Most investors know the cryptocurrency market can move quickly. A 5% or 10% move in a token's price in a few hours isn't uncommon. So, Bitcoin's (CRYPTO: BTC) 29% rise in just a few weeks, including a 21% climb in three days between Aug. 19 and Aug. 22, isn't too out of the ordinary. The leading cryptocurrency trades nearly 41% above its July low as of this writing.

The current momentum in Bitcoin is driven by a couple of key factors that could push its price significantly higher from here. In fact, one analyst thinks the cryptocurrency could reach $500,000 by 2029, representing upside of more than 500% from here.

Here's what investors need to know.

Image source: Getty Images.

A 40-year trend is ending, and Bitcoin will benefit

Bitcoin is often called digital gold. Its limited supply and status as a store of value independent from any central bank make it very gold-like. However, it doesn't always trade like gold, which is much less volatile than Bitcoin.

However, Bitcoin has seen its price behave very much like gold during two important occasions in the recent past, as pointed out by Bitwise's head of research André Dragosch in a recent memo. First, Bitcoin moved in line with gold during the 2020 COVID-19 crisis amid multiple rounds of fiscal and monetary stimulus from the Fed and U.S. government. More recently, the two have moved in line with one another as Secretary of the Treasury Scott Bessent signaled the Treasury's plans to increase buybacks of long-term bonds.

Bessent's intervention is a move to tamp down long-term interest rates, which have climbed to their highest level in 19 years. A team of analysts at Bernstein doesn't think interest rates will come down anytime soon, regardless of government intervention. The analysts note that interventions like Bessent's treat the symptom rather than the problem: ongoing government deficits.

The 40-year trend in lower interest rates may be over. With higher interest rates in place, stores of value like Bitcoin may become more expensive.

Importantly, higher long-term interest rates are a challenge worldwide. The United Kingdom, France, Germany, Australia, and Japan are also seeing long-term government bond rates rise. As government debt rises and interest rates compound the challenge, there's a growing likelihood that global currencies will decline in value. As a result, hard assets like gold or Bitcoin will see their prices rise, even if their "value" stays the same.

New regulations could give Bitcoin a boost

There's a growing effort by the U.S. government to regulate cryptocurrencies. The Genius Act, enacted a year ago, established clear rules for how stablecoins are formed and the treasury requirements for maintaining them. The Clarity Act is currently in Congress and would formally classify Bitcoin as a commodity, which falls under the Commodity Futures Trading Commission's (CFTC) jurisdiction.

Unfortunately, the Clarity Act is unlikely to pass without some changes. Lawmakers cite conflicts of interest with President Donald Trump's cryptocurrency holdings and meme coin business. However, it's very likely that additional regulatory clarity will come in the next few years. That will pave the way for broader institutional adoption.

That's important because institutional investors looking to hedge against rising government debt and higher interest rates are a much larger force than the current capital held in Bitcoin. For reference, there's currently $31.2 trillion held in gold. Bitcoin's market cap of $1.6 trillion, and the broader $2.7 trillion market cap of all cryptocurrencies, are relative drops in the bucket.

How much higher can Bitcoin climb?

The analysts at Bernstein believe currency debasement could push the price of Bitcoin substantially higher over the next few years. They see it reaching a new all-time high by next year, topping $150,000 by mid-2027.

The analysts expect Bitcoin to maintain its historical four-year cycle, which could push the price to $300,000 by the end of 2029 in their base case. In their bull case, however, the price could climb to $500,000, aided by positive regulatory developments and macroeconomic tailwinds.

The analysts expect another four-year cycle to follow after prices peak in 2029. The old highs could become the new lows, just as we saw earlier this year when Bitcoin found a floor around $60,000. That means right now could be an excellent opportunity to buy into Bitcoin's momentum, as fundamental drivers can push the price higher.

Adam Levy has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

We're just a few weeks away from learning one of the most important numbers that will affect the finances of more than 71 million Americans in 2027. The annual Social Security cost-of-living adjustment, or COLA, for next year will be determined on Oct. 14 this year.

The COLA is designed to offset the impact of inflation on monthly Social Security benefits, ensuring that retirees and people with disabilities have enough to help make ends meet. President Donald Trump has enacted several policies that have affected Social Security, but several inflationary policy decisions made since he took office in early 2025 could have a notable impact on the 2027 COLA. In fact, next year's COLA could be one of the highest during the past 15 years.

Here's what it means for Social Security beneficiaries.

Image source: Official White House. Photo by Molly Riley.

Trump's policies added to inflation

The annual COLA is based on a measure of inflation known as the CPI-W. The CPI-W tracks a basket of goods that represent the average spending of an urban wage earner or clerical worker in the U.S. It's slightly different than the more commonly reported CPI-U, which is meant to cover a broader group of all urban consumers.

The Social Security Administration uses the average year-over-year increase in the CPI-W reading during the third quarter of each year to determine the COLA for the following year. That means it won't determine the exact COLA until the September reading is released on Oct. 14.

We currently have only one of the three data points needed to determine the COLA, and the next one will arrive on Sept. 11. So far, Trump's policies have had a noticeable impact on inflation this year, which could lead to a substantial COLA.

The first policy driving inflation higher is the president's tariffs. Although the administration's initial wave of tariffs took effect more than a year ago, they're still pushing up prices. That's despite the Supreme Court striking down those tariffs as illegal. Many businesses waited to pass on the increased costs to consumers, but now that they have, they're not rolling back prices.

Trump has continued to find new ways to impose tariffs on many goods, and he recently imposed steep tariffs on Canadian imports. Those tariffs took effect in August and could affect prices and inflation measures in September.

The second major policy decision affecting inflation is the unresolved Iran war, launched by Trump at the end of February. The attacks led Iran to restrict navigation through the Strait of Hormuz, cutting off global oil supply as well as key chemicals and materials shipped through the strait. That increased prices across the board, as energy is a necessary input for almost everything in the economy.

The U.S. and Iran have recently escalated the conflict, a trend already reflected in oil futures and gas prices. That could lead to a higher-than-anticipated inflation reading in September.

The 2027 COLA could be another big one

There are several expert projections for next year's COLA to consider. But as we get more data, the range of possible outcomes is narrowing.

The Federal Reserve Bank of Cleveland provides a forecast of inflation for the current month (and the previous month if it hasn't yet been reported). While it focuses on the CPI-U, the CPI-W reading typically moves in line with the broader reading. Its current forecast calls for inflation to climb 3.4% in both August and September. If that proves accurate, the 2027 COLA will likely be 3.4%.

That projection is in line with analyst Mary Johnson's expectations after digesting July inflation numbers. She had previously projected 3.7% in July but just 1.2% at the start of the year.

The AARP projects the COLA could come in at 3.5%, suggesting faster price increases in August and September than in July. And the Senior Citizens League estimates the 2027 COLA could be 3.6%. That's up from its January projection of 2.6%.

Even if the COLA comes in at the low end of those projections, it's set to be the fourth-highest annual increase since 2010. At the high end, it will tie for third. Only 2022 and 2023, when the country experienced a burst of intense inflation, would be higher.

But as anyone who's dealing with higher prices today knows, a big COLA isn't all it's cracked up to be. Social Security beneficiaries have to deal with accelerating inflation today before they receive the commensurate benefits boost next year. That can add a lot of financial strain. Beneficiaries should hope for policies that lead to slow, stable inflation, something we haven't seen in years.

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One of the biggest questions Greg Abel faced after he took over for Warren Buffett as CEO of Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) at the start of 2026 was how he would manage the company's massive equity portfolio.

Unlike Buffett, Abel doesn't have a significant background in capital allocation decisions. Abel is known as a strong operations manager, which makes him well-suited for overseeing Berkshire's dozens of owned-and-operated businesses.

But with an equity portfolio value of about $360 billion and roughly equal amounts of investable cash and Treasuries, as of this writing, the liquid portfolio accounts for far more of Berkshire's value than its own operations do. That's why many investors have been watching what Abel will do with the company's portfolio.

Last quarter, Abel made some big moves, including purchasing about $4.5 billion of a single stock. And the company's quarterly filing revealed that he's buying billions more this quarter. Here's what investors need to know.

Image source: Getty Images.

Abel broke two long streaks at Berkshire Hathaway

As Warren Buffett wound down his tenure as CEO, he had created a couple of notable streaks in Berkshire's capital allocation.

The first streak was that he was a net seller of stocks for 13 straight quarters. Abel continued that streak in the first quarter, unless you count the $9.7 billion acquisition of OxyChem as a stock purchase. Total net stock sales in the 14 quarters added up to $194.8 billion.

Abel ended that streak last quarter. He bought a total of $23.5 billion worth of equities while selling just $3.7 billion. The biggest of those stock purchases, by far, was Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL).

Buffett initiated the Alphabet position in the third quarter of 2025 and noted that he approves of Abel's decision to make it one of Berkshire's largest positions. That includes a $10 billion private placement Abel took in June, in addition to purchasing the stock in the public market.

Alphabet is currently Berkshire's third-largest position, and Abel may be buying more of the stock while the price trades below the level at which he took the private placement. Investors will have to wait for public disclosures to find out for sure.

It's another stock Abel bought in the second quarter that we know for certain he bought more of since the end of June. And that relates to the other notable streak Buffett started. After buying back Berkshire shares for 24 straight quarters, Buffett stopped repurchasing the stock in the third quarter of 2024. That began a streak of six straight quarters without a buyback.

Abel ended that streak in his first quarter as CEO, buying back a few hundred million in shares. He made a massive step-up in buybacks last quarter, with repurchases totaling $4.5 billion. And he's not done yet.

Berkshire's quarterly report shows that the number of shares outstanding fell by about 0.32% from the end of June to the end of July. With a market capitalization hovering above $1.05 trillion, Abel spent more than $3.3 billion buying additional shares of Berkshire Hathaway in July alone. And he could buy more.

Should investors follow Abel?

Warren Buffett has generally advised Berkshire Hathaway shareholders to buy the stock whenever management buys back shares. It's a very simple indicator for investors to follow, and it's trustworthy due to Buffett's stance on share repurchases. He reiterated, on multiple occasions, that all share repurchases must be price-dependent. Management should buy back stock only when it trades below its intrinsic value.

The board updated its repurchase authorization to reflect that stance in 2018, and it remains in place today. Abel is only allowed to repurchase shares when he and Buffett determine that the price is below the conservatively determined intrinsic value. As such, investors can safely assume management believes the stock was undervalued in July. Unfortunately, the stock has traded higher in August and at the start of September.

Nonetheless, the stock looks fairly valued. Its price-to-book ratio is around 1.45, which may be somewhat inflated, given we're just a few weeks away from the end of the third quarter. That's historically a good price to pay for the stock.

Furthermore, Berkshire stock has mostly traded sideways in 2026 while the market has piled into insurance stocks and railroad stocks (two of Berkshire's biggest operations), and its marketable equity portfolio has increased in value. That's despite strong operating results for the insurance underwriting business and improvements in railroad profitability in the first six months of the year. The stock performance may reflect investor sentiment regarding Abel's capabilities as an asset allocator.

While investors shouldn't expect the massive returns Buffett generated from equities over his lifetime, Abel appears capable of deploying capital strategically in new equity investments and returns to shareholders. After the market digests the regime change, the stock should be able to move higher.

Adam Levy has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Berkshire Hathaway. The Motley Fool has a disclosure policy.

Micron Technology (NASDAQ: MU) has seen its revenue and profits soar amid booming demand for AI compute, and it could see its pockets get even fatter over the next few years based on recent news from its fellow AI chipmakers. Both Nvidia (NASDAQ: NVDA), which uses memory chips like Micron's in its GPU systems, and SK Hynix (NASDAQ: SKHY), a rival memory chipmaker, announced news suggesting the memory chip supply shortage could last much longer.

The market's reaction to the recent developments provides a clear indication of what the market expects for Micron going forward. Here's what investors need to know.

Image source: Micron Technology.

Nvidia just made a huge commitment to memory chips

Nvidia's second-quarter earnings report included a small detail that could have a huge impact on Micron and the rest of the memory chip industry. The company increased its commitments to suppliers to $279 billion, up from $119 billion in the previous quarter. The $160 billion increase is primarily due to memory procurement, CFO Colette Kress wrote in her prepared statement accompanying the earnings release.

Nvidia likely signed long-term agreements with one or more memory chip suppliers. All three leading chipmakers started signing strategic agreements to guarantee demand well into the future in exchange for locking in prices today. That gives the companies the confidence to build new capacity with a guaranteed buyer at the end of the day. However, it caps how high prices can climb if demand growth continues to outpace supply growth.

Investors have generally seen the long-term agreements as a bullish sign for the memory chipmakers. The guaranteed revenue could reduce the cyclicality that has historically plagued memory chip stocks.

So, the fact that Nvidia made a huge commitment should be a positive signal for Micron stock. Nonetheless, the market didn't seem to react to the news; shares dropped 0.3% the day after Nvidia's earnings release.

SK Hynix's management says the memory shortage can last much longer

At a press conference following the groundbreaking ceremony for SK Hynix's new Indiana manufacturing facility, CEO Kwak Noh-jung said the current memory supply shortage could last through 2030. SK Hynix's Indiana facility isn't set to begin mass production until the second half of 2029, and with a $4 billion price tag, a lot is riding on the continuation of the tight memory chip market.

More importantly, the analyst consensus has been that supply will catch up to demand by 2028 and revenue growth will slow for the memory chipmakers. Micron's most recent guidance was that tight conditions will "persist beyond calendar 2027."

Shares of Micron barely budged on news that SK Hynix's management now expects a favorable market for its products to last through the end of the decade, driven by the unprecedented AI compute build-out.

What the market's reaction says about Micron stock

Despite positive developments or insider commentary on the memory market, Micron stock has barely moved. That suggests the market is already extremely optimistic about Micron Technology's future.

That puts shareholders in a precarious position. Good news will have practically no effect on the stock price, as we saw at the end of August. Micron needs to release news that absolutely blows away expectations to move higher. While it's been done repeatedly over the last year or so, the market's expectations are now sky-high.

On the flip side, any indication that the current earnings cycle won't be as strong as expected or won't last as long as forecast could be devastating for shareholders. The volatile stock could tumble lower on even a hint of bad news because expectations are so high.

Investors may view the stock trading at just 6 times forward earnings as a relatively low-risk opportunity, but that's not the case for a cyclical stock like Micron. There's a lot of uncertainty in those earnings forecasts. A shortfall in earnings relative to expectations could reduce both earnings and the earnings multiple, compounding the downward impact on the stock price.

Of course, exceeding those expectations could have the opposite effect. It's just become increasingly difficult for Micron to do that.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology and Nvidia. The Motley Fool has a disclosure policy.

Space Exploration Technologies (NASDAQ: SPCX), better known as SpaceX, shattered records with its IPO, issuing almost $86 billion in stock. And while management favored retail investors with its IPO allocations, institutional investors still held a huge amount of the stock as of the end of the quarter. Filings with the SEC revealed 1,941 professional investment managers and corporate investors held more than $600 billion worth of the stock as of June 30.

Many of those shareholders were required to hold their shares through July, but in August, they finally got the opportunity to cash out some of their investments, and they'll have even more opportunities in September and October. Meanwhile, index funds will be buying up shares as more of the stock becomes publicly available.

The competing forces are important for everyone to understand, from individual SpaceX shareholders to index fund investors.

Image source: The Motley Fool.

How much SpaceX stock are index funds buying?

When SpaceX filed to go public, many popular stock indexes updated their rules so that the giant space technology company would be included in their indexes shortly after its public market debut. Some of the most popular stock indexes with SpaceX already included are:

• Nasdaq-100, which can be tracked using the Invesco QQQ Trust (NASDAQ: QQQ)
• Morningstar US Total Market, which can be tracked using the Vanguard Morningstar Total Stock Market ETF (NYSEMKT: VTI)
• Russell 1000, which can be tracked using the iShares Russell 1000 ETF (NYSEMKT: IWB)

Notably absent from the list is the S&P 500, which refused to update its inclusion criteria. SpaceX won't be eligible for the popular large-cap index for at least a year after its IPO.

All three of the above indexes began with relatively small weightings for SpaceX. That's because the company only offered about 5% of its entire company to the public with its IPO. The indexes are designed to reflect the publicly available investable universe. The Nasdaq-100 has the highest weighting for SpaceX. Not only does it have the fewest other constituents in the portfolio, but it also triples the float-adjusted market cap, meaning SpaceX could be fully market-cap weighted in the index once 33.4% of its stock is available to the public, which will likely occur before the end of the year.

With the lockup expirations in August and further expirations in September, October, and November, the indexes are set to increase SpaceX's weighting when they next rebalance. The Morningstar index and Nasdaq-100 will rebalance in mid-September. They'll increase the weight of SpaceX by about 3.4 times. The Russell 100 index will update later this year, and it'll see an even bigger increase as more share unlocks will have occurred by the time it's set to rebalance.

Considering the billions of dollars locked up in index funds tracking these indexes, plus all the mutual funds benchmarked against them (which incentivize fund managers to add exposure to SpaceX), there will be many buyers of SpaceX stock over the next few months.

But as mentioned, there are hundreds of billions of dollars worth of shares locked up, most of which will come to market by the end of the year. Most early investors are likely eager to take the stock off their books, as the massive gains may have left their portfolios heavily concentrated. It's unclear if the forced buying will be enough to offset the selling pressure.

Which side should you be on?

It's worth noting that many of the early investors may sell SpaceX stock not because they think it's a bad investment, but to reduce their concentration risk. At the same time, index fund managers will buy the stock not because they think it's a good investment, but because they're required to do so.

Index investors are caught in the middle. Those looking to avoid the stock could shift more of their assets to the S&P 500 and other indexes that won't include it until next year at the earliest. But for many investors locked into certain funds, it'll be hard to avoid. The stock will account for a growing percentage of their investment portfolio, whether they're bullish on the company or not.

Investors focused on the individual stock may find that near-term pressure from insider and early investor selling could create buying opportunities. Importantly, the value of SpaceX stock is heavily dependent on high growth expectations for its artificial intelligence and communications businesses, including technologies that have yet to prove themselves viable or scalable. Valuing the stock based on its recent financial results or even near-term expectations results in multiples that make little sense. If the stock price comes under pressure from early investors unloading large stakes, though, the price could become enticing given the business's long-term potential.

In the meantime, investors should expect significant volatility in the stock as lockup expirations trigger large selling events and index rebalancing triggers large buying events.

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

The first half of 2026 was a tough time for software stock investors. The sector experienced a massive sell-off, with top names, including Salesforce (NYSE: CRM), dropping sharply as fears of AI displacing enterprise software led many investors to reevaluate the segment's top stocks.

Salesforce CEO Marc Benioff told investors this isn't the first so-called "SaaSpocalypse" he's seen in his tenure as head of the leading enterprise software company. He called it "a great buying opportunity" during the company's fourth-quarter earnings call in February and thanked the board for authorizing a $50 billion share repurchase program, including a $25 billion accelerated repurchase. He executed within weeks, issuing debt and buying back the stock in a massive bet on the company.

And now it's paying off. Salesforce's share price is up 38% since the end of March, getting another leg up with the company's second-quarter earnings report in late August. Investors wondering if they missed the opportunity to buy the SaaS stock could be in luck. It still looks like an incredible opportunity, given several key announcements in the company's earnings report.

Image source: Getty Images.

Did Salesforce just put the AI fears to bed?

Salesforce reported solid earnings for the second quarter, but investors will need to dig a little deeper to understand what drove the market to push the stock price up more than 20% after the news.

First, the company reported revenue at the top end of its guidance and saw remaining performance obligations grow at 11%. Current remaining performance obligations climbed 14%, giving credence to management's standing projection that it'll experience revenue acceleration in the back half of 2026. That's further supported by management's guidance, which included a raise in its full-year revenue outlook.

More encouraging is that the revenue growth is being driven by artificial intelligence (AI). "We're seeing incredible demand for our AI and data products, with [annual recurring revenue] about to cross $4 billion," Benioff said in the press release. That's a 210% increase in AI-related revenue year over year.

Building on that, it announced a partnership with Anthropic and introduced Claudeforce. The first set of products in Claudeforce will enable users to take actions right from a Claude chatbot window. It allows a Claude agent to access data within Salesforce and enables users to create apps and uncover answers buried in company data without any user interface constraints. It's also integrating Claude deeper into Agentforce and Slack.

