The most notable change in Berkshire Hathaway's (NYSE: BRKA)(NYSE: BRKB) massive, roughly $360 billion stock portfolio this year has been the conglomerate's large increase in Alphabet (NASDAQ: GOOGL)(NASDAQ: GOOG).

While Berkshire initiated the position last year under Warren Buffett's leadership, the company has significantly increased its stake in Alphabet under new CEO Greg Abel. Between the end of 2025 and the end of the second quarter of this year, the value of Berkshire's Alphabet position soared from about $5.6 billion to nearly $37.8 billion, making Alphabet one of Berkshire's largest positions.

Perhaps even more interesting is that as Berkshire was buying, Alphabet's returns have declined. Will Alphabet break Warren Buffett's cardinal rule of investing?

Image source: The Motley Fool.

Returns are declining as capex soars

In a surprising interview with CNBC in July, the 96-year-old Buffett, who remains executive chairman of Berkshire, revealed he had initiated the Alphabet position last year, meaning he and Abel likely decided together to significantly increase Berkshire's stake.

During this same interview, Buffett also told CNBC, "The trick in life is to find -- I mean investing -- is to find businesses that are going to earn high returns on capital for an extended period of time," Buffett said.

By returns on capital, Buffett is most likely referring to return on invested capital (ROIC), which essentially examines how efficiently companies use capital to generate profits. Capital, in this scenario, refers to both debt and equity.

The goal is for companies to generate ROICs that are above their weighted average cost of capital (WACC). Right now, Alphabet is experiencing declining ROICs, and that trend is expected to continue in future years, according to Wall Street analysts.

According to Visible Alpha, Alphabet generated a post-tax ROIC of over 58% in 2024, which is simply remarkable. In 2025, that number declined to roughly 42%. This year, analysts on average expect another decline to 38.3%.

While much more difficult to predict and likely to be revised, analysts also expect Alphabet's ROIC to decline in each year between 2027 and 2029, falling below 31% by 2029, which, generally speaking, is still quite strong.

The reason for the decline is that Alphabet, along with other hyperscalers, is significantly increasing its capital expenditures to build artificial intelligence infrastructure. Alphabet has guided for roughly $200 billion in capex this year, and that number is expected to "increase significantly in 2027," according to Alphabet CFO Anat Ashkenazi on the company's most recent earnings call.

Increased capex leads to lower ROIC, which is net operating profit after tax divided by invested capital. Capex increases the denominator, invested capital.

Buffett clearly knows this, so what is his plan?

Buffett is widely considered the greatest investor of all time, so he clearly understands what is happening.

While he probably doesn't love the near-term trends, he likely also realizes that Alphabet, as a hyperscaler, feels the significant capex investment is necessary to avoid missing out on the AI revolution. Investors should also understand that these companies are led by some of the brightest minds in the world. While they aren't always right, they don't make bets like this unless they have a strong conviction. The goal is for capex to flatten in the coming years and for revenue to accelerate over many years thereafter, leading to higher ROICs.

Now, whether this happens or not is hotly debated on Wall Street, and investors have seen this debate on full display this year in the stock prices of hyperscalers, which have bounced around. While Alphabet's ROIC has fallen significantly, a consistent ROIC above 30% remains quite attractive, though it also depends on how much the company's WACC increases, if at all.

So, while I wouldn't say Alphabet is breaking Buffett's cardinal rule for investing just yet, it raises the possibility. Buffett, Abel, and the Berkshire team likely believe this is only a small bump on the road. Remember, Berkshire likes to buy stocks it can ultimately hold forever.

There are other Alphabet-owned businesses that also make the stock a compelling buy. But it will be interesting to see if and when Alphabet can return its ROIC to levels seen in recent years, and how much slack Buffett and Abel are willing to afford the company.

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

Hyperscalers driving the artificial intelligence (AI) revolution have been spending hundreds of billions annually since 2024 to build AI infrastructure.

This includes data centers equipped with various chips, memory, servers, and more to continue powering the insatiable demand for AI, whether from consumers using large language models (LLMs) or companies building out AI solutions or integrating AI into their existing businesses.

Next year, that number is expected to rise to $1.3 trillion from just six of the major hyperscalers, according to a new report from S&P Global, which provides grades on the debt issued by most major companies. Only one of these companies -- Microsoft (NASDAQ: MSFT) -- is projected to have positive free cash flow (FCF) next year.

Image source: Getty Images.

AI spending growth is still expected to be robust

Besides Microsoft, the five other companies included in S&P's report were Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), Meta Platforms (NASDAQ: META), Oracle (NYSE: ORCL), and Space Exploration Technologies (NASDAQ: SPCX) (SpaceX for short).

Collectively, these companies had $470 billion in capital expenditures (capex) in 2025, along with a forecast for $870 billion this year and a projected $1.3 trillion next year. If S&P Global is correct, that means these six companies will increase AI capex by about 50% next year.

That's not as high as this year's increase, but it's still impressive, given how much larger the numbers will be. On recent earnings calls, most of the CEOs of these companies said they expect strong capex growth in 2027.

However, this year, the incredible spending has begun to deteriorate the balance sheets of these tech titans, which is hard to fathom, particularly for Alphabet, Amazon, Meta, and Microsoft, which have for years generated phenomenal free cash flow (FCF) and earnings.

All the CEOs of these companies have defended this spending, claiming that it will generate compelling returns and that not committing this capital would be an even greater risk by failing to keep up with a technology that could very well change society as we know it.

But institutional investors are skeptical and, at times, have not been buying these stocks despite some very strong AI-related revenue growth. In the second quarter of this year, three of these companies still generated free operating cash flow. Next year, if S&P Global is correct, only one will.

Here is each company's projected 2027 capex and FCF:

Source: S&P Global.

It's worth pointing out how much more S&P Global projects Alphabet and Amazon to spend than Microsoft in 2027. This is particularly interesting because these companies control the three largest cloud businesses in the world, which will play an enormous role in powering AI computing.

S&P Global says that Microsoft relies more on leases than other hyperscalers do, which could allow the company to reclassify certain finance leases included in capex as operating leases that flow through the income statement and thus improve FCF.

Microsoft has a complex accounting situation

S&P Global says that Microsoft has over $329 billion in future lease obligations, ahead of Meta, the next largest at $279 billion. This could explain why S&P projects Meta, the major provider of computing capacity, to have significantly lower capex next year than Alphabet and Amazon.

As hyperscalers continue to build more data centers, accounting has become a point of contention, especially as they set up off-balance-sheet arrangements. It's hard to know how the market will perceive these accounting moves, or if others will look to follow Microsoft, as high capex is a major part of the bearish argument for the hyperscalers right now.

Still, S&P Global continues to assign Microsoft debt the highest possible credit rating, AAA, making it one of two publicly traded companies -- along with Johnson & Johnson -- with such an elite rating.

S&P Global also says that its models generally assume an inflection in 2028 for the hyperscaler group, with capex flattening out and revenue accelerating, which could lead to a return to positive FCF. But this is one of the big questions investors are trying to figure out: whether this actually happens and leads to strong FCF and strong returns on this huge amount of invested capital.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Oracle, and S&P Global. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) has now revealed two full quarters of stock purchases and sales since Greg Abel became chief executive officer of the enormous conglomerate. He's stepping into the large shoes left by Warren Buffett, who remains executive chairman of the company and actively involved in stock picking, according to various reports.

Abel has not been afraid to shake things up, quickly making Alphabet one of the largest stocks in the portfolio and buying and selling many other stocks. In the second quarter, Berkshire trimmed many of its bank stocks, including Bank of America, while increasing or adding new positions in companies that can benefit from lower yields.

Is Abel betting on lower interest rates?

Image source: The Motley Fool.

Trimming banks

In Q2, Berkshire Hathaway trimmed its Bank of America position by 6% and slashed its positions in Ally Financial and Capital One by 7% and 58%, respectively.

Bank of America is a money-center bank involved in all aspects of banking, from commercial lending to investment banking. Ally and Capital One are large banks as well, but heavily involved in consumer lending, such as auto and credit card lending.

Generally, bank stocks have performed relatively well this year. Not only have banks seemed to serve as diversification away from artificial intelligence, but the yield curve has steepened, meaning shorter-dated bonds yield less than long-term ones.

This is an ideal setup for most banks, which borrow money at the short part of the yield curve and lend toward the longer end. Ally and Capital One haven't performed as well, partly due to investor concerns that consumers are starting to feel the pinch and that loan losses will rise.

Borrowing costs are also high now, which could be stunting loan demand.

BAC data by YCharts.

Still, if the yield curve keeps steepening, that could, in theory, be good for banks, although I do think longer-term yields at current levels could be starting to spook bank investors as well. Still, in theory, as long as the curve stays steep, that should be good for bank profits, assuming credit stays in check.

Buying sectors that would benefit from lower interest rates

In Q2, Berkshire increased its positions in Delta Air Lines (NYSE: DAL) and Lennar Corp and initiated a new position in D.R. Horton.

Delta is one of the largest U.S. Airlines tend to perform better in a lower-rate environment because most airlines carry significant debt, some of which is tied to variable interest rates that are affected by broader interest rate changes.

At the end of Q2, Delta carried $13.6 billion in debt, 22% of which is subject to variable interest rates, so lower rates would mean lower interest payments.

Additionally, a lower-rate environment tends to stimulate economic activity and spending, benefiting airlines.

Lennar and D.R. Horton are two of the largest homebuilders in the U.S. The mortgage and real estate industries have been absolutely hammered by high rates, particularly at the longer end of the curve, such as the 10-year yield, which directly influences mortgage rates.

Higher rates combined with high home values have made buying a home difficult for much of the country's consumers. Both of these stocks have struggled this year.

LEN data by YCharts.

You don't buy housing stocks in a rising-rate environment. Although concerns about persistent inflation are certainly real, nobody can say for certain what will happen.

There have been some signs that inflation is softening, perhaps clearing the way for lower rates. An end to the Iran war would surely help this cause, not that anyone knows when that is coming either.

It's worth noting that, aside from Bank of America, the other stocks mentioned in this article are relatively small positions in Berkshire's vast equity portfolio, so they may not be very indicative of anything.

Furthermore, Berkshire typically tries to buy stocks that will perform well throughout the economic cycle.

Ally is an advertising partner of Motley Fool Money. Bank of America is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Berkshire Hathaway, D.R. Horton, and Lennar. The Motley Fool recommends Capital One Financial and Delta Air Lines. The Motley Fool has a disclosure policy.

The market just got a glimpse under the hood of the wearable health diagnostics company, Oura, which is gearing up for an initial public offering as soon as this month.

The Wall Street Journal reports the company could seek a valuation of over $11 billion, based on private funding rounds last year.

In the company's recently released registration statement, Oura boasted a rarity among IPOs these days: Fast and profitable growth.

For the nine months ending June 30, Oura posted slightly over $1.2 billion of total revenue, up 74% from the same period ending June 30 of 2025. Net income during this time grew from roughly $1.5 million to nearly $60.8 million.

The IPO filing shows Oura is much more than just a wearables company.

Image source: Getty Images.

Transforming into a health data company

Oura sells the self-proclaimed "world's smallest smart ring," which delivers more than 50 metrics and predictive insights into an individual's health. In the company's third fiscal quarter, paid members wore the ring for a median time of roughly 23 hours per day.

The physical ring sells for $349 to $499, and members pay a $5.99 monthly subscription fee. In the nine months ending June 30, Oura sold 3.1 million rings and had 5 million paying members.

But the company is not just selling hardware -- the business has really transformed into a health analytics company. Oura has compiled 42 billion hours of biometric data, which is not only personal data, but also updated essentially in real time.

The company then leverages artificial intelligence to transform this data into predictive insights that members interact with on the Oura platform to receive recommendations on sleep, activity, readiness, stress, heart health, metabolic health, and women's health.

Oura's platform also allows partners to connect via its API (application programming interface)-first architecture and leverage Oura's insights to deliver additional clinical, physiological, and contextual data.

While hardware revenue still accounted for 80% of total revenue in the nine months ended June 30, membership revenue soared 122% year over year. Furthermore, member revenue generated an incredibly strong 89% gross margin.

Growing market opportunities

Oura's registration statement states that it believes its opportunities extend beyond the wearables market.

Further opportunities cited include nutritional insights and guidance, conception planning and fertility insights, blood testing and analysis, and therapy and medication monitoring.

These opportunities fall into formal markets defined as fitness trackers, health and wellness coaching, selected digital care management applications, digital therapeutics, and selected connected biosensor categories, which collectively have a serviceable addressable market exceeding $90 billion in 2026, according to Statista.

Many believe AI will have a transformational impact on the healthcare space, so the fact that Oura has already built a database of millions of members positions the company well to capitalize on this trend. Furthermore, the financials also look quite compelling.

Investors should keep in mind that not all outstanding shares are typically issued in an IPO. Many employees and insiders who obtained shares when the company was private are typically subject to lock-up agreements and can't sell their shares for up to six months or more.

So, an IPO can really pop at the beginning, only to see the stock sell off later when more shares flood the market.

While Oura's IPO looks compelling, investors should be sure to check how much of the public float it represents before deciding whether to buy on day one, as this information will eventually become public.

The Motley Fool has a disclosure policy.

Investing is hard, even for some of the best in the business.

Dr. Michael Burry made a name for himself successfully betting against the housing market before it collapsed during the Great Recession. This series of events was portrayed in the well-known movie, "The Big Short," in which actor Christian Bale portrayed Burry.

Since then, Burry has run his own hedge fund and now runs a very popular Substack publication, where he shares his thoughts on the market and how he is investing his personal wealth.

This year, Burry's largest position, Lululemon (NASDAQ:LULU), has been crushed, down over 52%. The company recently reported abysmal earnings, sending its stock down nearly 18%, as of 12:36 p.m. ET on Sept. 4.

Should investors sell the stock?

Image source: Getty Images.

A tough year continued by a tough quarter

In the first quarter of Lululemon's fiscal year 2026, the company lowered its full-year guidance due to weak sales in North America and negative sentiment stemming from poorly perceived promotional campaigns.

In the recently reported second quarter, the company posted adjusted earnings per share of $2.06, handily beating Wall Street's expectations. However, revenue of $2.42 billion slightly missed consensus estimates, with comparable sales falling 9% year over year.

But what is even more concerning is that the luxury apparel maker once again significantly slashed its full-year outlook. Full-year revenue was expected to be in the range of $11 billion to $11.15 billion.

Now, management is calling for net revenue inside a range of $10.35 billion to $10.5 billion, reflecting a 5% to 7% annual decline. The kicker: the new outlook includes tariff refunds.

"Today, lululemon (LULU) is the trickster in my portfolio," Burry wrote in a Substack note. "This time the trickster is my largest position, and it does seem determined to take me where mermaids fear to tread."

For the second quarter in a row, Lululemon attributed struggles to "negative commentary," according to interim CEO Meghan Frank, who also cited a larger-than-anticipated decline in sales of some of its most critical categories, such as leggings.

Gross margins actually increased 2% year over year to 60.5%, although they would have been 54.9%, excluding the positive lift from tariff refunds.

Should investors sell the stock?

Wall Street analysts are all over the map with Lululemon. Following the report, analysts at BNP Paribas slashed their price target by 50% to $44 per share and maintained an underperform rating on the stock.

The stock currently trades around $100 per share, which is essentially the average price target among analysts who have issued research reports on the company over the past three months, according to TipRanks.

While Burry noted that the company's performance has been frustrating, he also said he remains invested and would buy more if the stock slipped below $100.

Lululemon has struggled due to the issues mentioned above, as well as sluggish sales in the Americas and weaker-than-expected growth in China. There's also been significant competition and complaints that the clothing has become stale.

An issue that I'm struggling with is that consumer spending hasn't exactly slowed this year. Real private domestic final purchases increased 3% in the first half of the year, and unemployment remains at 4.1%.

While issues at Lululemon remain company-specific, I do worry what would happen to sales should the economy show greater weakness.

However, for bulls like Burry, Lululemon is still generating strong gross margins and has a new CEO about to take over, which could rejuvenate the company's strategic direction. The stock also now trades at just over 9 times forward earnings.

So a higher safety buffer may now be priced in. But it can be tough to catch a falling knife; the brand continues to suffer, and I would be worried about what might happen to sales should the economy weaken further.

At this point, I'm more prone to keep this on the watch list or take a smaller, more speculative position.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool recommends Lululemon Athletica Inc. The Motley Fool has a disclosure policy.

Another month and another jobs report that continues to befuddle economists.

Nonfarm payrolls added a seasonally adjusted 162,000 jobs in August, more than triple economists' estimates of 53,000 job gains. Additionally, the job numbers for both June and July were revised upward, with July notably revised from a 23,000 job loss to a 21,000 gain.

In an even better sign for the labor market, gains were broad-based and evident in sectors including restaurants, government education, and manufacturing. Meanwhile, information-related industries saw a decline of 23,000, suggesting artificial intelligence could be having an impact.

Average hourly earnings rose 0.3% in August, in line with estimates, and was 3.1% higher year over year, the lowest annual rate in several years.

Here's why the surprise jobs report is both good and bad news.

Image source: Getty Images.

The bad: Increases the odds of a September rate hike

Since the pandemic, there has been a weird phenomenon among investors where good news in the labor market has been bad news for the stock market.

That's because inflation has been persistently elevated above the Fed's 2% target since the pandemic. Because U.S. economic growth is largely driven by consumer spending, a strong labor market can be a source of inflation: if people have more money, they are likely to keep spending it.

Yesterday, the odds of the Federal Open Market Committee hiking interest rates by a quarter point at its September meeting later this month were essentially a 50-50 toss-up, according to the CME Group's FedWatch tool.

However, following the jobs report and as of this writing, the likelihood of a quarter-point hike rose from just under 50% to 62.4%.

A rate hike is perceived negatively by investors because it raises borrowing costs in an economy already grappling with affordability issues. Furthermore, the longer rates remain elevated, the more pressure the consumer will feel and the more likely the economy is to tip into a recession.

US Nonfarm Payrolls MoM data by YCharts

As of 11:30 a.m. ET, the Dow Jones Industrial Average (DJINDICES:^DJI) had fallen roughly 365 points.

Members of the FOMC, which has 19 total members, 12 of whom vote on monetary policy decisions, have already seen a growing number lean toward an interest rate hike at its next meeting.

This means that what the FOMC does at its meeting later this month will likely depend on August inflation data, which is due out Sept. 11.

The good news: the labor market is healthy

Once upon a time, a jobs report in which the number of jobs added to nonfarm payrolls exceeded economists' estimates by threefold would have been celebrated by the market because it meant the economy was healthy.

But these days, concerns about a rate hike are more prominent.

Although annual average hourly wage growth seems to be declining, the August jobs report is still structurally good news. Unemployment is at 4.1%, which many economists consider full employment.

The economy is still adding jobs despite AI disruption, although there are signs AI is making an impact.

The broader market has soared in recent years on the back of corporate earnings growth. If people have money, they can continue to spend on corporate goods and services, which could continue to drive earnings growth.

And as has been evident in the past, while the market may not necessarily be looking for a strong jobs report, a very weak jobs report can also spook investors quickly, on concerns that a recession is imminent.

So, while investors are worried about a looming rate hike, a healthy labor market is a long-term positive.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CME Group. The Motley Fool has a disclosure policy.

The "September Effect" is officially upon us.

The broader benchmark S&P 500 (SNPINDEX: ^GSPC) has averaged a 1.13% decline in September from 1928 to 2021, according to Yardeni Research, worse than any other month of the year. Over the past 25 years, MacroTrends research says the S&P 500 has averaged a 1.4% decline in September.

That's much worse than the S&P 500's average annual returns and has spooked some investors heading into the fall. History offers a clear answer for how to proceed.

Image source: Getty Images.

Why have stocks seemingly performed worse in September?

