Every day, the financial media bombards the world with debates about whether the artificial intelligence (AI) bull market has turned into a bubble. Pundits will go on TV and loudly support one side or the other in this argument, often with little fundamental analysis to back them up. This can leave viewers with few ways to assess the stock market's condition outside of vibes.

But how exactly can you quantitatively define when the stock market is overvalued? The best metric to use might be the Shiller Cyclically Adjusted Price-to-Earnings ratio, otherwise known as the Shiller CAPE ratio. And that metric just hit its most expensive level since the dot-com bubble's peak in late 1999 and early 2000.

Here's what that could mean for the AI bull market.

What is the CAPE ratio?

Unlike the traditional P/E ratio, which simply takes a company's current stock price and divides it by trailing earnings per share (EPS), the CAPE ratio takes a longer-term view to measure earnings and valuation through economic cycles.

Specifically, the CAPE ratio can be applied to something like the S&P 500 index. The numerator of the ratio will remain the same: the combined share price of all the stocks in the index, weighted by market capitalization. But the denominator will be the average EPS -- adjusted for inflation -- over the last 10 years, rather than just the trailing 12 months.

The primary reason investors focus on the market's CAPE ratio instead of its simple P/E ratio is that it's designed to smooth out earnings over a business cycle, where one year may run hot (for example, 2026) and others may run cold (for example, 2020 during the pandemic lockdowns).

The S&P 500 index now trades at a CAPE ratio of over 41, its highest level in history outside of the period at the end of the dot-com bubble in late 1999 and early 2000. This should give even an ultra-bullish investor pause when weighing the question of whether AI stocks are in a bubble.

Image source: Getty Images.

Earnings growth and free cash flow

In 2026, S&P 500 earnings have soared due to rising spending on semiconductors, memory, and AI software, and the rising valuations of start-ups like OpenAI and Anthropic. When big tech companies invest in OpenAI and OpenAI's value climbs in a quarter, those investment gains register as earnings for that quarter. These are one-time benefits that are unrelated to their underlying businesses, though, and they are a key reason analysts estimate that the S&P 500's overall earnings grew by 52% year-over-year in Q2. However, this type of growth is not sustainable and inflates the trailing P/E figure.

True free-cash-flow generation will drive value for the S&P 500 over the long-term, funding stock buybacks and dividend payments for shareholders. And free cash flows are declining among some of the world's largest companies. Big players like Amazon, Alphabet, and Microsoft are close to generating zero in free cash flow if they continue with their current torrid rates of capital expenditures. That also adds some precariousness to this bull market mania.

S&P 500 Shiller CAPE Ratio data by YCharts.

Here's what investors should do

Given the factors laid out above, it is possible that AI stocks are in a bubble. When bubbles pop, drawdowns of as much as 80% can wipe out years of gains for investors -- which is what happened in the aftermath of the dot-com bubble. The current Shiller CAPE ratio certainly suggests that the bubble scenario is underway. Or, super-intelligent AI systems may be on the immediate horizon that could lead to a rapid acceleration in economic growth and EPS growth. This could be the only way for the S&P 500 to keep performing well over the long haul.

As an individual investor, you should not put all your chips into one side of the argument. It would be foolish to put 100% of your portfolio in risky AI stocks, but it would also be risky to go 100% in bonds or other low-risk assets, as that strategy would limit your long-term upside.

Diversification remains a key tool for helping your portfolio perform adequately, and preserving your wealth through the market cycle.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a disclosure policy.

Earnings per share (EPS) for the S&P 500 grew at 52% year over year in second-quarter 2026, according to FactSet estimates -- one of the fastest rates of growth in market history. It is also unsustainable.

Big tech companies are benefiting from reported earnings gains from artificial intelligence (AI), which are dragging down free cash flow, while also marking up stakes in start-ups and recent IPOs like SpaceX, which is inflating S&P 500 earnings power.

The market now trades at a forward price-to-earnings ratio (P/E) under 20, which does not look unreasonable. However, if you take a more comprehensive look at the cyclically adjusted P/E ratio (CAPE), this stock market has done something that has only happened twice before.

History suggests that trouble happens next.

One long bull market since 2009

The cyclically adjusted P/E ratio, otherwise known as the CAPE ratio, takes the current price of the S&P 500 index and divides it by the average earnings power of the index over the last 10 years. It does this to smooth out the bumps in earnings from any one year, such as 2026, when earnings power may be temporarily inflated.

The CAPE ratio has been above 30 for most of the last 10 years, and recently hit a new high above 41. The only other time in history the CAPE ratio was above 40 was the dot-com bubble in 1999. The only other time it was above 30? 1929, the peak of the bull market before the onset of the Great Depression.