The partnership reinforces Benioff's assertion that Salesforce's integration with businesses and its ability to collect and store enterprise data are essential, and the company's software will serve as an important layer that large language models can work on top of.

Salesforce is spending heavily on developing and marketing its AI efforts, though. That resulted in operating margin compression and a slight downward revision in full-year operating margin. Generally accepted accounting principles (GAAP) operating margin is now expected to come in at 20.1% for the full year, but non-GAAP operating margin remains unchanged at 34.3% for the year.

Is it too late to buy Salesforce?

Despite the big jump in the stock price, Salesforce stock still looks cheap relative to its growth potential. Management may provide another update to its long-term growth targets later this month, but last year, it suggested it could grow revenue at a double-digit rate through the end of the decade while expanding the adjusted operating margin to about 40%.

The most recent earnings results should put some doubts about its potential growth to rest, but the market still fears that management is overly optimistic. That's why shares trade for just 16 times earnings expectations.

But even if management proves somewhat overly optimistic, the stock can still climb higher from here. As AI-related revenue becomes a bigger part of the business, it strikes more deals like Claudeforce, and revenue continues to compound at a double-digit rate, it should see some operating leverage as it scales its AI efforts. That should support strong organic earnings growth.

Meanwhile, the company is generating billions in free cash flow every year. That cash is used for additional acquisitions to bolster growth, with the rest going toward share repurchases. There's still about $23 billion of its $50 billion repurchase authorization remaining. That should push earnings-per-share growth even higher.

With a solid business that's proving to be a beneficiary of AI more than a victim of it, investors may still be undervaluing Salesforce right now.

Adam Levy has positions in Salesforce. The Motley Fool has positions in and recommends Salesforce. The Motley Fool has a disclosure policy.

Dividends used to contribute significantly to investors' annual returns. For much of the 20th century, dividend yields on the S&P 500 (SNPINDEX: ^GSPC) floated between 3% and 5%, save for a few macroeconomic shocks (which sent yields higher). Today, a stock paying a 3% dividend could be considered a high-yield dividend stock. In fact, the S&P 500's aggregate dividend yield over the last 12 months has fallen to 1.04%, the lowest value on record.

The last time dividend yields were this low, it didn't bode well for investors. The S&P 500 dividend yield reached a low of 1.11% in September 2000, just six months before the dot-com bubble burst. Here's what's pushing today's dividend yield lower, how low yields played out over the long run, and what it means for investors today.

Image source: Getty Images.

Do low dividend yields mean a crash is coming?

There are a few reasons why dividend yields have dropped significantly since the 1980s. First and foremost, fewer companies in the S&P 500 pay dividends. Instead, more companies are using excess cash to repurchase stock. In 1982, a Securities and Exchange Commission (SEC) rule change made it easier for companies to buy back their own stock, which gives management much more flexibility in capital returns.

The second factor is that Treasury yields have steadily declined (although they've recently recovered). Lower bond yields put less pressure on management to offer high dividend yields.

Lastly, stocks trade at a considerable premium compared to their historic average. With the S&P 500 trailing P/E ratio hovering around 29 (compared to levels well below 20 through the 1980s), paying out the same percentage of earnings as a dividend would still result in a lower yield due to higher stock prices.

Data by YCharts.

That last factor may be the most concerning for investors. After all, the last time valuations climbed to similar levels and pushed dividend yields lower was practically the peak of the dot-com bubble. That said, forward P/E ratios currently sit below peak dot-com levels, and the companies leading the stock market higher sit on a solid foundation of positive earnings and cash-flowing businesses.

Do companies have a good reason for keeping dividends low?

As mentioned, one of the big reasons dividends have shrunk over the last few decades is that share repurchases have become a much more practical way to return capital to shareholders. Even after recent legislation started taxing buybacks, they're still more tax-efficient for investors than dividends in most cases. The flexibility they provide for management to make capital investment decisions has also proved especially valuable in some cases.

The most recent example is that U.S. hyperscalers are pouring hundreds of billions of dollars into building out artificial intelligence data centers. They see the potential for very strong cash returns on their investments, even as they pour as much cash as possible into the business. There have rarely been opportunities like this in the past. With the opportunity to deploy cash at a high internal rate of return, many of the biggest businesses in the S&P 500 have kept capital returns very low over the last few quarters.

Again, investors may be getting flashbacks to the dot-com bubble. Fiber build-outs ate up tons of capital in the late 1990s ahead of the bubble popping. However, much of the fiber laid back in the 1990s was done so with the expectation that demand would continue to balloon. The so-called dark fiber went unused for years. By comparison, hyperscalers are seeing demand for their compute grow in line with their capital expenditures, with data center usage remaining extremely high.

Can history tell us what comes next?

When the dot-com bubble popped, earnings dropped, and stock prices collapsed. Many businesses were forced to slash their dividends. However, dividend cuts didn't match the drop in stock prices, resulting in higher dividend yields over time. Other factors continued to pressure dividend yields, including lower Treasury yields, but it was still common to see aggregate dividend yields top 2% in the 2010s even as bond yields moved lower.

It's unlikely that history will repeat itself here, but it could rhyme. The AI build-out will eventually slow down. Cash flows will recover. Stock prices could see a correction at some point, too, if actual results fail to meet expectations. Over time, capital returns as a percentage of stock prices will improve again, and that could include larger dividends for investors.

The key is to remain patient, focus on the fundamentals driving the market, and allow management to deploy capital in the most effective manner they can for shareholders. Another market crash isn't necessary for dividend yields to climb higher from here.

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

David Tepper is one of the greatest hedge fund managers of all time. He started Appaloosa Management in 1993 and went on to produce annualized returns of about 25% through mid-2019, at which point he had returned most of his outside investors' money.

Tepper has continued to produce excellent returns, now mostly managing his own money, taking concentrated and often contrarian positions to drive results. Appaloosa generated a massive 32% gross return in the first half of 2026 alone.

So, it's worth paying attention to the moves Tepper's making -- and you can, because he, like everyone who manages more than $100 million in assets, is required to disclose his fund's end-of-quarter holdings via a Form 13F four times a year.

Appaloosa's 13F for the second quarter (filed on schedule about 45 days after that period ended) showed that during the quarter, he sold two of the hottest stocks in the market: Micron (NASDAQ: MU) and Sandisk (NASDAQ: SNDK). Not only that, but he also bought put options (the right to sell shares at a set price within a preset period) on one of their biggest customers, which may suggest he sees something the market doesn't.

David Tepper, founder of Appaloosa Management. Image source: Getty Images.

Big moves in Tepper's portfolio

Tepper has been an investor in Micron for years, establishing a position in late 2016 and holding the memory-chip maker's stock through multiple earnings cycles. It's been his portfolio's largest single holding on multiple occasions. He made a big bet on the stock in the fourth quarter, adding 1 million shares to his position and call options controlling an additional 250,000 shares. He added even more shares in the first quarter. But after the huge run-up in the stock price, he cut his stake by 41% last quarter.

It's worth noting that Micron remained the second-largest position in the portfolio at the end of the quarter -- about 15% of Appaloosa's publicly traded equity portfolio. That said, the stock has accounted for up to 29% of Tepper's portfolio in the past. This suggests that he sees better investment opportunities now, or at least, sees the need to diversify away from memory-chip makers.

That sentiment is bolstered by the fact that he completely disposed of Appaloosa's position in Sandisk. That stake was 3% of the portfolio at the end of the first quarter, but disappeared in the second-quarter filing.

Both Micron and Sandisk have benefited from growing demand for memory due to the rapid pace of the artificial intelligence data center build-out. Because the supply of memory is limited by foundry capacity (which takes quite some time to increase), prices for their memory chips have soared, creating tremendous profit growth for both companies.

But the memory-chip market is historically cyclical. High demand prompts the leading memory-chip makers to build new production capacity, which usually results in too much new supply hitting the market after a few years. Meanwhile, chip demand has also historically been cyclical, and when a supply glut meets weakening demand, prices fall and profits drop. That's why both of these stocks still trade at relatively low valuations. Even a single-digit earnings multiple can look expensive for these stocks when they are near peak earnings during a boom period.

A bet against one of their biggest customers

Tepper may believe Sandisk and Micron will continue to exhibit strong cyclicity; at the same time, the pressure on pricing from AI demand could negatively impact one of their largest customers. Tepper bought put options on Apple (NASDAQ: AAPL), which uses chips from both companies in its consumer devices for short-term memory and long-term storage.

Tepper's put options give him the right to sell 835,000 shares of Apple worth $242 million at the end of last quarter, just over 3% of Appaloosa's portfolio. That's a big bet against the iPhone maker. During Apple's third-quarter earnings call, outgoing CEO Tim Cook noted that rising memory prices will continue to pressure the company's gross margin in the coming quarters.

Investors have piled into Apple stock amid fears that hyperscalers are overspending on their AI build-outs. The big tech company has chosen not to build a massive data center operation, and thus has kept its capital expenditures far lower than those of the hyperscalers and leading AI labs, yet it has still produced strong earnings recently. That has resulted in considerable cash flow for the business.

As such, investors see it as an alternative to the leading AI stocks. But share price growth has pushed its valuation to 36 times forward earnings, which is quite high for a company that's not growing at the breakneck speed of the chipmakers or hyperscalers.

Tepper may see that valuation as too high for Apple. However, the 13F Form doesn't disclose short positions, so those Apple puts may be just half of a trade that's overall bullish or neutral on the stock.

Tepper's moves make sense in the context of his portfolio. As mentioned, Micron remains a large position in Appaloosa's equity holdings after the strong run-up in share price. Meanwhile, he sees better opportunities as uncertainty about the future of the memory chip industry remains high.

Investors should consider taking gains on Micron and Sandisk at their current prices as well. With regards to Apple, betting against it has rarely worked out for investors. Unless you think you can manage a bearish position on the stock better than Tepper (hint: you can't), I wouldn't buy puts on Apple stock.

Adam Levy has positions in Apple. The Motley Fool has positions in and recommends Apple and Micron Technology. The Motley Fool has a disclosure policy.

Bill Gates amassed a fortune worth $100 billion by the turn of the century, thanks to the success of Microsoft and a little help from a frothy stock market. At that point, he decided to step down as CEO of the company to focus on philanthropic endeavors. The Gates Foundation has become his primary vehicle for deploying his billions toward causes such as global health and equality. Gates, still worth over $100 billion today despite massive donations, plans to give away 99% of his wealth within the next 19 years.

To help manage the nonprofit's grants, the foundation maintains a trust with investments, including a $33 billion portfolio of publicly traded U.S. stocks. Quarterly reporting requirements give investors a glimpse of what Gates and the investment managers hold, and the stocks might be surprising, considering Gates co-founded one of the biggest tech companies in the world.

Here are the top three stocks in the Gates Foundation's equity portfolio.

Image source: Getty Images.

1. Berkshire Hathaway (22.5% of assets)

The Gates Foundation received an annual donation from Warren Buffett for 20 years, which came in the form of Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) Class B stock. Buffett's donations came with the stipulation that the foundation must deploy the entire value of the donation plus 5% of its other assets over the next year to receive the next donation. But that hasn't stopped Gates from holding on to a significant chunk of the stock, making it the largest position in the portfolio.

Berkshire Hathaway's core insurance business has produced solid results so far this year. Underwriting income has grown by about 4.5% through the first six months of the year, despite continued downward pricing pressure. The railroad business continues to lag the market leaders in profitability, but CEO Greg Abel has made it a focus since taking over the role at the start of the year. Operating margin has improved from 29.7% in the first half of last year to 30.8% this year.

Much of the focus with Berkshire Hathaway is on its investment portfolio. Between equities, cash, and Treasuries, the company has approximately $720 billion in investable assets. The biggest move so far this year has been a big increase in Berkshire's stake in Alphabet, which is now its third- or fourth-largest equity position, depending on the day. That's a pretty rapid deployment, considering the company didn't have any Alphabet stock until the third quarter of last year.

Despite solid operating results and strong portfolio performance, the stock has traded sideways so far in 2026. That may present a buying opportunity for investors. Buffett and Abel seem to think so. Abel bought back roughly $8 billion in stock between April and July, something he'll do only when both he and Buffett believe the stock trades below its intrinsic value.

2. Canadian National Railway (19.7%)

Canadian National Railway (NYSE: CNI) operates a tri-coastal network of rails from the west coast of Canada to the east coast and down through the middle of the United States to the Gulf of Mexico. Despite headwinds from tariffs and an escalating trade war, revenue climbed 11% year over year in the second quarter.

Tariffs impacted shipments for forest products and fertilizers, as well as international intermodal shipments. Auto imports were weak, but the Canadian market made up for it. The escalating trade war could put pressure on operations through the back half of the year, but management raised its full-year EPS guidance along with its second-quarter earnings.

The railroad business is focused on capital efficiency this year, and it generated $1.8 billion in Canadian dollars in free cash flow through the first half of the year. It plans to return C$2.8 billion to shareholders through its capital return program, including dividends and buybacks. So far, it has repurchased C$1.3 billion worth of shares in 2026.

Investors have bid up the price of Canadian National so far this year. The stock now trades at 30 times its free cash flow from the previous 12 months. Despite strong improvements in free cash flow and its robust capital return program, investors may want to wait for a better entry point, especially considering the uncertain impact of trade negotiations between the U.S. and Canada.

3. WM (17.8%)

WM (NYSE: WM), formerly Waste Management, is a leading waste collection and disposal company. Its network of landfills gives it a tremendous competitive advantage, as it's practically impossible to replicate due to regulations that make building new landfills nearly impossible. As a result, it can collect fees from third parties while benefiting from vertical integration.

That's enabled it to produce solid operating margin improvements over the years and produce significant free cash flow. Adjusted operating margin improved by 40 basis points year over year last quarter, and cash flow from operations climbed 12%. Management is focused on paring down low-margin, low-growth businesses to improve cash flow and return excess to shareholders.

The company is a slow-and-steady revenue grower, with strong pricing power and stable operating expenses. Its ability to add ancillary businesses through acquisitions, as it did in 2024 with the purchase of Stericycle, should produce mid-to-high-single-digit revenue growth for the foreseeable future. A recent pullback in the share price has pushed the stock's EV-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) ratio to near 13, which is a fair value for the steady grower.

Adam Levy has positions in Alphabet and Microsoft. The Motley Fool has positions in and recommends Alphabet, Berkshire Hathaway, and Microsoft. The Motley Fool recommends Canadian National Railway and WM. The Motley Fool has a disclosure policy.

The S&P 500 (SNPINDEX: ^GSPC) has been on a phenomenal run. The popular index has doubled since the start of 2023, producing huge returns for investors. If you go back further, the S&P 500 is up more than 1,000% from its March 2009 low, producing a 15% annualized return.

That's a tremendous run for the index, and some investors may be wondering if we're approaching a new market peak. That 2009 low was the culmination of a near-decade-long stretch in which the index fell around 50% before recovering, only to fall 50% again. And now, the market is flashing the same major red flag it did just before the so-called "lost decade."

There are important differences between today's market and the stock market of the late '90s when we last saw this warning sign. But that doesn't mean investors can ignore it entirely.

Image source: Getty Images.

Will the market repeat the lost decade?

One factor that has created some concern among investors is the S&P 500's current valuation. Its price-to-earnings (P/E) ratio based on expected earnings for the next 12 months sits close to 20, well above the average of about 16 over the past 40 years.

Even more concerning is the cyclically adjusted price-to-earnings ratio (CAPE), which looks back at the last decade of earnings, adjusts them for inflation, and compares them to current market prices. The CAPE ratio currently exceeds 42, a level unseen since August 2000 and never before the 1999-2000 dot-com bubble.

The CAPE ratio is typically used to forecast long-term stock market returns. The higher the CAPE, the lower the expected long-term returns. If you go back to the first instance when the CAPE surpassed 42, in April 1999, the 10-year return for the S&P 500 was a dismal 48% decline. That doesn't bode well for the next decade.

But before investors panic and head for the exits, it's important to understand a fundamental difference between the current market and the market of 1999.

The big difference investors need to pay attention to

The biggest difference between today's high valuations and those of the dot-com bubble is the strength of corporate profits.

Back in the late '90s, many stocks were richly valued with no real profits. Today, corporate profits are booming. After-tax corporate profits reached 13.24% of gross domestic product (GDP) in the second quarter, the highest on record dating back to 1947. Meanwhile, corporate profits were historically low in the 1990s.

US Corporate Profits After Tax data by YCharts

And analysts expect very strong earnings growth for companies over the coming years, projecting 25% average earnings growth for the S&P 500 in aggregate over the next five years. Granted, sell-side analysts tend to be an optimistic group. It's worth pointing out that the long-term earnings growth forecast is the highest since 1995, including the dot-com bubble.

Therefore, the high valuation of today's S&P 500 is much more valid than the high valuation of the index 26 years ago. The fundamental earnings growth of the large-cap companies in the index is a good reason for the stocks to trade at a rich value.

At the same time, investors shouldn't ignore the riskiness inherent in buying stocks with high valuations and high expectations. As valuations climb, an investment becomes riskier. Any shortfall in expectations could cause a significant collapse in share price as analysts adjust their models and earnings multiples compress. And as mentioned, expectations are at an all-time high.

For long-term investors, buying at the current valuation isn't nearly as risky as it would be for someone who will need the money in the next few years. The market is sitting on a solid foundation of strong earnings. A shortfall in earnings results could cause a severe short-term downturn at the current prices, but it's unlikely to result in another lost decade.

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

Investment managers seemed to favor one particular equity market sector last quarter as artificial intelligence (AI) stocks wavered. Hedge funds increased their tilt toward financial stocks by 300 basis points, according to an analysis by Goldman Sachs' Ben Snider. He also noted that mutual funds increased their exposure to levels last reached in 2012 relative to their benchmark indexes.

Two fintech stocks have found favor with both hedge funds and mutual funds, which tend to have different investment time horizons. That means both near-term catalysts and long-term trends could push the stocks higher from here, even though they've already seen their prices climb considerably since the end of March.

Image source: Getty Images.

The two fintech stocks smart money is buying

Snider identified Visa (NYSE: V) and Mastercard (NYSE: MA) as "shared favorites" among hedge fund and mutual fund managers. That means a large number of hedge funds hold the stocks and mutual funds, as a group, are overweight in the stocks. It's a list Goldman Sachs has maintained since 2013, and the group has historically produced an annual return of 17%, about two percentage points more than the S&P 500 average during that period.

Of course, investors should always heed the usual caveat: Past performance is not an indication of future results. But Visa and Mastercard are wonderful businesses that benefit from a significant competitive advantage and can generate earning growth at a sustainably high rate for a long time. Hedge funds and mutual fund managers who bought the stocks last quarter certainly got a fantastic price for the stocks. Despite both trading at a premium today, they're worth paying up for right now.

Billionaire Bill Ackman described the pair as "capital-light 'toll-takers' that earn a nominal fee on each transaction without taking any material risk and are natural beneficiaries of higher inflation." On top of that, digital payments are growing faster than consumer spending, as card payments still account for just half of all spending globally. Considering the global reach of the payments networks, there's a long runway for continued market penetration and growth. Ackman was among the fund managers who established positions in Visa and Mastercard last quarter.

To Ackman's point, payment volume at both Visa and Mastercard rose 10% year over year last quarter. But beyond increasing payment volumes, the card networks also offer value-added solutions for banks, merchants, and other fintechs that use their networks. Services such as fraud prevention, data and analytics, rewards programs, and cybersecurity are rapidly growing and adding to both companies' bottom lines. Visa's value-added services revenue climbed 34% last quarter. Mastercard's value-added services gained 20%.

The long-term potential

Visa and Mastercard dominate the payments network industry as the clear No. 1 and No. 2 providers, respectively. Their positions are cemented by network effects, which makes their products increasingly attractive as more and more people use them. Although margin expansion has stalled in recent years, that could improve as value-added services boost revenue growth at both companies. As a result, both could produce earnings that increase faster than revenue growth for the next few years.

Both can reliably deliver double-digit percentage revenue growth in the long run, driven by rising consumer spending, increased share of spending with credit and debit cards, and improved penetration of value-added services. That's led Ackman to project earnings-per-share (EPS) growth for both companies of between 16% and 18% during the next three to five years. Wall Street analysts on average currently estimate 13.5% annualized EPS growth for Visa during the next two years, and 16% for Mastercard.