It's hard to pinpoint why stocks haven't historically performed as well in September as in other months. August is viewed as a dull month, so that could be one explanation: As institutional investors return from their summer vacations, they begin positioning their portfolios for the end of the year.

If they have done well, they may begin to lock in some gains, as most institutional investors that drive the bulk of flows are measured against the broader market annually. Beating the S&P 500 is one way they can justify charging higher fees, especially at a time when there is much greater and cheaper access to investing.

But if investors have performed poorly, they may start to consider tax harvesting, in which they sell certain positions in their portfolios trading at a loss to offset the taxes they may owe on gains. Ultimately, many experts have examined the September Effect and found no clear theory to explain it, so it could very well be a mere coincidence.

Here is how stocks have performed in September in each of the past five years:

2021: -4.76%

2022: -9.34%

2023: -4.87%

2024: 2.02%

2025: 3.53%

In short, the September Effect occurred from 2021 to 2023, but not so much over the past two years.

Could September also be the worst month to buy stocks?

A study published recently by the financial research site Macrobond examined the median and mean (or average) one-year forward returns of the S&P 500 if you had invested in a specific month of the year. While it didn't specify the exact time frame for the purchases, other parts of the study date back to 1928.

On a median basis, investing in the S&P 500 in September yielded an 8.7% annual return, which marked the weakest month. On average, investing in September led to a one-year return of 7.9%, placing it slightly above five other months, most of which occurred in the back half of the year.

Source: Macrobond and S&P Global. Note: Figures represent average returns for investors entering the market in each calendar month and holding for one year.

The mean is the average of all values in a data set, so while it provides an overall summary of the data, it can be influenced by outliers at both the higher and lower ends of the spectrum. The median is the middle number in a data set when the numbers are arranged from smallest to largest.

The median is likely a more representative number here because it will remove the effect of Septembers that were more volatile and don't represent the true trend. However, even if you use the mean figure from the data above, September shows only slightly better performance than the weakest month in the data set.

So, yes, history seems to suggest that investing in September may not be ideal, based on one-year returns, at least compared to other months.

How history says investors should proceed

Ajene Oden, a global investment strategist at JPMorgan Chase Wealth Management, recommends investors ignore this data and all of the superstitions that come with September. Oden said:

Markets face a confluence of geopolitical, fiscal, and monetary policy uncertainty -- prime conditions for volatility. But volatility and seasonality aren't destiny. Stay disciplined: If September gets choppy, treat it like a pullback -- not a prophecy -- and stay anchored to your long-term plan.

I would agree. Trying to time the market is extraordinarily difficult, and even the best investors have called it a bad strategy. Long-term investors needn't pay attention to September, as the power of time and compounding will render it irrelevant.

Between 1965 and 2025, the S&P 500 averaged a 10.5% compound annual gain, including dividends, for a total gain of 46,061%. That means even with the bad Septembers, investors did quite well.

If you have a 10- to 30-year runway and invest a portion of your earnings in the S&P 500 every month, just keep doing that and pay no attention to the September Effect. It's irrelevant.

JPMorgan Chase is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and S&P Global. The Motley Fool has a disclosure policy.

Mortgage rates recently hit a one-year high, with the 30-year fixed-rate mortgage rate now at 6.71%.

The global sell-off in Treasury bonds is driving the increase because, as bond prices fall, bond yields rise. Mortgage rates are directly correlated to moves in the yield on the 10-year U.S. Treasury note.

Bond yields have surged recently, as inflation remains persistently high, the Iran war continues on, and as investors grow more nervous about mounting U.S. debt, which recently topped $40 trillion.

Bond yields directly impact all stocks, but some sectors are more impacted than others. Two examples are Lowe's and Home Depot (NYSE:HD).

Image source: Getty Images.

Directly tied to the housing market

While Lowe's and Home Depot don't issue mortgages, they do sell materials, tools, and appliances used by consumers, builders, and other professionals who work on and inside homes and other structures. So, the health of the housing market can certainly impact their businesses.

In fact, on its recent earnings call for the second quarter of 2026, Lowe's was forced to lower its full-year outlook. The company now expects sales of $92 billion versus a prior range of $92 billion to $94 billion.

The company also lowered its operating margin guidance to 11.2% versus a prior range of 11.2% to 11.4%, and similarly lowered its adjusted operating margin guidance to 11.6% from a previous range of 11.6% to 11.8%.

Diluted earnings per share are now forecasted at $11.75, versus a prior range of $11.75 to $12.25.

"Across retail home improvement, macro pressure like interest rates, inflation and gas prices continue to influence DIY (do it yourself) demand," Lowe's CFO Brandon Sink said on the company's most recent earnings call.

Home Depot reaffirmed its full-year outlook in its second-quarter earnings report, but management also noted pressure in the housing market, stemming from high interest rates and high housing costs.

Specifically, CFO Richard McPhail said that housing turnover has been at historic lows for the past four years.

This is likely due to a combination of affordability issues and people who managed to purchase homes at historically low interest rates during the pandemic not wanting to relinquish those rates.

Marginally higher interest rates won't affect the company too much, but that's because Home Depot has been dealing with these conditions for years now.

Interestingly, in the second quarter, Home Depot managed to grow revenue by 5.7% year over year, while earnings increased by 4.6%.

Home Depot has maintained momentum by focusing on contractors and smaller repair projects for more price-conscious customers.

Lower rates would lift both stocks

With mortgage rates soaring, it's more difficult for players like Lowe's and Home Depot to do business because building materials cost more, and the high price of housing reduces homebuilding and home improvement projects.

The good news for value investors is that both stocks trade at forward earnings multiples below their typical levels over the past two years.

LOW PE Ratio (Forward) data by YCharts

So, if and when interest rates do decline, that should lift both stocks. Now, predicting the future trajectory of the bond market and mortgage rates is no easy task, but things can also change quickly.

Look how many times the outlook for interest rates has changed this year. Both Lowe's and Home Depot are stocks that can benefit from lower rates, whenever they might materialize.

They both also have solid dividend yields. Lowe's has a trailing 12-month yield of nearly 2.4%, while Home Depot is roughly 2.9%.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot. The Motley Fool recommends Lowe's Companies. The Motley Fool has a disclosure policy.

Anthropic, the parent company of the large language model (LLM) family known as Claude, is reportedly preparing for an initial public offering that could happen as soon as later this month or in October, according to various media outlets. The company confidentially filed for an IPO back in June.

It would mark the second monster artificial intelligence (AI)-related IPO since Space Exploration Technologies went public in June, raising nearly $86 billion at a $1.77 trillion valuation, in the largest IPO ever.

Given the amount of interest and hype surrounding this company and this topic, Anthropic could surpass SpaceX in total funds raised and valuation. Here are three things investors should know.

Image source: Getty Images.

1. Anthropic may try to raise as much as $100 billion at a $2 trillion valuation

As if SpaceX didn't go big enough, Anthropic will reportedly attempt to top it by raising up to $100 billion at a valuation as high as $2 trillion.

This is, of course, no guarantee, as even SpaceX faced some pushback, despite its successful raise. SpaceX's stock has also been up and down since the IPO, as investors worry about the high valuation, the intense capital expenditures required by the business, and the future release of additional shares into the market. Whether Anthropic can reach a $2 trillion valuation will depend in part on the financials reported in its registration statement.

The company reportedly doubled revenue in the second quarter to $11.6 billion and reported positive adjusted operating income, though I'm sure investors will be curious to see the adjustments. The Financial Times also reported that investors in Anthropic believe that annualized revenue could reach $120 billion by the end of this year.

2. Anthropic could be targeting a $30 trillion TAM

Perhaps one of the most surprising figures in SpaceX's registration statement was its $28.5 trillion total addressable market (TAM), essentially the opportunity at play for the company. The bigger the TAM, the bigger the revenue potential.

Citing anonymous sources, The Wall Street Journal recently reported that Anthropic is supposedly eying a $30 trillion TAM.

Investors should be skeptical of TAMs, but the sheer size of SpaceX's TAM seemed to excite the market, even if it rested on some pretty spectacular assumptions.

I'll be curious to see how Anthropic justifies such a TAM, as its business is quite different from SpaceX, which owns data centers and has plans to build orbital data centers in space.

Anthropic sells subscriptions to consumers and businesses, partners with cloud providers to offer its models through their networks, and uses a metered approach for developers and businesses that use its models. There's also likely a strong advertising opportunity.

But there are plenty of other LLM companies, including open-source models, that may prove more cost-efficient for people and businesses, and could eventually erode any moat in the LLM business.

3. Anthropic will set the tone for LLM IPOs

Anthropic looks set to be the first major LLM company to go public, which could set the tone for others, including OpenAI. Investors have been able to access many financial disclosures from chip companies and neoclouds, but not from a pure-play LLM company. Investors will naturally be very curious to see how the sausage is made.

OpenAI's financials were leaked earlier this year, revealing how much money the company was spending and losing, but Anthropic's registration statement will be hundreds of pages long and offer the most direct look yet into the LLM business.

"Gross margins after inference compute, I think, is one metric that the market will probably focus on," Thad Pollock, who leads the active equities division for Mutual of America Capital Management, told Investor's Business Daily recently. "Not over short time frames. The profitability will not be the near-term focus, but I think investors will want to see a path to more sustainable profitability over the long run."

Anthropic has also been touted as one of the better-positioned LLMs from a financial perspective, so if investors don't deem the financials to be up to snuff, it could set a bad precedent for future LLM IPOs.

Bram Berkowitz 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.

Whether the Federal Open Market Committee (FOMC) raises interest rates at its meeting later this month remains a toss-up as of this writing.

But it looks like a decision could hinge on the August inflation report, which will be released on Sept. 11. Fed Governor Christopher Waller just said his decision will likely come down to that report.

"If there is continued progress toward our 2% goal, then I ​am willing to support holding the policy rate at its current level," Waller said at a Reuters event on Sept. 3. "If inflation comes in hot, I would consider a rate hike."

Here's why the August inflation report could be make-or-break for the FOMC.

Image source: Getty Images.

Where the inflation picture stands

For years, inflation has remained above the Fed's preferred 2% target. The Iran war, which began at the very end of February, only exacerbated the situation, raising oil and gas prices, which can have a trickle-down effect across the economy.

But in recent months, there have been some signs that inflation could be cooling.

In July, core inflation, which excludes more volatile food and energy prices, rose 0.2%, with headline year-over-year inflation coming in at 2.5%. That was in line with consensus estimates.

However, the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, came in slightly hotter than expected.

It feels like this is the pattern the economy has been in for several years, at least since inflation peaked at 9% in 2022.

Inflation shows signs of slowing but still seems unable to reach the Fed's 2% target. It's possible that tariffs played a role in this, and the Iran war certainly has. Affordability remains a critical issue in the U.S., with most people finding prices exorbitant and the environment difficult to build wealth.

US Core Inflation Rate data by YCharts

The Fed is trying to thread the needle. It doesn't want to risk inflation reverting to higher levels or remaining persistently high. However, it also doesn't want to accidentally tip the economy into a recession, especially as consumers are already struggling with affordability.

Waller is a critical vote that could sway the FOMC

At the FOMC's last meeting, the committee chose to leave rates unchanged within the 3.50%-3.75% range.

However, three members of the 12-member voting committee dissented, preferring a quarter-point hike: Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan.

So, if Waller moves to prefer a quarter-point hike, that would bring the total to four FOMC members. Furthermore, Fed Governor Michael Barr recently said he would be in favor of raising rates "if inflation appears not to be moderating sufficiently."

Other members of the FOMC could also shift toward favoring a hike if the next inflation report comes in hot.

It would also be interesting to see what the FOMC Chair, Kevin Warsh, does in such a scenario. The market has had a tough time figuring out how Warsh truly views inflation.

In some regards, he's sounded hawkish, saying prices are still too high on numerous occasions. In other circumstances, he's been more vague, talking about other ways the Fed might measure inflation that could make inflation appear lower than it is under the Fed's current measurement tools.

But it's important to note that the FOMC chair's job is to build consensus among the committee. So, even if Warsh has secretly been hawkish, it may have been difficult for him to advocate for a rate hike when most members didn't prefer one.

But if there are four or five members in favor of a rate hike, Warsh would have more latitude to move to the rate-hike camp if he felt that way.

An unprecedented 6-6 tie at the FOMC means interest rates by default would remain unchanged.

According to the CME Group's FedWatch tool, whether interest rates remain unchanged or increase by a quarter point was roughly a 50-50 split as of this writing.

I think next week's August inflation report will ultimately serve as the tiebreaker.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CME Group. The Motley Fool has a disclosure policy.

In what is being referred to as potentially social media's "Big Tobacco moment," Meta Platforms (NASDAQ: META) recently announced an agreement with 52 attorneys general under which the parent company of Facebook and Instagram will pay up to $18 billion over the next decade and significantly change its policies for teen users.

While the fine would be the largest consumer-protection settlement ever, excluding Big Tobacco, most Wall Street analysts and experts believe Meta avoided what could have been a vastly larger financial settlement.

But the ramifications from this landmark teen-safety lawsuit could be far worse for social media company Snap (NYSE: SNAP). Here's why.

Image source: Getty Images.

What the Meta settlement means

Per the agreement, Meta will pay $12.7 billion to the participating states and U.S. territories in the lawsuit in annual installments over the next decade. The remaining $5.3 billion will be paid based on two conditions: Alphabet's YouTube and TikTok must apply some of the same changes that Meta is making for teens, and those companies must collectively pay a matching $5.3 billion.

Most analysts considered the agreement fairly benign because, before it was agreed to, the maximum damages Meta faced were supposedly as high as $1.4 trillion, with state attorneys general realistically targeting a figure somewhere in the $200 billion range.

Perhaps the more significant part of the case concerns the changes Meta agreed to make to its platform relating to teen usage. Meta plans to limit teen usage to two hours per day across its platforms, and this limit can only be turned off with a parent's permission. Teens will also not be allowed to use Meta's apps between midnight and 6 a.m., and, by default, notifications will be muted between 8 a.m. and 3 p.m., during school hours.

Other changes include preventing teens from seeing the number of likes and reactions on their posts, and eliminating cosmetic surgery and extreme makeup filters.

Many questions remain about how effective these changes will be and how easily teens will be able to get around them. But it's worth noting that Meta doesn't generate significant revenue from teens. Meta CEO Mark Zuckerberg testified that teens account for only 1% of the company's revenue and that Meta generates nearly all of its revenue from advertising.

I'm not sure that fully quantifies how much advertising revenue teen audiences actually generate for Meta's social media platforms, but the consensus on Wall Street is that this is not an overly punitive outcome for Meta, at least compared to what it could have been.

Why it could be a bigger deal for Snap

Snap is nowhere near as big a company as Meta, with a market cap of roughly $9.4 billion as of this writing. Through the first six months of the year, Snap has generated about $3.1 billion of revenue.

But it also looks like Snap will soon face similar charges to the ones Meta just addressed.

Pennsylvania Attorney General Dave Sunday recently announced that the state is suing Snap for allegedly failing to be truthful with parents about the type of content teens were exposed to on Snapchat. Furthermore, the lawsuit accuses Snap of using addictive features to keep younger users engaged. The stock initially sank on the news.

Snap is much more reliant on younger users than Meta. Back in April, a Pew Research report showed that teens were using Snapchat for messaging more frequently each day than TikTok or Instagram. Teens also reported posting more frequently on Snapchat than on other platforms.

A study from Harvard's T.H. Chan School of Public Health conducted in 2022 and published in 2024 found that 41% of Snapchat's overall revenue came from users under 18. That was the largest share of revenue from that age group among similar platforms such as TikTok, YouTube, and Instagram.

Snap already faces significant challenges. The stock is down nearly 80% since its 2017 IPO due to a lack of profitability, competition, an inability to grow high-quality customers, and shareholder dilution.

Investors may have anticipated that Snap could face fallout from similar issues to those that Meta is facing, but usage restrictions like those being implemented at Meta could be far more detrimental to Snap's business and revenue.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy.

If there's one thing that remains consistent about cryptocurrencies, it's that the digital assets remain wildly inconsistent.

With Bitcoin (CRYPTO:BTC), the largest cryptocurrency in the world, coming off its best month of the year in August and its highest monthly gain (~25%) since November 2024, Bitcoin exchange-traded funds (ETFs) also just posted their best month of the year.

According to SoSoValue data reported by CoinTelegraph, Bitcoin ETFs saw over $3.5 billion in net inflows in August, up from just $172 million in July.

Is the Bitcoin rally here to stay?

Image source: Getty Images.

Why Bitcoin struggled this year

As of this writing, Bitcoin traded around $77,250 per token after briefly dipping below $60,000 at the very start of July.

Following President Donald Trump's election victory in late 2024, Bitcoin and most of the crypto sector surged, as Trump was the first President to be a strong advocate for crypto, saying he wanted to make the U.S. the crypto capital of the world.

Trump implemented numerous executive orders, including the creation of a U.S. Strategic Bitcoin Reserve and making it easier for people to invest their retirement assets in alternative assets, such as crypto.

Furthermore, Congress passed the GENIUS Act, which creates a regulatory framework for stablecoins. There is also still hope that Congress may eventually pass the Clarity Act, a proposed regulatory framework that would better define cryptocurrencies and blockchain.

But this year, Bitcoin and the rest of the crypto sector lost steam for several reasons.

There seemed to be concerns that new technologies, such as quantum computing and artificial intelligence, could penetrate crypto encryption. I think this siphoned some of the retail enthusiasm away from the crypto sector.

Furthermore, long-term Bitcoin whales that held substantial Bitcoin began taking profits. Additionally, the Iran war and higher inflation expectations, which led to higher bond yields, also seemed to impact Bitcoin, due to risk-off sentiment.

There has always been a push-and-pull dynamic for Bitcoin between being a risk asset and a potential inflation hedge, due to its finite supply of 21 million tokens, which allegedly makes it a form of digital Gold.

This theory has not panned out this year, although it's worth noting that Gold also struggled for much of the Iran war but has bounced back over the past month, similar to Bitcoin.

It's possible that both assets rose too far too fast in the near term.

GLD data by YCharts

Only recently has Bitcoin rebounded due to a short squeeze and the U.S. Treasury's plan to increase bond repurchases.

Is the rally here to stay?

As the past year has demonstrated, making a near-term prediction about Bitcoin is likely to prove fruitless. Digital assets are even more volatile than stocks.

Analysts have grown bullish, predicting that the crypto winter may indeed be over. Again, I wouldn't put much stock into these calls.

I do think long-term investors can continue to have exposure to Bitcoin or Bitcoin ETFs, although I would avoid levered ETFs.

The most bullish development for Bitcoin is that it has shown a correlation with Gold since the Iran war began. No one disputes Gold as an inflation hedge, so if the price of Bitcoin is moving similarly, there's still a chance Bitcoin will be a form of digital Gold in the long term.

If this theory holds up, then Bitcoin is certainly a good long-term buy.

Bram Berkowitz has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

Prior to its very large investment in Alphabet, it wasn't all that clear how Berkshire Hathaway (NYSE:BRKA)(NYSE:BRKB) planned to really participate in the artificial intelligence revolution, if at all.

Sure, the large conglomerate's largest stock holding is Apple, which is sure to benefit from AI, but Apple has seemingly been slower than its "Magnificent Seven" peers to fully flesh out its AI strategy.

Now, Berkshire's plan for AI is becoming much clearer. In fact, during an interview with CNBC, Berkshire CEO Greg Abel just quantified the company’s AI opportunity.

Image source: The Motley Fool.

Generating power for AI

The big immediate opportunity for Berkshire is through its subsidiary, Berkshire Hathaway Energy (BHE), which generates and supplies various forms of power to consumers and businesses.

It's worth noting that since the pandemic, Berkshire has loaded up on energy assets through acquisitions in BHE and large purchases of stocks like Chevron and Occidental Petroleum, which together make up about 9.4% of Berkshire's large $360 billion stock portfolio.

This was happening even as most analysts and economists called for lower oil and gas prices in the years ahead. But the team at Berkshire always seemed to have conviction in the energy sector.