A small data set is not going to be statistically relevant, and the stock market is a highly complex system, but I think it should be a flashing alarm to investors that the only other times in history that the CAPE ratio went above 30 were eventually followed by a collapse in stock prices.

Image source: Getty Images.

Are AI stocks in a bubble?

This historical evidence should raise the question of whether AI stocks are now in a bubble. It certainly feels frothy, with trillions of dollars in stock market value centered on AI stocks and AI supply chain stocks, such as semiconductors.

AI stocks exhibit characteristics similar to booms and busts in the history of the United States, such as those of railroads, electricity, automobiles, and radios. It didn't matter that the internet changed our lives, but when you price in growth decades before the fundamentals catch up, your share prices are in a precarious spot.

No investor should boldly predict that a stock market crash will happen tomorrow. Nothing in markets is 100% certain. It's possible that the CAPE ratio will keep climbing before the eventual fall, or that the productivity gains from AI will make the tens of trillions in stock market gains worthwhile from an earnings perspective. However, any investor needs to understand the possibility that AI stocks are in a bubble. It doesn't matter how much you use ChatGPT.

S&P 500 Shiller CAPE Ratio data by YCharts.

How to properly position your portfolio

So, what is an investor to do? First, if you are heavily positioned in AI stocks, now might be the time to diversify (especially if you are trading on margin). This does not mean you need to immediately dump all your AI stocks. A lot of these are high-quality businesses that may perform well over the long term, even if it is possible they'll fall 80% in a stock market crash.

Diversification is key for anyone looking to generate strong returns in the stock market through the cycle. With the CAPE ratio near an all-time high, smart investors should look to add stocks from different sectors to their portfolios, as well as some fixed income like Treasury bonds that will help them generate strong performance through any booms and busts.

Brett Schafer 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.

This summer, we saw the debut of Space Exploration Technologies -- otherwise known as SpaceX -- stock in a massive initial public offering (IPO). We also saw share prices across space-economy stocks collapse after said IPO, with no better example than Rocket Lab (NASDAQ: RKLB), one of the sector's biggest names in public markets.

Shares of the rocket flight and space services company trade down about 58% from the highs set earlier this year, even though its revenue grew 62% year over year last quarter. A falling share price and a growing business can develop into a great buying opportunity.

Does that mean now is the time to buy the dip on Rocket Lab stock?

Image source: Getty Images.

More Neutron delays

There is a lot going on with Rocket Lab's business, but none is more important to its future than a product that doesn't generate any revenue today: its Neutron rocket.

The Neutron is a larger rocket type than its existing workhorse, named the Electron. Larger payloads mean each launch can carry more products into orbit for third parties (mainly satellites), resulting in more revenue per launch. It is similar in size to SpaceX's workhorse Falcon 9 rocket, and the Neutron already has numerous proposed orders from commercial operators and the United States government.

So, what's the problem? Well, originally, the Neutron rocket was planned to debut in 2024. Over the last few years, this first launch date has been consistently pushed back, and most recently, it looks like it won't happen until the beginning of 2027. Without the Neutron performing test flights and eventually carrying commercial payloads, Rocket Lab's launch revenue will remain sub-scale compared to competitor SpaceX.

Aiming for fully integrated services

For those who are taking a long-term view, it may not matter exactly which quarter the Neutron begins flying, only that it eventually starts flying regularly without mishaps, helping Rocket Lab's launch division take a great leap forward.

The Neutron brings together Rocket Lab's comprehensive long-term vision: to be a fully integrated seller of products and services for the space economy. In fact, its space systems segment -- which houses divisions that make items such as satellites, optical lenses, software, and robotics for third parties in space -- generated more revenue last quarter ($189.5 million) than its launch division ($44.6 million).

Once the Neutron is up and running, it should lead to even more contracts and revenue from space systems, because Rocket Lab can then sell its launch service and the sub-components of customer payloads as a bundle.

Even longer-term, Rocket Lab plans to sell its own space-economy services. This is being accelerated with its acquisition of Iridium Communications, which operates a satellite internet constellation. Leveraging its expertise in space systems development, Rocket Lab plans to accelerate Iridium's growth to help it compete more directly with SpaceX's Starlink service.

Data by YCharts.

Time to buy the dip on Rocket Lab?

There is a lot to like about the potential growth of Rocket Lab. When you add up Neutron, space systems, and the Iridium acquisition, it wouldn't be shocking to see its trailing revenue of $769 million grow into the billions within a few years.

You might be thinking this makes the stock an easy buy-the-dip candidate. There are a few problems, though. Rocket Lab has never generated a profit, and its gross margins are quite low given the heavy capital intensity of rocket launches and space manufacturing. This needs to be taken into account when valuing shares.