Importantly, though, both companies are positioned for earnings growth at a sustainable double-digit percentage level for the foreseeable future. That's why, even with stocks trading at 25 to 30 times earnings expectations, they can still be great investments today.

Adam Levy has positions in Mastercard and Visa. The Motley Fool has positions in and recommends Goldman Sachs Group, Mastercard, and Visa. The Motley Fool has a disclosure policy.

Building a portfolio that can produce better returns than the S&P 500 (SNPINDEX: ^GSPC) with less volatility is the exact thing that dozens of fund managers get paid huge sums of money to do. Unfortunately, most of them fall short of that benchmark once you account for their fees.

But you might not have to spend a lot to put together a portfolio that can achieve that goal. And it doesn't require complicated strategic balancing of individual stocks or sector ETFs. A simple 50/50 split between two ETFs has produced higher annual returns over multiple periods in the last thirty years, with lower annualized volatility over the long run and smaller maximum drawdowns than the S&P 500.

Here's the simple portfolio to consider, why it works, and whether it'll work for you.

Image source: Getty Images.

Can a 2-ETF portfolio really beat the S&P 500?

There are two factors that have historically produced excellent returns for investors: momentum stocks and quality stocks.

Momentum stocks, put simply, are stocks that have gone up the most in a given period. The S&P Momentum indexes use the 12-month price change, excluding the most recent month. The Invesco S&P 500 Momentum ETF (NYSEMKT: SPMO) tracks the relevant index.

It might be surprising that momentum stocks outperform. After all, these are companies whose stocks have already run higher over the last 12 months. Their valuations are often stretched. But the strength of momentum stocks appears to be a behavioral anomaly of the market. Investors have greater confidence in stocks that have already risen, especially in bull markets. And the stock market is often in a bull market. Systematically buying stocks that have gone up tends to outperform the S&P 500. Using an index fund that automatically adds and removes stocks based on recent momentum is an excellent system.

Quality stocks are those with high profitability, low financial risk, and strong cash-flow generation. The S&P Quality indexes use a quality score based on return on equity, net changes in operating assets, and the financial leverage ratio. The Invesco S&P 500 Quality ETF (NYSEMKT: SPHQ) tracks the relevant index.

Quality stocks are better positioned for a macroeconomic downturn and a market drop than other stocks. With strong balance sheets and high levels of profitability, they hold up very well relative to the rest of the market. Additionally, quality stocks usually keep pace with the broader market in months with positive overall returns.

How to combine ETFs to produce better returns

Both factors can produce better returns than the S&P 500 alone. The momentum factor outperforms as the market moves higher while typically limiting excess downside in bear markets. Quality stocks don't go up as much in bull markets, but they don't go down nearly as much when the market drops. But the analysts at S&P Global found that a 50/50 portfolio of the two produces better relative performance than either factor alone, with less volatility than the S&P 500 over the long run.

In a theoretical portfolio dating back to 1995, backtested through June of 2026, a 50/50 portfolio produced annualized returns of 14.17% versus 11.08% for the S&P 500. What's more, that's better than either individual index, with the S&P 500 Momentum Index producing a 14.07% return and the S&P 500 Quality Index producing a 13.96% return. That said, historical performance is not necessarily indicative of future results.

More recently, momentum stocks have drastically outperformed quality stocks. But the long-term thesis makes sense. Rebalancing semi-annually, as the analysts at S&P Global tested, should maintain exposure to lower-volatility quality stocks while delivering strong momentum-factor results in bull markets.

Investors can copy the strategy with the Invesco ETFs noted above. Both charge relatively small expense ratios of 0.15% (Quality) and 0.13% (Momentum), limiting the drag on returns. As a result, investors should be able to achieve excellent overall returns with the simple two-ETF portfolio.

Adam Levy has positions in S&P Global. The Motley Fool has positions in and recommends S&P Global. The Motley Fool has a disclosure policy.

Stanley Druckenmiller was early to spot the potential for some of the biggest AI chipmakers in the market. He bought Nvidia (NASDAQ: NVDA) for his Duquesne Family Office portfolio in late 2022. He ultimately made hundreds of millions of dollars from that purchase, but he admitted he sold the stock too soon, fully disposing of the position in 2024.

Druckenmiller sold another big AI chip stock last quarter, Broadcom (NASDAQ: AVGO), fully exiting his position. At the same time, he purchased relatively large stakes in two other AI giants further down the AI compute supply chain: Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL).

Here's why Druckenmiller may have sold Broadcom and bought the hyperscalers instead and whether you should follow his lead.

Stanley Druckenmiller, Duquesne Family Office chairman. Image source: Getty Images.

Selling the chipmaker and buying the hyperscalers

Druckenmiller looks for investment opportunities created by major shifts in the global economy and markets. Nvidia and AI chipmakers are one of the clearest recent examples.

That is to say, valuation is a lesser concern for Druckenmiller. So, the fact that Broadcom floated up to a P/E of 40 at one point last quarter likely didn't have a huge impact on his decision to sell the stock. That said, the shares looked like a good value when he bought them in the prior quarter, below a forward P/E of 30.

Druckenmiller may have seen the trend toward hyperscalers taking more control of their own destinies last quarter, prompting him to add to Amazon and reestablish a position in Alphabet. The companies were raising capital through both debt and newly issued stock, spending heavily on new data centers to meet the growing demand for AI compute.

At first blush, that might seem to benefit a company like Broadcom, which makes networking chips as well as custom AI accelerator chips, including Alphabet's Tensor Processing Units (TPUs). But it seems that Amazon, Alphabet, and other major customers are exerting more control over which chips make it into their data centers.

Amazon CEO Andy Jassy said the largest number of the new chips going into its data centers this year will be its own custom Trainium chips, not Nvidia GPUs or any other off-the-shelf solution. AlChip is the company behind the design for the newest generation of Trainium chips and also won the next-generation Trainium 4.

Alphabet said it's seeing very strong demand for its TPUs and is even selling TPU systems to select external customers for their own data centers. Alphabet has long partnered with Broadcom for its TPU chips, but it recently signed a deal with Marvell for specialized inference TPUs.

AI customers are increasingly finding value in using the hyperscaler's custom silicon solutions for both training and inference. And the hyperscalers are showing greater willingness to use multiple sources for those chips. The long-term trend favors the companies with the greatest control over which chips are made and by whom, and that power seems to be in the hands of the big hyperscalers.

The market is giving investors a great opportunity to buy

While Druckenmiller may not be overly concerned with valuation, it's always better to buy a stock at a low valuation than at a high one, all else being equal. Right now, the market is offering investors the chance to buy Amazon and Alphabet at historically low P/E ratios. Amazon stock trades for just 20.5 times forward earnings expectations, while Alphabet trades for just 16.4 times forward earnings.

Those earnings multiples are depressed due to fears related to both companies' capital spending. Amazon's free cash flow fell into negative territory over the trailing 12 months, burning $7.6 billion over the last four quarters. Alphabet produced negative free cash flow for the first time as a publicly traded company last quarter, at negative $5.9 billion. That trend will worsen before it improves, as both have massive capital spending plans.

But both should produce strong returns on invested capital. They have huge backlogs of contracted revenue that they can start earning as soon as new data centers come online. Alphabet ended the quarter with $514 billion in remaining performance obligations. Amazon's backlog ballooned to $496 billion. As such, they have good foresight into demand and the returns they can expect on their invested capital.

While other companies have stepped in to offer compute amid hyperscalers' capacity shortages, investors can expect the majority of inference to eventually take place on the hyperscalers' servers, where data and other applications are hosted. As a result, Amazon and Alphabet should be able to maintain very high utilization rates for their chips, producing strong operating results in the long run.

As companies exercise greater control over their supply, they are well-positioned to deliver strong returns for investors going forward.

Adam Levy has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Broadcom, Marvell Technology, and Nvidia. The Motley Fool has a disclosure policy.

One of the most anticipated IPOs in a long time, Space Exploration Technologies (NASDAQ: SPCX), went public in mid-June, shattering records for new issues. SpaceX raised $86 billion in total from its IPO, valuing the company at about $1.77 trillion.

Now that SpaceX is a publicly traded company, institutional investors are required to disclose any stakes in the company on their quarterly 13F filings. Form 13F shows publicly traded U.S. stock positions held by institutional investors with more than $100 million under management at the end of each quarter, and they must be filed within 45 days of the end of each quarter. That means Aug. 14 revealed exactly which big institutional investors held SpaceX shares at the end of the quarter and how much they owned.

The so-called "smart money" is overweight in SpaceX relative to the total market. Should small retail investors join in?

Image source: The Motley Fool.

Who owns SpaceX stock?

SpaceX stock appeared in 1,932 13F filings last quarter. The total value held by institutional investors was $611 billion. Goldman Sachs analysts found SpaceX was widely held among hedge fund managers, and mutual funds as a group were overweight in the stock. Pension funds and endowments also owned significant stakes in the space stock. And 13F filers with SpaceX in their reports included several early investors that held massive stakes in the company.

The biggest SpaceX shareholders were Alphabet, private equity investor Valor Management, and Fidelity Investments. All three were early investors in SpaceX, with Alphabet and Fidelity investing $1 billion in the company back in 2015, and Valor first partnering with SpaceX in 2008. As of the end of June, the three held approximately $232 billion in stock. There are several other early investors that top the list, with huge equity stakes in the business.

It's also possible that hedge funds gained access to the stock before it was publicly traded. Mutual funds, however, are the strongest signal that investment managers believe the stock could produce strong returns. That said, it could be a form of job protection. Managers could look foolish if they didn't buy SpaceX stock and it exploded higher, but they won't look so foolish just for buying the most highly anticipated IPO in a long time, regardless of whether it goes up or down.

The first 13F filings revealing stakes in SpaceX don't actually tell us much about how smart money feels about the company now that it's a publicly traded stock. We'll need to wait until the next quarterly filing to see how things change. It doesn't help that there's a 45-day delay between the end of the quarter and the filing's release. And that puts retail investors in a precarious position.

Why the smart money could make retail investors pay

SpaceX only sold about 5% of the company to public investors at its IPO. CEO Elon Musk owns about 48% of shares, and he has said he doesn't plan to sell any. That left roughly 47% of shares with early investors or insiders, who are subject to lockups following the IPO. SpaceX is using a staggered lockup expiration to release shares slowly into the market to avoid market shocks.

While some of the 1,932 institutional investors reporting SpaceX stock on their 13Fs last quarter were buyers into the IPO, it remains to be seen whether those mutual funds and hedge funds buying the stock can offset the selling pressure from early investors when lockups expire. We already saw two big lockup expirations in August. The market absorbed the first one quite well, but the second expiration put pressure on the share price.

There are six more lockup expirations before the end of 2026, including two more before the end of the third quarter. What big early investors like Alphabet, Valor, and Fidelity do will be a key data point for investors to consider, but we won't know their moves until mid-November.

Meanwhile, SpaceX stock is extremely expensive. The largest growth driver for the business in the near term is its neocloud operations, selling AI compute to supply-constrained AI labs. While the revenue is substantial, so are the capital expenditures. The business's long-term profitability relies on its reusable rocket technology, which increases its capacity to launch satellites that serve both the compute and connectivity markets. That makes the stock very risky and more subject to market forces than fundamental earnings results in the near term. As a result, the actions of large institutional investors will have a significant impact on retail investors for some time, even if they plan to buy and hold for the long term.

SpaceX could turn out to be a great long-term investment, but with the high valuation and high level of uncertainty, and potential institutional selling, it might be worth waiting for more clarity and a more attractive entry point.

Adam Levy has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Goldman Sachs Group. The Motley Fool has a disclosure policy.

Sandisk (NASDAQ: SNDK) has been the best-performing stock in the S&P 500 so far in 2026. The memory maker has seen demand for its chips soar as AI infrastructure spending escalates. The resulting shortage has enabled the company and its peers to impose significant price increases and achieve tremendous profitability.

Management now plans to return some more of those profits to shareholders. When it delivered its fiscal fourth-quarter earnings results at the beginning of August, it also announced a $14 billion addition to its share-repurchase authorization. That brings its total remaining authorization to $15.5 billion, which is more than 7% of the company's market cap as of this writing. Buying back shares of a stock gives the remaining shareholders a larger stake in the business's future earnings.

But not all stock buybacks are great for investors over the long run. Warren Buffett has frequently shared a warning regarding share repurchases that Sandisk investors shouldn't ignore.

Retired Berkshire Hathaway CEO Warren Buffett: Image source: The Motley Fool.

What does Buffett say about buybacks?

Warren Buffett loves companies that return cash to shareholders either through dividends or stock repurchases. He has often mentioned the value of share repurchases for existing shareholders throughout the annual letters he wrote to Berkshire Hathaway shareholders during his tenure as CEO.

But Buffett has a big caveat about stock buybacks: "All stock repurchases should be price-dependent. What is sensible at a discount to business-value becomes stupid if done at a premium," he wrote in his 2023 letter to shareholders.

Berkshire Hathaway adopted a new share-repurchase policy in 2018 that allowed Buffett and his vice chairman, Charlie Munger, to buy back as many Berkshire Hathaway shares as they wanted, with only a few limitations. The biggest of those is that they could only buy when the stock was trading below its intrinsic value, as conservatively determined by the two of them. The repurchase authorization remains in effect today, with the intrinsic value determined by CEO Greg Abel and Buffett, who now serves only as chairman of the board.

The year of the repurchase authorization change, Buffett wrote, "Blindly buying an overpriced stock is value-destructive, a fact lost on many promotional or ever-optimistic CEOs." And this is the warning Sandisk investors should heed.

Buying back company stock should only be done when it creates value for remaining shareholders, and that can only happen if the shares are bought at a price below their intrinsic value. Consider a small business worth $3 million with shares equally split among three partners. If one partner wants out, the two remaining partners should pay no more than $1 million total. If split evenly, they'd each receive $500,000 in equity value and pay $500,000 in cash. If they pay more, they receive less equity value than the cash outlay. If they pay less, they actually increase their net worth, receiving more equity value than the cash they paid.

The same thing happens when a corporation makes share repurchases, just on a much larger scale. If management overpays to buy stock from other shareholders, the remaining shareholders are left with less wealth based on the company's intrinsic value.

Does Buffett warning apply to Sandisk?

As mentioned, Sandisk stock has been an exceptional performer this year. The stock is up 535% so far in 2026 as of this writing. But Buffett points out, "American CEOs have an embarrassing record of devoting more company funds to repurchases when prices have risen than when they have tanked."

Of course, Sandisk's stock price has risen for good reason. Net income went from negative $1.6 billion in fiscal 2025 to positive $11.4 billion in 2026. Management expects steady mid-teens percentage revenue and earnings growth with gross margins in the 80% range for the foreseeable future. It also expects the structural demand from the artificial intelligence (AI) build-out and its new long-term customer agreements to reduce the cyclicality inherent to the memory chip market.

But there's still a significant amount of uncertainty. More supply is coming not just from Sandisk but from other memory chipmakers, many of which have temporarily shifted some production to DRAM chips rather than the NAND chips that Sandisk specializes in. As more chip production capacity comes online later this decade, chip prices will drop as supply catches up with and eventually outpaces demand. That cycle will inevitably lead to a decline in net income. That said, the stock currently trades at just 7 times forward earnings expectations. And because Sandisk doesn't have a long track record of trading as an independent company -- it was spun off from Western Digital in February 2025 -- it's hard to know how highly to value the stock relative to peak earnings.

That uncertainty is contributing to significant volatility in the stock. And volatility can create many great opportunities to buy back shares. Whether Sandisk capitalizes on that volatility remains to be seen. Buffett would likely be skeptical. Sandisk's management said it will return 100% of excess cash to shareholders at its investor day a couple of weeks ago. That suggests more indiscriminate buying than careful attention to valuation.

Given the scale of Sandisk's stock buyback plan, it's worth taking a thoughtful look and assessing whether it's value-accretive or value-destructive. If you believe management's assertion that Sandisk's earnings will be less cyclical in the future and the stock deserves a higher valuation, then perhaps it's a smart move by management that will pay off in the long run. If you expect the memory market to remain highly cyclical -- a premise that supports the idea that Sandisk should have a valuation below its current one -- you can benefit as a seller while Sandisk is acting as a massive buyer in the market for its shares.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.

The S&P 500 (SNPINDEX: ^GSPC) is, perhaps, the most closely followed stock index in financial markets. It's often used as a benchmark for investors, particularly those focused on large-cap U.S. stocks. So, it might be surprising to find that an exchange-traded fund (ETF) that invests in the exact same stocks that comprise the S&P 500 index is actually performing better than the index itself.

The Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP) has gained 16% year to date as of this writing. By comparison, the S&P 500 is up 13%. Here's why the ETF is outperforming and, more importantly, why it could continue to do so.

Image source: Getty Images.

A different type of S&P 500 index fund

The S&P 500 is a market-cap-weighted index. That means the big tech stocks that have soared during the past few years, like Nvidia and Alphabet, have more weight in the index than smaller, out-of-favor companies, like Domino's Pizza or Clorox.

The S&P 500 equal-weight index aims to track the average return of all the stocks in the S&P 500. Nvidia, with its $5.5 trillion market cap, gets the same weight in the index as Domino's and its $11 billion market cap. The index is rebalanced quarterly, when the S&P 500 adds and removes constituents.

Here's what that means for investors. In bull markets led by just a handful of large companies, as we saw in 2023 through 2025 with artificial intelligence (AI) stocks, the S&P 500 will outperform its equal-weight counterpart. However, when more companies participate in the bull market, the equal-weight index outperforms. The same is true in reverse; concentrated bear markets lead to worse performance for the cap-weighted index. As such, the equal-weight index can sometimes have lower volatility.

This year has seen the bull market broaden out to smaller companies. The "Magnificent Seven" stocks that led the market in recent years have produced worse returns as a group than the S&P 500 has so far this year. Meanwhile, smaller companies are outperforming. That trend can continue.

There's still room for the ETF to keep outperforming

The S&P 500 remains heavily concentrated in its top stocks. The top eight companies in the index have a cumulative weight of nearly 36%. All of those stocks are closely tied to artificial intelligence.

The equal-weight index allows you to maintain some exposure to AI stocks, while adding diversification in many sectors that haven't fully participated in the bull market in the previous three years. Financial stocks and materials present great investment opportunities, but a traditional S&P 500 index fund will underweight them relative to their growth potential. There are even opportunities within tech stocks; many software stocks look attractive but receive only a small weighting in the cap-weighted index.

Broader participation in the bull market is a strong sign that the S&P 500 can continue to move higher. However, more of that move higher will come from smaller companies catching up with the growth of the larger companies if the rally is going to continue. That favors the equal-weight index. On the other hand, if the stock market collapses, the likeliest culprit is that concerns about AI overspending begin to materialize in the income statements, revenue growth, and management commentary of megacap companies. That would weigh more heavily on the big tech stocks that currently make up the bulk of the S&P 500, again favoring the equal-weight index.

At the same time, it doesn't make sense to abandon the AI trend. Investing in the Invesco S&P 500 equal-weight ETF ensures you maintain some exposure to the biggest AI stocks while diversifying into undervalued companies in the index. That should produce better returns with less volatility.

Adam Levy has positions in Apple. The Motley Fool has positions in and recommends Apple, Domino's Pizza, and Nvidia. The Motley Fool has a disclosure policy.

Semiconductor stocks have been on a wild ride in 2026. As a group, chipmakers saw their prices soar in the second quarter, as a rush to buy more memory chips and artificial intelligence (AI) accelerators pushed the stocks of practically every company in the sector higher. But July brought a severe downturn throughout the industry, as investors rotated to other companies.

That's created second-chance opportunities for investors who missed out on the incredible runs of some semiconductor stocks at the start of the year. One overlooked opportunity in particular looks like a great buy, given the future of AI compute.

Here's why investors should take a closer look at Qualcomm (NASDAQ: QCOM).

Image source: Getty Images.

The future of artificial intelligence chips

Qualcomm stands to benefit from demand for AI in two ways.

First, it creates high-end mobile chipsets for smartphones. As more AI capabilities move onto devices, Qualcomm could see demand for its Snapdragon line of chips increase. The revamped Siri and other AI capabilities from Apple coming to iPhones this fall could spur demand for Android phones with similar AI features and increased demand for high-end Snapdragon chips.