"It's really interesting as they've continued to announce all the data centers and data center sites. I've sort of always had the strong view that energy would be the constraint," Abel told CNBC. "There would be energy; we can produce the energy. It's how long would it take to get the sites prepared and being in a position they could serve the data centers..."

Abel views this as an opportunity for BHE.

He noted that in Iowa, where BHE owns the MidAmerican Energy Company, Iowa's largest energy company serving more than 1.6 million electric and natural gas customers across four states, 8% of the total demand last year came from data center customers.

While Abel said Berkshire is interested in working with the hyperscalers, he added that Berkshire has told them there cannot be a negative impact on other customers' rates; in fact, there must be a benefit.

BHE's U.S. utilities collectively own 32,400 net megawatts of generation capacity currently in operation and under construction, according to the company's 2025 annual filing.

Among its energy assets are four regulated utilities that produce power from wind, natural gas, coal, solar, hydroelectric, nuclear, and geothermal sources.

These utilities serve 5.4 million retail customers and five interstate natural gas pipelines with roughly 20,900 miles of operated pipeline.

BHE is also planning to spend about $33.5 billion between this year and 2026 to expand its power generation, storage, and transmission capabilities. In the three years prior, BHE spent slightly below $29 billion on capital expenditures.

Another reason to own Berkshire

Berkshire is one of the few $1 trillion market cap companies not entirely banking on AI.

The company owns one of the largest insurance businesses in the U.S., a large railway network, a large mortgage company, a large energy company, a $360 billion stock portfolio, and roughly $365 billion in cash.

This diversity of businesses is one of the reasons the company can serve as a safe haven when economic conditions become more difficult, while also generating solid returns through the cycle.

And now investors can clearly see that Berkshire will benefit from AI, whether through its stake in Alphabet or its large power network.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, Berkshire Hathaway, and Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.

The common belief is that higher interest rates are good for bank stocks.

While that's not technically incorrect, there's more nuance to it. Yes, higher rates can help banks, but only under the right circumstances. Additionally, they only help what is typically one-half or a significant portion of a bank's revenue, a line item called net interest income (NII).

Net interest income is essentially the spread banks make from the interest they pay on deposits and other interest-bearing liabilities and the interest they earn on loans and other interest-earning assets.

Here's what higher rates do for bank stocks.

Image source: Getty Images.

When higher rates actually help bank stocks

Higher rates help banks, but only in certain circumstances.

The typical way banks generate NII is by borrowing short-term money and lending it out long-term. This refers to a steep yield curve, in which the yields on shorter-duration bonds are lower than those on longer-duration bonds.

Yields are correlated to all sorts of financial assets, such as loan and deposit rates.

However, interest rates can rise on both ends of the yield curve. In fact, following the COVID-19 pandemic, the U.S. economy experienced the longest inverted yield curve in history, with short-term rates surpassing longer-term rates.

If you think about it literally, banks would be paying higher rates on shorter-term deposits than they'd be earning on longer-term loans.

Not only has an inverted yield curve historically predicted a recession, which would likely lead to higher loan losses for banks, but it has also disrupted bank balance sheets, particularly after the pandemic.

During the pandemic, there was an ultra-low-interest-rate environment. Banks had excess deposits to put to work, so many banks purchased longer-dated bonds that yielded more. But when the Federal Reserve had to raise interest rates quickly to rein in inflation, which jumped to 9% in 2022, those bond positions fell deeply underwater.

The situation reached a boiling point in 2023, when several banks experienced deposit runs, forcing them to sell bonds at a loss and thereby destroy equity. So, as you can see, higher interest rates aren't always good for bank stocks; it's about the shape of the yield curve.

One other thing to understand is that banks run many different kinds of businesses aside from lending. There's investment banking, wealth management, payments, and more.

Higher interest rates can stunt mortgage demand and freeze the capital markets, which are responsible for a lot of investment banking activity. Higher rates, particularly on a steep yield curve, specifically benefit NII for most banks.

How higher rates impact bank stocks

As you can see, bank stocks are at some of their highest levels since the Great Recession.

KRE data by YCharts

That also coincides with a steepening yield curve.

2 Year Treasury Rate data by YCharts

The banking business is cyclical and heavily tied to the economy because they lend to consumers and just about every sector in the economy across different lending categories, from residential to commercial to equipment lending.

So, while the yield curve is important, bank investors must also understand what's driving it. This year, longer-term yields have soared due to inflation from the Iran war, as well as concerns about the ever-growing U.S. national debt.

It's also worth pointing out that the longer interest rates remain high, especially in the world we live in today, where asset prices have ballooned, the greater chance the economy could tip into a recession, which would likely cause investors to sell bank stocks due to fears of higher loan losses.

Longer-term yields rising due to expected economic expansion is a good thing for bank stocks, while yields up on debt and recessionary concerns are a negative.

So, in general, rising interest rates on a steep yield curve should lift bank stocks.

But what if concerns about runaway debt, higher inflation expectations, and a lack of response from the Fed lead to soaring long-term yields? Even if the yield curve remains steep, it's not a guarantee that bank stocks will perform well, because other doubts are likely to creep into investors' minds.

Like most investing topics, very little is black and white.

Bram Berkowitz 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.

Elon Musk and Jamie Dimon are two of the most famous business leaders in the world.

Musk runs Tesla (NASDAQ: TSLA) and Space Exploration Technologies Corp. and is viewed as one of the most innovative founders developing technologies that could one day save the planet.

Dimon, on the other hand, runs the U.S.'s largest bank, JPMorgan Chase (NYSE: JPM), and is lauded for his years of experience and wisdom. He successfully steered JPMorgan through the Great Recession and the COVID-19 pandemic and continues to deliver solid returns for investors.

Has Tesla or JPMorgan Chase stock performed better during the past five years and which should you buy today?

Image source: The White House.

Two different businesses on two different paths

Investors should understand that Tesla and JPMorgan are two very different businesses.

Tesla, although now one of the world's largest companies, still operates as a high-growth, artificial intelligence-driven company. Sure, the company's electric vehicle business is mature, but its valuation now depends more on its emerging self-driving robotaxi fleet and future humanoid robotics business.

Both of these businesses are still developing, and Tesla is as strongly positioned as anyone to hit these markets first.

But I still think they are show-me stories right now. The market believes they now have a credible path not only to bringing these products to market but also to quickly grabbing significant market share.

JPMorgan Chase is an entirely different animal. It's a traditional blue chip stock, not only operating a mature business but also in a mature industry.

JPMorgan will certainly be able to leverage artificial intelligence (AI) to make its operations more efficient, but at the end of the day, large banks are heavily regulated, and their returns are somewhat constrained by the need to maintain regulatory capital.

Furthermore, JPMorgan is too big to go on an acquisition spree because it already controls more than 10% U.S. deposit market share, a regulatory limit that means the company isn't allowed to buy other banks. So growth must be organic.

However, JPMorgan continues to put up industry-leading returns quarter after quarter. During its last five quarters, JPMorgan has only once generated a return on tangible common equity (ROTCE) of less than 20%. Management has forecast a long-term 17% ROTCE through the cycle.

Furthermore, JPMorgan returns substantial capital to shareholders through stock buybacks and a growing dividend.

Which has generated a better return for investors during the past five years?

Tesla is the more popular stock across the market, which is why it may surprise investors to learn that JPMorgan has crushed Tesla stock since mid-2021.

JPM data by YCharts

There are a few reasons to explain this. Banks have performed well in recent years.

Part of this may have to do with investors adding some diversification beyond artificial intelligence. The yield curve has also steepened, which is generally favorable for banks that borrow at short-term interest rates and lend at longer maturities.

Additionally, large, too-big-to-fail banks like JPMorgan have done well since the Silicon Valley Bank crisis because the government simply can't afford for them to fail, leading to an inflow of deposits from businesses worried about deposit runs at smaller banks.

For Tesla, I think it's simply a matter of investors getting ahead of themselves. The stock trades at an incredible 180 times forward earnings.

Even if you believe Tesla will succeed with robotaxis and humanoid robots, it's very rare for investors, especially institutional, to essentially assume revenue in new businesses before there is real evidence that it will materialize.

Although robotaxis have launched, many hurdles remain. Humanoid robots have only just begun production. So Tesla still seems like a gamble at this valuation.

Regardless, JPMorgan stock is a good one to own if you are less risk-averse and looking for steady growth and capital returns over time. Tesla is for more aggressive investors with a longer runway ahead. It may turn into a big investment, but it's no guarantee.

If robotaxis and robots stumble, the shares could get hit hard.

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

The Social Security and Disability Insurance trust funds will be depleted by 2034.

That doesn't mean benefits will end at that time, but there could be a significant cut to scheduled benefits if lawmakers don't act. That's because payroll taxes that fund the program are no longer sufficient to cover scheduled benefits, and the rainy-day funds -- the trust funds mentioned above -- will be empty.

While many suspect lawmakers will eventually act, even if it's at the very last second, there are still many questions about what changes can realistically be made without disrupting benefits or causing fiscal stress.

Some have floated cuts to the program, while others say the payroll taxes that fund benefits can be raised.

Although few politicians seem willing to touch the issue, especially since older people who claim Social Security tend to vote at higher rates, billionaire and legendary investor Stanley Druckenmiller recently issued a blunt warning to retirees.

Image source: Getty Images.

Debt and higher yields will force the matter

Earlier in August, U.S. Treasury Secretary Scott Bessent announced that the Treasury could more than double its regular repurchases of longer-dated Treasury bonds as part of its regular operations, in an attempt to bring down longer-term yields, which have been causing havoc in the market.

Prior to this announcement, the yield on the 30-year Treasury bond topped 5.3%, its highest level since 2007. Part of the reason is due to concerns about inflation and U.S. government debt, which just topped $40 trillion. Social Security's deficit is part of the debt.

Druckenmiller, once a mentor to Bessent, blasted this plan in a Wall Street Journal op-ed, warning that it could risk "the credibility of the Treasury market."

Druckenmiller, a legendary investor who never had a red year while running his former hedge fund, stated that trying to control longer-term yields masks a greater problem: The unsustainable nature of mounting debt and the high annual interest payments it generates, which have led to a $1.8 trillion fiscal deficit.

In the op-ed, Druckenmiller called on the Treasury to do the "only thing that durably lowers long-term yields: address the primary deficit." The primary deficit is simply the fiscal deficit minus debt interest payments, as you don't want the U.S. government to default on its debt.

Why Druckenmiller believes entitlement cuts are inevitable

There's a clear reason politicians have strayed from doing exactly what Druckenmiller is prescribing: It will likely come with some pain. The three largest outlays of the fiscal year 2026 budget are Social Security (22%), Medicare (15%), and Net Interest (15%).

Over 71 million Americans receive some form of Social Security benefit each month, and many rely on the income as at least a supplement to cover their annual expenses.

"Anyone who tells you entitlements won't be cut is lying -- not about the outcome but about who decides it," Druckenmiller wrote. "Either we restructure the promises deliberately, on our terms, protecting those who most need them, or the bond market restructures them for us, all at once, on its terms."

To be clear, Druckenmiller is not saying to simply slash benefits overnight. Rather, he discussed making changes to the program, such as eligibility and age requirements, which would likely be phased in over decades, and means testing, which would provide fewer, or even no benefits to people who have already accumulated a certain amount of wealth.

However, the blunt assessment from Druckenmiller remains that entitlement reform is coming one way or another. Lawmakers can only punt for so long. The Social Security trust funds will be gone in a matter of years, and the bond market seems to be losing patience.

A key part of Druckenmiller's argument is that if changes aren't made, future generations simply won't receive entitlement benefits such as Social Security.

Critics of Druckenmiller's plan would likely call some of his suggestions cuts and argue that tax hikes, particularly on the wealthy, should be the tool used to shore up the budget.

However, the U.S.'s fiscal issues are significant, and a combination of the changes Druckenmiller suggests and higher taxes may ultimately be necessary.

The Motley Fool has a disclosure policy.

It hasn't been an easy year for the luxury apparel company Lululemon (NASDAQ:LULU). The stock is down nearly 42% this year, largely due to weakness in North American sales and management's trimming of full-year guidance earlier this year.

The stock now trades at a cheap 11 times forward earnings. But just because a stock looks cheap, that doesn't mean it can't get cheaper, especially in the near term when sentiment is poor.

The company faces a critical earnings report on Thursday, Sept. 3, when it reports its 2026 fiscal year second-quarter earnings results after the market closes. Management will also host a live conference call with analysts.

While it's incredibly difficult to predict how a stock will move in response to a near-term event, Lululemon's next earnings report could send the stock plummeting. Here's why.

Image source: The Motley Fool.

Management could cut guidance again

In the first quarter, Lululemon slashed its full-year guidance, reducing annual revenue growth projections from 2% to 4% to flat or down 1%.

Management attributed the declining guidance to negative press, which hurt sales in the U.S. and China.

In June, Lululemon issued a public apology after a promotional event on the Great Wall of China, where it accidentally used a Japanese instrument while intending to promote Chinese culture.

There has also been a perception that the brand is not innovating enough and that its clothing line is stale.

Since then, analysts have speculated whether the company may have to take down guidance again, given that the guidance still implies improvement in the back half of the year relative to second-quarter trends.

There's been more concern since Dick's Sporting Goods recently reported earnings and lowered guidance due to sectorwide challenges, noting that it increased promotions amid competition.

Dick's doesn't carry Lulu apparel, but that doesn't mean it can't be indicative of broader industry trends.

Last week, Goldman Sachs analyst Brooke Roach reiterated a neutral rating on the stock and lowered its price target by $11 to $111 per share.

Roach noted persistent pressure on demand, weak consumer sentiment, increased promotions, and potential slowing growth in China.

Why the stock could plummet

Obviously, if management lowers guidance again, investors will lose a lot of confidence in the stock in the near term, meaning the company will need to show tangible progress in reversing revenue and earnings trends.

However, as I'd like to reiterate from above, predicting a stock's movement based on a near-term event is extremely difficult.

It's possible that sentiment is already so poor that even a bad earnings report that comes in just a little better than expected is enough to rejuvenate investor interest.

Lululemon still has a decent long-term investment case. The company has built a loyal customer base, as demonstrated by gross margins above 54% in its latest quarter.

Yes, that's down from over 58% a year ago, but still very strong overall. Lulu also has a new CEO starting on Sept. 8. Improved industrywide sentiment and some newer product lines that excite customers could turn the stock around.

But in the near term, it's hard for me to view the stock favorably heading into earnings, given industrywide trends and the company's recent struggles.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends Lululemon Athletica Inc. The Motley Fool has a disclosure policy.

Dell (NYSE:DELL) is gearing up to report its fiscal 2027 second-quarter earnings results after the market closes on Tuesday, Sept. 1. Management will also hold a live conference call with Wall Street analysts.

A longtime maker of personal computers, Dell has gotten involved in the artificial intelligence trade by selling servers to data centers and other companies implementing AI solutions, serving as the skeletal structure connecting the components that power AI.

This includes central processing units (CPUs), graphics processing units (GPUs), memory, storage, and more.

The stock has had a phenomenal year, up roughly 264%. While trading around a near-term event like earnings is always very difficult to predict, Dell's next earnings report could send the stock soaring. Here's why.

Image source: The Motley Fool.

AI demand shows no signs of slowing

Dell's stock is now largely tied to AI demand, which could obviously make it volatile going forward. Fortunately for the company, there is no evidence that demand for AI is slowing.

This can be seen in multiple earnings reports from earlier this month. Nvidia, the AI chip king, just reported a simply incredible quarter, in which it guided for annual revenue growth of 70% in its fiscal year 2028, well ahead of Wall Street consensus estimates.

Nvidia is at the center of the AI ecosystem, so if its chips are seeing strong demand, then there's a good chance other components within the AI supply chain are as well.

But even looking more directly at Dell, another server maker, Super Micro Computer, also recently reported a strong quarter. In its most recent quarter, Super Micro generated strong gross margins of 17.5%, ahead of estimates.

Furthermore, the company raised its annual revenue guidance to a range of $65 billion to $72 billion, well above consensus estimates of $52.5 billion.

In its fiscal 2027 first-quarter earnings report, Dell guided for full-year AI server revenue of $165 billion to $169 billion, up 47% year over year at the midpoint. Within that number, management guided for $60 billion of AI server revenue, up 144% year over year.

Bank of America analyst Wamsi Mohan believes the company will raise its full-year guidance to a range of $171 billion to $175 billion, including higher AI server revenue of $65 billion.

Keep an eye on guidance and valuation

I will reiterate that it's extraordinarily difficult to trade around near-term events because one can never tell how the market will react. Good news can be priced in and vice versa.

Dell also trades at an expensive valuation compared to the past, even though it is generating strong growth right now.

DELL PE Ratio data by YCharts

Whether the stock price moves up or down following earnings will depend on the guidance. But given what we've seen so far this earnings season, I think there's a strong chance Dell will raise its guidance above analysts' expectations.

Dell is still tied to the AI trade, so even the slightest hint of slowing demand could trigger a sell-off, especially after its big run this year.

Analysts and investors will also be trying to understand what the runway looks like beyond this year. But it's tough to time this market, and there's a good chance the AI supercycle will last much longer than investors think.

Bank of America is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

It's been a rough year for crypto.

The sector entered a bear market that felt different from past cycles, as crypto seemingly lost some of its appeal amid newer, perhaps more exciting technologies like quantum computing and artificial intelligence.

But most bulls haven't given up, believing that this cycle will be no different from past cycles and that crypto will rebound to hit new highs. Here's one top cryptocurrency to buy before it reaches $1 million per coin by the year 2033, according to one analyst.

Image source: Getty Images.

Is the debasement trade back?

Bitcoin (CRYPTO: BTC), the world's largest token by market value, took a big hit this year. After reaching an all-time high of more than $126,000 per token last October, Bitcoin fell below $60,000 at one point this year.

Not only did some of the factors mentioned above hurt the coin, but Bitcoin also seemed to act more like a tech stock in response to the Iran war, facing pressure related to elevated inflation, rising oil prices, and higher long-term interest rates.

This called into question whether Bitcoin and its finite supply of 21 million coins really could be used as a form of digital gold and serve as an inflation hedge.

However, Bernstein analyst Gautam Chhugani and his team think this thesis may be resurfacing. They recommend buying Bitcoin as a way to hedge against U.S. currency debasement that erodes the dollar's value.

U.S. debt recently topped $40 trillion, and soaring long-term bond yields have added pressure to the situation.

"While governments are already using measures to manage bond markets and contain yield pressures, these interventions only address symptoms rather than the underlying debt burden," Chhugani wrote in a research note.

Some experts and investors believe the government will have no choice but to run the economy hot to try to grow its way out of debt, which will naturally lead to a weaker dollar and greater concern about currency debasement.

Chhugani sees debasement as an easier approach to the debt situation than fiscal discipline. "Hence, investors will potentially benefit from owning scarce assets such as bitcoin that cannot be easily created/diluted," Chhugani wrote.

Although Bitcoin has taken a beating for much of the year, Chhugani notes that 60% of investors have held it, suggesting continued belief in Bitcoin as a hard asset.

Recently, Bitcoin has rebounded and is trading at about $78,000 per token (as of Aug. 28). Investors are hopeful about a looming vote on the Clarity Act, which would establish a regulatory framework for the industry.

There has also reportedly been a huge Bitcoin short squeeze, while renewed conversations about higher bond yields and mounting debt have pushed the digital gold theory back into the spotlight.

Chhugani has laid out "an accelerated bull case" scenario, in which macro factors lead institutional investors to chase Bitcoin. In this scenario, Bitcoin could peak at $500,000 by 2029, then reach $1 million by 2033.

The base case suggests $300,000 per token by 2029, but still $1 million by 2033. Chhugani and his team value Bitcoin as a multiple of its marginal cost, or the miner who generates new Bitcoin tokens at the highest cost. The $1 million price target assumes a 1.2 marginal cost multiple.