The stock's shares don't look that cheap, either, even after getting cut in half within the last few months. It has a price-to-sales ratio (P/S) of 48, which implies many years of growth are already priced in. This is 48 times its trailing revenue, let alone any potential earnings power hidden in all of Rocket Lab's upfront investments.

Even if a company has a blue ocean of growth ahead, valuation still matters, which is why investors should not yet buy the dip in Rocket Lab stock.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Rocket Lab. The Motley Fool has a disclosure policy.

Shares of Bitmine Immersion Technologies (NYSE: BMNR) shot up 46.5% last month, according to data from S&P Global Market Intelligence, making it one of the best-performing stocks in August. It is a holding company for the Ethereum cryptocurrency, which made a nice rebound in August around political sentiment.

Here's why Bitmine Immersion stock was rising, and what investors should do about it today.

Rising price of Ethereum

Bitmine Immersion Technologies is a holding company taken over by investor and market commentator Tom Lee last year, along with other investors, with the stated goal of buying up 5% of the outstanding supply of the Ethereum cryptocurrency. It has done so by selling new shares of common stock, with shares outstanding up 42% in the last twelve months.

There is no debt on the balance sheet, unlike its Bitcoin treasury peer, Strategy, but it recently issued preferred stock that pays a 9.5% annual dividend, similar to debt, since preferred stock has seniority over equity in a liquidation. It is using proceeds from the preferred stock sale to buy more Ethereum and begin repurchasing its common stock, which it hopes will offset some of the prior share dilution.

Overall, in August, Bitmine Immersion soared as Ethereum's price rose. Ethereum is up 33% in the last month, raising Bitmine Immersion's overall net asset value. The share price generally trades in line with this net asset value, with the current stock price of $26 at a slight premium to the $25 net asset value.

Image source: Getty Images.

Time to buy Bitmine Immersion stock?

Buying Bitmine Immersion stock is a bet that Ethereum's price will rise, alongside other smaller cryptocurrency bets and other investments. Right now, cryptocurrency prices are making a bit of a comeback, with gains driven by political tailwinds, inflation worries, and short squeezes on assets like Ethereum and Bitcoin.

The problem is that it is difficult to formulate a long-term thesis about whether a prominent politician mentions cryptocurrencies or whether a short squeeze will occur. Bitmine is a peculiar business in which, instead of actually buying the cryptocurrency itself, an investor bets that management will be able to trade around it to generate more alpha.

Cryptocurrencies have also failed to gain widespread adoption in the economy despite over a decade of promotion by early adopters. Ethereum, as of this moment, is not much more than a trading asset moving on the whims of what investors think. Again, this makes it difficult to formulate a thesis for why someone should own Bitmine Immersion stock.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

Shares of Palo Alto Networks (NASDAQ: PANW) surged 15% in August, according to data from S&P Global Market Intelligence. Cybersecurity stocks have seen booming investor demand due to the growing need for these services in the age of artificial intelligence (AI). Palo Alto Networks has seen its share price rise 320% in the last five years alone.

However, the stock has fallen over 10% this week, giving up most of its August gains, after reporting its Q4 earnings for fiscal year 2026. Here's why it rose in August and whether now is a good time to scoop up some shares.

Surging demand

Cybersecurity is becoming increasingly important for enterprises and other large organization seeking to secure data due to the threat posed by automated AI bots. Hackers using AI are becoming increasingly capable, meaning enterprises need to stay extra secure with their digital data.

This is where Palo Alto Networks steps in. It is one of the leading cybersecurity firms, providing solutions including automated firewalls, cloud security, threat detection, and threat intelligence. Last quarter, annual recurring revenue (ARR) for its next-generation solutions reached $9.1 billion, up 63% year-over-year, driven by contracts to protect from AI. Remaining performance obligations grew 34% to $21.2 billion.

Momentum into the quarter drove Palo Alto Networks' stock to a record high. Where it faltered this week was guidance for fiscal year 2027, which calls for total revenue growth of 23%-24%. Investors were likely hoping for more growth given the intense expectations surrounding the AI narrative.

Image source: Getty Images.

Should you buy Palo Alto Networks stock?

Despite giving up these August gains, Palo Alto Networks stock has still been a huge winner in the last few years, and it trades at a premium valuation.

On a price-to-sales ratio (P/S), it trades at a valuation of 22. That is significantly higher than the S&P 500 Index average of 3.8, which is also at a record high. Expectations could not be higher for Palo Alto Networks.

It generates a healthy amount of free cash flow, but this is clouded by its heavy reliance on stock-based compensation, with shares outstanding up 48% over the last 10 years. In order to be a buyer of Palo Alto Networks stock today, you need to believe in two things. First, that revenue growth will stay above 20% for many years in the future. Second, that its GAAP (generally accepted accounting principles) operating margin will expand significantly from here.