Qualcomm has already used its position to raise prices rather than absorb higher costs in today's market. Its flagship Snapdragon 8 came with a hefty price hike over the previous generation, and it said it'll raise prices starting in September due to higher supply costs. A sign of a strong moat is that it can mitigate margin pressure with higher prices.

The second area where Qualcomm could generate significant revenue growth from AI over the coming years is in data centers. Qualcomm currently has a limited presence in data centers, but it recently started developing AI chips and systems. Management guided for at least $15 billion in data center-related revenue by 2029 at its investor day in June.

It's already shipping connectivity chips for data centers, and management said it has two hyperscaler customers for its custom silicon solutions, with shipments expected in 2027. It also has a deal with Meta Platforms to use its CPUs for AI agents starting in the second half of 2028. That should produce a rapid revenue ramp-up, pushing it toward its 2029 target.

There are some near-term headwinds that have warranted a bit of a sell-off. Rising memory prices are holding back the smartphone market. Additionally, Apple is dropping Qualcomm's baseband chips from its iPhones. However, Qualcomm is doing a good job shifting away from its reliance on mobile chip sales and licensing.

The stock currently trades for just 15.3 times forward earnings expectations. While revenue growth may be slow this year and next as it works through the headwinds, it should reaccelerate in the last few years of the decade as data center sales pick up. At the current price, investors are getting a great opportunity to buy an excellent chipmaker.

Adam Levy has positions in Apple, Meta Platforms, and Qualcomm. The Motley Fool has positions in and recommends Apple, Meta Platforms, and Qualcomm. The Motley Fool has a disclosure policy.

Bill Ackman has built a portfolio of stocks that he believes currently trade at very compelling valuations. The head of Pershing Square (NYSE: PS) has built a strong track record as a long-term buy-and-hold value investor. But some of his top holdings today wouldn't be considered value stocks by most.

For the most part, the stocks in the portfolio have valuations around the S&P 500 average, or in some cases, much higher. That's because valuation isn't the most important factor for generating long-term returns, Ackman explained in his recent letter to shareholders. While valuation should always be a consideration, strong and sustainable earnings-per-share growth is even more important, Ackman says.

He explains his thesis with simple math, and while it opens the universe of so-called "value stocks," it follows the same ethos as the father of value investing, Ben Graham, and Graham's most well-know pupil, Warren Buffett.

Image source: Getty Images.

The factor that matters even more than valuation

Ben Graham is quoted as saying that in the short-run the stock market is a voting machine; in the long run, it's a weighing machine.

The earnings multiple the market assigns to a stock is emblematic of how many market participants are "voting" for it. In the short run, the number of "votes" a stock receives can significantly impact its price. Ackman points out that a company could grow its earnings 5% quarter over quarter (a 20% annualized rate), but if the earnings multiple is compressed by 10%, the stock price will drop 5.5%.

Over the long run, however, strong earnings growth will overcome contractions in earnings multiples. Even if the stock market pushes a stock's earnings multiple down by 50% over a decade, if the company grows its earnings at a 20% compound annual growth rate over that period, the stock will return roughly 12% per year.

Ackman explains that Pershing Square's primary focus is on companies that can grow earnings at a high rate over the long run. "We have chosen to invest in businesses that have relatively high rates of EPS growth because, for among other reasons, the longer the investment horizon, the more our returns will be driven by the company's EPS growth, and the less they will be affected by the potential change in the multiple that investors assign to those earnings," he wrote in his letter to shareholders.

On the other hand, focusing exclusively on undervalued businesses won't provide the same long-term returns. Once the market corrects itself and fully values the business, a company with slow underlying earnings growth cannot continue to compound at an attractive rate. The stock's total return will ultimately reflect the business's overall earnings growth.

Buffett did the same thing

In his early days, Warren Buffett used to buy companies with stocks trading below their book value. Even if the companies were dead in the water, he'd eventually see a return, even if the business was merely sold for parts. That worked at a relatively small scale, but it also resulted in significant portfolio turnover. Charlie Munger convinced Buffett that it's much better to buy a wonderful business at a fair price than a fair business at a wonderful price.

That's ultimately led Buffett to make some investments many wouldn't consider "value investing." For example, he recently initiated Berkshire Hathaway's position in Alphabet, a stock Ackman once owned as well. Buffett's retort: "All investing is value investing," he said, echoing Munger at Berkshire's 2019 annual meeting. "All the same calculation goes into it, whether you're buying some bank at 70 percent of book value, or you're buying Amazon at some very high multiple of reported earnings."

Investors should be looking for "wonderful businesses trading at a fair price." If they can get an even better-than-fair price, so much the better. A company that can grow earnings at a high rate and that's currently out of favor with the market could be a very big long-term winner for investors. But those only come along once in a blue moon. For investors looking to deploy cash today, finding a business that's capable of growing earnings at a 15% to 25% rate over the long run that trades for an earnings multiple between 20 and 25 times expectations is going to produce excellent results. Ackman's portfolio is full of examples of stocks you could buy today with excellent long-term growth prospects.

Adam Levy has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, and Berkshire Hathaway. The Motley Fool has a disclosure policy.

Incredible demand for artificial intelligence (AI) compute has driven sales at some of the biggest chipmakers to new heights. Nvidia has been one of the biggest beneficiaries of demand for compute, as its GPUs offer unparalleled computing power. Advanced Micro Devices is also seeing strong demand for its competing GPUs. Meanwhile, Broadcom has emerged as a key partner for several hyperscalers designing their own chips for AI training and inference.

But the biggest winner in AI semiconductors won't be any of those massive chipmakers. It's the company with both the technology and the scale to support the growing semiconductor industry. Here's why Taiwan Semiconductor Manufacturing (NYSE: TSM) will emerge as the biggest winner of all among the semiconductor stocks.

Image source: Getty Images.

The biggest winner of the AI semiconductor boom

After years of incredible growth for Nvidia and AMD, there's cause for concern about the future of their businesses and the place of their chips in hyperscale data centers. Some of the biggest concerns regarding hyperscale build-outs are the costs. Capital constraints are becoming a meaningful factor in some buying decisions for these companies, as they grow increasingly reliant on debt to fuel their continued build-outs.

While GPUs will always have a place in AI data centers, a growing portion of chips are custom silicon. Amazon said the majority of its new chip purchases will be its own Trainium chips this year. CEO Andy Jassy said using Trainium chips saves the company tens of billions of dollars in capital expenditures each year. Likewise, Alphabet is using more and more of its own chips, TPUs, and it has started selling TPUs to select third parties.

To that end, investors may think the biggest winners will be the chipmakers hyperscalers partner with to design custom AI accelerators. Google's TPUs are built on top of Broadcom's IP. But those designs tend to be more fickle. Google is reportedly in talks with Marvell Technology for new TPU designs. Marvell once held the design for Amazon's Trainium chips, but the third and fourth generations of the chip design went to AIChip.

But regardless of who designs the chips for training and running artificial intelligence in hyperscale data centers, they all rely on TSMC to print and package those chips. That's a constant, unlikely to change, given TSMC's significant technological lead and massive scale.

The competitive advantages create a virtuous cycle

TSMC is the world's largest contract chip manufacturer. It accounted for 73% of all spending on third-party manufacturing in the first quarter of 2026, and that share has increased over the last few years as AI accelerators have fueled spending growth. AI chips require the most advanced manufacturing technology to achieve peak performance. That's where TSMC can separate itself from the competition.

Even as some competitors begin to make advances on TSMC's technology in certain edge cases, the Taiwanese company also benefits from its massive scale. Given the significant demand for AI chips, no other semiconductor manufacturer has the capacity to print and package chips at the required quality and speed. Even TSMC itself is facing capacity shortages. That's why management is spending another $60 billion to $64 billion in capital expenditures this year, up from $40.9 billion last year.

TSMC's scale also allows it to spend heavily on research and development to produce the next generation of technology. And with a roster of big-name clients, it can work closely with engineering teams to ensure it meets their forthcoming needs. As a result, it can maintain a significant technological lead by outspending the competition, even if R&D accounts for just 6% of total revenue.

That creates a virtuous cycle. TSMC wins big contracts, builds out more capacity, spends more on R&D, and wins new big contracts that only it has the capacity to serve. The strong demand from the AI boom has also enabled it to raise prices across its manufacturing services, resulting in very strong gross margins even as it ramps up new technology (which typically weighs on gross margins).

Despite the strong growth projected for the business, investors are only paying 24.5 times forward earnings expectations. Considering analysts are currently projecting earnings-per-share growth of 30% over the next two years, that's an incredible price to pay for the dominant business in the industry.

Adam Levy has positions in Alphabet, Amazon, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Broadcom, Marvell Technology, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

The Space Exploration Technologies (NASDAQ: SPCX) IPO officially made Elon Musk a trillionaire. The SpaceX founder owns a substantial stake in the business, as well as a good chunk of the other trillion-dollar company he runs, Tesla (NASDAQ: TSLA). The two stock holdings have a combined worth of around $1 trillion, depending on what the market thinks of each stock on any given day.

Recent SEC filings revealed exactly how many shares of SpaceX Musk currently owns. That number is very important for investors in both of Musk's publicly traded companies, especially as the CEO pushes to merge the two into a single entity. Here's what the filings revealed and what it means for investors.

Image source: The White House.

How many shares of SpaceX does Musk own?

SpaceX's SEC filings show Elon Musk effectively controls 6.4 billion shares of SpaceX as of the end of June. That's 48.4% of the entire company at the time of this writing.

Importantly, just 849 million of those shares are Class A. The rest are Class B shares (or restricted stock units or options). Class B shares have ten times the voting power of Class A shares. As a result, Musk controls over 85% of the total votes, allowing him to make business decisions unilaterally.

With so much voting power, SpaceX can make acquisitions with its stock, while Musk retains total control over the corporation. For example, SpaceX just closed its $60 billion acquisition of Cursor, the developer of the artificial intelligence (AI) coding agent. Even after the hefty acquisition, Musk's voting power will fall by less than a percentage point, even if all restricted stock units and options in the deal are fully exercised.

Considering how little impact the Cursor acquisition had on Musk's voting power, he could make a much larger acquisition using SpaceX stock without losing control of the company. That's exactly why he may look to merge Tesla with SpaceX.

Musk has every incentive to merge his companies

In early 2024, Musk said he wants about 25% of Tesla's voting power to push the company toward the future of AI and robotics. He held just under 20% of shares as of June.

Tesla signed a new incentive package with Musk last fall that rewards him with Tesla shares if the company reaches certain market values and other milestones. Some of those milestones would be considered accomplished if Tesla is acquired, and the market-value milestones will pay out based on the acquisition price. That means Musk can pay a significant premium for Tesla with SpaceX stock, resulting in him receiving more Tesla shares and, therefore, ceding less control than the acquisition price might imply.

He can, in fact, offer an incredible premium on Tesla shares without losing his majority voting power in the combined company. Tesla shareholders will be incentivized to vote for the merger if the premium is high enough, and Musk controls the vote for SpaceX. So, the decision to merge the companies is practically within Musk's control, assuming Tesla shareholder believe SpaceX shares will retain their value.

That's not a great position for SpaceX shareholders. Paying a substantial premium for Tesla, which already trades at a high valuation, is unlikely to be in their best interest. We saw the same thing happen with the acquisition of xAI earlier this year, which seemed like a great deal for the AI company while significantly diluting value for existing SpaceX shareholders.

Of course, these are considerations that SpaceX investors already knew. The SEC filing detailing Musk's exact stake in SpaceX didn't reveal anything materially new to investors. Investing in SpaceX is investing in Musk's vision of the future, as the stock is currently valued based on expectations for substantial revenue growth and eventual profits and cash flow over the long run.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.

Warren Buffett officially handed over the reins of Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) to Greg Abel at the start of the year. He still acts as chairman, however, and he holds tremendous influence on Abel's capital allocation decisions. "I am not doing anything that he doesn't approve of. He's not doing anything I don't approve of, Buffett said in an interview last month. "We talk all the time, but he is the decider."

As CEO, Abel oversees Berkshire's massive portfolio and its dozens of operating companies. He's earned a reputation as a tremendous operator, but doesn't have the track record for investments and capital allocation. But there are few better sounding boards and advisors than Buffett from which to learn.

Abel put roughly $23.5 billion of Berkshire's massive cash pile into nine publicly traded companies last quarter. Here's what he bought, and which one stands out as the best of the bunch.

Image source: The Motley Fool.

What did Berkshire Hathaway buy last quarter?

Berkshire Hathaway's second-quarter earnings report revealed $23.5 billion in marketable equity purchases for the conglomerate. That compares with just $3.7 billion in sales, making it the first quarter since 2022 in which Berkshire was a net purchaser of stocks.While some of those purchases were already known, we had to wait until Berkshire filed its Form 13-F with the SEC to get a more complete picture of the stocks Abel and Buffett bought. The 13-F revealed additions to the following U.S. stocks:

• Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL)
• Macy's
• Delta Airlines
• Lennar (NYSE: LEN) (NYSE: LENB)
• New York Times
• D.R. Horton (NYSE: DHI) (a new position)

Additionally, disclosures earlier in the quarter revealed purchases of the following Japanese companies:

• Mitsubishi
• Marubeni
• Sumitomo

There are a few themes among the group. The investments in Lennar and D.R. Horton coincide with Berkshire's acquisition of Taylor Morrison. That could indicate that Berkshire still sees homebuilders as undervalued in the current market. Despite severe headwinds from rising mortgage rates and home prices, homebuilders still have a tremendous opportunity ahead of them. The United States faces a severe housing shortage, which should ultimately benefit homebuilders in the long run.

The three Japanese trading houses also stand out. Abel has said he envisions Berkshire holding its investments in the five sogo shosha for 50 years or forever. Additionally, he sees opportunities for strategic alliances between Berkshire and the companies, which could unlock new capital allocation avenues. Japan offers several compelling investment opportunities with valuations much lower than U.S. stocks and low interest rates on Yen-denominated debt to hedge investments.

Abel and Buffett's largest investment by far last quarter was Alphabet. Berkshire took a $10 billion private placement of the stock in June. Additionally, it bought about another $5 billion to $7 billion worth of the stock throughout the quarter. It's now Berkshire's third-largest marketable equity investment in the portfolio. And it's one Buffett said he initiated with a relatively small purchase in the third quarter of last year.

There's a reason Abel and Buffett have decided to invest so much in Alphabet. It might be the best of the group of stocks it bought last quarter.

What makes it the best of the bunch?

Alphabet's stock has been under pressure lately due to its massive capital spending on artificial intelligence compute. It's spending so much that the company reported negative free cash flow last quarter. It raised $85 billion from an equity issue (in which Berkshire participated), and it added over $50 billion in long-term debt to its balance sheet in the first half of the year.

But Buffett sees that as a strength rather than a weakness. He believes Alphabet has an opportunity to deploy significant capital into a business with a very high and predictable return on investment. Indeed, with a backlog of $514 billion in contracted revenue, there's a long runway and a clear reason to build as much as possible right now.

What's more, Alphabet is showing excellent profitability from its cloud computing division. Operating margin expanded to 35.6% for the cloud computing segment last quarter, up from 20.7% a year ago. Management warned that margin could take a hit in the near term as it rents capacity from third parties to ensure it can serve big long-term customers.

Over the long run, however, there's room for improvement as Alphabet sees strong adoption of its custom AI accelerators, TPUs, and its Gemini family of models. The full stack of AI services makes it one of the most compelling ways to invest in the AI compute build-out.

But what makes it the best buy among all of Berkshire's purchases last quarter is its valuation. The stock currently trades for just 16.5 times forward earnings expectations. That indicates a high level of uncertainty among analysts about the future of the AI business. Profits could take a hit as growing capital expenses begin to show up as operating costs on its income statement.

But with considerable revenue growth, profits should continue climbing. At the current valuation, the risk appears to be baked into the stock price, and there's still tremendous upside from here.

Adam Levy has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Berkshire Hathaway, D.R. Horton, Lennar, and The New York Times Co. The Motley Fool has a disclosure policy.

Space Exploration Technologies (NASDAQ: SPCX), better known as SpaceX, shattered records with its IPO in June. The company went public at a valuation of $1.77 trillion and raised $86 billion. Both stand as records.

But Anthropic could shatter at least one of them. The AI lab confidentially filed its IPO prospectus with the SEC at the start of June, and it could go public before the end of the year. When it does, it could command an even higher valuation than SpaceX.

Anthropic's last funding round in May valued the company at $965 billion. But its valuation could climb to $2 trillion by the time it goes public, according to some investors. Here's why it could be the highest-valued company to go public in history, and how it compares to SpaceX.

Image source: Getty Images.

Why do investors think Anthropic is headed toward $2 trillion?

Anthropic is the fastest-growing software company in history. The company reached a $65 billion run rate in July. That level of revenue would put it firmly in the Fortune 100, but what's even more impressive is that it wouldn't even have made the Fortune 500 list a year ago. The company has seen revenue explode this year from a $9 billion revenue run rate to start the year, which is up from a $5 billion run rate last August and a $1 billion run rate at the start of 2025.

Investors expect Anthropic's revenue run rate to climb to between $100 billion and $120 billion by the end of the year. The company is reportedly projecting $190 billion to $200 billion in revenue for the full-year 2028. Keep in mind, this is a company that's just five and a half years old.

Elon Musk is also projecting rapid revenue growth for SpaceX and its artificial intelligence business. He said the company's internal projections indicate it will reach $1 trillion in revenue by 2030. Musk also thinks that the 10 gigawatts of compute capacity SpaceX plans to have online by the end of 2027 will produce between $300 billion and $500 billion in revenue for the business in 2028. Investors should take Musk's projections with a grain of salt. He has a habit of overpromising.

For reference, SpaceX just reported quarterly revenue of $7.8 billion, for an annual run rate of $31.2 billion, less than half of Anthropic's. That said, it didn't start bringing on cloud computing customers until late in the quarter. Management thinks it'll reach a $100 billion annualized run rate by the end of the year, which puts it on par with investors' expectations for the AI lab.

Should you buy Anthropic or SpaceX?

Both companies are growing quickly as demand for artificial intelligence continues to increase. There are still many questions about Anthropic that need to be answered, and we'll get a lot of information once it releases a public IPO prospectus.

The key considerations are whether either company has a competitive moat. SpaceX's revenue growth stems from its ability to supply compute amid a massive capacity shortage. It counts Anthropic and Google as its biggest customers, the latter noting that it's only buying capacity as a temporary means to ensure it can serve its largest and most valuable customers.

Meanwhile, Anthropic's AI models consistently rank at the top of the frontier model class. What's more, its harnessed its models' capabilities to create excellent tools like Claude Code and Claude Cowork. While other AI labs have followed in its footsteps, Anthropic has continued to demonstrate leading capabilities. That's exemplified by both its incredible revenue growth this year and reports that it charges 2.5 times the rate of OpenAI for its leading model.

The other consideration is how profitable the business actually is. Massive revenue growth means nothing unless there's a clear path toward profitability. To that end, SpaceX's AI business reported an adjusted operating loss of $741 million last quarter, an improvement over its $2.09 billion loss in the first quarter. But with a massive step up in compute spending, it'll likely remain negative for some time. Meanwhile, Anthropic is already producing a positive operating profit, according to reports. The company was projected to produce a positive adjusted operating profit of $559 million in the second quarter.

So, with higher levels of revenue, a consistently demonstrated competitive advantage, and better operating margins, Anthropic should be worth more than SpaceX. With SpaceX commanding a market cap of $1.85 trillion as of this writing, it's no surprise investors think Anthropic is worth at least $2 trillion.

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

Bill Ackman is one of the most closely followed investment managers on Wall Street. His investment strategy typically involves long-term buy-and-hold investments that can sit in Pershing Square's (NYSE: PS) portfolios for years. But 2026 has proven to be a transformative year for the fund manager and its portfolios.

Not only did Ackman launch a new fund last quarter, but he also made a major shake-up in his investments for the company. Here are all the moves Ackman and his team made over the last few months.

Image source: Getty Images.

An injection of fresh capital

Ackman successfully raised $5 billion to launch Pershing Square USA (NYSE: PSUS) last quarter. The closed-end fund makes it easier for U.S. investors to invest alongside Ackman. The portfolio in Pershing Square USA will closely match that of the long-standing Pershing Square Holdings fund.