Think long-term, but not in price targets

As I've said numerous times before, investors should be wary of crypto price targets. Bitcoin and other cryptocurrencies are extremely volatile and don't generate earnings or free cash flow like a traditional company to use in calculating valuation.

On the other hand, I don't think the digital gold thesis is dead yet, even if Bitcoin doesn't always appear to serve as an inflation hedge. It's worth noting that gold has also struggled since the Iran war, and is up just 8% this year.

Perception may turn into reality, and younger generations could be more prone to buy the internet-native Bitcoin as an inflation hedge over gold.

Furthermore, I would agree with Chhugani that the government is likely to prefer debasement over fiscal restraint, which would be much more painful for citizens and likely lead to popular backlash.

Investors should hold at least some Bitcoin in their portfolios, although I wouldn't make it an overly aggressive position just yet.

Bram Berkowitz has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

Nvidia (NASDAQ: NVDA) recently delivered blowout second-quarter earnings that the market couldn't ignore, even if long-term questions about artificial intelligence (AI) remain.

The company easily beat Wall Street consensus estimates and raised third-quarter guidance beyond Street expectations. But the real kicker came when Nvidia CFO Colette Kress said that Nvidia is expecting 70% annual revenue growth in fiscal 2028, when the Street had only modeled 44%.

During the earnings call, management also discussed a newer, fast-growing business. It's bad news for Advanced Micro Devices (NASDAQ: AMD) and Intel (NASDAQ: INTC).

Image source: Getty Images.

Nvidia taking full advantage of agentic AI

Agentic AI continues to gain momentum. People can now use AI to deploy autonomous agents that can complete tasks with very little human interaction.

While graphics processing units (GPUs) have always been at the center of the AI story because they power the inference that trains large language models (LLMs), there's been a resurgence of central processing units (CPUs), the chips used to power legacy technology like cellphones and computers.

GPUs still handle most AI inference, but CPUs are now seen as the better option for orchestrating agentic workflows, such as calling tools and coordinating steps between model calls. This has led to CPU companies, such as AMD and Intel, to perform incredibly well, as demand for CPUs goes through the roof.

Data by YCharts.

Unfortunately for Intel and AMD, this is also a business that was not hard for Nvidia to move into. Last quarter, the company surprised the market by introducing its stand-alone Vera CPU, specifically for running AI agents. Nvidia says its CPUs can complete agentic tasks 1.8 times faster than industry standards and provide fivefold the bandwidth per watt than any other data center CPU.

Additionally, Kress said last quarter that they were projecting $20 billion in CPU sales for fiscal year 2027, which ends in late January. That instantly made Nvidia competitive with other CPU leaders, such as AMD and Intel. In the second quarter, Intel reported $6.3 billion of data center and AI revenue, which is where CPU sales are categorized, although not broken out. AMD reported roughly $6.7 billion in data center revenue in the second quarter. It also does not break out CPU revenue individually.

The bad news for AMD and Intel is that Kress said Nvidia not only still expects $20 billion in CPU revenue in its fiscal 2027, but expects that number to more than double in fiscal 2028.

The good news is that agentic AI is likely to keep growing

If there's a silver lining for AMD and Intel, it's that agentic AI is likely to keep growing exponentially.

"Today, the vast majority of AI is prompted by people. I believe that this last month it has crossed. Most AI are now agentic," Nvidia's CEO Jensen Huang said on the company's earnings call. "But in the future, every company will have a whole bunch of agents. We have 40,000 employees, roughly. In the future, we'll have 400,000 agents, 4 million agents. Those agents are running continuously. They're running in the background."

If the market keeps growing, there should be plenty of room for AMD and Intel to get their piece of the pie.

In a research report earlier this month, Bank of America analyst Vivek Arya once again raised his estimates for the total addressable market (TAM) for server CPUs. A few months ago, Arya expected the TAM to grow by fivefold to $170 billion by 2030.

Now, his new estimate is $210 billion, due to the rise of AI agents.

Bank of America is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool has a disclosure policy.

Even before the advent of cryptocurrencies and blockchain, banks have been widely criticized for failing to innovate quickly enough, whether due to legacy back-end technology or policies such as overdraft fees that infuriated customers.

Now, the banking industry wants to get in on the action, especially with a friendlier regulatory backdrop under the Trump administration, which wants to make the U.S. the crypto capital of the world.

Recently, a group of banks and state banking associations launched the BankChain Alliance, which aims to build and operate its own blockchain network.

What is the BankChain Alliance?

According to the BankChain Alliance's website, the cohort includes 39 state banking associations comprised of 3,283 banks with a collective $21.8 trillion in assets. Kathy Kraninger, president and chief executive officer of the Florida Bankers Association, is the president and CEO of the organization.

Image source: Getty Images.

The goal is to create an interoperable blockchain that all alliance members can use for a wide range of activities, including smart payments, tokenized deposits, stablecoins, automated settlement, and other innovations.

Kraninger said in a statement:

This is about banks of all sizes building their own future. Through an unprecedented collaboration representing thousands of banks, BankChain Alliance is developing a secure, regulated, industry-built, and industry-owned network that allows institutions of all sizes to provide modern capabilities so they can continue serving customers safely and efficiently in rural, urban, and regional communities across the country.

The BankChain Alliance is still searching for a technology partner to help it build the blockchain, but it is targeting a 2027 launch.

Why now?

The blockchain and cryptocurrencies were created as a direct alternative to the traditional banking system, after the disastrous Great Recession in 2008 that put banks in the limelight -- and not in a good way. So, in some ways, crypto has always been a competitor to the banking system.

Stablecoins, digital assets pegged to a currency or commodity such as the U.S. dollar or gold, have also become a potential problem, offering a fast, theoretically inexpensive way to transfer money to someone with internet access. Some companies also began offering yields on stablecoins, posing a threat to bank deposits.

Banks have been more cautious in moving into crypto because they are heavily regulated entities. However, new legislation makes it much easier. President Donald Trump has already signed the Genius Act into law, which creates a regulatory framework for stablecoins.

Notably, the legislation requires stablecoins to be 100% backed by liquid assets and requires stablecoin issuers to comply with the Bank Secrecy Act, the main U.S. anti-money laundering law, among many other provisions.

Another major piece of legislation, the Clarity Act, is still pending and would establish a regulatory framework for cryptocurrencies. The bill includes language stating that idle stablecoins can't earn yield, but stablecoin transactions can earn rewards, similar to credit card transactions.

Even with the ban on earning yield on idle stablecoins, bank lobbyists are still concerned about the threat posed by stablecoins, specifically because they might compete for bank deposits. So it's definitely a good idea for banks to embrace new technology.

Most banks have to answer to three regulators and abide by numerous anti-money laundering and cybersecurity laws, which could give them a leg up in complying with new stablecoin regulations and in attracting large enterprises that want to use some form of blockchain technology.

Now, the real promise of stablecoins is the potential to conduct transactions for free or at a much lower cost than with current payment technology.

It may be difficult for banks to do this, but it becomes more feasible if they can leverage blockchain technology to attract customers who bring lower-cost deposits or do other business with the bank that generates meaningful revenue.

The big question is, can banks attract customers away from fintech and blockchain companies that are often better at customer acquisition? Much remains to be seen, but banks certainly need to embrace technology more quickly than in the past, so the BankChain Alliance is a promising first step.

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Kevin Warsh, chair of the interest-rate-setting Federal Open Market Committee (FOMC), remains unpredictable.

In his highly anticipated speech made at the Jackson Hole Economic Symposium, Warsh returned to his more hawkish signaling, specifically saying, "We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do."

Warsh's speech instantly brought a potential September rate hike back into play.

Following his speech on Aug. 28, the likelihood of a rate hike in September surged to 57.5%, as of this writing, up from about 35.5% yesterday, according to CME Group's FedWatch tool.

Here's why Warsh is still concerned about inflation.

Image source: The White House.

Underlying trends are still worrisome

Prior to Jackson Hole, the market had become more dovish about Warsh and the Fed, following softer inflation reports in June and July and weakness in the July jobs report.

However, Warsh in his speech made it clear that this data does not mean that inflation has been beaten.

"And while this summer's PCE (Personal Consumption Expenditures price index) and CPI (Consumer Price Index) readings were better than expected, they do not tell me that underlying trends have meaningfully improved," Warsh said. "The data also show moderate wage growth. But in tracking underlying inflation, wage growth has not proven a reliable indicator of future inflation for a very long time."

Warsh said to truly try and see where inflation is going, he disaggregates all 199 individual components of the PCE, which is the Fed's preferred inflation gauge.

The PCE tracks price changes for what consumers pay out of pocket and also what third parties may pay on consumers' behalf.

A common example used by economists is looking at healthcare costs. The PCE tracks what consumers pay for premiums and deductibles, as well as costs covered on their behalf by insurance firms or Medicare and Medicaid.

US Core PCE Price Index YoY data by YCharts

Warsh said that over the past year, over half of the items tracked in the PCE showed price increases above 3%. This is below a high of 77% seen in the post-pandemic era, but significantly above the 32% level observed in the 20 years before the pandemic.

Warsh also warned that the recent increase in commodity prices needs to be carefully monitored.

Still a fluid situation

In my mind, the big takeaway is that September and the Fed's remaining meetings this year are up for grabs regarding whether the Fed hikes rates or keeps them steady.

There is support among certain FOMC members for raising rates, but I still think a few factors could keep the Fed on hold, barring any more extreme data in the coming months.

For one, Warsh has previously said he doesn't necessarily like the current way the Fed measures inflation. There is currently a Fed committee looking at this right now.

Furthermore, U.S. Treasury Secretary Scott Bessent's recent announcement that the Treasury would increase its repurchases of longer-dated bonds to rein in longer-term yields would also seem counterintuitive to a rate hike.

However, given the market is worried about inflation, perhaps a rate hike could help lower longer-term bond yields by showing the Fed is willing to do what's necessary to bring down inflation.

All of this is to say that I don't think Warsh's Jackson Hole speech makes rate hikes in September, or even this year, a sure thing.

I'm still in the camp that the Fed will hold rates steady, but the situation remains fluid.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CME Group. The Motley Fool has a disclosure policy.

Peter Thiel has been a tech guru for decades. He co-founded major companies such as PayPal and Palantir and made significant early investments in Meta Platforms and Space Exploration Technologies, among others.

Thiel also runs a hedge fund, Thiel Macro, which hasn't been very active in recent quarters. But in the second quarter, Thiel's fund resumed buying, investing more than $418 million in eight new stocks. They all have a common theme.

Image source: Getty Images.

Powering artificial intelligence

Here are the eight companies Thiel Macro invested in during the second quarter and how much of the portfolio each position consumed:

• Amazon: 28% of the fund and a position of nearly $118 million
• Vista Energy: 18% of the fund and a nearly $76 million position
• Vistra: 14% of the fund and a nearly $59.1 million position
• American Electric Power (NASDAQ: AEP): 10% of the fund and a roughly $42.2 million position
• DTE Energy: 9.6% of the fund and a nearly $40.3 million position
• FirstEnergy: 9.5% of the fund and a nearly $40 million position
• CMS Energy: 9.4% of the fund and a nearly $39.6 million position
• X-Energy: 0.9% of the fund and a nearly $3.7 million position

Just by looking at the names, it's pretty clear that the theme is power. If you dig a little further, it's even clearer that Thiel's bet on power has to do with the artificial intelligence (AI) revolution.

Amazon is building data centers for its cloud division, Amazon Web Services, which helps power frontier AI models such as those at Anthropic and OpenAI. The company has committed $220 billion in capital expenditures this year, most of which is for AI infrastructure.

Vista Energy is a large oil and gas company in Latin America, focused on shale in Argentina. Vistra is a U.S. electricity company that provides power to customers, businesses, and communities.

American Electric Power is one of the largest electric companies in the U.S., with a transmission network spanning 40,000 miles.

DTE Energy serves 2.3 million customers in Southeast Michigan but also has a natural gas unit and a portfolio of non-utility power businesses, including industrial energy services, renewable natural gas, and energy marketing and trading.

FirstEnergy is an electric utility serving customers in Ohio, Pennsylvania, New Jersey, West Virginia, and Maryland. CMS Energy is Michigan's largest electric and natural gas utility, serving 6.8 million customers. CMS also owns an independent power generation subsidiary that does business in several states.

X-Energy is building small modular nuclear reactors to produce clean, sustainable energy.

The Thiel trade

Thiel's trade is that power demand, which has been little changed during the past two decades, will enable these companies to deploy capital at regulated returns to modernize the grid and, in some cases, expand capacity, in part to meet growing demand from data centers that are fueling AI.

American Electric Power, DTE, CMS, and FirstEnergy are regulated utilities, so they have a monopoly in their markets. Their returns are capped by regulators but essentially guaranteed.

In May, American Electric Power said it had increased its five-year capital spending by $6 billion to $78 billion. In July, the company announced that it has a line of sight to an additional $10 billion in capital investments beyond its initial five-year plan.

Furthermore, the company's load is expected to grow to 69 gigawatts (GW) by 2030, up from a plan of 63 GW in May, fueled by agreements with hyperscalers and data center developers.

On the other hand, a company like Vistra is an independent power producer and not under regulatory jurisdiction. Rather, it sells electricity wholesale to markets in response to demand.

Thiel's likely thesis is not exactly a new take, as many experts have noted that the world will need more power to fuel AI.

The risk, of course, is that AI hits a snag or that there is a huge overbuild of AI infrastructure. However, power demand is also expected to rise due to other factors, such as a warmer climate, which has significantly increased the use of air conditioning, and the electrification of heat and certain forms of transportation.

Ultimately, if you believe AI is here to stay, the world will need more power to fuel it.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Meta Platforms, Palantir Technologies, PayPal, and Vistra. The Motley Fool recommends the following options: short September 2026 $47.50 calls on PayPal. The Motley Fool has a disclosure policy.

Cathie Wood has made a name for herself by going all-in on tech, whether it was software stocks when they were novel, cryptocurrencies, or now artificial intelligence (AI) stocks. Her firm, Ark Invest, runs several exchange-traded funds (ETFs) that give investors access to baskets of tech and AI stocks managed by her and her team.

The largest Ark ETF is called the ARK Innovation ETF (NYSEMKT: ARKK), which had roughly $6.42 billion in assets under management as of Aug. 25. Wood and her team invested roughly $1.4 billion of this capital in just three AI-related stocks. Let's find out a bit more about these three Wood-favored stocks.

Ark Investment Management CEO Cathie Wood. Image source: Getty Images.

1. Tesla: $594.8 million

Wood and her team have long been bullish on Tesla (NASDAQ: TSLA), from its days operating primarily as an electric vehicle company to its current focus on its emerging robotaxi fleet and humanoid robots. ARK Innovation ETF's position in Tesla amounted to nearly $595 million as of this writing, or 9.26% of the fund.

While it's a bit stale at this point, Ark published a deep dive on Tesla in June 2024, assigning the stock a monster $2,600 price target in its base case for 2029, implying more than a sevenfold increase from current levels.

Much of the bullishness is based on robotaxis. By 2029, Wood and her team believe the robotaxi business will make up 63% of Ark Invest's projected $1.2 trillion of revenue for the company that year; 86% of the projected $440 billion earnings before interest, taxes, depreciation, and amortization (EBITDA); and 88% of the $8.2 trillion enterprise value. That also implies a 37% EBITDA margin.

Tesla launched robotaxis in seven markets as of late July. Management also reported on the second-quarter earnings call that unsupervised robotaxis have now driven 380,000 miles.

Still, the fleet is scaling slowly and cautiously to focus on safety, and even Tesla CEO Elon Musk noted on the earnings call that robotaxis need cellular coverage everywhere. There is also plenty of competition in the space now.

While Tesla very well could succeed with robotaxis and humanoid robots down the line, I'm still cautious on the stock while it trades at close to 198 times forward earnings.

2. Tempus AI: $401.7 million

ARK Innovation's second-largest position, accounting for 6.25% of the fund, is class A shares of Tempus AI (NASDAQ: TEM).

Tempus is leveraging AI to create more precise laboratory testing that can also be more personalized for the patient by integrating a patient's clinical data into the testing. The company has also built the Tempus platform, which it claims is one of the largest libraries of clinical and molecular oncology data in the world.

Tempus stock actually got a lift recently following the release of phase 3 trial results from a joint study conducted by Moderna and Merck, which showed that its personalized messenger ribonucleic acid (mRNA) vaccine, combined with Merck's immunotherapy Keytruda, produced better results than those who took Keytruda alone.

Tempus recently acquired Personalis, which created the genomic tumor-profiling technology that played a significant role in the development of the Merck and Moderna treatment.

AI is likely to play a big role in improving healthcare, but Tempus is another AI stock that has benefited from a lofty valuation. The company now has a $12.4 billion market cap but is still losing money.

Companies like Tempus depend heavily on big breakthroughs, so it's not uncommon these days for investors to front-run the valuation if they think the potential is there.

3. SpaceX: $377.7 million

Space Exploration Technologies (NASDAQ: SPCX) is the ETF's third-largest position, accounting for roughly 5.88% of the fund. Ark has been buying shares of SpaceX since the company's initial public offering, although it's unclear whether it participated in the IPO.

It makes complete sense that Wood bought SpaceX, given her belief in Tesla, because Musk runs both companies. SpaceX also has many businesses that Wood would be interested in from a technology standpoint, whether it's the launch business, Starlink, or the broader AI unit.

In July, Wood also told Fox Business that SpaceX "could become the most important company in history." There's also been talk that SpaceX and Tesla could eventually merge.

SpaceX's $1.89 trillion valuation is largely built on the premise of great success in the AI unit, which SpaceX has said has a $26.5 trillion total addressable market (TAM). The unit includes the social platform X, Grok Intelligence, SpaceX's data centers, a future terafab facility, and the ability to create enterprise solutions that could potentially mimic human workflows.

The bull thesis really centers on SpaceX's super-heavy-lift, fully reusable rocket, Starship, which Musk wants to eventually use to make multiple missions to space per week. Starship could be the key to enabling orbital data centers, which could take a significant share of AI compute.

If it all works out, the stock is likely to soar and become another multibagger. But remember, Starship is still in testing, and developments on the space front are likely to move slowly, so it's far from a sure thing.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck, Moderna, Tempus AI, and Tesla. The Motley Fool has a disclosure policy.

Bond yields have surged, and bond prices have fallen, since the beginning of the Iran war at the very end of February. The yield on the 10-year U.S. Treasury note is now at 4.70%, up from 3.96% on Feb. 27, the day before the U.S. first began bombing Iran.

Bonds are quite different from stocks, but the bond market can impact the stock market and vice versa, particularly as long-term bonds hit their highest level in decades.

Here's what bond market volatility means for your portfolio.

Image source: Getty Images.

Why bonds impact stocks and what they say about the economy

There are a few different ways that bonds impact the stock market.

The first concerns the technique that fundamental investors across Wall Street and beyond use to value stocks. Many analysts and institutional investors set price targets for stocks using a discounted cash flow (DCF) analysis. A DCF analysis links a company's future cash flows to the present to estimate the intrinsic value of its equity. However, there are inputs within the formula, including the cost of equity, which relies on a risk-free rate. Many investors use the 10-year Treasury yield as the risk-free rate.

The cost of equity helps determine the discount rate, which is used to discount cash flows to their present value. When yields rise, the discount rate rises as well, leading to lower future cash flows and, therefore, a lower equity valuation.

Obviously, this is technical, and the market doesn't always react as expected, but mechanically, equity valuations should decline when the discount rate rises.

Data by YCharts.

Yields also serve as a key data point for investors when evaluating the macroenvironment. Long-term bond yields are influenced by economic growth assumptions, inflation assumptions, supply and demand, and now the country's mounting debt, which recently topped $40 trillion.

