current phase to the dial-up stage of the internet. Like the internet in the 1990s, generative AI is going to get better, and its applications will proliferate in ways that are hard to foresee.
To capitalize on that trend, keep reading to see two AI stocks that are worth buying right now.
Image source: Getty Images.
1. Super Micro Computer
One of the biggest winners in the AI boom so far has been Super Micro Computer (SMCI 2.69%), a maker of servers and storage equipment that works especially well for artificial intelligence purposes.
Shares of Supermicro, as the company is often known, jumped more than 800% over the past year as the company has emerged as a clear leader in AI hardware. Revenue rose 103% in its fiscal second quarter, and management said that its growth rate would accelerate in the next two quarters as it called for 101% to 107% revenue growth for the full fiscal year.
Comments from management indicate that the company could be growing even faster if it wasn’t facing supply constraints. CEO Charles Liang said that while GPU supply is improving, “Indeed, the demand is still stronger than supply. If we had more supply, we would be able to ship more.”
Supermicro also has a close relationship with Nvidia, whose GPUs have become the technological foundation of the AI boom — Nvidia has greater than a 90% market share in the data center GPU market. The headquarters of both companies are nearby, and its engineers work together to design server systems that fit the needs of its different customer groups.
That gives Supermicro a competitive advantage, as does its prowess in offering more customization options than its competitors, and it’s also known for bringing products to market faster.
Supermicro trades at a reasonable price-to-earnings ratio of less than 50 based on this year’s estimate, and it has a market cap of $59 billion. If the company remains a leader in AI servers, the stock could turn $250,000 into $1 million over the coming years.
2. Micron
Memory-chip specialist Micron (MU 5.44%) emerged as another big potential winner in AI as memory chips play an important role in running the kind of models that make programs like ChatGPT work.
Unlike stocks like Supermicro and Nvidia, investors are only starting to catch on to Micron’s growth opportunity in AI, and the stock is still affordably priced at a price-to-sales ratio of 4.
Micron is just emerging from a downturn in the chip industry as a supply glut driven by a slowdown in PC and tablet sales coming out of the pandemic has weighed on prices. However, artificial intelligence is playing a key role in its comeback. CEO Sanjay Mehrotra told investors in the recent earnings call, “We are in the very early innings of a multiyear growth phase driven by AI as this disruptive technology will transform every aspect of business and society.” He added, “Memory and storage technologies are key enablers of AI in both training and inference workloads, and Micron is well positioned to capitalize on these trends in both the data center and the edge.”
Micron’s products also stand out from the competition. For example, its high-memory HBM3E solution provides more than 20 times the memory bandwidth compared to standard server modules and it consumes 30% less power, an important quality in AI hardware, than competing products.
The company now expects record revenue in fiscal 2025 and a significant improvement in profitability. Based on that momentum and its leadership in memory chips, Micron could also grow by four times over the coming years from its current market cap of $130 billion, turning $250,000 into a million dollars.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
For the better part of three decades, there has been no shortage of next-big-thing investments that have captivated the attention of professional and everyday investors. Since the advent of the internet completely changed the course of business in the mid-1990s, there’s nothing that’s garnered as much buzz on Wall Street as the artificial intelligence (AI) revolution.
With AI and the incorporation of machine learning (ML), software and systems have the ability to learn over time and become more proficient at their tasks. The broad-reaching scope of AI in virtually every sector and industry is why the analysts at PwC believe it could add more than $15 trillion to global gross domestic product by the turn of the decade.
Although dozens of stocks have benefited from the AI revolution, none have enjoyed a more direct boost to their sales and bottom line than semiconductor stock Nvidia (NASDAQ: NVDA).
This “infrastructure backbone” of the AI revolution is on the chopping block by billionaires
In a little more than a year, Nvidia has become what I like to call the “infrastructure backbone” of the AI movement. The company’s A100 and H100 graphics processing units (GPUs) have come to dominate high-compute data centers. Though estimates vary, Nvidia’s ultra-fast GPUs might account for 90% (or more) of the GPUs deployed in AI-accelerated data centers this year.
This is a company that’s also enjoying otherworldly pricing power on its GPUs. With demand overwhelming supply throughout 2023, cost of revenue moved only modestly higher while data center sales more than tripled. This is a pretty clear indication that pricing power is behind much of Nvidia’s sales and profit spike.