Ackman says the fund has already invested 95% of the $5 billion raised since launching in late April. He benefited from a volatile market in which some of Pershing Square's largest investments traded at a discount to the prices at which he bought them in the existing Pershing Square Holdings fund.

Ackman also got new capital to manage from Howard Hughes Holdings' (NYSE: HHH) acquisition of Vantage Insurance. Upon closing the acquisition of the insurance company, Ackman and his team immediately liquidated its intermediate and long-term bonds and replaced them with short-term Treasuries and an equity portfolio. As of the end of the second quarter, Vantage held over $1 billion in common equities on its balance sheet. Ackman expects Howard Hughes' free cash flow to contribute billions more in capital to the equity portfolio over the coming years.

3 stock sales

Ackman fully exited three positions over the last few months.

1. Alphabet
2. Universal Music Group
3. Hertz Global

Ackman exited Alphabet, completing its sale from the previous quarter. He sold the large position to make room for what he felt was an even better investment opportunity with Microsoft. Both companies are seeing results driven by booming demand for AI compute, but Ackman preferred Microsoft for valuation and its enterprise software business.

Ackman exited his position in Universal Music Group after the company rejected his takeover bid. Ackman felt moving the company's headquarters to the United States would unlock shareholder value, making it easier to invest in and eligible for popular indexes.

He exited Hertz in July. The turnaround play never materialized for Pershing Square, but it remained a relatively small position in the portfolio, so the impact on overall results was minimal.

6 new stock purchases

In his semi-annual letter to shareholders, Ackman noted that significant volatility and the market's over-indexing toward AI infrastructure providers have created ample opportunities to deploy capital into new investments. "We are fortunate in that the current market backdrop has created a highly attractive environment for Pershing Square," he wrote.

To that end, he bought six new investments across his funds' portfolios.

1. Visa
2. Mastercard
3. Netflix
4. S&P Global
5. Intercontinental Exchange
6. Alcon

These investments are across various industries that have been largely ignored by the market so far this year. Large-cap financial stocks (Visa, Mastercard, S&P Global, Intercontinental Exchange) had a negative return through the first half of the year. Netflix has seen its stock price fall throughout most of the year, as concerns about its growth weigh on the stock. Alcon's eye surgery equipment has seen steady revenue growth, but it wasn't until it shared expectations for stronger margins (the exact catalyst Ackman wrote about in his letter to shareholders) that its stock price jumped.

Private company investments

Beyond the company's publicly traded funds, Pershing Square also made several private investments using its balance sheet last quarter. This isn't just an opportunistic use of cash on the balance sheet; the investment management company plans to use the investments to seed a new closed-end fund later this year that focuses on private companies.

Pershing Square Ventures, Ltd will launch later this year and will be relatively small compared to its public equity portfolios. Ackman expects the new fund to offer a more shareholder-friendly way to invest in late-stage private businesses before their IPOs. Taking the opportunity to invest in private companies earlier by using Pershing Square's balance sheet is a great way to ensure the new fund has a portfolio of the best available private investments.

Ackman also believes that running a venture fund will improve the research and decision-making for the company's public equity portfolios. He and the investment managers will gain new insights into the technology landscape and better understand the competitive threats posed by up-and-coming businesses to existing holdings in Pershing Square's portfolio.

Adam Levy has positions in Alphabet, Intercontinental Exchange, Mastercard, Microsoft, Netflix, S&P Global, and Visa. The Motley Fool has positions in and recommends Alphabet, Howard Hughes, Mastercard, Microsoft, Netflix, S&P Global, and Visa. The Motley Fool recommends Intercontinental Exchange. The Motley Fool has a disclosure policy.

Micron Technology (NASDAQ: MU) has taken its shareholders on a roller coaster ride this year. After climbing 325% from the start of the year to late June, shares fell precipitously over the course of about a month. By the end of July, the stock had fallen 39% from its peak. But shares quickly recovered in August, up more than 30% from the July low.

The roller coaster ride isn't over. The stock remains extremely volatile. And investors who have sat on the sidelines watching may be wondering whether the stock is due for another leg up or down from here.

If you were to invest $5,000 in the stock today, analysts think you'd be making a good decision. Here's how much it could be worth a year from now, according to the median price target on Wall Street.

Image source: Micron Technology.

How much will Micron be worth in a year?

A $5,000 investment in Micron stock today will buy you just over five shares of the high-flying semiconductor stock at about $975 per share as of this writing. The median price target among 57 analysts covering the stock is $1,585. That implies your $5,000 investment could be worth close to $8,125 by next year.

But there's a big caveat.

That $1,585 is just a median target; there's a wide range between estimates. The highest target on Wall Street is $2,200 from Ben Reitzes at Melius Research. The lowest is $361, according to data compiled by the Wall Street Journal. It's worth noting, however, that none of the analysts have a sell rating on the stock, so price targets below the current share price may be outdated.

Still, the gap between the highest and lowest price targets on Wall Street indicates significant uncertainty about the business's future. There's a big split among investors over how long the current earnings cycle, fueled by artificial intelligence (AI), will last, and how steep the drop in earnings will be once new memory chip production capacity comes online.

Micron's management has suggested that the structural demands of artificial intelligence will lead to sustained earnings growth. At the same time, it's signing long-term strategic agreements with customers to ensure more stable demand while reducing its near-term upside in pricing. That suggests even management isn't fully confident in the business's future.

Should you buy Micron stock right now?

With the stock recovering from its recent low, shares currently trade for about 6 times forward earnings expectations. That might seem like an incredible bargain for a stock growing its earnings as quickly as Micron, but that really depends on whether you agree that earnings won't be as cyclical as in the past or not.

The stock has historically traded for between 3-times and 8-times peak earnings in past cycles. If we're nearing peak earnings over the next year or two, as analysts expect, there's not a lot of margin of safety at the current price. However, the stock arguably deserves a higher multiple if the downcycle won't hit earnings as hard.

Unfortunately, there are already signs that earnings are starting to peak. Memory chip pricing at Micron's biggest competitors, Samsung and SK Hynix, grew more slowly than expected last quarter. That's likely the impact of long-term strategic customer agreements capping pricing in some cases.

Additionally, the entire industry is building as much new capacity as possible, with a large amount expected to come online in 2028. That will start to put pressure on chip pricing, and as more supply comes online, price declines could outweigh growth in bit shipments. That will result in a collapse in earnings, especially given the higher operating costs of running new manufacturing plants.

Long-term agreements also won't prevent a significant cyclical downturn in the case of a slowdown in AI spending. Customers may simply stockpile chips they don't need, and then the downturn will hit even harder once those contracts expire. There's still significant cyclicality to worry about.

Despite the high median price target for Micron, investors may be better off waiting for an opportunity to buy the stock with a wider margin of safety, given the uncertainty around that target.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.

The S&P 500 (SNPINDEX: ^GSPC) is widely regarded as the most important U.S. stock index. To be included in the index, a U.S.-based company must meet a set of criteria, including demonstrating consistent profitability. While the committee typically adds and removes constituent companies from the index quarterly, it occasionally needs to add a new company mid-quarter.

Such is the case with the most recent addition. After AvalonBay Communities merged with Equity Residential to form Vivmark, the index found itself one company short. The committee selected Reddit (NYSE: RDDT) to replace it. The social media stock made its market debut just a couple of years ago, but it's already up 365% from its IPO price as of this writing.

The good news is it's not too late to buy into Reddit. Some recent headwinds have created a buying opportunity for long-term investors.

Image source: Getty Images.

A lot to like, but will AI disrupt it?

Reddit shares sold off after the company reported its second-quarter earnings results. The financials were very strong. Revenue increased 61% year over year. Adjusted EBITDA margin expanded to 42.6% from 40.1% last quarter and 33.4% a year ago. It also repurchased $235 million in shares using its growing free cash flow to help offset stock-based compensation. Ultimately, earnings per share climbed an impressive 178% from last year.

But investors appear hung up on the fact that daily active users in the U.S. declined sequentially. It's just the latest signal that artificial intelligence is disrupting its business. AI Overviews on Google may be cutting off a key source of traffic for the platform, thereby slowing user growth in more mature markets.

That's important because Reddit makes most of its revenue from advertising. Other revenue, including data licensing for AI developers, accounted for just 5% of Reddit's total sales last quarter. Without a steady inflow of new users, revenue growth will eventually dry up.

To that end, Reddit is positioning its platform as an alternative to artificial intelligence. Instead of asking questions to an AI chatbot, you can ask a real community of human beings and get tailored answers with better nuance. Ultimately, management believes the platform will grow to 100 million logged-in users in the U.S. (up from 23 million) and 1 billion globally (up from 53 million). That suggests a long runway for growth.

Even with sluggish recent user growth, management has made significant progress in monetizing existing users. Average revenue per user climbed 36% globally and 51% in the U.S. last quarter. Continued improvements in its ad targeting and ad load optimization should provide another path to high revenue growth as management works to accelerate user growth.

Fears about AI disrupting its business have pushed the valuation to a very attractive 21 times earnings expectations. For a company capable of producing earnings growth of around 25% per year, based on analysts' estimates, that's a great price to pay and suggests the stock price could climb higher from here.

Adam Levy has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Reddit. The Motley Fool recommends Vivmark Residential. The Motley Fool has a disclosure policy.

Bill Ackman just launched a new closed-end investment fund a few months ago, and he's already planning his next one. The CEO of Pershing Square (NYSE: PS) launched Pershing Square USA (NYSE: PSUS) in April, giving U.S. investors an easy way to invest with him. But he sees another opportunity in the U.S. market -- pre-IPO companies.

To that end, Pershing Square announced the forthcoming launch of Pershing Square Ventures, Ltd.: a small closed-end fund that will invest in late-stage private companies. Ackman argues that he and his team are well-suited to invest in private companies. In fact, Pershing Square has already taken some positions on its own balance sheet (outside of its funds). What's more, Ackman argues, launching a venture fund and researching more start-ups will help produce better results for investors in Pershing Square's existing funds.

Image source: Getty Images.

How will Ackman's new fund stack up?

Management says Pershing Square Ventures will boast a few advantages over existing venture funds. For one, as a closed-end fund, it can hold companies even after they go public. That provides more flexibility for the fund manager to hold or dispose of positions when valuations make sense, or to wait until a new venture deal comes to market, without having to hold cash.

It also expects to charge lower fees than existing funds on the market today. Robinhood Markets (NASDAQ: HOOD) offers a pair of venture funds. Its first fund charges expenses of about 3.13% per year, the second fund charges a 2% management fee and takes 20% of all capital gains. Both are very high fees to pay, even for access to private businesses.

Ackman also mentioned that other venture funds are "oversubscribed forever." He believes Pershing Square Ventures will be able to meet investor demand.

Importantly, Ackman plans to seed the fund with investments held on Pershing Square's balance sheet and his family office. That way, investors know what they're buying into as the fund looks to raise capital. Ackman also emphasized that the fund won't meaningfully contribute to Pershing Square's overall assets under management right away, keeping it small. However, if it proves successful, it will, over time, contribute a significant amount to Pershing Square's total fees.

Ackman argues that starting a venture fund will further support Pershing Square's main investment funds in publicly traded equities. That's because researching up-and-coming start-ups in the same space as its public investments will help it understand competitive threats and how larger companies are adjusting (or not) to them.

The plan is to launch Pershing Square Ventures before the end of the year. Investors should look for more details on the fee structure and the investments the company will seed into the fund in the coming months. Another option for investing in private companies before their public debuts should be good for investors interested in the space. While the risks of investing in such funds remain high, more competition could mean lower fees across the board.

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

Few companies have been hit as hard by the "SaaSpocalypse" as Salesforce (NYSE: CRM). The company that practically invented the software-as-a-service (SaaS) category is seen as a potentially big loser in the age of generative AI, which could help companies use "vibe coding" to create custom software to do the same sorts of things they previously paid SaaS companies to handle. After AI tools debuted that made that threat look more acute, Salesforce shares fell sharply. By mid-2026, they were down nearly 60% from their high at the start of 2025.

Salesforce CEO Marc Benioff agrees that AI will have a big impact on his company, but he thinks it'll be for the positive. That's why he had the company take on a huge amount of debt to buy the beaten-down stock. The $25 billion in accelerated repurchases, combined with normal repurchases funded by cash flow, brought the total to a record $27 billion in buybacks during the first quarter.

That's a huge bet on the company's future. Here's why it makes sense.

Image source: Getty Images.

Why would Salesforce take on debt?

There are two ways to fund a business beyond using its revenues and earnings: issuing debt or selling new equity. Debt has a concrete cost -- whatever the interest payment is on the bonds the company issues. While some might think that issuing new shares of stock incurs little cost, it can be extremely expensive in the long run. To optimize the funding model, a business should issue stock when its shares are selling at expensive valuations and issue debt when interest rates make that cheap.

Debt isn't exactly cheap right now. The bonds Salesforce issued have interest rates ranging from 4.5% to 6.7%. But Salesforce's stock is arguably even cheaper, or at least, Salesforce's management would say so. To justify issuing debt at a 6.7% rate, management must estimate that the cost of equity is well above that level.

That's a good bet. Salesforce is now trading at a historically low valuation of just 14 times forward earnings. At that level, the market is already pricing in years of sluggish revenue growth before a potential sales contraction. Meanwhile, management is guiding for revenue acceleration in the back half of this year, fueled by its artificial intelligence services: Agentforce and Data 360. Both work together to enable businesses to create custom AI agents within the Salesforce software ecosystem.

Combined annualized recurring revenue for Agentforce and Data 360 doubled year over year last quarter, and continues to show strong momentum. The number of tasks completed by an AI agent within Salesforce's software accelerated sequentially last quarter.

Even if revenue growth slows back down, the company should be able to execute on its efforts to expand its operating margin, driving strong earnings-per-share growth. As Agentforce and Data 360 continue to scale and management focuses on keeping overhead low, this should push the business toward its long-term goal of an adjusted operating margin of around 40% by fiscal 2030, up from about 34% today.

The company's higher debt load will weigh on its free cash flow for some years as management now has to pay more interest. But given the cheap cost of equity, front-loading its $50 billion of share repurchases seemed like a smart move. It's impossible to know when the market will properly reflect the value of Salesforce in the price of its shares. For now, buying the stock seems like a great opportunity for patient investors.

Adam Levy has positions in Salesforce. The Motley Fool has positions in and recommends Salesforce. The Motley Fool has a disclosure policy.

Palantir Technologies (NASDAQ: PLTR) CEO Alex Karp is fond of highlighting the company's Rule of 40 score. The Rule of 40 states that a healthy software company's year-over-year revenue growth percentage plus its operating margin must exceed 40. Palantir blew that benchmark away last quarter, producing a Rule of 40 score of 155.

Another software company is quietly producing a triple-digit Rule of 40 score as well. But while the market is rewarding Palantir with earnings and sales multiples far in excess of those of practically any other company of its size, the valuation for this other fast-growing software stock is much more tame. In fact, its forward price-to-earnings (P/E) sits below 19, less than the overall S&P 500's.

Here's why AppLovin (NASDAQ: APP) deserves a closer look.

Image source: Getty Images.

Can this software stock keep its triple-digit Rule of 40 score?

AppLovin is an adtech company that sets itself apart by charging advertisers only when ads convert. The catch is, advertisers have to turn over practically everything about ad placement and pricing to AppLovin's black box model. The company's Axon 2 models have driven a sharp acceleration in revenue over the last few years, as it has also expanded AppLovin's market beyond its original gaming niche.

Management has seen excellent progress in non-gaming revenue growth, and it launched a self-service platform in June, which should help accelerate onboarding and total revenue growth. Total non-gaming-related revenue in the second quarter exceeded the seasonally strong fourth quarter by 28%. However, weakness in gaming advertising, which still accounts for the vast majority of its revenue, led to a disappointing overall result -- total revenue grew 53% year over year last quarter, down from the 59% growth it posted in the first quarter.

The weakness stems from the timing of the latest upgrade in the Axon 2 models. At the same time, the company spent more on compute to train its models and on research and development to improve them further. Management says the model update is now live, the third quarter is off to a strong start, and the business is back on the trajectory it expects. With its strength in gaming and the expansive market beyond gaming, management sees the potential for long-term compound annual revenue growth of 30%.

What's more, the business's margin profile is incredible. Despite increased spending to improve the Axon 2 models, the company posted an operating margin of 78% last quarter. That makes its Rule of 40 score 131 for the quarter. Over the long run, sales and marketing may come down as a percentage of revenue due to the growing self-service platform and the scale of operations. However, management is likely to funnel more money into research and development to ensure Axon 2 maintains its advantage over the competition.

CFO Matt Stumpf noted that the company doesn't manage for margin, but focuses on EBITDA and free cash flow growth. If it can invest a dollar in improving its artificial intelligence models and get more than a dollar back in cash returns, it'll do it. That said, Stumpf expects the EBITDA margin to remain in the low-80% range over the long term. So, combined with 30% long-term revenue growth, AppLovin should maintain a triple-digit Rule of 40 score for the foreseeable future.

Why is the market paying so much more for Palantir stock?

Palantir shares trade for more than 100 times estimated earnings over the next year and more than 50 times estimated sales. That's an exceptional premium, suggesting the company's growth runway is massive.

In comparison, AppLovin's earnings and sales multiples of 19 and 13, respectively, suggest investors don't expect earnings growth to remain elevated over the long run.

To be sure, Palantir has a tremendous opportunity. Its total addressable market could expand from $335 billion this year to $1.4 trillion by 2033, according to select analyst estimates. Palantir could merely maintain its market penetration rate and grow revenue at a compound rate of 23%. Doubling its market penetration, well within reason, would double that average growth rate.

That said, the digital advertising market is expected to grow relatively quickly as well. Global spending could reach $662 billion this year and $1.7 trillion by 2033, according to Grand View Research. That's a compound annual growth rate of 14.3%, which supports AppLovin's estimate of 30% long-term growth as it takes share of the large non-gaming ad market.

But while Palantir faces few limitations to its growth, AppLovin's black-box ad platform will struggle to deliver exceptional results for advertisers if it saturates the market. More advertisers using the same algorithm makes it less effective. That sets an upper limit on AppLovin's market penetration.

Still, at just 19 times forward earnings, the stock looks underpriced relative to its potential, even with that limitation. The company should be able to deliver strong revenue growth at very high margins for years to come, and the market is heavily discounting that right now.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.

One thing that characterized Warren Buffett's last few years as CEO of Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) was the massive pile of cash he accumulated on the company's balance sheet. Berkshire Hathaway is home to dozens of businesses that generate significant free cash flow every quarter.

On top of that, Buffett became a net seller of stocks from Berkshire's equity portfolio for the last 13 quarters of his tenure. He even paused share repurchases for the last year and a half of his time as CEO.

As a result, he handed over the reins of Berkshire Hathaway to Greg Abel with about $369 billion in investable cash and equivalents available to invest. Abel, known as more of an operator than a capital allocator, has gotten to work. After making several significant purchases in the first quarter, he deployed about $35 billion of cash for Berkshire Hathaway investors in the second quarter.

Here's what he bought and what it means for shareholders.

Image source: The Motley Fool.

Abel's biggest purchase of the second quarter

Abel spent $23.5 billion purchasing new equity positions for Berkshire's portfolio last quarter.

Abel's largest purchase was likely Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) stock. He negotiated a $10 billion private placement for shares of the tech stock in June, part of an $85 billion capital raise for the Google parent company. It's possible Abel bought more during the quarter as the stock eventually fell below the price negotiated in the private placement.

Buffett said he initiated the position in Alphabet in the third quarter last year. He sees Alphabet as capable of delivering very strong returns on invested capital in its cloud computing business. What's more, he sees the chance to deploy hundreds of billions of dollars into high-return businesses as a tremendous opportunity.

Indeed, Alphabet's cloud computing revenue climbed 82% year over year last quarter, and it has a massive backlog of unearned revenue. With excellent demand visibility, it can be built with confidence, and it should produce solid cash returns over time. The market is concerned with free cash flow, but as long as the cost of capital remains below Alphabet's returns, it looks like a solid business.

Another business acquisition

Berkshire Hathaway agreed to acquire Taylor Morrison Home last quarter for $6.8 billion. Including the debt on the company's balance sheet, the total enterprise value was $8.5 billion. While Abel didn't close the deal until this quarter, that cash was earmarked for the homebuilder.