The Iran war has lifted inflation expectations. Meanwhile, investors are concerned about the country's fiscal situation. Some, like U.S. Treasury Secretary Scott Bessent, believe the U.S. can grow its way out of the debt. But if that's possible, it would also likely lead to more inflation.

Rising bond yields are also more impactful for some industries than others. For instance, a rising 10-year yield is typically bad for the housing market and, therefore, for real estate companies, because it makes mortgages more expensive.

Rising bond yields also create higher financing costs for other types of loans and debt, which is bad for the companies that finance them. On the other hand, lower rates can also benefit these more interest rate-sensitive sectors, although the effects vary by sector.

Don't become too distracted by the bond market

Stock investors should certainly take time to learn the bond market. If you're truly going to be a great investor, you need to know how it works and how it impacts equities.

But just as investors can get too obsessed with near-term company-specific events, long-term investors needn't be too reactive to moves in the bond market, either. For one, the market doesn't always react as expected. The 30-year U.S. Treasury bond yield recently surpassed 5.3%, though it has since declined. Several months ago, many experts might have told you that bond yields at this level would lead to a big sell-off for stocks.

But that hasn't happened yet, not that stocks couldn't come under pressure in the future.

Furthermore, yields can change quickly, particularly at the longer end of the curve, which is more influenced by the broader market. Just look at how much yields have changed in a matter of months this year.

In addition, there are many things impacting the bond market, so trying to predict any near-term move is quite difficult, arguably more difficult than trying to predict the near-term move of an individual stock.

Long-term investors should still focus on the broader thesis for an individual company and whether it remains intact.

It's certainly a good idea to understand how rising or falling bond yields might impact an individual company's business, but generally speaking, a solid long-term thesis will likely not be broken by near-term volatility in the bond market.

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With the broader stock market struggling in recent weeks, all eyes were on Nvidia's (NASDAQ:NVDA) fiscal 2027 second-quarter earnings results, and boy, did the $5 trillion artificial intelligence semiconductor giant deliver.

Nvidia posted adjusted earnings per share of $2.22, up 120% year over year, on total revenue of $96.22 billion, up 106%.

Nvidia's results topped Wall Street consensus estimates of $2.10 in earnings and $92.17 billion in revenue.

Nvidia guided for $108 billion in revenue in the third quarter, plus or minus 2%, excluding any data center revenue from China. The company also guided for a gross margin of 74%, plus or minus 0.5%. Consensus estimates had expected $104.2 billion in revenue.

Furthermore, Nvidia repurchased $26 billion of stock in the second quarter and has $99 billion remaining under its share buyback authorization.

As of 6:12 p.m. ET on Aug. 26, Nvidia shares had flipped positive and traded roughly 3.8% higher. CEO Jensen Huang just delivered great news to shareholders.

Image source: Nvidia.

AI is at an 'inflection point'

Beating estimates and raising guidance is nothing new for Nvidia. In fact, perhaps the one rare thing about today's report is that shares are actually green in after-hours trading, at least as of this writing.

The other great news that Huang delivered to shareholders is his belief that AI has "reached its inflection point."

"It's doing useful work. Its tokens are productive and profitable. Now, compute is revenue," Huang stated in the earnings release. "And demand is accelerating. This time last year, one lab alone was driving the buildout; today, we have a golden age of new AI labs and start-ups, multiple frontier labs scaling in parallel, a thriving open-model ecosystem and physical AI coming online -- with strong momentum across the U.S. and around the world."

In the second quarter, about 54% of Nvidia's data center revenue came from hyperscalers, with the remainder from AI clouds, industrial companies, and enterprise (ACIE).

"The AI infrastructure buildout is at full steam. Vera Rubin, now in full production, was built to power exactly this moment," Huang stated.

Furthermore, Nvidia's newer central processing unit (CPU) business, specifically built to power agentic AI, continues to ride strong momentum. Last quarter, Nvidia said it expected CPU sales in the current fiscal year to hit $20 billion, instantly making it one of the world's leading CPU companies.

CFO Colette Kress now expects that number to more than double in fiscal 2028. She also said the company is projecting 70% annual revenue growth in fiscal 2028, well ahead of consensus estimates.

Long-term questions remain, but hard to ignore near-term positives

Being the world's largest company by market cap has set a high bar for investors, which could explain why previous strong quarters have failed to excite the market. Prior to the earnings report, Nvidia traded at about 23 times forward earnings.

"Nvidia is on track to grow as fast if not faster than Intel and AMD, and their market position is stronger," D.A. Davidson's Head of Technology Research Gil Luria said, according to The Wall Street Journal. "... The market is treating it as if 'No, no, these numbers are so big, there's no where they can grow from here.'"

Long-term questions will remain. Investors are still likely to have concerns about where gross margins go if competition increases and the chip business becomes more commoditized.

There will likely continue to be concerns about how Nvidia invests in key suppliers and customers, and about its growing role in financing the data centers that host its chips.

But for now, it's hard to see this recent quarter as anything but great news for shareholders.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool has a disclosure policy.

The trendy, casual retailer Abercrombie & Fitch (NYSE:ANF) just hit it out of the park.

In the second quarter of its fiscal year 2026, Abercrombie reported $4.17 adjusted earnings per diluted share, up from $2.33 one year ago. Revenue of $1.27 billion rose 5% year over year.

Wall Street consensus estimates had only expected $1.99 of adjusted EPS. Shares had soared roughly 33%, as of 12:53 p.m. ET today.

The quarter builds on continued momentum, with the company achieving its 15th consecutive quarter of sales growth. But here's the real reason the stock is skyrocketing today.

Image source: Getty Images.

Significantly raising guidance

In addition to the big earnings beat, Abercrombie's management team significantly raised its full-year guidance.

The company now expects annual sales growth of 5%, up from a prior range of 3% to 5%.

Operating margin is expected to land within a range of 14.5%-15%, up from a prior outlook of 12%-12.5%. Diluted earnings per share are expected to be within a range of $13.10-$13.60, up from a prior range of $10.20-$11.00.

That's an enormous lift, so it makes sense that investors are buying the stock hand over fist.

Part of the boost during the second quarter, however, is due to tariff refunds. Abercrombie & Fitch received $100 million in tariff refunds associated with the Supreme Court's ruling that tariffs enacted by the Trump administration through the International Emergency Economic Powers Act (IEEPA) were illegal.

Abercrombie's CFO, Robert Ball, said the tariffs added about $1.75 to diluted EPS in the quarter. Ball also said the company expects to recognize an additional $20 million of tariff refunds in its third quarter.

Even so, the core business is performing very well, and momentum is expected to continue in the back half of the year.

Abercrombie & Fitch had a nearly 20% operating margin in the quarter. While tariff refunds added 7.9% to that number, the company had only guided for about a 10% operating margin in the quarter.

Abercrombie picked up another 2% from favorable gross margin and operating leverage, due to stronger sales.

CEO Fran Horowitz said the brand is seeing success globally and across genders, with knits, woven shirts, pants, and shorts all performing well.

Horowitz also said the company's partnership with the NFL continues to appeal to sports fans, while Hollister's partnership with Target has brought in new customers and strengthened its relationship with existing ones.

Where can the stock go from here?

Following the big move, Abercrombie now trades at about 14 times forward earnings.

The company is also repurchasing stock and has bought back 7% of its shares since the year began. Management now plans to return at least $500 million to shareholders through repurchases in fiscal 2026; so far, it has repurchased $282 million.

The new guidance also suggests that quarterly sales growth will accelerate from here, and management believes it can achieve industry-leading margins again this year.

Companies like Abercrombie are somewhat tied to the economy and consumer spending, so that's a potential risk as inflation remains elevated.

But I do think long-term investors can buy Abercrombie & Fitch, given the strength in the underlying business. Investors may want to dollar-cost average into the stock right now, as I suspect some near-term-minded investors will take profits after the big gains.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool recommends Abercrombie & Fitch. The Motley Fool has a disclosure policy.

U.S. Treasury Secretary Scott Bessent recently surprised the bond market by announcing that the Treasury would repurchase a larger amount of longer-duration bonds to ease longer-term yields, which have surged lately.

The announcement has received a lackluster response. Many believe the move is unlikely to constrain yields, while others are confused by the Treasury's decision. The yield on the 30-year U.S. Treasury bond has come off its highs after surging to 5.32% and was slightly below 5.19%, as of this writing (Aug. 25).

The move could have unintended consequences, particularly for Fed Chair Kevin Warsh.

U.S. Treasury Secretary Scott Bessent (center). Image source: The White House.

Bessent is trying to get long-term yields under control

The Treasury regularly repurchases outstanding Treasury bonds being held by investors and retires them. Before Bessent's announcement, the Treasury had been repurchasing about $2 billion of longer-dated Treasuries on a regular schedule, typically several times per month.

Bessent announced that the Treasury plans to expand this part of the program to at least $4 billion of longer-dated bond repurchases. "Part of it is signaling here and to show that we believe that the yields don't reflect the underlying fundamentals," Bessent told CNBC on Aug. 20.

What seemed to catch many experts off guard was that Bessent announced the plans two weeks after the Treasury's quarterly refunding announcement, the time when the Treasury would typically announce changes like this.

The market can be incredibly sensitive to seemingly minor changes by the Treasury or the Fed because it might hint at a broader trend or event.

Furthermore, CNBC, citing anonymous sources, reported on Aug. 24 that the Treasury could fund such repurchases from its $1 trillion general account, perhaps suggesting it wouldn't have to issue new bonds, as investors may have assumed.

This could have a more powerful effect in reducing supply, which would drive up demand and, in turn, long-term bond prices, sending yields lower. Still, much is unclear about how the plan will proceed, and the Treasury could still issue new bonds to fund the repurchases.

How can Warsh be a hawk when this is happening?

When Kevin Warsh became the new chair of the Federal Reserve's Board of Governors this year, the big debate was whether he would be hawkish and in favor of interest rate hikes to stamp out persistent inflation or dovish.

Warsh has been clear that he wants to shrink the Fed's balance sheet over time, a hawkish stance. But he was also nominated by President Donald Trump, who greatly desires interest rate cuts.

Meanwhile, Warsh has confused the market in his first few Federal Open Market Committee (FOMC) meetings. On one hand, Warsh has repeatedly said that he believes prices are too high and that the Fed will rein in inflation.

However, Warsh has also said that he prefers to measure inflation differently from how the Fed measures it now. The method he's discussed, the "trimmed average" approach, would actually indicate inflation is lower than under the current methods.

Bessent's expanded repurchase program makes it harder for Warsh to be a hawk because raising the Fed's overnight borrowing rate, the federal funds rate, could very well put upward pressure on long-term yields, which the federal funds rate influences.

Shrinking the balance sheet could also put upward pressure on long-term yields, although Warsh is unlikely to do much on this front in the near term. Bessent's move could also undercut Warsh, according to EY-Parthenon chief economist Gregory Daco.

"There is a risk, if you extend this thought process, that we have entered into an environment of fiscal dominance, where essentially the Fed is taking its instruction from the Treasury and delivering upon a desired outcome of lower long-term interest rates," Daco said, according to MarketWatch.

In another CNBC interview, Bessent said that the expanded buyback announcement "has nothing to do" with the Federal Reserve and its decision on whether to raise rates later this year.

Evercore ISI senior economist Marco Casiraghi also said the Treasury's expanded buyback program could ultimately weaken the dollar, which could lead to higher inflation.

While all this could be true, it would seem odd, at least in the near term, for the Fed to raise interest rates at the exact time the Treasury is trying to lower long-term yields.

It's likely to make the market wonder who's truly driving the bus and could also result in the market paying less attention to Warsh or taking his claims about reining in inflation less seriously.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Evercore. The Motley Fool has a disclosure policy.

The Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, rose a seasonally adjusted 0.2% in July and was up 3.7% year over year.

Both numbers came in at 0.1% above economists' expectations.

Core PCE, which excludes more volatile food and energy prices, rose 0.2% during the month and came in 3.3% higher year over year, both in line with estimates.

It's another data point the Federal Reserve will have to contend with as it considers whether to raise interest rates this year.

Here's what investors need to know.

Image source: Getty Images.

Breaking a trend

Not only is the 3.3% core PCE reading still well above the Fed's preferred 2% target, but the stickier PCE reading also breaks a recent trend, suggesting inflation might be slowing.

The Consumer Price Index (CPI) came in soft in both June and July, and July's jobs report also showed that nonfarm payrolls lost 23,000 jobs, well below consensus estimates calling for an 85,000 gain.

The latest PCE report showed that personal income rose 0.4% in the month, while spending rose 0.2%, both higher than expected and potentially indicative of inflation.

Over two quarters of U.S. gross domestic product (GDP) is driven by consumer spending, so if people have money to spend and are spending that can drive inflation higher.

US Core PCE Price Index MoM data by YCharts

"The United States still has an inflation problem. PCE inflation came in hotter than expected," Heather Long, chief economist at the Navy Federal Credit Union, told CBS News in an email. "The impacts of the war in Iran are still apparent with $4 gas and $5.60 diesel."

Due to high gas prices, economists and investors have focused more on core inflation data, which excludes energy prices that have been on a roller coaster ride since the Iran war began.

However, gas prices have a way of trickling down into all parts of the economy. For instance, many businesses that have items shipped to them may be facing higher costs on this front due to higher gas prices.

Will this impact the Fed's trajectory?

Aside from persistently elevated costs significantly hurting Americans' purchasing power, the other big focus is on the Fed and whether it will raise interest rates at any of its three remaining meetings in 2026.

The Fed is divided on the matter. The rate-setting Federal Open Market Committee (FOMC) elected to keep interest rates steady at its last meeting, but three members dissented in favor of a hike.

Looking at CME Group's FedWatch tool, the likelihood of the FOMC holding interest rates within their current 3.50%-3.75% range in September actually increased slightly from yesterday to nearly 62%. The same trend is evident in the odds for the FOMC's October meeting.

However, the FOMC is still expected to hike rates by a quarter point in December, with a roughly 45% chance. There is a nearly 26.5% chance the Fed leaves rates where they are in December, and a nearly 24.5% chance the Fed hikes by half a point by then.

The big takeaway for me is that the recent PCE report didn't change much. It's likely not enough on its own to prompt a rate hike, but it doesn’t rule out one later this year, either.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CME Group. The Motley Fool has a disclosure policy.

Longer-duration bonds have seen their yields soar in recent weeks. None more than the yield on the 30-year U.S. Treasury bond, which hovered around 5.23% (as of Aug. 24), nearing its highest level seen since 2007.

Longer-duration bonds have rocketed higher as inflation remains elevated, the Iran war continues on with no obvious end in sight, and the national debt has just topped $40 trillion.

The 30-year bond now is offering a higher yield than top dividend stocks like Ford Motor Company and Coca-Cola (NYSE: KO). Has it officially become the best source of passive income?

Image source: Getty Images.

Why longer-term bond yields have soared

Bonds are much different than stocks.

A bond is a form of debt, so when you buy a U.S. government bond, you are effectively loaning the government money to be paid back later. Bond investors also receive interest payments every six months.

However, bond yields have an inverse relationship to bond prices. A bond's coupon payments are fixed, so a falling price means those same payments represent a higher return.

Bond prices also fall when interest rates rise because new bonds are issued at higher yields, making older bonds less valuable.

Bond yields, particularly at the longer end of the yield curve, are also influenced by market factors, including future expectations for inflation and economic growth. Both yields and bond prices are influenced by supply and demand, so a number of factors could impact the bond market.

More recently, some investors have expressed growing concern that the government has taken on way too much debt, leading to higher interest payments each year in the fiscal budget.

The government is running a roughly $1.8 trillion deficit in the current fiscal year, meaning spending continues to outpace receipts by a wide margin.

While high debt is nothing new, investors worry that the situation will soon get out of control. This is part of why yields on the longest part of the yield curve, the 30-year, have surged: investors again want more yield for what they see as an increasingly untenable situation.

Higher yields can hint at trouble

As with dividend stocks, a rapidly rising Treasury yield can signal risk. As recently as late February, the 30-year yield sat below 4.70%, and the Federal Reserve has not adjusted interest rates since then.

30 Year Treasury Rate data by YCharts

So I certainly wouldn't call the rising 30-year yield a good thing.

In fact, U.S. Treasury Secretary Scott Bessent recently announced that the Treasury plans to repurchase over $4 billion in bonds at the longer end of the curve on a regular basis. Bessent said that the goal is to signal to the market that the Treasury does not believe current yields "... reflect the underlying fundamentals."

However, this has done little to quell concerns.

U.S. government bonds have long been perceived as among the safest assets in the world, given that the U.S. dollar is the world's reserve currency. Some would also argue that this also means the government cannot default on its debt.

One thing about bonds is that even if their prices fall, as long as you hold them to maturity, you will be made whole, so long as there is no default.

If you have a 30-year runway, buying a 30-year bond right now could end up being a good move. Sitting here today, even with $40 trillion in debt, it's still hard to bet against the U.S. government.

But it is not risk-free, and the big takeaway is that an asset once seen as ironclad now has perceived risk. Debt has been piling up for decades, and there seems to be very little political will to address it because most options will not be easy on the economy.

So, I don't see this as a no-brainer decision. In fact, I'm still more likely to take Coca-Cola's 2.33% trailing dividend yield right now.

Not only does Coca-Cola have one of the most iconic brands in the world, but the company should continue to grow its earnings over the long term, which should drive further appreciation in the stock. Coca-Cola is also a Dividend King that has paid and raised its dividend for 64 straight years now.

I would, however, consider the 30-year bond over Ford, which has a trailing yield of nearly 4.2%. Ford's track record is not nearly as strong as Coca-Cola's, having suspended its dividend in 2020 during the COVID-19 pandemic.

Bram Berkowitz 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.

Apple (NASDAQ:AAPL) is retrofitting the newest version of its Mac Studio with chips specifically designed for better artificial intelligence performance.

In a press release today, Apple announced that the latest version of its Mac Studio will feature the new M5 Max and M5 Ultra chips, "delivering a monumental leap in AI performance and even faster graphics for the most demanding pro workflows, all in its signature compact design that lives right on a user's desk."

Here's what Apple's capital-light AI strategy means for investors.

Image source: The Motley Fool.

Why AI developers have flocked to the Mac Studio

Developers have reportedly preferred using OpenClaw, an open-source AI digital assistant, on Mac Studios, which have no built-in display.

According to Apple, the Mac Studio can have up to 512 gigabytes of unified memory and 1.2 terabytes of memory bandwidth, enabling users to run large AI models privately without worrying about high cloud costs due to token usage.

"With the powerful M5 Max and the incredible capabilities of M5 Ultra, Mac Studio ushers in a new era of desktop computing, delivering huge performance gains for pro workloads and AI inference with frontier-class models," Apple's Chief Hardware Officer Johny Srouji said in a statement. "By integrating Neural Accelerators directly into the GPU and offering massive amounts of high-bandwidth unified memory, the new Mac Studio is our most powerful Mac ever."

Apple says the new Mac Studio will have 4.3 times faster AI performance, two times faster storage, up to 1.8 times faster graphics, and up to 1.3 times faster speed from its central processing units (CPUs).

The new Mac Studio with an M5 Max Chip will start at $2,499, while the one with the M5 Ultra chip will start at $5,499.

Apple increased prices on many of its products in June, largely due to higher memory prices.

Apple is sticking to what it knows

In recent years, Apple has taken flak from investors, who didn't think the tech giant had a strong enough AI strategy.

While hyperscalers are spending hundreds of billions to build out data centers, Apple has remained on the sidelines.

This has proven to be an advantage at times, especially as investors have worried about whether the hyperscalers will be able to achieve adequate returns on all this investment, which has deteriorated their free cash flow.

Ultimately, though, investors still want to see an AI strategy, so the company does not get left behind in what some have called the fourth industrial revolution.

Evercore ISI analyst Amit Daryanani recently reiterated his outperform rating on the stock and $365 price target in response to the news.

Daryanani sees this as another way Apple has leveraged its own chip designs to position its Mac Studio as a key platform for AI workflows and a local AI and deskside companion, rather than simply a more affordable desktop.