But not everyone is convinced that Nvidia is headed higher. During the December-ended quarter, eight prominent billionaire investors pared down their stakes in this top-performing megacap, including (total shares sold in parenthesis):
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Israel Englander of Millennium Management (1,689,322 shares)
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Jeff Yass of Susquehanna International (1,170,611 shares)
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Steven Cohen of Point72 Asset Management (1,088,821 shares)
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David Tepper of Appaloosa Management (235,000 shares)
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Philippe Laffont of Coatue Management (218,839 shares)
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Chase Coleman of Tiger Global Management (142,900 shares)
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David Siegel and John Overdeck of Two Sigma Investments (30,663 shares)
One of the primary reasons to be skeptical of Nvidia’s phenomenal run-up is that it’s been driven by GPU scarcity. With Nvidia set to meaningfully increase its output in the current calendar year, and competitors like Advanced Micro Devices and Intel rolling out advanced AI-GPUs of their own, it’s only logical to expect its pricing power to decline.
What’s arguably even more concerning is that Nvidia’s top four customers by revenue (40% of total sales) are all developing AI-GPUs of their own. This is either going to lessen their future reliance on Nvidia as their in-house data center chips complement what Nvidia produces, or they could phase Nvidia’s infrastructure out altogether. Either way, it’s a worrisome development for a richly valued stock.
But while billionaires were busy running for the exit from Nvidia, they weren’t shy about pressing the buy button on two other hypergrowth AI stocks during the fourth quarter.
CrowdStrike Holdings
The first high-octane AI growth stock that appeared to whet the whistles of billionaire money managers during the December-ended quarter is cybersecurity company CrowdStrike Holdings (NASDAQ: CRWD). Four highly successful billionaires added to their funds’ respective stakes in CrowdStrike, including (total shares purchased in parenthesis):
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Jeff Yass of Susquehanna International (400,988 shares)
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Jim Simons of Renaissance Technologies (97,900 shares)
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David Siegel and John Overdeck of Two Sigma Investments (91,091 shares)
On a macro basis, the cybersecurity industry has the look of a surefire growth story through at least the remainder of the decade. As businesses continue shifting their data online and into the cloud, third-party providers are being relied on with frequency to protect this information from hackers.
Furthermore, cybersecurity solutions can thrive in any economic climate. A bad day for Wall Street or a rough patch for the U.S. economy doesn’t mean a thing to hackers and robots looking to steal sensitive information. Since CrowdStrike is a subscription-driven company that protects end users, it’s well-positioned to generate predictable cash flow no matter what’s happening with the economy or stock market.
On a more company-specific basis, CrowdStrike brings clearly identifiable competitive advantages to the table for its customers and investors. The company’s Falcon security platform is driven by AI and ML. Falcon is overseeing trillions of events each week, which are making it smarter and more effective at recognizing and responding to potential threats.
There are a couple of key performance indicators that demonstrate just how much pull CrowdStrike has with businesses. Even though its platform isn’t the cheapest, gross retention rate has been pegged right around 98% for multiple years. Additionally, the company’s net retention rate hasn’t fallen below 119% in more than five years. This means the company’s existing clients are spending at least 19% more on a year-over-year basis.
But the key to CrowdStrike’s success has been its ability to upsell existing customers. Whereas a single-digit percentage of its clients seven years ago had purchased four or more cloud module subscriptions, 64% of its customers now have five or more cloud module subscriptions. These add-on sales have lifted its adjusted subscription gross margin to an impressive 80%!
Snowflake
The second hypergrowth artificial intelligence stock that billionaires were buying as they were sending Nvidia to the chopping block during the December-ended quarter is cloud data-warehousing company Snowflake (NYSE: SNOW). Similar to CrowdStrike, four billionaire investors stepped up and added to their funds’ stakes, including (total shares purchased in parenthesis):
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Ken Griffin of Citadel Advisors (1,985,426 shares)
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David Siegel and John Overdeck of Two Sigma Investments (1,204,387 shares)
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Israel Englander of Millennium Management (888,047 shares)
There look to be two reasons why billionaire asset managers are choosing to load up on shares of Snowflake: opportunity and competitive edge.
With regard to the former, enterprise cloud spending, and AI solutions/applications within the cloud, are still in their early innings of expansion. Buying shares of Snowflake offers a way for investors to have exposure to the rapid growth in enterprise cloud and AI.
The other reason billionaires likely piled into Snowflake is because of its well-defined competitive advantages. For example, Snowflake’s infrastructure is layered atop the leading cloud infrastructure service platforms. While sharing data can be challenging across competing cloud platforms, it’s seamless for Snowflake’s customers.
Likewise, Snowflake doesn’t rely on subscriptions. Rather, it charges customers based on the data they store and the Snowflake Compute Credits they use. This transparent pricing policy really seems to resonate with its users.
The one issue with Snowflake is the company’s valuation. Don’t get me wrong, CrowdStrike trades at an immense premium, but has seen its sales remain robust. Snowflake’s revenue growth has slowed from the triple-digits three years ago to an estimated 22% in the current fiscal year. Snowflake is also valued at 115 times forward-year adjusted earnings, which is an even tougher pill to swallow for a company that’s seen its sales growth slow from the triple digits.