High mortgage rates and housing prices have weighed on homebuilder stocks. Despite those challenges, there's still a massive opportunity for homebuilders over the long run. The U.S. faces a severe housing shortage. A White House report from this spring detailed a shortage of at least 10 million homes.

Abel may see an opportunity to take advantage of economies of scale. Berkshire already owns Clayton Homes, and the combination will make it the fourth-largest homebuilder in the United States. "The scale and reach we gain by unifying with Berkshire and Clayton's regional site-built homebuilders is transformative," Taylor Morrison CEO Sheryl Palmer said in a press release.

The homebuilding operation presents another opportunity for Berkshire to deploy capital with good cash returns on investment.

Buybacks resume

Abel reinitiated Berkshire's share repurchase program in the first quarter but disappointed investors by buying only $234 million in stock. He made a huge step up in repurchases last quarter, with the total returned to shareholders reaching $4.5 billion. That's the largest total since the first quarter of 2023.

The repurchases are a sign that Abel and Buffett think Berkshire stock is cheap. The board only authorized share repurchases when the stock traded below its intrinsic value, conservatively determined by the CEO (Abel) after consulting with the chairman of the board (Buffett). To that end, the stock currently trades at around 1.46 times book value, slightly above its valuation over the last quarter but still within the range Buffett has found attractive in the past.

Abel spent billions buying back more shares in July based on the total share count reported in the company's 10-Q.

Buying up Japanese trading houses

The last purchase worth highlighting is Berkshire's continued purchases of Japanese trading houses through its subsidiary, National Indemnity. Last quarter, the companies reported that Berkshire increased its stakes in Marubeni, Mitsubishi, and Sumitomo. The exact total spent on the increased stakes in each business isn't reported.

Each Japanese trading house runs a diversified portfolio of businesses and operates much as Berkshire Hathaway does in the United States. What's more, Berkshire can borrow Japanese yen at a very low interest rate to hedge against exchange-rate headwinds. The dividends received on its investments in the sogo shosha, as they're known, far exceed the cost of carrying the debt. With the weakness in the yen, the hedge has proved extremely valuable.

Abel also sees the opportunity to develop strategic relationships with the Japanese trading houses. He struck another strategic relationship with Japanese insurer Tokio Marine earlier this year.

Whether Abel's capital deployment strategy proves itself in the long run remains to be seen. Despite the massive $35 billion total, the amount still represents a tiny fraction of Berkshire's available cash. The company ended the quarter with over $359 billion in cash and equivalents available for investment.

Adam Levy has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Berkshire Hathaway. The Motley Fool has a disclosure policy.

The S&P 500 (SNPINDEX: ^GSPC) bull market has just entered its 47th month since reaching a relative low in October 2022. After nearly four years of phenomenal returns in the stock market, with the benchmark indexes zooming well past their previous high, investors may be wondering just how much higher stocks can climb. In fact, with the S&P 500, Nasdaq Composite (NASDAQINDEX: ^IXIC), and Dow Jones Industrial Average (DJINDICES: ^DJI) all trading within a couple of percentage points of their all-time highs, some may think it's not a great time to buy stocks.

Turning to historical data can help investors assess whether their emotions are getting the best of them or if it's highly likely the bull market has mostly run its course and we're due for a meaningful pullback in stocks. The answer is quite clear.

Image source: Getty Images.

How much longer can this bull market last?

The bull market is just a couple of months short of reaching its fourth anniversary at this point. But even at four years old, the bull market's current age is below average. The average bull market since World War II has lasted 5.6 years, according to data compiled by Carson Investment Research. That means we could have over 20 months left before the market peaks if the current bull market is merely average.

Additionally, the average bull market produced cumulative returns of 167% in the S&P 500. Nearly four years into the current bull market, the S&P 500 has produced a total return of 129%. That leaves room for another 16.5% increase in the S&P 500 from here through the end of the bull market, if it hits the average.

Of course, the current bull market is unlikely to be average. Just as it's unlikely for the S&P 500 or Nasdaq to produce "average" returns in any given year, it's also unlikely to see average returns for a market cycle. The fact that the bull market is already nearly four years old suggests it could last longer and deliver greater returns than the average bull market, given that some bull markets fade much earlier.

There's good reason to believe the bull market still has legs

The first few years of the bull market were characterized by a handful of big winners. Big tech stocks tied to artificial intelligence pushed the entire market higher. That's pushed the concentration of the S&P 500 and Nasdaq indexes to extreme levels.

The top 10 companies in the S&P 500 account for 39% of the index's total value. The top five in the Nasdaq-100 account for nearly 50% of its value.

But there are signs that market strength is broadening beyond the megacap AI stocks that have pushed the indexes higher over the first three years of the bull market. Indeed, 57% of the S&P 500 constituents have outperformed the index so far this year. That's the highest level in a decade. In other words, the continued rise of the bull market isn't predicated on the results of just a handful of companies this year.

What's more, the S&P 500 equal-weight index is outperforming the commonly cited cap-weighted index, producing a total return of 16.5% versus 14% so far this year. The equal-weight index, as the name suggests, weighs the performance of each component of the S&P 500 equally. The outperformance suggests that smaller companies are outperforming larger companies in the index.

If those trends continue, the S&P 500 and other major indexes can keep climbing. It doesn't necessarily mean the megacap stocks at the top of the market will perform poorly, but their performance could lag behind stocks that have underperformed during the first part of the current bull run.

Investors interested in capitalizing on the trend could buy the Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP), but a simple S&P 500 index fund will probably continue to produce solid results and ensure you don't miss out on any returns if the biggest tech companies continue to lead the market higher.

A broader bull market is also great for individual stock investors. When just a handful of stocks are pushing the whole market higher, it's really hard to beat the index. When there are a lot of stocks beating the S&P 500, it's a lot easier to find successful investments that can produce market-beating returns. It looks like we're firmly moving into the latter type of bull market.

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

One thing that stood out in Space Exploration Technologies' (NASDAQ: SPCX) first quarterly earnings report as a publicly traded company was just how much it's spending to build out new AI compute capacity. The company's AI-related capital expenditures doubled sequentially to $15.8 billion, and management said it expects to continue spending at a similar level through the end of the year.

To be sure, that capex spending is still dwarfed by what hyperscalers such as Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), and Microsoft (NASDAQ: MSFT) are laying out on data centers. Each of those three spent between $41 billion and $55 billion last quarter alone. But they're also generating huge amounts of revenue from their cloud computing units, with massive backlogs of contracted business.

However, SpaceX CEO Elon Musk believes his company can deploy capital much more efficiently than the hyperscalers can, thanks to a unique competitive advantage.

SpaceX CEO Elon Musk. Image source: The White House.

What is SpaceX's advantage in artificial intelligence?

Musk argues that SpaceX has an engineering advantage over everyone else competing in the cloud computing business. His premise is that it can deploy the engineering talent pool and intellectual property base that supported the development of its rocket operations to efficiently build new data centers that produce high returns on investment.

"We're finding that even a small amount of what we've learned building rockets, which are incredibly difficult, applied to data centers, yields tremendous benefits," Musk said on the company's first earnings call. He noted its cooling systems are well ahead of what's needed.

The payoff potential appears substantial.

"The current economics have translated into a less than one-year payback on our new capital deployments for compute," CFO Bret Johnsen said during his prepared remarks.

That stands in stark contrast to comments from Amazon CEO Andy Jassy, who outlined the economics for Amazon Web Services' massive build-out.

"Data center capital is spent starting two years before we can put servers into them to start monetizing," he explained. That's just the physical limitations it's seeing in building new data centers; it can't even begin to monetize them for two years, let alone break even in one year.

"For servers and networking equipment, on average, it takes a little less than three years to break even on that investment," Jassy added. Even if the cost of a data center were zero, Jassy said it would take nearly three years to break even on the equipment it buys to equip those buildings. Results from Microsoft and Alphabet suggest similar timelines for their operations.

There's a huge gap in SpaceX's accounting and Amazon's accounting. Is SpaceX, a company that practically entered the cloud computing space yesterday, really so much more efficient at engineering and capital deployment that it can produce results three times better than those of the hyperscalers?

Why investors should be skeptical of Musk's claims

Musk has never shied away from making bold claims about where his businesses are headed, and when they will pass various milestones. More often than not, the results fall short of his predictions. There's reason to be skeptical about SpaceX's ability to establish a meaningful competitive advantage in AI compute based on its engineering talent alone.

While Johnsen's claim that it's producing very fast paybacks on its current investments may be accurate, it's not clear that it will be able to scale up as efficiently. SpaceX had existing infrastructure that it used to provide more compute capacity to third-party customers like Anthropic and Alphabet's Google last quarter. That's not necessarily repeatable.

What's more, it simply doesn't make sense that SpaceX could easily retain such top talent in the face of competition from hyperscalers. As mentioned, Alphabet, Amazon, and Microsoft are spending three times as much on capital expenditures as SpaceX. Their businesses are heavily reliant on efficient returns on that capital spending. They would surely pay up for top talent if it meant improving their return on capital severalfold.

SpaceX is merely in a position to provide some AI compute at a time when there's a severe shortage of it. Alphabet has signed a contract with the company for compute because the long-term potential of serving large customers like Anthropic now with its own infrastructure by offloading some of its internal AI compute needs to a third party is too good to pass up.

Alphabet can end its contract with SpaceX as soon as it builds enough capacity for itself. That could result in some excellent short-term revenues for SpaceX, but it doesn't indicate a long-term competitive advantage in cloud computing.

Adam Levy has positions in Alphabet, Amazon, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a disclosure policy.

Software stocks crashed at the start of 2026 amid growing fears that artificial intelligence would disrupt the growth of many enterprise software providers. But as many software companies seek to set themselves apart from the pack by demonstrating that AI benefits their businesses, the group has begun to recover.

Atlassian (NASDAQ: TEAM), for example, is up 74% over the past month, as of this writing. Even after that phenomenal growth, the stock has yet to recover its share price from the start of the year. What's more, it remains about 50% below its all-time high from the start of 2025.

But Atlassian looks poised to use its broad software suite and AI to drive higher financial results, and its stock price should follow suit. It can still climb much higher from here.

Image source: Getty Images.

What's driving the stock higher, and can it keep it up?

Shares of Atlassian have benefited from a broader rotation from chipmakers to software stocks, but its rise was fueled by much better-than-expected fourth-quarter earnings. The company grew revenue 28% year over year, driven by strong results from its cloud segment, which accelerated to 31% year-over-year revenue growth.

That's important because the company is migrating customers from on-premises data center deployments to its cloud platform by 2029. Management pulled forward a lot of data center revenue into the third quarter and expects a significant drop-off in sales over the next year. Management's full-year outlook calls for a 17% decline in data center revenue, resulting in an overall 13% deceleration in 2027.

But Atlassian could outperform that guidance. It's worth noting that management expects its cloud revenue growth to come in at just 25.5% for the full year. That would suggest a considerable slowdown in the back half of the fiscal year.

That's despite management indicating very strong trends with its cloud customers, especially those using its AI platform, Rovo. Management said Rovo adopters are growing their annualized recurring revenue at twice the rate of non-adopters. Expanding Rovo's usage and driving adoption should help push more cloud revenue growth from its existing user base.

Management also continues to see solid performance in retention and expanding usage across teams within an organization. Net revenue retention exceeded 120%. What's more, the growth runway looks strong, with remaining performance obligations climbing 44% to $4.8 billion.

Even after the strong recovery, the stock trades for about 28.6 times forward earnings estimates. That's even though it could produce substantial earnings growth on top of its strong revenue growth over the coming years, thanks to the operating leverage of running a software business. Completing the migration to the cloud platform and sunsetting the on-premises software will also benefit operating margins by streamlining operations.

Overall, the stock still looks cheap and could keep climbing from here.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Atlassian. The Motley Fool has a disclosure policy.

Jeff Bezos is dumping shares of Amazon (NASDAQ: AMZN), as it trades around its all-time high. The company's founder and executive chairman filed documents showing he sold 1.2 million shares of the stock last week, after another filing indicated he could sell up to 15 million shares in total. If he sold them at the market price at the time of filing, the total would exceed $4 billion.

That's a lot of cash, even for someone as wealthy as Bezos. Should Amazon shareholders consider lightening up their exposure to Amazon as well? Here's what investors need to know.

Jeff Bezos, Amazon Executive Chairman. Image source: Amazon.

Why is Bezos selling Amazon stock?

Bezos' stock sale is part of a Rule 10b5-1 trading plan established last year. Such plans are prearranged well ahead of stock sales to prevent insiders from trading on nonpublic information. In other words, Bezos isn't seeing any signs that the stock is too expensive or that a sudden change in Amazon's fortunes is on the horizon.

In fact, Amazon appears to have a long runway ahead of it. Its retail operations are firing on all cylinders, with revenue climbing about 16% year over year across its North American and International segment last quarter. That was helped by shifting Prime Day from the third quarter to the second quarter, but still an impressive result. The segment's operating margin continues to expand, driven by strong advertising sales and Prime membership growth.

The core of Amazon, though, has become its cloud computing unit, Amazon Web Services. The company is spending tens of billions of dollars each quarter to build additional compute capacity, which has pushed its total free cash flow into negative territory over the past 12 months. While some investors have balked at all that spending, Amazon's results and outlook suggest it's a solid investment.

AWS revenue accelerated for the fifth straight quarter, climbing 37% year over year. What's more, operating margin expanded to 39.4% in the most recent quarter. Both trends could continue.

Amazon's rapid increase in capital deployment should enable it to recognize its growing backlog more quickly in the coming quarters. Backlog reached $496 billion as of the end of the second quarter. Regarding margin, it should see expansion as more AI workloads move to Amazon's custom silicon, Trainium and Graviton, which produce better margins for Amazon and better price performance for its customers compared to traditional GPUs.

Amazon CEO Andy Jassy sees tremendous long-term potential for AWS. His comments during Amazon's second-quarter earnings call suggested it could become a $1 trillion annual revenue business. If it achieves just half of that, Amazon will generate hundreds of billions in free cash flow each year, sending the value of its shares significantly higher over time.

There's a reason Bezos still holds 880 million shares of Amazon, comprising the vast majority of his net worth. The outlook remains bright for the company.

Adam Levy has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

Shares of Space Exploration Technologies (NASDAQ: SPCX), better known as SpaceX, have been on a wild ride during their first two months since the stock's initial public offering (IPO). The company saw its value touch $3 trillion at its peak just a few days after its market debut, but the market cut that price by more than half at one point, sending the stock price below its IPO price last month.

After its second-quarter earnings report and the first of several lockup expirations, letting early SpaceX investors and employees sell their shares, the stock climbed back above its IPO price. Some investors may see that strong performance in the face of potential selling pressure as a sign that the stock can keep climbing. Here's what history has to say.

Image source: Getty Images.

Can SpaceX rocket higher?

It's important to note that SpaceX's trajectory since its IPO isn't uncommon.

Most stocks experience a pop on their first day of trading, just as SpaceX did. SpaceX saw its shares close 19% above its IPO price of $135 per share on its first day of trading.

Most stocks hit a relative high in their first few days of trading before moving lower. SpaceX peaked at about $225 per share on its third day of trading.

Most stocks also eventually trade below their IPO price. SpaceX breached its $135 IPO price on July 15, about a month after its debut.

In fact, 90% of IPOs eventually trade for less than their offer price, with the median stock taking about six weeks to do so, according to an analysis from Banyan Lane Research. Most stocks quickly recover to their IPO price. It took SpaceX 18 trading days to do so. Only 15% of IPOs remain below their offer price one year after breaching it.

Investors expecting a rapid recovery in the stock price and a push toward SpaceX's all-time high may be over-optimistic. Only 60% of IPOs ever get back to the early peak they reached after their debut, and those that do take nearly a year to get there.

How do typical IPO stocks perform?

Since SpaceX stock is mostly behaving as expected for an IPO stock, it's worth remembering that the track record for IPOs, in general, isn't spectacular.

The average IPO since 1980 (excluding the dot-com bubble) produces a total return of 44.2% in its first three years as a publicly traded company. That might sound like an excellent result, with an average compound return of about 13%, but it actually trails the overall market return by 1.6%, according to data compiled by Jay Ritter, a finance professor at the University of Florida. Remember, companies typically go public when stock prices are rising.

The outlook is significantly better for large tech companies. Tech stocks with more than $100 million in annual sales before their IPOs produced average returns that outperformed the market average by 43.1% during their first three years of trading. But averages can mask the fact that 45% of IPOs with more than $100 million in sales still traded below their IPO price after three years.

One last thing to consider is how IPOs with very high expectations perform. We can use price-to-sales as a proxy for expectations. A company with a high price-to-sales ratio is expected to have rapid revenue growth. SpaceX's price-to-sales ratio of 88 is extremely high. IPOs for companies with more than $100 million in revenue with a price-to-sales ratio above 40 produce average three-year returns that trail the market by 15.4%.

SpaceX could defy the odds and perform better than the average IPO. But with expectations already high for the company and continued share lockup expirations weighing on the stock price for at least another year, it will be hard for the stock to keep climbing back toward its all-time high of around $225. In fact, it might struggle to keep pace with the overall market average.

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

Investors in Micron Technology (NASDAQ: MU) are used to big swings in the stock price. The shares climbed more than 800% from the end of the first half of 2025 to the end of June 2026. Since then, however, shares have dropped more than 25%, as of this writing.

The roller-coaster ride might not be over. Wall Street analysts predict another big move in Micron's stock price by next summer, based on their price targets. Here's what investors can expect.

Image source: The Motley Fool.

How much will Micron stock be worth by mid-2027?

There are 56 analysts covering Micron stock. None of them have a sell rating, and just four have rated it a hold. The rest are all bullish on the stock. As a result, the median price target for the stock on Wall Street is $1,600 per share. That represents an 86% increase in value from the price, as of this writing.

The biggest driver of Micron's profits over the last year or so has been the memory chip supply shortage. Analysts see no sign of that shortage easing anytime soon. Even as Micron and its competitors build new capacity as quickly as they can, the first of their new facilities won't start producing meaningful supply until next year. More will come in 2028 and 2029, but in the meantime, prices for DRAM and NAND chips will continue to rise.

Keybanc analyst John Vinh expects Micron's DRAM prices to climb between 15% and 20% sequentially in the third calendar quarter and another 15% in the fourth quarter. NAND prices could climb even faster, up 30% to 40% this quarter and another 15% in the fourth quarter. He expects high bandwidth memory chips, the kind packaged with GPUs and AI accelerators, to double in price next year. He has a $1,750 price target on the stock.

Analysts are also encouraged by management's ability to strike long-term agreements with customers to lock in pricing years in advance. Micron said it signed strategic customer agreements that will represent about 40% of its revenue once fully executed. For those with pricing bands, the floor is above its peak quarterly margin from past earnings cycles, management said.

Cantor Fitzgerald analyst CJ Muse says such agreements point to a more durable and extended earnings cycle. He has a price target of $2,000 on the stock.

Investors shouldn't take sell-side analysts' price targets as gospel, though. They tend to be an optimistic bunch. Moreover, the spread between the lowest price target on Wall Street ($361) and the highest ($2,200) indicates significant uncertainty about the stock's future.

Can Micron shares really climb 86% in a year?

Micron stock is certainly capable of climbing 86% in a single year. Its recent performance proves just as much. But analyst price targets may be discounting the long-term economics of the memory chip market.

Micron's gross margin soared to 85% in its most recent quarter. That's not a sustainable level for the business, and it's entirely bolstered by the industrywide supply shortage.

Micron's average gross margin as a public company is just 25%. Some argue that structural demand for high bandwidth memory for AI accelerator chips will reduce cyclicality and increase gross margin. Even so, margins will compress over time as supply catches up with demand. What's more, operating costs will increase due to additional overhead from increased output. The result is a significant drop in net income.

Analysts' price targets suggest Micron can greatly exceed its historic gross margin mid-cycle and avoid the worst of the downcycle. That seems predicated on the idea that long-term agreements will prevent a drop in earnings as severe as in past cycles.

There's still a chance, however, that long-term agreements merely pull demand forward, leading to a severe drop-off once contracts expire. So, while they might extend the up cycle, they could also extend the down cycle.

Investors should be cautious. Micron might be able to achieve a higher gross margin than in the past, thanks to AI and demand for high bandwidth memory. However, it's still going to see a severe drop in profits once new manufacturing capacity comes online. If demand for artificial intelligence dries up or even fails to meet expectations, the downcycle could be much worse than Wall Street is modeling right now.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.