It's certainly a good sign to see Apple deliver AI through its hardware, as this is the company's core strength. It's even better to see the products resonating with AI developers.

Apple introduced AI to its iPhones with Apple Intelligence, but it failed to deliver a significant leap forward, at least in the eyes of most consumers and investors.

Apple's strategy of acting as a bridge by bringing AI to people through its devices is a good direction for the company to move in, rather than throwing money at an area where it has less experience.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.

While retail investors should always conduct their own due diligence before purchasing any stock, it can be helpful to know who is or isn't investing alongside them.

Seeing a big company or institution invest in the same stock can serve as validation for one's thesis. It can also help frame another company's relationship. For instance, Nvidia has been scrutinized for investing in key suppliers and customers.

Given that Space Exploration Technologies Corp (NASDAQ: SPCX) had the largest initial public offering ever and will make its way into many retirement folders, whether investors like it or not, it's worth knowing who else is investing in SpaceX.

These were the three largest investors at the end of the second quarter.

Image source: The Motley Fool.

1. Alphabet: $94.2 billion

At the end of the second quarter, Alphabet owned over 551 million shares of SpaceX valued at nearly $94.2 billion. Many of SpaceX's largest investors, including Alphabet, invested in early venture rounds.

Alphabet first invested $900 million in SpaceX in 2015, meaning that investment is now up 100-fold.

"Space-based applications like imaging satellites can help people more easily access important information, so we're excited to support SpaceX's growth as it develops new launch technologies," Google's Vice President for Corporate Development, Don Harrison, said in a statement at the time of the investment.

While Alphabet was likely interested in space, the concept of Starlink, SpaceX's low-Earth-orbit satellite network, may have been the distinguishing factor. After all, the company wants more people using Google, which is only possible if more people have high-speed internet.

This would also help Alphabet's other businesses, like YouTube and Waymo.

Earlier this year, Alphabet also announced that it would lease a substantial amount of SpaceX's terrestrial data center capacity. Google will soon pay $920 million per month to lease 110,000 Nvidia graphics processing units, central processing units, and memory, all within SpaceX data centers.

2. Valor Management LLC: $86 billion

SpaceX Founder Elon Musk has garnered much criticism over his career, but also many fans, who he has helped make a lot of money along the way.

Musk's close friend, Antonio Gracias, owns the firm Valor Equity Partners, which, at the end of the second quarter, disclosed a stake in SpaceX valued at over $86 billion. Gracias is also one of Musk's biggest cheerleaders.

He's served on SpaceX's board since 2010 and has also served on the board of directors of Tesla and other private companies Musk has launched. The Wall Street Journal also reported that Gracias was a groomsman at Kimbal Musk's wedding and has previously lent Elon Musk money. Kimbal is Elon's brother.

3. FMR LLC (Fidelity): $51.6 billion

At the end of the second quarter, FMR LLC disclosed a $51.6 billion position in SpaceX. FMR is the legal name for Fidelity Investments, one of the largest financial custodians, investment brokerages, and distributors of retirement plans in the U.S.

Fidelity was also an early investor in SpaceX. The Wall Street Journal has reported that the investment was made by Gavin Baker, who at the time was one of the standout investors at Fidelity.

Baker left Fidelity in 2019 to launch his own hedge fund, called Atreides Management, which reported a $4.67 billion position in SpaceX at the end of the second quarter. Baker clearly has plenty of faith in Musk.

"Elon has always made investors money. He treats it like a sacred covenant," Baker said on a podcast back in May.

Like some of SpaceX's staunchest advocates, Baker has said SpaceX has the potential to become "the most important enterprise in human history," adding that it could turn into the "British East India Company of the solar system era."

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Nvidia, and Tesla. The Motley Fool has a disclosure policy.

Each month, there are typically a few days when news or a single data point can more or less move the entire market in one direction or the other. Often, it might be the monthly jobs or inflation report. Rarely does it involve just one company.

But on Aug. 26, it will be all about Nvidia (NASDAQ: NVDA), the world's largest company by market capitalization, with a $5.2 trillion market cap and nearly 7.3% weighting in the broader benchmark S&P 500 Index.

After the market closes, the company will report earnings results for the second quarter of its fiscal year 2027, followed by a conference call between CEO Jensen Huang, other members of Nvidia's C-suite, and Wall Street analysts.

It's a big day for the market.

Image source: Getty Images.

The AI trade depends on Nvidia

For the past several years, artificial intelligence has driven the stock market higher and played a big role in economic growth. So, if the AI trade falters, most of the market could suffer as well.

Nvidia is at the center of this trade, as the company provides the bulk of graphics processing units (GPUs) and also central processing units (CPUs) that essentially power AI. Of course, Nvidia needs demand for its chips, but its earnings results are typically a pretty good indicator of the broader AI trade.

In recent months, Nvidia has also taken steps to seemingly shore up the industry.

For instance, securities filings recently revealed that Nvidia will provide $105 billion to help OpenAI fund and build a new data center in Ohio capable of delivering 4.2 gigawatts (GW) of AI compute, with the potential for an additional 3.75 GW.

In a recent CNBC panel, Huang and several of the largest banks and firms on Wall Street announced a memorandum of understanding to securitize GPUs to facilitate funding for data centers.

Nvidia also said it would have the option to backstop up to a quarter of each loan to provide better interest rates for borrowers.

Details are scant, but this continues to make the health of Nvidia more vital to the AI trade, which is already quite critical for the market that is attempting to generate three straight years of returns of at least 20%.

What Nvidia will need to do to move the market higher

One issue for Nvidia is that the company has been so successful that the bar is already incredibly high. Simply reporting earnings and revenue ahead of consensus estimates doesn't necessarily guarantee the stock will move higher.

Wall Street analysts expect Nvidia to report $92.07 billion of adjusted revenue in the second quarter, representing nearly 97% year-over-year growth. Adjusted earnings per share are projected to be $2.09, up nearly double from the same quarter one year ago.

As reported by MarketWatch, the boutique investment firm BeSpoke recently said Nvidia is already "a triple-play king," meaning it regularly beats consensus estimates for earnings, revenue, and forward guidance. In fact, it's done this in 14 of its last 20 earnings reports.

So, it will likely take more than a triple play for Nvidia to move the needle.

Some other things Nvidia could do to get the market's attention include continuing to report gross margins in the mid-70s percentile. Gross margins indicate the company's moat and pricing power, which some investors worry could deteriorate as chips become more commoditized.

In its first quarter of fiscal 2027. Nvidia reported adjusted gross margins of 75% and guided for the same result, plus or minus 0.5%, in the second quarter.

Investors will also be curious about what demand is like for Nvidia's most advanced GPU yet, the Vera Rubin, and how its newly launched CPU product is faring.

Nvidia caught some investors by surprise -- in a good way -- when it announced that its new CPU, specifically built for agentic AI, is expected to generate $20 billion in revenue this year alone, instantly making it one of the dominant CPU players.

Whether you are invested in Nvidia or not, investors should pay attention to the earnings report. As the largest stock in the S&P 500, it could move the index significantly following earnings.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

Nine automakers, including Tesla (NASDAQ:TSLA), plan to recall a record 4 million-plus vehicles. Tesla by far has the most vehicles to recall, at nearly 3 million.

The stock fell nearly 4% on Aug. 24.

Chinese regulators are enforcing the recall due to door handles that potentially make it difficult for people to find and use them in an emergency.

On Tesla vehicles, exterior door handles are electric and draw power from the vehicle's operating system, rather than being mechanical and connected to a latch. Manual door releases do exist on the inside, but they can reportedly be difficult to find.

Tesla's door handles gave its electric vehicles a sleek, futuristic look, which other automakers have mimicked. Other automakers recalling vehicles in China include Xiaomi, Leapmotor, Xpeng, and Geely Holding.

In a statement on Aug. 21, Tesla said vehicles being recalled include its Model 3, Y, S, and X, citing door handles that blend into the interior.

"In extreme situations such as a severe collision causing the vehicle's low-voltage system to fail, this could hinder occupants from quickly opening the doors to escape and impede rescue efforts by those outside the vehicle, posing a safety hazard," Tesla said in a statement reported by various media outlets.

Here's what else investors need to know.

Image source: Tesla.

Regulators crack down

According to Reuters, Chinese regulators are responding to several past incidents in which electric door-handle releases failed during emergencies.

Last October, Chinese state media reported that a driver in a Xiaomi vehicle died after an accident in which people nearby could not open the vehicle's door.

The recall is not a total surprise, as China announced a ban on concealed door handles in electric vehicles, starting in 2027, although existing vehicles that have already been approved have until 2029 to make the changes.

Under new rules, vehicles must have a manual release handle on both the inside and outside of the vehicle, according to the BBC.

In the near term, Tesla and the other automakers plan to add warning labels to their vehicles and make remote software updates. For instance, according to Reuters, Tesla's update will have windows open following a crash or accident.

Chinese regulators aren't the only ones looking at door handles.

In 2025, the National Highway Traffic Safety Administration (NHTSA) also investigated reported incidents in which vehicle operators could not get into their vehicles in certain situations due to malfunctioning door handles.

The NHTSA's Office of Defects Investigation conducted a preliminary review that found the door handles may not work if they don't receive enough power from Tesla's battery system.

How big a deal is this for Tesla stock?

While Tesla stock fell nearly 4% on Aug. 24, tech stocks also underperformed due to rising long-term bond yields that have been rattling investors lately.

Tesla's door handles have helped the company stand out, so perhaps this impacts the branding in some way.

But while it's not a good headline, I doubt it will be a long-term issue for the stock. Most Tesla investors have moved on from the core EV business, which has struggled for several years.

Many Chinese competitors were already developing cheaper models with performance similar to Tesla's.

Investors are now focused on Tesla's emerging robotaxi fleet and humanoid robots, so yes, existing models still need to be fixed, but there are bigger issues the market is focused on.

Regardless, I still believe Tesla's valuation is far too stretched to make it an appealing investment right now.

Bram Berkowitz 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.

Li Lu, the founder and chairman of Himalaya Capital, has an incredible story.

The Chinese native served as a student leader during the Tiananmen Square protests in 1989 and eventually became a deputy commander-in-chief. After being added to China's most-wanted list, Lu eventually escaped to America and fell in love with investing.

Lu actually chose to become a value investor after hearing the great Warren Buffett speak at a lecture at Columbia University. He eventually established a close relationship with Buffett's right-hand man, Charlie Munger, who called Lu the "Chinese Warren Buffett."

Munger even invested tens of millions of his personal money into Himalaya Capital, the fund Lu founded in 1997. Lu runs a concentrated stock portfolio of just seven stocks valued at over $3.7 billion at the end of the second quarter.

The concentration is also evident in the way Buffett and Munger invest. At the end of the second quarter, Lu had invested 70% of Himalaya's capital in just two companies.

Image source: Getty Images.

1. Alphabet: 48%

Lu and his team are all in on Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), with 48% of the fund's capital split among class A and C shares of the stock. Interestingly, Berkshire Hathaway has also recently made Alphabet one of its largest equity positions.

Himalaya first began buying Alphabet in the second quarter of 2020 and has significantly increased its position. The stock has performed phenomenally since then.

GOOG data by YCharts

Alphabet has faced significant challenges during this time, including a Department of Justice (DOJ) lawsuit alleging that Google engaged in monopolistic practices in its digital search and advertising business.

While a federal judge agreed with the DOJ, the judge also stopped short of imposing the punitive measures investors feared, such as requiring the company to divest its Chrome web browser or preventing Alphabet from paying Apple to make Google the default search engine in Apple's Safari web browser.

Investors have also been worried about how Google would compete with emerging large language models (LLMs) that are challenging traditional search, a market it has long dominated.

However, Google's artificial intelligence overviews at the top of most search results and its Gemini family of LLMs are competitive. Other Alphabet businesses, such as YouTube, Waymo, cloud, and its custom chip unit, have also proven to be strong.

Currently trading at 16.4 times forward earnings, it's clear that the team at Berkshire and Lu think they are still buying a wonderful company in Alphabet at a fair price in the long term.

2. PDD Holdings: 22%

PDD Holdings (NASDAQ: PDD) is a large e-commerce company based in China. The company owns brands such as Pinduoduo, which allows people in China to buy items at lower prices by adding friends and family to a group, essentially buying in bulk.

PDD also owns Temu, an international e-commerce marketplace that operates in the U.S. and connects consumers directly with factories and manufacturers in China, giving them access to deep discounts.

Himalaya has owned the stock since the second quarter of 2025 and has significantly increased its position since then. The stock has struggled in this period, however.

PDD data by YCharts

PDD has struggled for a few reasons. The trade war between the U.S. and China, which essentially broke out when President Donald Trump took office, has hurt Chinese companies. However, there's also been fierce competition in China with other large e-commerce players like Alibaba and JD.com.

Economic growth in China has also been decelerating recently, which might be pressuring the business.

Trading at below 9 times forward earnings, the stock is cheap and has a huge opportunity with the Chinese economy.

But U.S. investors really need to understand China's regulatory environment and economy if they are going to invest in Chinese stocks, despite how tempting the valuations might be.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, and Berkshire Hathaway. The Motley Fool recommends Alibaba Group and JD.com. The Motley Fool has a disclosure policy.

In today's stock market, department stores aren't exactly what comes to mind when asked to discuss the hottest stocks. That slot is typically reserved for artificial intelligence (AI), which is proving to be massively disruptive to society. New Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB) CEO Greg Abel, for instance, has not shied away from this trend. Under Abel's leadership, Berkshire has spent tens of billions of dollars over the past year buying stock in AI giant Alphabet.

But in the second quarter, Berkshire also spent time purchasing several other stocks, including a legacy department store with little connection to AI. Does Abel know something that Wall Street doesn't?

Image source: The Motley Fool.

'A Bold New Chapter'

In the second quarter, Berkshire more than doubled its position in Macy's (NYSE: M). The position remains small, valued at roughly $173 million at the end of the second quarter and accounting for 0.1% of Berkshire's massive portfolio.

It's easy to see why investors might be glossing over Macy's, but the company has been focused on a turnaround strategy called "A Bold New Chapter," which began in 2024 and has three major parts.

The first involved revamping the company's footprint, including closing 150 locations that were no longer productive and investing in roughly 350 stronger-performing stores to make them even more appealing to customers.

The second part of the strategy involved focusing more on Macy's luxury brands, such as Bloomingdale's and Bluemercury, which have been strong performers. This means adding new stores under these brands and remodeling some existing ones.

The final part of the turnaround includes streamlining back-end operations, such as the company's supply chain asset portfolio, and creating a scalable technology platform.

Macy's efforts have paid off. In the first quarter of its fiscal year 2026, the company posted its best comparable sales growth in four years. Reimagined store locations saw 2.4% year-over-year growth and have now posted positive annual growth in eight of the last nine quarters.

Bloomingdale's reported 10.2% year-over-year growth, the highest first-quarter growth in Macy's 154-year history. Macy's has also developed an Ask Macy's AI-powered assistant to drive higher conversion online. The market seems to like the results, with the stock up roughly 78% in the past year.

Macy's now trades at 10.5 times forward earnings.

While Abel is buying, Wall Street thinks it's time to pump the brakes

The strong run has led most Wall Street analysts to press the pause button.

Of the 10 analysts who have issued research reports on Macy's over the past three months, one still has a buy rating, eight recommend holding, and one recommends selling. The average price target implies about 4.5% downside from current levels (as of Aug. 20), according to TipRanks.

Some of this reserve among analysts likely stems from concern about consumers and whether they can maintain spending levels amid elevated inflation.

While it's tough to know exactly why Abel or Berkshire's Executive Chairman and former CEO, Warren Buffett, are buying the stock, it likely has to do with the fact that Macy's has executed on its turnaround plan, trades at a relatively low valuation, and is not overly levered with debt.

Furthermore, Macy's is returning ample amounts of capital to shareholders. The company has a roughly 3.3% trailing dividend yield, which appears easily covered by free cash flow.

In the first quarter, I estimate Macy's generated $115 million of free cash flow, including capitalized software expenses, while annualized dividends were only $200 million. In fiscal 2025, I estimate Macy's had $690 million of free cash flow, including capitalized software expenses.

Macy's is also buying back stock while it's inexpensive, and it still has $1.1 billion remaining under its share repurchase authorization.

These are the ingredients Buffett has historically looked for: a strong brand, a business finding its footing, free cash flow generation, and the return of a lot of money to shareholders. As I mentioned, Macy's is a relatively small position for Berkshire that won't hurt the company, regardless of what happens.

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

It can be tempting for investors to buy stocks with high dividend yields. That's real passive income they'll collect in the near term. And even if a company is facing complications that have crushed its stock price, that doesn't mean it'll necessarily have to cut its dividend in the near term. The company could still have plenty of cash and generate ample free cash flow to cover the dividend for a few more quarters or years.

However, this situation is commonly known as a yield trap, and it defeats the main purpose of buying a dividend stock in the first place: reliable passive income.

I think investors should avoid these high-yield traps and simply put their money in Coca-Cola (NYSE: KO), a company that pays a solid yield, has a strong business, and a terrific track record. It's what makes Coca-Cola one of the best dividend stocks around.

Image source: The Motley Fool.

Why it's one of Warren Buffett's favorite stocks

If you don't want to take my word for it, then how about Warren Buffett, a man widely viewed as one of the best investors of all time? Coca-Cola remains one of the largest holdings in Berkshire Hathaway's massive equity portfolio. Berkshire's position in Coca-Cola is now valued at over $36 billion.

Interestingly, Coca-Cola is also one of the oldest stocks in Berkshire's portfolio. Buffett and his team began buying the stock in the 1980s and completed their 400 million-share purchase in the early 1990s. Berkshire hasn't sold a share since.

A major reason Buffett and Berkshire have planned to hold Coca-Cola "forever" is the company's dividend.

"The cash dividend we received from Coke in 1994 was $75 million. By 2022, the dividend had increased to $704 million," Buffett opined in his 2022 letter to shareholders. "Growth occurred every year, just as certain as birthdays. All Charlie [Munger] and I were required to do was cash Coke's quarterly dividend checks. We expect that those checks are highly likely to grow."

Where does the dividend stand today?

Now, if you are still skeptical, then you can simply look at Coca-Cola's track record and the state of the dividend today.

Coca-Cola is rare in that it's part of an elite group of stocks called Dividend Kings. This group of companies have not only paid their dividends for at least 50 years, but also raised their dividends in each one of these years as well. In fact, Coca-Cola has paid and raised its dividend for an incredible 64 consecutive years.

This means the dividend is a major reason investors buy the stock. Management would not break its epic track record with the dividend unless it had no choice, because cutting the dividend, or even leaving it stagnant, could trigger a big sell-off for the stock.

Coca-Cola also has a rock-solid 2.34% trailing 12-month dividend yield, and that's after the stock price has jumped nearly 31% higher this year. The yield used to be well over 3%.

In the second quarter of the year, Coca-Cola grew earnings per share by 17% year over year; earnings growth typically bodes well for dividend growth.

Meanwhile, the company has paid out nearly $4.6 billion in dividends to shareholders through the first six months of its fiscal year, while generating nearly $6.9 billion of free cash flow, showing that the dividend is well covered.

Investors can certainly look elsewhere and try to buy stocks with larger yields, but history tells us these usually come with trouble. My recommendation for those seeking passive income is to simply invest in Coca-Cola, then forget about it for a while and let the money roll in.

The company has one of the most enviable brands in the world, is executing its strategic plan, and is a good defensive company to own when market or economic conditions get more difficult.

Bram Berkowitz 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) index has been on a phenomenal run in recent years, with the broader benchmark more than doubling since the start of 2023.

Investors have grown their wealth significantly in this time, but all success comes with a price. In this case, the market now looks quite expensive. In fact, the S&P 500 trades at its most expensive valuation in decades.