Though Snowflake looks to have a bright future, it could take some time before its operating performance grows into its current valuation.
Should you invest $1,000 in CrowdStrike right now?
Before you buy stock in CrowdStrike, 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 CrowdStrike wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
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Sean Williams has positions in Intel. The Motley Fool has positions in and recommends Advanced Micro Devices, CrowdStrike, Nvidia, and Snowflake. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
Forget Nvidia: Billionaires Are Selling It and Buying These 2 Hypergrowth Artificial Intelligence (AI) Stocks Instead was originally published by The Motley Fool
Walgreens Boots Alliance (WBA 3.19%) has been a brutal investment for the past nine years. Shares are down more than 75% from the all-time high, reached way back in early 2015. The one saving grace for investors during much of this period was the company’s dividend, which the Board was still steadily increasing every year. From 2014 through late 2023, the payout was increased 40%.
Well, even that’s gone, with the near-halving of the dividend late last year now resulting in a payout that’s 26% lower than it was in 2015.
The good news is a new CEO is taking steps to slash costs and stimulate profitable growth. Is Walgreens stock a buy now? Keep reading for the one reason why it could be compelling, a major yellow flag that says maybe it’s not, plus a stock that you may want to consider instead.
Reason to buy: A CEO who’s accelerating the turnaround
Tim Wentworth was named CEO last Oct. 11, and he didn’t waste any time in enacting cost-cutting efforts at the company. When it reported first quarter results 12 weeks later, one of the first lines in the press release announced the 48% dividend cut.
This move made a bold statement that there would be no sacred cows in this turnaround. Prior to the cut, Walgreens had increased its dividend every year for a remarkable 47 years. Wentworth — with the backing of the Board of Directors, which has the final say on things like dividends — has quickly taken action to get Walgreens’ financial house in order so that it can enact the meaningful changes that it will take to reinvigorate the business and return it to profitable growth.
In addition to the dividend cut, the company has also taken some real steps to lower costs and expenses. The company says it will cut $1 billion in spending versus 2023, through both lower capital expenditures and working capital improvements.
Reason to sell: The math is still a mess
Wentworth is acting quickly, and with Board backing. His experience in the healthcare industry is a real plus. But the reality is, Walgreens’ fast moves are as much a product of need as much a desire to improve the business.
Despite the improvements on the top line — revenue was up 8% in the first half of the fiscal year — non-pharmacy retail sales declined 5.3%. Management says that seasonality played some role in this, but they also lowered profit expectations for the full year, citing the competitive environment. I think those two things are more related than just seasonality.
At the same time, one of the company’s biggest initiatives, healthcare, took another step backwards. Walgreens took a $5.8 billion impairment to its investment in VillageMD, reflecting much lower expectations for its full value over time. The upshot is that VillageMD revenues increased 20% last quarter, but the healthcare business continues to generate an operating loss.
This adds to Walgreens’ cash flow woes. The company has burned $918 million in operating cash through the first half of the year, and spent $858 million on capital expenditures. That’s a lot of money that has to come off the balance sheet to cover those checks.
Even with promised expense and cost cuts, Walgreens has a lot of work to do. In the first six months of the fiscal year, its working capital has remained unchanged, but it has burned through some $11 billion in total assets on its balance sheet.
About half of that is the VillageMD impairment, but what is easy to miss is that it has realized $1.7 billion in proceeds from the sale of its equity stake in Cencora so far this year, but Cencora’s market value has increased enough to offset the impact of these sales on the balance sheet.
And as measured by cash in and cash out, as generated by its operations, Walgreens is a long way from turnaround complete. That’s particularly notable for income investors who may think the “new” dividend is safe. Barring a reversal in those cash flows, another cut is surely on the table.
A better stock to buy instead
Whether you’re looking for steady income, a high yield, or a likely market-beater over the long term, Realty Income (O 1.10%) may be a better choice. As a starting point, its dividend is very secure, protected by strong cash flows from its tenants that rely on the properties they lease from Realty Income to generate their sales and profits.
Realty Income is one of the largest net lease REITs — it owns the real estate, while its tenants pay it rent, cover property taxes, and pay for improvements and maintenance — in the world. Its tenants include Walgreens and competitor CVS Health, along with hundreds of other tenants in retailing, restaurants, experiential, and other e-commerce and macroeconomic resilient businesses.
One of the best capital allocators in real estate, Realty Income’s business is built on creating value for its tenants and its investors, and growing the payout is a key tenet of its business model. It has increased its dividend not just every year since its 1994 IPO, but every quarter. It’s also a monthly payer, a nice bonus for income investors.
Put it all together, and you have a stronger business, a safer dividend, and a payout that’s still growing. Did we mention the yield of 5.7% at recent prices is also better than Walgreens’ 4.6% yield? There’s that, too.