Jamie Dimon oversees the largest bank in the U.S., serving as CEO and Chairman of JPMorgan Chase for the last 20 years. That gives him a front row seat to the financial markets, and he's never been shy about sharing what he sees with the investment community at large. When he has something to say, it's worth paying attention to.

Dimon recently shared some insights about the current market environment that should give investors pause. With valuations for the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC) stretched, Dimon shared a warning that the market is in a precarious position.

These nine words explain the added risk in today's stock market.

JPMorgan Chase CEO and chairman Jamie Dimon. Image source: JPMorgan Chase.

"There's a lot of margin debt you don't see"

In a recent interview, Dimon explained that margin debt is at its highest level ever. Indeed, margin balances topped $1.5 trillion in June, the highest on record and up 49% year over year. It's important to note, however, that, as a percentage of the S&P 500 market cap, margin debt is around average.

That's why Dimon's warning is so pertinent. "There's a lot of margin debt you don't see," he said. He noted prime brokerage debt, hedge funds, Treasury arbitrage, and leveraged ETFs as examples of debt that won't show up in the numbers reported by FINRA each month. "So market leverage is pretty high."

Dimon noted that when leverage increases, you have a higher chance that something will disrupt the market and lead to a significant downturn. While leverage has allowed stock prices to climb higher quickly, it could also lead to rapid drops in the market. A drop in prices could create a cascading effect, leading to forced selling, pushing prices even lower, and resulting in more forced selling in a vicious cycle.

We saw how rapidly that can play out in pockets of the market when hedge fund Situational Awareness was forced to sell significant positions in its artificial intelligence stock portfolio last month. A broader market downturn could affect many more investors.

What does history say comes next?

It's not just the level of debt that investors should be concerned about, but also how quickly they are increasing leverage in their portfolios. A rapid increase in margin debt has historically been tied to a market downturn within the next 12 months.

As mentioned, margin debt climbed 49% year over year in June. There have only been three other periods since FINRA started collecting data on margin debt where investors have levered up as quickly.

• In December of 1999, margin debt increased more than 60% year over year to $242 billion. Debt reached almost $300 billion in March, up more than 80% year over year. That month, the dot-com bubble popped.
• In May of 2007, margin debt climbed 50% to $382 billion. Debt peaked two months later in July at $416 billion, up 63% year over year. In October, the market peaked ahead of the great financial crisis.
• In February 2021, margin debt climbed 49% to $814 billion as retail investors piled into meme stocks. Debt climbed even faster the next month and continued to grow through October. In January of 2022, the S&P 500 started its decline toward another bear market.

It's worth noting that margin debt climbed faster in April and May than it did in June, so the clock may be ticking. And if there's a lot of margin debt we don't see, actual use of margin may be growing even faster.

It's not the debt, per se, that gets the market into trouble. Rather, it's what the use of debt says about investor behavior. Investors will increase leverage when they're optimistic about the future. They get greedy. But if you follow Warren Buffett's investment philosophy, an increase in margin debt and overall market leverage should be a reason to be fearful. Indeed, the last three times we saw such a rapid increase in margin debt, it indicated market overconfidence. Now is the time to exercise caution and maintain appropriate levels of leverage in your portfolio.

JPMorgan Chase is an advertising partner of Motley Fool Money. Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.

Palantir Technologies' (NASDAQ: PLTR) share price soared after the company delivered another quarter of exceptional revenue growth and continued improvements in profitability. CEO Alex Karp described the quarter as "otherworldly" in the company's earnings release, and investors sent the stock higher on the news.

There's no doubt that Palantir has produced phenomenal financial results, helping drive its valuation higher. However, investing is far more focused on what's ahead for a company. Palantir will have to continue delivering very strong quarterly earnings reports to keep pushing the stock higher from here.

Image source: Getty Images.

What will it take for Palantir stock to keep climbing?

As Karp put it in his letter to shareholders, "Our business is compounding at a rate and scale that we have never before witnessed." Indeed, Palantir's 93% revenue growth was bolstered by even better growth among U.S. commercial customers (149% growth) and strong U.S. government sales (90%). Just as important, adjusted operating margin expanded to 62% from 60% in the prior quarter, indicating there's still plenty of leverage in scaling the business.

Palantir also increased its full-year guidance, with revenue expected at $8.154 billion at the midpoint. That's up from the $7.656 billion management previously guided for. The confidence to raise guidance may come from strong net revenue retention, which came in at 157%, up from 150% in the first quarter. That signals that existing customers continue to spend more each quarter, which can drive significant revenue growth at Palantir's scale.

There's little doubt Palantir will continue to produce excellent operational results. The problem is, everyone already knows this. As a result, the stock trades for a very lofty valuation. The company's enterprise value is more than 45 times management's revenue guidance for 2026. Its forward price-to-earnings ratio sits around 100.

Those multiples will have to compress over time as growth eventually slows down. Management is already forecasting a slowdown in revenue growth in the back half of the year. Palantir's Rule of 40 score of 155 from the past quarter may represent its peak going forward.

Expectations are high for Palantir. That doesn't mean the SaaS stock can't meet those expectations. But for Palantir to deliver market-beating results over the next few years, it will have to exceed expectations. That's especially true given that its lofty valuation also means any disappointment in the company's future results could lead to a massive adjustment lower in the share price.

After the recent increase in price, there's even less room for error. I'd wait for another pullback in the stock before buying it.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool has a disclosure policy.

SK Hynix (NASDAQ: SKHY) gave American investors an easy way to buy its stock with its debut on the Nasdaq last month. The Korean company is one of three memory chipmakers whose valuations have soared amid growing demand for memory chips to address one of the biggest bottlenecks in artificial intelligence (AI) right now. One of its biggest rivals, Micron Technology (NASDAQ: MU), has produced tremendous earnings growth as well, as pricing for its chips climbs month after month.

Micron has long been the easiest way for American investors to buy into the memory chip shortage. But with SK Hynix's debut last month, they now have another option. Which stock should you choose?

Image source: The Motley Fool.

A discount and an important relationship

Due to the cyclical nature of memory chip stocks, both Micron and SK Hynix trade for very low price-to-earnings ratios. Micron trades for about 5.7 times expected earnings for fiscal 2027 ending next August. SK Hynix, however, trades for even less, just 5 times forward earnings estimates.

That discrepancy exists despite the two companies sharing similar revenue growth and operating margin potential. In fact, one could argue SK Hynix is better positioned than Micron over the next few quarters, given its lead in high-bandwidth memory (HBM) chip production and close relationship with Nvidia (NASDAQ: NVDA).

Nvidia announced an agreement with SK Hynix to secure supply of HBM chips for multiple years. The contract could be worth $500 billion, according to reports. SK Hynix management noted that despite slower-than-anticipated HBM4 sales in the second quarter, it expects a ramp-up in the back half of the year to bolster sales and average selling price for its chips. Its close relationship with Nvidia could be what gives it that confidence.

At the same time, locking in pricing with Nvidia through a long-term agreement could cap the peak of SK Hynix's earnings cycle. It's the trade-off both chipmakers have been making in recent quarters: less upside today in exchange for more predictability and less downside in the future. Micron has also struck several long-term agreements, representing about 20% of DRAM chip revenue and one-third of NAND chip revenue.

Still, analysts currently price SK Hynix at a significantly lower multiple of peak earnings than Micron. Analysts expect both to peak in 2028, but Micron shares trade at close to 5.5 times fiscal 2028 earnings, while SK Hynix trades at just 3.5 times 2028 earnings. Combined with SK Hynix's current position with Nvidia, that makes the Korean company a better way to invest in the memory supercycle right now.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology and Nvidia. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.

Amazon (NASDAQ: AMZN) recently joined the $3 trillion club, with its stock driven higher by better-than-expected earnings results. The company's cloud computing platform, Amazon Web Services (AWS), was a standout in the results, and it could be the business that propels the company's value even higher over the next few years. In fact, Amazon could become a $5 trillion company by 2029 simply by sticking with its current course.

Over time, Amazon should see continued acceleration in AWS, ultimately producing considerable earnings and free cash flow for the business. Meanwhile, its core retail operations are increasingly profitable, driven by its growing advertising business and unparalleled scale.

Image source: The Motley Fool.

Can AWS keep accelerating?

Amazon's cloud computing business saw revenue grow 37% year over year, marking the fifth consecutive quarter of accelerating revenue growth for the segment. It's also the highest growth rate for the business in 18 quarters, despite doubling in size during that period.

That growth was bolstered by Amazon's strength in artificial intelligence services (Bedrock, SageMaker, training, and inference) and its own chips business (Trainium, Inferentium, and Graviton). Management said both segments reached a $25 billion annualized run rate last quarter, and both are growing at a triple-digit rate. Meanwhile, its core cloud computing services continued to grow quickly, providing a solid base for the business.

There's a lot of growth left, too. Amazon ended the quarter with $496 billion in contracted revenue. That includes deals with OpenAI and Anthropic to use its Trainium chips. It's set to provide 2 GW worth of Trainium chips to OpenAI. Anthropic will use up to 5 GW of Trainium and Graviton cores over its 10-year agreement with Amazon. As these deals ramp up, AWS should continue to see accelerating growth.

Importantly, the deals also involve the use of Amazon's custom silicon. Management has said that using its own chips rather than traditional GPUs yields better results for its customers and itself, enabling it to achieve wider operating margins. While many fear larger AI workloads will cut into AWS' margin, the push to use more Trainium chips and the massive scale of its growth should ensure margins continue to improve over time.

It's worth noting that AWS isn't the only piece of the growth story at Amazon. Its retail business is quietly producing excellent results as well. The rest of its operations grew revenue by roughly 16% year over year last quarter, helped by shifting Prime Day from the third quarter to the second quarter. Still, double-digit growth for a business generating over $600 billion in annual revenue is pretty impressive.

What's more, margins are expanding for the retail business thanks to strong growth in advertising and improvements in its logistics network. Both should continue to push profitability higher, providing a solid base of earnings.

What could prevent Amazon from reaching $5 trillion?

As mentioned, if Amazon continues on its current path, it should be able to reach a $5 trillion valuation in the near future. Strong revenue growth, plus an expanding operating margin, is a recipe for exceptional earnings growth. Meanwhile, the stock trades for just 22 times forward earnings.

Even if it maintains that earnings multiple, Amazon would only have to grow earnings an average of 18% per year to reach a $5 trillion market value by 2029. That's well within reason, considering the revenue expected to come to Amazon over the next couple of years through agreements with the leading AI labs, in addition to the continued growth of the retail business.

There are two big risks facing Amazon. The first is a collapse in demand for AI compute. While there are some edge cases where Anthropic or OpenAI is unable to pay on its commitments, those seem very unlikely. The bigger risk is that the hyperscalers build out more capacity than needed, and that weighs on pricing. That's mitigated by the upfront commitments signed with Amazon.

CEO Andy Jassy noted that the lead time for server expenses is a matter of months, and they have a useful life of about five years, with a payback period of just under three years. Servers make up the bulk of capital expenditures in most quarters, even as Amazon's standing up tons of new data centers to meet demand. But the tight lead time for servers gives it more leeway to pull back if it sees a drop in demand.

The massive capital required to meet the growing demand for compute will likely push Amazon's free cash flow further into negative territory. Investors may not be as keen to buy the tech stock if it's burning cash. Investors overly focused on near-term cash-flow challenges could weigh on the stock price. But I expect the company will start producing very strong free cash flow in 2028 and 2029, which will allow the stock to climb higher and hit the $5 trillion milestone.

Adam Levy has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

Micron (NASDAQ: MU), SK Hynix (NASDAQ: SKHY), and Samsung (OTC: SSNLF) are some of the highest-flying stocks in the market this year. Their tremendous earnings results have been driven by a massive shortage in memory chips, a market dominated by the three companies. As AI hyperscalers buy up as many chips as possible, memory prices have gone through the roof.

Recent earnings results from SK Hynix and Samsung contain a major warning for Micron investors that could affect not just this quarter's results, but results well into the future. It could have a huge effect on the price investors should be willing to pay for the stock today.

Image source: Micron.

What did SK Hynix and Samsung report?

The all-important driver of earnings for the three memory chip stocks over the last year has been pricing. The chipmakers renegotiate pricing for their chips frequently based on supply and demand. It takes years for a new manufacturing plant to start producing chips at scale, which means a spike in demand can send chip prices significantly higher. Once additional supply enters the market or demand falls, prices fall, and with higher operating costs, profits fall even more.

That's the cyclical nature of the memory chip market, but the market understands it well. It's why investors are paying single-digit earnings multiples for the chipmakers today. They expect the earnings cycle to approach its peak in the near future.

What's worrisome in SK Hynix's and Samsung's earnings releases is that peak earnings might be lower than anticipated. That's evidenced by weakness in pricing relative to expectations for both companies over the last three months.

To be sure, SK Hynix still increased DRAM pricing by about 30% sequentially, and Samsung increased DRAM chip pricing by more than 40%. NAND pricing climbed even faster, mid-50% for SK Hynix and high-60% for Samsung.

Still, analysts were expecting better. Goldman Sachs analysts said they were looking for 39% growth for SK Hynix's DRAM chips. The analysts now expect just 19% price improvements for the current quarter. Morningstar's analysts were disappointed by Samsung's pricing, which fell short of their 48% estimate.

The results suggest Micron could also fall short of expectations for its DRAM pricing when it reports its quarterly earnings next month. Still, it's important to look into what might have caused the shortfall and what it means for each company's stock price.

What's weighing on memory chipmakers?

Samsung and SK Hynix's lower-than-expected pricing indicates that AI demand may be slowing. That's exacerbated by SK Hynix's report showing slower-than-expected HBM4 shipments last quarter. Management assured investors that it was ramping HBM4 production in the second half of the year, which would positively affect overall pricing.

Perhaps the biggest weight on pricing is the long-term agreements the chipmakers are signing with customers. These agreements lock in pricing for customers for years in advance, leading to lower peak pricing, but they also protect against downside risk. It's a hedge against demand drying up and gives the chipmakers the confidence to build out new manufacturing capacity.

The effect is already showing up, with pricing climbing more slowly than anticipated. Micron said it had covered 20% of its DRAM sales and about one-third of its NAND sales with long-term agreements as of last quarter. Those numbers could continue to climb, but they could also weigh on pricing and earnings.

As such, peak pricing is likely to fall short of analysts' prior expectations. While Micron and its competitors could fetch a slightly higher earnings multiple than in past earnings cycles due to long-term pricing stability, the earnings they'll be multiplying by will be lower. What's more, the potential long-term downside to earnings remains, as long-term agreements could simply pull demand forward, ultimately leading to a prolonged slide in earnings.

Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Micron Technology. The Motley Fool has a disclosure policy.

The amount of money being spent on AI compute was plainly evident in Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) second-quarter earnings report. The company is bringing in huge amounts of revenue from its cloud computing division, and it's spending even more. Overall, cloud computing revenue climbed 82% year over year last quarter.

That marks the fifth consecutive quarter of accelerating revenue growth for the segment, and I expect Alphabet to make it six straight quarters when it reports again in three months. Here's why that's so important for investors.

Image source: The Motley Fool.

Can Alphabet's cloud computing revenue keep accelerating?

Alphabet's cloud computing revenue reached $24.8 billion last quarter. That's a run rate of $99 billion. Meanwhile, the company reported a backlog of $514 billion for the division, with approximately half of that set to be received over the next two years. That translates to an average revenue of $128.5 billion per year over the next two years from its backlog alone.

While Alphabet will likely see continued revenue growth over the next two years, I expect it to produce significantly more than the amount in its backlog.

The segment includes its Google Workspace suite and other enterprise solutions. Management noted strong growth in those services, driven by its integration of Gemini, Google's large language model. Management said its existing customers are exceeding their commitments by more than 50%.

Additionally, management is ramping up sales of its custom AI accelerators, TPUs. TPU system sales accounted for a tiny percentage of revenue in the second quarter, but that could grow quickly in the third quarter and beyond. Alphabet's inventory climbed from $2.4 billion at the end of 2025 to $10 billion at the end of the second quarter. That indicates a big step up in sales for TPUs next quarter.

Finally, Alphabet's revenue growth lags its capital expenditure growth. Capital expenditures climbed 100% last quarter, reaching nearly $45 billion. That's actually a slight slowdown from the first quarter, when capex climbed 107%.

A significant portion of Alphabet's capex goes toward building data centers. Last quarter, management said 40% of its technical infrastructure spend went toward new data centers and networking equipment (the rest went toward server equipment). Amazon CEO Andy Jassy, who runs the world's largest cloud computing platform, said it takes about two years for data center spending to start generating a cash return. It's likely Alphabet experiences the same dynamic. With capex growth just starting to peak, that leaves a long runway for Alphabet's cloud computing revenue to keep growing.

How much higher can Alphabet's cloud revenue climb?

If Alphabet were to produce just 82% revenue growth again in the third quarter, total cloud revenue would come in at $27.6 billion. That's a run rate of just $110.3 billion. It's not unreasonable to expect the company to generate nearly $30 billion in cloud revenue next quarter, translating to nearly 100% revenue growth for the segment.

But investors shouldn't buy Alphabet based on its potential for the next quarter. The company is pouring capital into AI data centers. In fact, it's spending more money than it takes in to accelerate the build-out. It's committed to spend $811 billion, mostly over the next four and a half years. But it's spending that with the expectation of a strong return on invested capital. It has the backlog to support that.

Importantly, it could see near-term margin pressure on its cloud business, as it relies on third-party neoclouds for some capacity. In the long run, however, it should be able to produce an operating margin in line with its larger competitors. Both Amazon and Microsoft produced an operating margin of around 40% for their cloud segments last month. Alphabet's operating margin of 35.6% still has room to expand.

The result could be a massive business in a few years, generating significant amounts of operating income and free cash flow every quarter. The path to get there requires huge upfront investments. But at a price of just 17.5 times forward earnings expectations, investors are getting a great price on the stock as they wait for cash returns to materialize.

Adam Levy has positions in Alphabet, Amazon, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a disclosure policy.

Steve Jobs is regarded as one of the most visionary corporate leaders in recent history, but his handpicked successor, Tim Cook, may have been even more important to Apple's (NASDAQ: AAPL) success. Jobs resigned as CEO in August 2011, recommending Cook as his replacement. The board immediately approved Cook as CEO, and he's served in that role for the last 15 years.

Cook will step down as CEO at the end of the month. John Ternus will take over as CEO on Sept. 1.

Tim Cook might be a household name today, but he was far from widely known when he took over as the head of Apple. The stock immediately fell 5% upon news of Jobs' resignation. But if you had bought Apple stock when others were selling, you'd have made an incredible return over the last 15 years.

Apple CEO Tim Cook. Image source: Apple.

Here's how much $10,000 invested in Apple would be worth today

Shares of Apple opened at just over $365 after the market digested the news of Jobs' resignation. A $10,000 investment would've bought you 27.4 shares at the market open (if your broker allowed fractional shares). Those 27.4 shares would become 766.9 shares after stock splits in 2014 and 2020, worth about $241,500 as of this writing. Cook initiated a dividend in 2012, returning some of Apple's ample free cash flow to shareholders every quarter. If you had reinvested your dividends back into Apple stock, you'd have closer to $289,500.

That's a phenomenal return, and it's owed in large part to Cook's operational excellence. Jobs handed Cook a strong product portfolio, and Cook ensured Apple could grow those products and expand the Apple ecosystem. Cook expanded iPhone availability to practically every carrier worldwide. He also oversaw the introduction and growth of Apple Watch and AirPods, which are a $36 billion business today. And he took Apple's services segment from a $3 billion business to a $120 billion profit center.

Cook leaves Apple in a good position. Sales are growing quickly, driven by strong iPhone demand. Investors expect strong results in the fourth and first quarters, driven by demand from the company's long-awaited Siri revamp. Its new low-end Macbook Neo is helping produce excellent results for the Mac segment.

Ternus will be tasked with bringing Apple fully into the AI era. Apple is committed to maintaining user privacy by conducting as much AI processing on-device as possible. It also signed a deal for custom AI accelerator chips with Broadcom through 2031. Building out Apple's AI capabilities could be the biggest first task for Ternus, and it remains a huge opportunity for the company.