Many investors are now bracing for a correction or pullback. History has both good and bad news.

Image source: Getty Images.

Bad news: a big pullback is likely coming

Well, the obvious bad news for investors is that, based on what the market has been doing and signaling this year, history suggests that the market could be headed for a significant correction, a bear market, or even worse.

Now, a correction, in which the market falls 10%, is actually not all that uncommon and happens more than you think. But if we look back at history, there's also a chance the market could undergo an even bigger reset.

Looking at the Shiller CAPE ratio, which divides the S&P 500 by its average 10-year, inflation-adjusted earnings, the market is as expensive as it has been since before the Dot-Com Bubble.

The Shiller CAPE ratio uses a 10-year average of inflation-adjusted earnings to smooth out volatility the market encounters over the course of an entire business cycle.

Data by YCharts.

The whole Dot-Com era proved to be one of volatility. Between 1995 and 2000, the tech-heavy Nasdaq Composite (NASDAQINDEX: ^IXIC) surged about 500%. Once the Dot-Com Bubble burst, the Nasdaq lost 77% of its value by October 2002.

It would recover some, only to take another big hit during the Great Recession.

Given the similarities between the internet-fueled Dot-Com Bubble and the current artificial intelligence supercycle, investors should brace for a significant pullback.

Now, the saying goes that while history often rhymes, it rarely repeats. The fact that so many investors are bracing for a pullback makes me believe it may not happen in the near term or may occur due to some unforeseen circumstance.

It may also happen much faster than in the past, as we've seen with big sell-offs in recent years. They happen quickly, and the market rebounds quickly, so perhaps that's the new reality.

Investors concerned about a big sell-off can hedge by diversifying some of their holdings into sectors less affected by AI or into an equal-weight S&P 500 fund, which is not market weighted.

Good news: investors should be OK in the long term

The good news is that history shows the market tends to rise over the long term, and there's no reason to believe it won't continue to do so.

Even though the market and internet stocks got crushed in the early 2000s, look at where we are today. The internet did indeed change the world, and many companies that recognized this early on ended up doing extraordinarily well.

However, some of the first companies that tried to take advantage of the internet didn't do so well, and it took longer than many expected for the internet to work.

A similar tale could play out for AI. Perhaps it won't be Anthropic or OpenAI that ends up being the winning artificial intelligence models. Perhaps even some hyperscalers will be eclipsed by other companies.

The overall lesson for investors is to assess where you are in your investing journey. If you are older, plan to retire in a few years, and want to focus on capital preservation, the S&P 500 may not be the best place to invest.

If you are younger and have a 10- to 20-year runway ahead, then you can stay invested in the market and be more aggressive. However, if you own individual stocks, it's always good practice to look at valuations and assess whether the company can continue to grow earnings steadily and consistently over the next decade.

Bram Berkowitz 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.

Several weeks ago, most experts believed the Clarity Act faced an uphill battle for passage after the U.S. Senate failed to hold a vote on the crypto legislation before its August recess.

That's because there is very little time once the Senate returns in September before it breaks again in early October for the midterm elections.

However, after some pressure from President Donald Trump, a cloture vote will move forward on Sept. 15, the day after Senators return from the August recess.

The cloture vote would not formally pass the bill, but would end debate and filibuster, paving the way for a formal vote. The cloture vote would require 60 votes to pass, the same number required to ultimately pass the bill, so it could be a strong indication of where things stand.

The fact that a date has been set adds real momentum to the legislation, and Coinbase CEO Brian Armstrong now thinks the Clarity Act will pass, which would be very bullish for Bitcoin (CRYPTO:BTC).

Image source: Getty Images.

Passage of the Clarity Act could be just what Bitcoin needs

It has been a bleak crypto winter for all cryptocurrencies, including Bitcoin, the world's largest. Even after a 22% rally over the past five days, Bitcoin is still down 12% on the year.

News about the Clarity Act vote is likely responsible for today's rally. The Clarity Act is a sweeping bill that would establish a broader regulatory framework for crypto and, hopefully, clarify regulatory gray areas.

The bill defines what a "mature blockchain" is and helps decipher who has regulatory jurisdiction over certain cryptocurrencies, which has been a major gray area.

Both the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) have, at times, claimed jurisdiction over certain crypto markets.

Crypto advocates would prefer that cryptocurrencies not be classified as traditional securities, which are subject to much more stringent regulation.

The Clarity Act would give the CFTC exclusive jurisdiction over the spot markets of "digital commodities." Furthermore, the Clarity Act contains key language regarding stablecoins and the rewards they can offer customers, a controversial issue.

The proposed bill would not allow idle stablecoins to earn yield, which banking industry stakeholders have claimed could lead to significant deposit outflows from the traditional banking system. However, stablecoins could issue rewards for certain activities, such as transactions, similar to credit card reward points.

One of the reasons Bitcoin performed so well shortly after President Donald Trump won the 2024 election is that Trump promised to make the U.S. the crypto capital of the world, in part by establishing regulations that would allow the crypto sector to progress.

The passage of the Clarity Act would allow mainstream financial institutions, businesses, and consumers to engage with crypto with greater certainty and less fear of retribution.

Will it pass?

The bill requires 60 affirmative votes in the Senate for passage. Armstrong, a clear advocate for the bill, recently told CNBC he believes passage is likely.

"He (Sen. Majority Leader John Thune) would not have scheduled this on Sept. 15 if he didn't think it would pass," Armstrong said. "I'm pretty optimistic it will get over 60 votes, and I think both sides got 90% or so of what they want."

The odds on Kalshi are less optimistic, with 22% of people betting that the bill gets over 60 votes.

There are 53 Republicans, so seven Democrats would need to support the bill. Democrats have been reluctant to support the bill, calling for additional ethics provisions on how much politicians can invest in crypto entities, particularly after Trump reported massive crypto profits last year.

Banking groups have also expressed concern that the stablecoin legislation doesn't go far enough to protect the banking industry, so the Clarity Act does not appear to be a done deal. But the bill’s fate will certainly become much clearer on Sept. 15.

Bram Berkowitz has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool recommends Coinbase Global. The Motley Fool has a disclosure policy.

In the 1990s, Philippe Laffont cut his teeth working for Julian Robertson's legendary hedge fund, Tiger Management.

When Tiger Management closed in 2000, many of Robertson's disciples launched their own funds. This group is known as the "Tiger cubs," and many of them have done extraordinarily well.

Laffont is one example. His hedge fund, Coatue Management, had roughly $48.6 billion in assets under management at the end of the second quarter, and Laffont has become a billionaire himself.

At the end of the second quarter, nearly 23% of Coatue's capital was invested in three artificial intelligence (AI) stocks.

Image source: Getty Images.

Taiwan Semiconductor -- 8.8%

Taiwan Semiconductor doesn't quite get as much attention as a chip designer like Nvidia, but it arguably plays just as important a role in the AI build-out, given that it manufactures most of the complex chips that designers such as Nvidia create.

Various studies indicate that Taiwan Semiconductor now handles more than 70% of advanced AI chip manufacturing worldwide. Counterpoint Research put Taiwan Semiconductor's share of the third-party foundry market at 73% in the first quarter of 2026, up from 68% one year prior.

The stock is up nearly 72% in the past year. Taiwan Semiconductor has also been expanding its production capacity to meet the incredible demand for high-end chips. The company recently committed an additional $100 billion to its fabrication campus in Arizona, bringing its total planned investment on that site to $265 billion.

Nvidia CEO Jensen Huang has, on numerous occasions, more or less called Taiwan Semiconductor a critical part of the AI supply chain, not only because of its dominance in the foundry space but also because of the supply chain it has built en route to becoming the dominant chip manufacturer.

Micron Technology -- 7.5%

In the second quarter, Coatue increased its position in Micron Technology by 1,794%, bringing its total position at the end of the quarter to more than $3.6 billion.

Micron has been one of the hottest trades of the year, up roughly 197% (as of Aug. 18), driven by strong demand for memory, which plays a critical role in data centers by feeding data to graphics processing units (GPUs) and other processing chips.

Micron makes both NAND flash memory and dynamic random-access memory (DRAM).

NAND flash memory is a cheaper, long-term solution that can store massive data sets for GPUs, whereas DRAM is a temporary yet faster-to-access form of memory that helps AI models retrieve data so that they can process it and respond more rapidly to queries.

Demand for both types of memory has far exceeded the volume that manufacturers are able to produce, leading to soaring memory prices, and they are expected to remain supply-constrained until 2027 and maybe even 2028. Memory companies have historically been cyclical businesses in part because of the time it takes them to increase their manufacturing capacity. Whenever there's a shortage, they expand, but when supply catches up to demand, it usually overshoots, flipping the market dynamic. And often, by the time new foundries come online, memory demand has already declined, leading to a supply glut.

But some think the incredible level of memory demand being driven by the AI trend could change things. In the third quarter of its fiscal 2026, Micron inked 16 multiyear strategic customer agreements that will collectively generate at least $100 billion in revenue through 2030.

It's quite possible that Laffont and the Coatue team think this memory cycle could be very different for players like Micron.

SpaceX -- 6.5%

Coatue Management also makes venture investments in privately held companies, and Space Exploration Technologies (NASDAQ: SPCX) was one of them. Coatue reportedly gained exposure to the company in later private funding rounds, according to CNBC.

At the end of the second quarter, Coatue disclosed that its SpaceX position was valued at close to $3.2 billion.

Given that Laffont and the Coatue team are big believers in AI, that investment makes sense. In its registration statement, SpaceX asserted that its AI unit has a total addressable market (TAM) of $26.5 trillion.

SpaceX has already begun to forge lucrative deals leasing AI compute from its data centers, and the company claims it will be able to build more of them faster and monetize them more quickly than competitors. SpaceX also plans to build a massive chip manufacturing complex, dubbed "Terafab," and has big ambitions in space, including plans to deploy a constellation of orbital data center satellites.

Many of its space ambitions hinge on making its super-heavy-lift reusable rocket, Starship, operational and eventually deployable weekly, and possibly even daily.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

Billionaire investor Stanley Druckenmiller has reportedly never seen red.

The George Soros protégé ran his own fund, Duquesne Capital, for three decades, from 1981 to 2010, with no down years, and reportedly generating average annual returns of 30%, which is unheard of.

Today, Druckenmiller is still buying and selling stocks, although he runs a family office now called Duquesne Family Office. Needless to say, the market is still very interested in what Druckenmiller is investing in.

In the second quarter, Duquesne sold Intel and Micron, and piled into two other artificial intelligence (AI) stocks that are betting big on robotics.

Image source: Getty Images.

Selling Intel and Micron

Both Intel and Micron have already been big winners this year, particularly in the second quarter.

MU data by YCharts

Micron, a maker of NAND flash memory and dynamic random-access memory (DRAM), has benefited greatly from AI. Both NAND and DRAM play key roles in feeding data to graphics processing units (GPUs) in data centers that fuel AI models, so as GPU clusters and data centers have scaled, so, too, has demand for memory.

In fact, most experts expect memory to be constrained for this year, 2027, and maybe even 2028. However, memory has historically been viewed as a cyclical industry because, by the time supply catches up with demand, demand tends to fade.

While it remains to be seen whether the AI supercycle will change that, Druckenmiller and his team may have simply decided that Micron's gains have pulled forward expected demand.

Intel has engineered an incredible turnaround since last year, driven largely by strong demand for central processing units (CPUs). While CPUs were once seen as legacy chips powering consumer electronics like cellphones and laptops, they are now considered the most efficient way to power agentic AI.

In recent years, Intel has also relaunched its Foundry not only to make chips internally, but also to manufacture chips for external clients. While Foundry has not confirmed any anchor clients, many experts think it's only a matter of time.

It's hard to say why Druckenmiller may have sold, but 200%+ gains in such a short window is spectacular, so it could simply be taking profits, especially with so much uncertainty in the market.

Two AI bets on robotics

Duquesne added to existing positions and initiated many new positions in the second quarter, but two that stand out were AI companies betting big on robotics.

The fund purchased call options on the electric vehicle company Tesla (NASDAQ: TSLA), with a notional value of nearly $53 million at the end of the second quarter. Notional value is not how much is paid for the position, but the total value, determined by the number of options multiplied by the stock price. Each option is worth 100 shares.

Duquesne also increased its Amazon position tenfold in the quarter. Amazon now accounts for 2.5% of Duquesne's portfolio.

While Tesla still generates the bulk of its revenue from EVs, investors are betting on its burgeoning robotaxi fleet and the future Optimus humanoid robotics division. Robotaxis have launched but are still in the early stages of scaling.

Tesla is gearing up to begin manufacturing humanoid robotics, which CEO Elon Musk has said will likely be Tesla's biggest product ever. However, Musk also warned of a slow rollout, primarily because the company has had to build a supply chain from scratch.

Tesla has also committed to over $25 billion in capital expenditures this year to help progress autonomous robotaxis and humanoid robotics. It's still too early to predict how the robots will turn out, but the market clearly views Tesla as a potential leader, given its nose-bleed valuation.

Amazon obviously isn't just a bet on robotics. The company is one of the biggest cloud players building data centers for frontier AI companies like Anthropic. Amazon is planning to spend $220 billion on capex this year and has already started to see that pay off.

Amazon Web Services (AWS) revenue grew 37% year over year in the second quarter, marking the unit's fastest quarter of growth since 2021.

But Amazon is also investing heavily in robotics. The company has already deployed over 1 million robots across its operations, including the automation of its warehouses.

The company is also reportedly testing humanoid robots to deliver items in its massive e-commerce business. Amazon would likely be one of the largest beneficiaries of robots among the "Magnificent Seven."

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Intel, Micron Technology, and Tesla. The Motley Fool has a disclosure policy.

The United States federal government has now racked up a tab of more than $40 trillion in outstanding debt. The government officially reached this threshold earlier this week.

While it's not exactly a surprise, the mounting debt continues to concern those worried about the country's finances.

According to The Wall Street Journal, outstanding public debt, excluding Social Security trust funds, is about $32.3 trillion.

Here's what investors need to know.

Image source: Getty Images.

Where it hurts

Debt concerns are not new and have been ongoing for decades, as many economists, analyts, and investors alike have worried that the country has become too reliant on fiscal stimulus.

The COVID-19 pandemic did not help the matter, with the government injecting trillions into the economy during an unprecedented time to provide stimulus checks, emergency business loans, and enhanced unemployment benefits.

Some argue that mounting debt is of no concern, given that the U.S. dollar is the world’s reserve currency and therefore the country cannot default. But high debt levels do appear to have affected parts of the economy and the stock market.

While $40 trillion may not feel like a real number, the interest the government pays on its debt every year is very real and strains the country's fiscal budget.

Thus far in fiscal year 2026, which runs from October through September of the following year, the government has spent $1.8 trillion more than it has collected in revenue. Net interest on the debt makes up 15% of expenditures.

Additionally, some experts argue that excessive debt can indirectly lead to money printing through quantitative easing, in which the Federal Reserve purchases bonds to keep yields down, thereby affecting total debt costs.

Since the Great Recession, QE has significantly increased the money supply, raising the value of financial assets, from stocks to real estate. This has led to affordability issues, especially for people who didn’t own financial assets.

That said, the Fed did raise interest rates intensely when it realized it was behind the eight-ball on inflation, starting in 2022.

Another interesting impact of the extreme debt levels has been higher bond yields, particularly toward the farther end of the yield curve for longer-dated bonds.

Longer-dated bond yields are influenced by inflation and economic growth expectations, as well as supply and demand. But yields at the longer end have also risen, due to the bond vigilantes.

This is a term for bond investors demanding higher yields due to the elevated risk that the U.S. government won't be able to fund all its obligations down the line because of its mounting debt and fiscal issues.

Recently, the yield on the 30-year U.S. Treasury bond topped 5.30%, the highest level seen since 2007. Although the 30-year yield is not tied to mortgage rates, it does influence other longer-term corporate debt and state and municipal bonds.

30 Year Treasury Rate data by YCharts

Also recently, U.S. Treasury Secretary Scott Bessent announced that the Treasury would repurchase at least $4 billion of longer-dated bonds, a symbolic gesture indicating that "... we believe that the yields don't reflect the underlying fundamentals."

Reducing the supply of bonds drives up demand, raising bond prices and lowering yields, which are inversely correlated.

What's next?

As debt continues to climb, nobody knows exactly what will happen next. Certainly, the situation isn't good, but it's hard to know when it truly breaks the camel's back.

Mounting debt clearly continues to impact the broader market and economy, whether through a more constrained federal budget or higher bond yields.

The market tends to not perform as well amid higher yields.

Higher debt levels are also one driver behind an investment thesis that the dollar is headed for debasement, in which it loses its purchasing power.

Gold prices have surged in recent years. The price of an ounce of Gold is now at $4,575, up 156% over the past five years and nearly 14% over the past month alone.

While some would argue the hard asset has run too far too fast, if you believe the U.S. dollar is headed for debasement, then you want to own Gold.

The Motley Fool has a disclosure policy.

There aren't too many investors better than David Tepper.

Tepper worked at Goldman Sachs for seven years, starting in 1985. He then founded his own fund, Appaloosa Management, in 1993. From 1993 to 2019, Appaloosa generated average annual returns of 25%, putting it in a league with the great Warren Buffett.

In 2019, Tepper converted Appaloosa into a family fund, which he still runs today. In the second quarter, Appaloosa exited its stake in Sandisk and initiated a new position in a company that some Wall Street experts think could one day be worth $10 trillion.

David Tepper. Image source: Getty Images.

Exiting Sandisk: Fading memory

In Q2, Appaloosa sold its nearly $179 million position in the NAND flash memory maker Sandisk.

Memory stocks, which supply data to graphics processing units (GPUs) that handle artificial intelligence inference, have delivered incredible performance this year. That's because demand for memory has become constrained as GPU clusters and data centers have scaled.

Sandisk makes NAND flash memory, which is less expensive, longer-term storage that can retain data even when a system's power is off. In data centers, NAND is typically used to store massive data sets that can be quickly loaded into the GPUs.

SNDK data by YCharts.

Analysts and experts have previously estimated that NAND supply will be constrained until the second half of 2027, which has led to higher prices for companies like Sandisk. According to Counterpoint Research, Sandisk controlled roughly 13% of global market share, based on revenue, in the first quarter of 2026.

Memory stocks typically trade at low multiples because they are considered cyclical. When supply is constrained, the memory companies work hard to catch up to demand. But when they do, demand typically fades, leading to a supply glut.

Some investors believe the AI supercycle has fundamentally changed the memory industry, whereas others believe history is bound to repeat itself. Tepper appears to be in the latter group and sold Sandisk after an incredible Q2.

Buying an AI stock with the potential to excel

At the end of Q2, Appaloosa disclosed a nearly $38.5 million position in Space Exploration Technologies Corp. (NASDAQ: SPCX), holding 225,000 shares.

It's unclear whether Tepper and his team bought the stock in SpaceX's initial public offering or on the open market. Appaloosa buys plenty of AI stocks, so it's understandable why the fund would be interested.

SpaceX is a highly debated stock, given that it raised nearly $86 billion in the largest IPO ever. With a current valuation closing in on $2 trillion, some analysts think the company is grossly overvalued, while others suggest SpaceX could be worth $10 trillion one day.

In late July, Raymond James analyst Brian Gesuale issued a strong buy rating and an $800 price target, implying a valuation of over $10 trillion. Gesuale's thesis is built on the idea that SpaceX's super-heavy-lift, fully reusable rocket, Starship, will be able to conduct flights weekly and perhaps even daily.

Gesuale compares this potential innovation to railroads or the internet, with Starship eventually being able to cut orbital delivery costs by about 99%. This would pave the way for much of SpaceX's ambitions in space, including orbital data centers, which could quickly take significant market share in AI compute.

Another big believer in SpaceX is the billionaire hedge fund manager Ron Baron, whose fund has already made a fortune by backing SpaceX CEO Elon Musk through investments in Tesla and SpaceX.