While investors are unlikely to turn another $10,000 investment into $289,500 over the next 15 years, the stock can continue to produce strong returns even after Cook steps down as CEO.

Adam Levy has positions in Apple. The Motley Fool has positions in and recommends Apple and Broadcom. The Motley Fool has a disclosure policy.

This has been another fantastic year for stock investors so far. Despite some headwinds, investors have bought into multiple pullbacks in stock prices, pushing the S&P 500 and Dow Jones Industrial Average to new all-time highs as of this writing. The tech-heavy Nasdaq Composite trades within 3% of its high.

But that relative weakness in the Nasdaq over the last few weeks has some investors worried about the broader market. The bull market has been driven by artificial intelligence, and it's possible a collapse in AI spending could be its undoing. Combined with uncertainty about the war in Iran, President Donald Trump's tariff policies, and the Federal Reserve's monetary policy, some see cracks forming.

The good news is there's a simple strategy that can protect your portfolio if you think a market crash is imminent. Importantly, it won't require giving up the potential upside of stocks if the bull market continues to march forward.

Image source: Getty Images.

The investment factor that outperforms over the long run

Long-term outperformance typically comes in two forms: above-average performance during bull markets or above-average performance during bear markets. A strategy that can maximize one side without a huge negative impact on the other side of the equation will perform exceptionally well as the market shifts from bull market to bear market and back again.

Most investors would prefer less volatility in their portfolios, accepting returns that don't quite meet the market average during upswings but don't fall nearly as much during bad times. Those investors should be looking at the "quality" factor when choosing stocks.

Quality isn't a subjective term here. Quality stocks are those with high profitability, low financial risk, and strong cash-flow generation. The S&P 500 Quality index uses a quality score to determine its constituents, which is calculated from return on equity, net changes in operating assets, and the financial leverage ratio to produce a single metric by which it ranks all S&P 500 constituents.

Quality stocks, with their strong balance sheets and excellent cash-flow generation, hold up better in market downturns. In fact, quality stocks are the only investment style that have outperformed the broader index in every market downturn since 1990, according to an analysis from J.P. Morgan. The S&P 500 Quality index has captured just 78.2% of the downside in broad market declines since 1995.

At the same time, quality stocks tend to keep up with the market when it climbs. The Quality index has participated in 96.6% of the broader index's upside. The result is long-term outperformance over a full market cycle (or multiple cycles). In the 12 years since its inception, the S&P 500 Quality index has outperformed the S&P 500, with an annualized compound total return of about 14% vs. 13.8% for the broader index, while exhibiting lower volatility. That's despite the period being mostly dominated by growth stocks and extended bull markets.

How can you position your portfolio?

If you're worried about a market crash, you should consider selling positions in more speculative investments. Reduce your exposure to companies with low or no profitability and high amounts of debt on their balance sheets. These are the stocks that are likely to get hit hardest by investors worried about an economic downturn. Companies in the neocloud space could be particularly vulnerable if the downturn stems from a slowdown in AI spending.

In their place, you should look for companies with high quality scores: steady earnings growth, growing operating cash flow, and low levels of net debt. If you prefer index funds, the Invesco S&P 500 Quality ETF (NYSEMKT: SPHQ) provides a low-cost way to track the 100 highest-quality stocks in the S&P 500. Since it merely tracks the index, it can keep its net expense ratio to just 0.15%.

It's important to remember that the market can continue to push stock prices higher for longer than you expect. Even with valuations stretched, uncertainty in the bond market, questions about the economy, and declining investor sentiment, investors should avoid ditching equities altogether. A shift toward quality stocks is a way to maintain exposure to the asset class and capture most of the upside while providing good downside protection.

JPMorgan Chase is an advertising partner of Motley Fool Money. Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool has a disclosure policy.

Social Security is the cornerstone of many retirees' budgets. But with rising costs for just about everything, many retirees are struggling to keep up with inflation. That's why the annual cost-of-living adjustment, or COLA, gets so much attention. And Aug. 12 could be a key date for determining just how much of a bump retirees will receive in their monthly payments next year.

Aug. 12 marks the release of the Consumer Price Index for the month of July. It's an important piece of data that will factor into next year's COLA. Here's what retirees should look for.

Image source: Getty Images.

Mark your calendars for Aug. 12

The annual COLA is based on the average inflation increase in the third quarter of the prior year. That means July, August, and September are the only months that count toward the calculation. Despite a spike in inflation during March, April, and May, seniors have simply had to absorb higher prices in 2026 while awaiting data that will actually impact their monthly benefits. The first piece of data comes on Aug. 12.

Analysts currently expect the commonly cited CPI-U reading to come in at 3.4%. Social Security uses the CPI-W, which adjusts the index to reflect the spending of urban wage earners and clerical workers. The differences are slight and could result in somewhat different numbers, but both the CPI-U and CPI-W tend to move in the same direction.

That's important because top Social Security analysts are currently projecting a COLA much higher than 3.4%. The Senior Citizens League expects next year's COLA to come in at 3.8%. Independent analyst Mary Johnson sees it coming in at 3.7%. Those projections could get a major update on Aug. 12 once the CPI data comes out. It's worth pointing out the Federal Reserve's NowCast projects August CPI growth slowing further to 3.2%, indicating next year's COLA could come in far lower than anticipated last month.

That said, retirees could still see one of the largest COLAs in the last 15 years or so. We've only had three years with a COLA above 3% since 2012 (2022 through 2024). Based on current inflation expectations, 2027 could be another high COLA. Furthermore, a lot could change over the next few weeks, sending prices higher or lower and impacting inflation readings that determine next year's COLA.

But retirees hoping for a COLA that pushes their benefits in line with inflation of the last few months may be sorely disappointed. When we get our first piece of data that goes toward the COLA calculation, it may be a good time to take a look at your budget and determine how a smaller-than-anticipated COLA could impact your finances going forward.

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Greg Abel took over as CEO of Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) at the start of the year and faced a monumental task. Warren Buffett, who managed the company for over 60 years, left him with a pile of cash totaling $369 billion. Abel has had to search for great investment opportunities in a market where valuations are stretched and where Buffett himself could hardly find much to buy in the last few years.

Abel has taken that cash and made some substantial investments. He oversaw the purchases of OxyChem and Taylor Morrison. He put billions into Japanese insurance company Tokio Marine and added to positions in the Japanese trading houses. He also added a significant amount to Berkshire's position in Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), which Buffett said he initiated in the third quarter last year.

While Abel negotiated a $10 billion private placement for the stock in June, he may have spent even more on another stock last quarter.

Image source: Getty Images.

Abel's big investment

Abel's decision to add billions of dollars in capital to Berkshire's position in Alphabet has attracted a lot of attention, and with good reason. Alphabet seems different than Berkshire Hathaway's usual investments. It's a leading tech company, and it's become one of the faces of the artificial intelligence boom. Buffett was notably wary of artificial intelligence in the past, so it came as a bit of a surprise when he said he initiated the position for Berkshire.

Abel has taken the idea and run with it. He invested an estimated $13 billion into the stock in the first quarter and at least $10 billion in the second quarter.

Buffett explained exactly what attracted him and Abel to Alphabet recently: seeing tremendous returns on its invested capital with its AI data center build-out. Alphabet has long been a cash-generating machine, with its high-margin advertising funding its cloud computing business and its "other bets." Now, it has an opportunity to deploy a ton of cash with very high levels of confidence in its potential return on capital. That's a business that's very attractive to Buffett, and it very much fits within Berkshire's investing ethos.

While many investors have balked at Alphabet's massive spending, which sent its free cash flow into negative territory last quarter, the company is quickly monetizing that spending. It already has $514 billion in contracted revenue, giving it the confidence to build out more data centers. That's helped propel its cloud revenue growth, which accelerated to 82% last quarter and could climb even higher. The cash returns may take a couple of years to show up, but when they do, they could be massive.

So, Abel took the opportunity to buy Alphabet and buy a lot at a good valuation during the first half of the year. But he may have seen a stock trading at an even more attractive valuation last quarter, where he could deploy huge amounts of cash.

Abel may have spent $11 billion on one of Buffett's favorite stocks

While Abel was accumulating shares of Alphabet, he was also quietly buying up shares of another trillion-dollar company: Berkshire Hathaway itself. After reinitiating the company's share repurchase program in March, Abel disappointed investors with a meager $235 million in total buybacks. He appears to have stepped up the buying quite a bit in Q2.

Based on Buffett's Form 4 filings with the Securities and Exchange Commission (SEC) in July, Abel significantly reduced Berkshire's share count in the three months between mid-April and mid-July. He spent between $5 billion and $11 billion in total on repurchases, according to an analysis by Barron's.

Even at the low end of that estimate, it would mark the highest amount returned to shareholders in a quarter since 2021. At the high end, it would be the largest amount ever spent on share repurchases in Berkshire's history.

That's a sign Abel sees Berkshire shares as a very good investment right now. The share repurchase authorization requires that the stock trade below its intrinsic value, conservatively determined by the CEO (Abel) and the Chairman of the Board (Buffett).

Indeed, Berkshire's stock price has churned sideways this year while other insurance stocks and railroad stocks have moved higher. That's despite the notable appreciation in Berkshire's marketable equity portfolio. So, there appears to be some disconnect between the market and Berkshire stock. What's more, the stock trades for around 1.5 times its book value from the end of Q1. That's on the low end of its range since 2024.

Investors will find out for certain how much Abel spent on share repurchases (and Alphabet stock) last quarter when Berkshire releases its Q2 results on Saturday. Investors should take Abel's capital deployment as bullish signs for both stocks.

Adam Levy has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Berkshire Hathaway. The Motley Fool has a disclosure policy.

Most readers will reach their full retirement age at 67. And waiting that long to claim Social Security comes with some perks, including maxing out spousal benefits and avoiding the retirement earnings test if you're still working. Last year, the average 67-year-old received about $1,930 per month from Social Security, which would climb to about $1,984 after the annual cost-of-living adjustment earlier this year.

But some 67-year-olds are receiving a lot more. In fact, the max Social Security benefit at age 67 in 2026 is $4,207 per month. Here's how to get it.

Image source: Getty Images.

How to receive more than twice the average Social Security benefit at age 67

The 67-year-old maxing out Social Security in 2026 started down that path decades ago. That's because Social Security retirement benefits are based primarily on your earnings history.

The Social Security Administration (SSA) uses your total earnings from your 35 highest-earning years adjusted for inflation to calculate your benefit. Very high earners, though, might not see all of their wages count toward the calculation. That's because the SSA caps the level of wages subject to Social Security taxes every year. If you don't pay taxes on the wages, they don't count toward your benefit calculation.

Since there's a cap on taxable wages subject to Social Security taxes, there's also a cap on the maximum possible benefit a person can receive in retirement. The cap gets adjusted for inflation every year. This year's wage cap is $184,500.

A retiree who earned at or above the taxable wage cap every year for 35 years will be in line for a very high Social Security retirement benefit once they apply. The 67-year-old who wants to max out their benefits in 2026 had to do a couple of extra things, though.

First, they had to wait until reaching age 67 in 2026 to apply for benefits. While you become eligible for Social Security starting at age 62, your monthly benefit increases every month you wait to apply. You can even delay past your full retirement age and continue getting a monthly increase until you reach age 70.

The second factor is that they must have earned at or above the maximum taxable wages through last year. Due to the way the SSA adjusts prior wages for inflation, wages earned in your 60s often end up being worth more when calculating benefits than wages earned in prior years. So, the 67-year-old maxing out Social Security in 2026 didn't stop working until last year at the earliest.

The above factors can be valuable for workers considering retirement this year or in the near future. A few extra years of working in your 60s could result in a much higher benefit once you start Social Security, thanks to the potential of increasing your average wage and delaying the start of benefits.

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You've probably heard the advice to start saving for retirement as early as possible. Even a few dollars per paycheck in your 20s and 30s can set you up for a much easier path to retirement later in life. And while every person will have different retirement goals, determining where you stand compared to the average person in their mid-30s can tell you whether you need to press on the accelerator or if you can loosen your purse strings a little bit.

Are you a super-saver at 35?

The most recent data available on average retirement account balances comes from the Federal Reserve's Survey of Consumer Finances. The Fed conducts the survey every three years, recording every detail you can think of about a person's finances. It won't publish the results of the 2025 survey until later this year, so we'll have to rely on the 2022 data for now.

The median retirement balance for a household with the head of household between the ages of 18 and 34 was $18,880 that year. If you look at households with a head of household between 35 and 44, the median balance jumped to $45,000.

Image source: Getty Images.

The market has performed exceptionally well since 2022, so median balances will likely be higher for many in those age ranges when the Fed publishes its 2025 results later this year. But if you have retirement savings totaling $45,000 or more at age 35, you're very likely in the top 50% of retirement savers for your age. Remember, investments compound exponentially, so a 45-year-old likely has significantly more savings than a 35-year-old.

But that doesn't mean you're on course for an easy retirement. A good rule of thumb is that you want to have saved twice your annual salary for retirement by the time you reach 35. The median worker between the ages of 35 and 44 brings in nearly $75,000 per year, according to data from the Bureau of Labor Statistics. That means you should aim for about $150,000 in retirement savings at age 35.

What should you do if you're behind on retirement savings?

If you're a below-average retirement saver, don't fret. At 35, there's still a long way to go until retirement. That means you can easily catch up and surpass your peers.

The key is to develop a consistent savings habit. That could mean increasing your 401(k) deferrals if your employer offers a retirement plan and ensuring you get the company match. Otherwise, contributing money to an IRA each month is a great alternative.

Sticking to low-cost index funds is the simplest path to growing your retirement savings. Importantly, you don't need to take on additional risk by investing in speculative assets to try to catch up with your peers. Simplicity and consistency will do most of the work for you.

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Steve Eisman is best known for his bet against collateralized debt obligations ahead of the subprime mortgage crisis of 2007. Today, he sees another worrisome sign in the markets.

While nothing akin to the big short Eisman is known for (as depicted in the 2015 movie of the same name), he does hold some concerns about how diversified the current market really is. He shared a simple four-word warning for investors in a recent interview that should make many of them think twice about their current portfolio construction.

Image source: Getty Images.

How diversified is your portfolio?

Eisman said that he recently sold his stake in Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) after holding the stock for a long time. His reasoning was that he wanted to lighten up his exposure to artificial intelligence (AI).

Alphabet has been one of the biggest beneficiaries of increased spending on AI and the technological improvements it's made to businesses like its own core advertising operations. But Eisman wanted to reduce his exposure to the technology, so it had to go. He warns that many investors may have more exposure to the AI industry than they realize. "It's all one trade," he said.

That four-word warning extends beyond the stock market, too. It's well publicized that index funds like the Vanguard S&P 500 ETF (NYSEMKT: VOO) are increasingly concentrated in megacap AI stocks. The exchange-traded fund's top 10 holdings are all tech stocks, with a combined weight of more than 36%.

Stocks in the information technology sector account for 38% of the S&P 500 index, but you'll also find heavyweights including Alphabet, Amazon, and Meta Platforms officially classified in other sectors, so the actual weight of tech stocks is even higher.

Eisman points out that the bond market is increasingly tied to AI data center construction as well. Alphabet has raised $85 billion in the debt markets over the past year. Its capital requirements could increase further with its huge commitments to AI spending over the next few years and its push into negative free cash flow territory last quarter.

Likewise, Meta produced break-even free cash flow last quarter. It has raised $55 billion in debt over the past year. Space Exploration Technologies (aka SpaceX) issued $25 billion in debt shortly after its initial public offering, and it could have nearly $700 billion in capital requirements over the next decade. There are also many smaller issuances from neocloud companies and other infrastructure businesses tied directly or indirectly to the ongoing AI building boom.

"Even people who think they're diversified because they own 60% stocks and 40% bonds are missing the fact that they're actually not diversified," Eisman says. Here's what he's doing and what you can do to ensure your portfolio can hold up if the AI trade collapses.

How can you protect yourself?

When asked what he was buying after he sold his Alphabet shares, Eisman said he's simply leaving it in cash. Index investors may have better options.

In order to diversify away from AI stocks, which are heavily concentrated among the biggest stocks in the market, investors could consider an S&P 500 equal-weight index fund like the Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP). They could also add exposure to small-cap stocks through an index fund. Small-cap value stocks, in particular, are less speculative and historically outperform the overall market.

Index investors may consider allocating some of their bond portfolio to government bonds instead of corporate bonds. They might also find value in diversifying into a fund focused on real estate investment trusts (REITs), but one focused on residential real estate investments rather than broader REITs with greater exposure to data centers.

The broader warning Eisman is sharing is timeless. Proper diversification isn't about asset classes. It requires understanding the events and risks that could impact your investments. It was true in 2006, and it's true in 2026. Those with proper portfolio allocation will likely outperform in the long run.

Adam Levy has positions in Alphabet, Amazon, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Semiconductor stocks have been the biggest driving force behind the stock market's returns over the last year or so. The sector climbed an astonishing 158% from September until its peak last month. By comparison, the S&P 500 climbed 15.7% during that same period.

But investors have soured on chip stocks recently. The PHLX Semiconductor Sector index is down more than 22% from its peak in just over a month, driven by growing concerns about the sustainability of hyperscalers' massive AI spending. Some of the market's highest flyers have been among the hardest hit in the sell-off, creating buying opportunities for those who still expect strong revenue growth tied to AI expenditures.

Here's the one chip stock I'm buying right now.

Image source: Getty Images.

This chip giant has an incredible moat

One of the biggest companies influencing the semiconductor industry is Taiwan Semiconductor Manufacturing (NYSE: TSM), also known as TSMC. The company is the world's largest contract chip fabricator, accounting for 73% of the market, according to Counterpoint Research. That market share has increased in recent years as demand for leading-edge chips like those found in AI data centers has ballooned.

TSMC holds a considerable technological lead over competing foundries, including Samsung and Intel. Samsung has faced yield challenges and delays that have prevented it from competing for the most advanced chip designs while eroding customer trust. It's seeing progress with its 2nm process, but it still remains well behind TSMC. Intel, meanwhile, is focused on developing its 1.4nm process, which is set to compete with TSMC's similar process starting in 2028.

While competitors might challenge TSMC's technology, the greater challenge for competitors will be TSMC's scale. The company is absolutely massive, and it's spending huge amounts to build out additional capacity every year. In fact, the company recently increased its capital expenditure guidance by $8 billion at the midpoint for the full-year 2026. That'll have the company spend a total of $62 billion, and management said it expects that number to climb significantly in the coming years. That's a level of manufacturing capacity Samsung and Intel can't touch.

TSMC's scale also allows it to amortize its research and development expense across a broader customer base. That ensures it can maintain its technology lead as it can afford to spend more on advancing its manufacturing capabilities. It also has the advantage of working closely with leading chip designers to determine exactly what they need to improve performance and power efficiency in the next generation of chips.

All this gives TSMC the confidence to invest more in expanding its manufacturing capacity and to raise its prices. It raised prices for its most advanced manufacturing processes at the start of the year and plans to raise prices annually going forward. It's also reportedly planning a price increase for legacy processes next year.

Unlike memory chipmakers, who allow their prices to fluctuate with demand, TSMC wants to avoid price spikes. CEO C.C. Wei emphasized that he doesn't want to squeeze customers out of the market. "We earn our value and we make sure that our profit, our gross margin, is enough for our long-term sustaining expansion," he said. In other words, he believes the increased pricing is sustainable for TSMC and its customers, supported by its leading technology.

There's a lot of growth left in the company

TSMC raised its full-year revenue outlook to slightly above 40% alongside its second-quarter earnings report. That's up from previous expectations of 30%. Additionally, Wei indicated that its previous long-term guidance for revenue to grow at a five-year compound annual growth rate of 25% through 2029 is too low. "We don't give you the number today because it continues to increase," he responded to a question about updated long-term guidance.

If revenue growth averages just 25% through 2029, that implies 17% annualized revenue growth in 2027 through 2029. A 30% compound rate would push that number closer to 25%.

While there are some gross margin headwinds that could impact TSMC, including the ramp-up of its 2nm process and increased production in the United States, it should be able to offset those headwinds with planned price hikes. The result should be a robust gross margin and earnings growth that roughly matches its revenue growth.

But the market wants just 28 times forward earnings expectations for the stock. That's a great value for a wonderful company with very strong competitive advantages. That makes it my No. 1 semiconductor stock pick in the current sell-off.

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