Baron Capital invested heavily in SpaceX in the private markets, and the stock now represents over 30% of Baron Capital's total $69 billion in assets under management as of June 30.

Baron thinks there is no one like Musk. He estimates that SpaceX's terrestrial data centers cost about half of what other data center companies are building, and have been completed in one-third of the time.

Baron's estimates for SpaceX down the line range from $10 trillion to $40 trillion.

Based on Appaloosa's smaller position in SpaceX, which currently comprises 0.5% of the portfolio, Tepper does not appear to be all in yet. However, he clearly sees enough potential to take a chance at it, or enough hype to take a shorter-term position.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Tesla. The Motley Fool has a disclosure policy.

In a rare miss, Walmart (NASDAQ:WMT) reported weaker U.S. comparable sales in the second quarter of its fiscal year 2027 than Wall Street analysts expected.

Walmart U.S. comp sales in the second quarter grew 2.6% year-over year, down from 4.6% in the same quarter last year.

Comp sales struggled due to an 80 basis point (0.8%) headwind from government caps on drug prices. Still, even if that was added back in, the company still missed consensus estimates of 3.8%, per FactSet.

The stock traded roughly 8.6% lower, as of 12:54 p.m. ET.

According to The Wall Street Journal, this quarter represents the smallest level of growth in over six years, suggesting Americans may truly be starting feel the bite of persistent inflation.

While this is certainly bad news for the U.S. economy, it may also prove to be a "bad news is good news" event for the Federal Reserve.

Image source: Walmart.

Has inflation finally hit a wall?

One issue with persistent inflation is that it can be a self-fulfilling prophecy to some extent. If consumers expect prices to rise long term, they more or less can become accustomed to higher prices and will keep spending if they have the means.

For inflation to hit a wall, the consumer really needs to be stretched to its limits and say that enough is enough. The Walmart report suggests this could be starting to happen.

"We, no doubt, and it sort of states the obvious, have seen some incremental pressure on the consumer relative to the beginning of the year with higher fuel prices," Walmart's CFO John Rainey said on the company's earnings call. "As you go through month by month in the last quarter, you can tell when fuel prices increase and got above $4, and perhaps there is a psychological impact to that there are choices that consumers are making."

Rainey also told CNBC that it plans to use roughly $2.9 billion of tariffs refunds to lower prices for customers.

Interestingly, higher-income consumers making over $100,000 per year have increasingly been shopping at Walmart. This is a part of the U.S. economy that has been incredibly strong, so if this customer segment is feeling it, that could be pretty telling.

Still, this one miss doesn't necessarily mean the consumer is at its limit. Walmart caters to a wide variety of customer segments, so it's not necessarily higher-income customers struggling alone.

Furthermore, Walmart also raised its full-year guidance for revenue, operating income, and earnings per share, and that's after taking a $2 billion charge above its original guidance due to higher fuel prices.

Why it could be good news for the Fed

While the Fed wants a strong economy, the agency also likely hopes to avoid raising interest rates to rein in inflation if possible. Interest rates impact borrowing costs, so they can harm the economy, especially if they move higher or are left elevated for too long.

Walmart is yet another data point that suggests inflation may be finally slowing. In recent months, there have been two soft consumer inflation reports, a soft wholesale inflation print, and softness in the labor market.

In recent years, this has created a weird dynamic described by economists and analysts as "bad news is good news" if you are worried about the Fed having to raise interest rates.

Essentially, the consumer is the main driver of the U.S. economy, so if there is weakness in the economy, the Fed can likely remain on hold regarding interest rates.

Obviously, we will get new inflation data each month, but the Walmart earnings report is continuing a recent trend suggesting inflation might be peaking.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FactSet Research Systems and Walmart. The Motley Fool has a disclosure policy.

There's no getting around it: The market looks expensive on several metrics. The broader benchmark S&P 500 (SNPINDEX: ^GSPC) is now up over 102% since the start of 2023 despite some pretty glaring warning signs. In recent years, investors have breezed past the longest inverted yield curve in history, a banking crisis, elevated inflation, and the Iran war.

Is it really smart to buy stocks right now? Here's Warren Buffett's advice.

Image source: The Motley Fool.

Buffett is worried about the market

As I mentioned, it's hard to dispute that the S&P 500 looks expensive right now.

The Buffett indicator, which is named after Buffett, who has called it "probably the best single measure of where valuations stand at any given moment," is at an all-time high of 238%. The Buffett indicator compares the total value of the stock market, as measured by the Wilshire 5000, to U.S. gross domestic product. Buffett has previously said that the Buffett indicator looks expensive at 100%, although it hasn't been below that level since 2013.

Furthermore, the Shiller CAPE ratio, which looks at the value of the S&P 500 relative to its average 10-year, inflation-adjusted earnings, is nearly as expensive as it was right before the dot-com bubble burst in 2000.

S&P 500 Shiller CAPE Ratio data by YCharts.

What's even scarier to some investors is that the current artificial intelligence (AI) cycle bears similarities to the internet-fueled dot-com bubble because, in both cases, companies were spending hundreds of billions on capital expenditures. Between 2025 and 2026, the "Magnificent Seven" companies are likely to spend well over $1 trillion.

Buffett, who is no longer CEO of Berkshire Hathaway, has even said he is concerned about the market. "So we've never had people in a more gambling mood than now," Buffett told CNBC back in May. "But that doesn't mean that investing is terrible. It does mean that prices for an awful lot of things will look very silly."

Buffett's advice

While Buffett may have concerns about investor behavior right now and an expensive market, that doesn't mean he would advise moving into cash even if Berkshire had built a nearly $400 billion cash pile until the second quarter of the year when the large conglomerate began putting money to work.

Buffett has always given investors two great pieces of advice, both of which concern how to evaluate stocks before buying them. The first is about long-term investing.

"If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes," Buffett wrote in a letter to shareholders in 1996. "Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value."

Too often, investors have looked to make gains overnight. But that's very risky because nobody knows what will happen in the near term. How many big swings have we seen AI stocks make this year alone?

This kind of get-rich-quick gambling behavior could lead investors to buy stocks at high prices and sell at low prices, resulting in significant losses. Buffett has said many times that one doesn't need to be that smart to take advantage of the power of time and compounding.

Buffett's second piece of advice has been to buy wonderful companies at fair prices, a lesson he learned from his right-hand man, Charlie Munger, the former vice chair of Berkshire Hathaway, who died in 2023. While many investors try to buy deep-value plays or high-growth stocks, Buffett believes it isn't necessary. These examples are littered throughout Berkshire's portfolio.

Take Coca-Cola, one of Berkshire's largest positions, which the company began buying in the 1980s. Coca-Cola isn't necessarily a fast-growing AI stock, but it has grown earnings for decades, increased its dividend for decades, developed one of the strongest brands in the world, and has become one of the premier consumer staples stocks that can execute across the business cycle.

Or how about Berkshire's recent purchase of Alphabet, which Buffett initiated last year. Berkshire has not bought Alphabet at the most attractive levels, but the Berkshire team likely sees Alphabet continuing to perform well for years to come, leading them to believe that today's prices will not be unreasonable five or 10 years from now.

Investors should heed Buffett's advice. Find stocks that you can own for 10 years and that you are paying a reasonable price for what the earnings could be down the line. Trying to get rich overnight is a fool's errand.

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

The Federal Open Market Committee (FOMC) meeting minutes from July 28-29 certainly had a hawkish slant.

"Many participants assessed that policy tightening would likely be necessary if inflation did not decline," the minutes stated. "Some participants commented that financial conditions might not currently be sufficiently restrictive to facilitate a return of inflation to 2 percent."

At the conclusion of its July meeting, the FOMC elected to hold interest rates steady within a range of 3.50% and 3.75%. However, the vote was not unanimous, and three voting members dissented, preferring a quarter-point rate hike.

While various members of the FOMC continue to hint at a rate hike being necessary, I believe such a move is very unlikely in 2026.

Image source: The White House.

Inflation has declined

The key phrase I am looking at in the FOMC's above statement is "... if inflation did not decline." The thing is, it has declined based on several recent economic data points.

The Consumer Price Index (CPI) declined by 0.4% in June and rose by 0.1% in July, marking the two lowest CPI readings dating back to at least July 2025. Core CPI, which excludes more volatile food and energy prices, came in flat in June and rose 0.2% in July.

The Iran war has driven up gas prices and also made gas very volatile, swinging month to month based on developments between the U.S. and Iran. Ultimately, gas came down in June but has been up and down since.

While energy is removed from the core CPI, it still affects the entire economy. For instance, food prices will be affected by how much it costs to ship that food to its destination, which in turn depends on oil and gas prices.

Other hints at softer inflation came from the July jobs report, which showed that nonfarm payrolls lost 23,000 jobs, well below economists' estimates calling for an 85,000 gain.

Furthermore, average hourly earnings barely increased during the month. A hot labor market can drive inflation higher because it means people have money to spend.

The Producer Price Index (PPI), a measure of wholesale prices, rose 0.1% in July, below analyst estimates of 0.2%.

Given the soft data, the market has now walked back and delayed its rate-hike expectations. The Fed is now expected to hold rates steady at both its September and October meetings, although a rate hike is expected in December, according to CME Group's FedWatch tool.

Keep in mind, these forecasts change often.

Why the Fed is likely to hold rates steady through 2026

Of course, anything can happen, particularly if the Iran war continues to flare up, or there is hot inflation data.

But I still think the Fed will hold for the rest of this year. The FOMC will likely try to avoid raising rates in September and October, if possible, given the looming midterm elections in November.

The Fed would prefer not to be viewed as political, if it can, so it would really take bad inflation data to sway the committee at those meetings.

The Federal Reserve Bank of Cleveland's Nowcasting tool projects core CPI to be 0.2% in August.

Nowcasting also expects the Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred inflation gauge, to come in at 0.25% in July and 0.27% in August. This number is released toward the end of each month.

While it is only a projection, I doubt a PCE in this range would lead the Fed to raise rates. Investors should remember that the longer rates remain elevated, the more likely the economy is to tip into a recession, something the Fed is also quite cognizant of.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends CME Group. The Motley Fool has a disclosure policy.

A late-stage trial that combined a messenger ribonucleic acid (mRNA) shot jointly developed by Moderna (NASDAQ:MRNA) and Merck with Merck’s Keytruda yielded strong results in what's being viewed as a potential game-changing cancer treatment.

The Phase 3 trial enrolled over 1,100 patients with melanoma whose tumors had been completely removed by surgery.

Patients who received the personalized vaccine alongside Keytruda went longer before their cancer returned, and longer before it spread to distant parts of the body, than patients who received Keytruda alone.

Whether that means some patients are cured or simply go longer before their cancer returns isn’t yet known, as Moderna and Merck have only released top-line results.

"It's a big moment for medicine, a big moment for patients," Moderna CEO Stéphane Bancel told CNBC.

This is the first Phase 3 trial of an mRNA cancer therapy and individualized neoantigen therapy (INT) to show better results over the sole use of Keytruda for such treatment.

Here's what it means for both stocks.

Image source: Getty Images.

Moderna and Merck stocks soar

There's perhaps no clearer signal of how important these results are than the fact that Moderna and Merck stocks had ripped roughly 128% and 1%, respectively, as of 12:30 p.m. ET.

It's not uncommon to see biotech stocks move sharply following a significant trial. A phase 3 trial is the final test required before a company can begin discussions with regulators about commercializing a drug.

Beyond potentially changing the reality for melanoma survivors, the new method demonstrated how a more personalized cancer treatment could be applied for other types of cancer.

Dr. Jane Healy, Merck's head of oncology early development, told CNBC that the personalized approach goes after certain mutations in a tumor, teaching the immune system to attack and eliminate those mutations. Keytruda helps the body fight cancer more effectively.

Following the trial results, William Blair analyst Myles Minter upgraded Moderna stock to Outperform and said the company now has a clear path to adding new revenue sources beyond infectious disease and its COVID-19 business.

Despite the strong rally, Moderna stock trades roughly 64% lower than it did in August 2021, as investors have struggled to understand what would be next for the business after the pandemic.

Merck is a much larger company than Moderna, which is likely why its stock moved more modestly, albeit still a significant one for a company of its size. The stock is up over 41% this year and has hit an all-time high.

The combined treatment could be very important for the company, which faces a patent cliff on Keytruda in 2028, according to Barrons.

At that point, other companies would be able to make and sell similar drugs.

What's next?

In a joint press release on the phase 3 trial results, both Merck and Moderna said they plan to present the findings to regulators at an upcoming international medical meeting.

With both stocks now soaring and Merck at an all-time high, investors may want to let them breathe for a minute.

Both companies still need to present the results and obtain regulatory approval. Merck now trades at 54 times forward earnings, and Moderna is still not yet profitable.

That said, investors can certainly take at least a small position in either stock, given the potential of such a treatment in other cancers. However, they should continue to closely follow developments in this treatment to ensure it meets other important milestones necessary for commercialization.

The news today should also give Moderna investors more confidence in the company's ability to follow through on its oncology pipeline.

Given its smaller size and less-diverse product line, Moderna will be the higher-risk, higher-reward stock.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck and Moderna. The Motley Fool has a disclosure policy.

Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) recently filed its latest Form 13F with the Securities and Exchange Commission, detailing what its equity holdings were at the end of the second quarter.

Investors are always curious about what Berkshire has been buying and selling because its former chief, Warren Buffett, is widely considered one of the greatest investors of all time.

Now that he has stepped down as CEO, however, the market is even more focused on his handpicked successor, Greg Abel, who has been CEO of Berkshire since the start of the year and has already begun making some big changes at the company.

In Q2, Abel sold over 50% of Berkshire's stake in Nucor (NYSE: NUE) and piled into another artificial intelligence (AI) stock -- one that billionaire investor Bill Ackman just exited.

Warren Buffett: Image source: The Motley Fool.

Nucor: In and out

One of Buffett's core investing philosophies is that Berkshire should buy stocks it can hold forever. But it's a high threshold to meet that bar, and often, companies don't.

That appears to be the case for Nucor, the largest U.S. steelmaker. Berkshire purchased around 5.75 million shares of it at the beginning of 2025 and has since sold more than two-thirds of that initial investment over the past two quarters, including over half of its position in Q2.

The stock has performed well, including a nearly 62% gain so far in 2026 and a roughly 82% gain over the past 12 months. Nucor has been swept into the AI trade due to increasing demand for steel from the companies that are building data centers.

In Q2, Nucor's earnings before income taxes and noncontrolling interests surged by about 48% from the prior quarter, driven by strong growth across its operations. The company's largest division, steel mills, saw strong demand and higher prices.

Given that, it's hard to say exactly why Abel and the investment team at Berkshire decided to cut the conglomerate's stake in Nucor. It's obviously not a core position, so Abel and his team are likely taking gains, or perhaps they think that its earnings growth is bound to slow down.

Alphabet: An interesting time to be moving into the stock

Even before the deadline for filing 13F forms arrived, we already knew Berkshire had significantly increased its position in Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) in Q2, given the $10 billion private placement announced at the start of June. But it looks like Berkshire also purchased an additional $7 billion of shares in the open market.

Alphabet is now the third-largest position in Berkshire's portfolio, sitting only behind Apple and American Express.

Earlier this year, Buffett said during a CNBC interview that he had been the one to initiate the conglomerate's initial Alphabet position in 2025. But it has been under Abel's watch that it grew into a top-three position in Berkshire's portfolio. (However, Buffett, who remains the executive chairman of Berkshire's board of directors, could still be behind the move.)

Either way, it's an interesting time to be buying Alphabet, given that the stock hit an all-time high in May of this year and is up nearly 150% over the past five years.

Some large hedge fund managers have begun to take their gains on Alphabet, notably Bill Ackman, whose fund Pershing Square Capital Management exited its position in the tech giant over the past two quarters.

On May 16, after selling most of Pershing Square's Alphabet position in the first quarter of the year, Ackman tweeted on X:

To be clear, our sale of $GOOG was not a bet against the company. We are very bullish long term on Alphabet. But at current valuations and in light of our finite capital base, we used $GOOG as a source of funds for $MSFT.

An investment in Alphabet is a clear bet on AI at this point, and the company is planning to spend potentially north of $200 billion on AI capital expenditures this year alone. Still, the company does have many other strong tech businesses, including YouTube, Waymo, cloud, search and advertising, and a custom chip business.

It's possible that Buffett and Abel see Alphabet as a forever stock.

Buffett has long believed in buying wonderful companies at fair prices, so while Alphabet may not have as much upside over, say, the next year, which might make it unattractive to more near-term-minded hedge funds, the Berkshire team likely still believes they are getting in at a good price over the long term.

American Express is an advertising partner of Motley Fool Money. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, American Express, Apple, and Berkshire Hathaway. The Motley Fool has a disclosure policy.

The boom in artificial intelligence (AI) has lifted some stocks to dizzying levels -- few more than the AI data analytics company Palantir Technologies (NASDAQ: PLTR) or the electric vehicle (EV) and humanoid robotics company Tesla (NASDAQ: TSLA). As of the close of trading Monday, they were trading at roughly 108 times and 190 times forward earnings, respectively.

These are valuations that might once have been nearly unimaginable, and far exceed the figures seen for the other "Magnificent Seven" stocks or among most other beneficiaries of the AI trade. But which is the better buy now?

Image source: Getty Images.

Palantir: 109 times forward earnings

Palantir burst onto the scene thanks to its data analytics platforms, which enabled government organizations and businesses to leverage their data in ways that were never possible before.

The company's tools can gather data from a wide variety of sources and analyze it to produce insights that better inform clients and help determine their decision-making. The platforms can also be used by people who don't have experience working with AI models, and make it much easier to build large, complex data projects.

It just reported strong second-quarter results, with 93% year-over-year revenue growth, an adjusted operating margin of 62%, and an adjusted free cash flow margin of 63%.

Palantir continues to resonate with commercial customers, with commercial revenue growing nearly 150% year over year in the quarter, and the value of remaining deals for businesses up 124% year over year.

Those Q2 results helped bring the stock into the black this year after its struggled due to concerns about its elevated valuation and reports that some foreign governments had replaced the company's offerings with tools delivered by domestic competitors.

I don't dispute that Palantir's capabilities are incredibly strong and clearly resonating with the market, but at this valuation, there is very little margin for error. Any sign of competition that could erode the company's moat or even a bad quarter could hit the stock hard.

Tesla: 191 times forward earnings

Tesla is another stock that investors have long rewarded with an ultra-premium valuation. The company, which pioneered the mass market for electric vehicles, is now seen as one of the likely candidates to commercialize fully self-driving robotaxis and humanoid robots.

The company has now deployed robotaxis, although it's difficult to know how much progress the fleet is truly making or how autonomous all the vehicles actually are. As of late July, its robotaxi service was reportedly operating in Austin, Dallas, and Houston in Texas; Miami, Orlando, and Tampa in Florida, and San Francisco.

Management says its robotaxis had covered 2.5 million cumulative paid miles at the end of the second quarter and driven more than 380,000 unsupervised miles.

However, these figures are growing much more slowly than CEO Elon Musk initially predicted. Meanwhile, Alphabet's competing robotaxi business Waymo has reportedly covered over 200 million fully autonomous miles.

On Tesla's second-quarter earnings call, Musk said the company will soon begin production of its Optimus humanoid robots, which he thinks will eventually be its largest product ever.

However, he acknowledged that production for robots will follow an S-curve manufacturing ramp-up, with growth starting slowly, although "the initial portion of the S-curve will be quite flat and long because of the newness of the parts in the robot."

Looking at both Tesla and Palantir, I don't plan on buying either stock at current valuations. But if I did have to choose, I would go with Palantir right now. Not only does it trade at a lower valuation, but its products and services are also clearly resonating with customers.

Meanwhile, Tesla has tremendous potential, but much about that is still to be determined. Who knows what the actual timeline will be for the company to achieve a full-scale robotaxi fleet and a line of humanoid robots, if it ever does.

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