If you don't believe these things, the stock is likely not a good bet at a P/S ratio of 22.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.

Some investors are getting spooked by all the talk of circular financing in the artificial intelligence (AI) build-out, with the issue even being mentioned by Nvidia on its recent earnings call.

Nvidia has been investing significant capital from its balance sheet into AI labs and cloud computing providers -- aka neoclouds -- that are turning around and using that same money to buy Nvidia processors to equip their data centers.

Two companies taking part in such circular financing arrangements are CoreWeave (NASDAQ: CRWV) and Nebius Group (NASDAQ: NBIS), and their share prices are now down 41% and 30%, respectively, from their all-time highs.

With their share prices falling, should investors be worried about fragile financing for these neoclouds and the AI boom? Here's what the numbers say.

CoreWeave's Nvidia backstop

CoreWeave was originally a cryptocurrency miner, but it pivoted to an AI cloud computing model to use its idle Nvidia GPUs. It turns out that it was sitting on a gold mine.

Through investments in more data centers powered by Nvidia chips, CoreWeave quickly scaled its revenue from nearly nothing to over $2.5 billion last quarter, with a run rate of $10 billion a year. To finance the necessary build-out, however, it raised capital in numerous ways and now has $35 billion in debt on its balance sheet.

Nvidia is helping CoreWeave in two ways. First, it directly invested in the neocloud, which is turning around and using the funds it received to buy Nvidia chips for its new data centers. Second, Nvidia is providing a backstop for CoreWeave: If the neocloud doesn't find clients to lease all of the cloud computing capacity it's building, Nvidia will buy that capacity itself (through April 13, 2032).

CoreWeave will need to keep riding its reputation as a reliable cloud provider, as its overall capital expenditures are slated to land between $35 billion and $39 billion in 2026. It is investing well ahead of its current revenue generation, banking heavily on future AI cloud spending.

Image source: Getty Images.

Nebius's sneaky growth

Nebius Group operates on a smaller scale than CoreWeave, but it's growing much faster. This business was spun out of the old Russian internet company Yandex, which was off-limits to Western investors because of sanctions. Now based in the Netherlands, the company is trying to build a massive neocloud operation.

Growth has been sound so far, up 454% year over year to $582 million last quarter alone. The company has been engaging in circular financing deals similar to CoreWeave's, as well as booking large commitments from hyperscalers like Microsoft and Meta Platforms. There is strong momentum in Nebius' business today, and it plans to continue investing in additional data centers to fulfill customer orders.

However, this puts it in the same category as CoreWeave, needing to invest heavily up front in capacity before it can earn revenue from those investments. It has spent $8 billion on capital expenditures through the first six months of this year alone, and it plans to spend more than $20 billion for all of 2026. To help finance this spending, it just raised $5.75 billion through an offering of convertible notes.

A tale as old as time

The boom in AI spending may look like a blessing today, but these neoclouds are setting themselves up for disappointment in the long term. Circular financing, also known as vendor financing, has been a popular strategy during many asset booms over the years. For example, during the dot-com bubble, telecommunications equipment providers invested heavily in debt based on the belief that demand for fiber optic capacity would grow at an exponential pace forever.

Turns out, it didn't. Something similar could happen to neoclouds in the years ahead, despite how promising the growth path for compute demand looks today. CoreWeave itself boasts $104 billion in revenue commitments as of the end of last quarter, but that number does not tell investors how binding these commitments are. If the growth in AI demand from end consumers and enterprises slows down, it is possible that CoreWeave's customers will back out of their commitments, leaving it high and dry.

The businesses may survive better than those in the dot-com bubble because Nvidia has a rock-solid balance sheet with plenty of capacity to backstop both of these businesses (and others) in a liquidity pinch. That does not necessarily make their stocks a buy, but it makes their bankruptcies less likely in a bear scenario.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.

Shares of Remitly Global (NASDAQ: RELY) were up 17.4% in August, according to data from S&P Global Market Intelligence. The remittance platform has recently hit a 52-week high after building strong momentum following its recent quarterly earnings report in early August.

The remittance disruptor is growing quickly and, at the same time, showing a positive inflection in profit margins. Here's why the stock is soaring, and whether it is too late to buy shares today.

Strong earnings growth

On August 5th, Remitly reported earnings for the second quarter of 2026. Investors were shown yet again that the platform is take share of the remittance market.

Total send volume grew 27% to $23.5 billion, revenue grew 20% to $495 million, and active customers grew 20% to 10.2 million. These are all well outpacing the growth of the international money transfer market and are a key reason why Remitly shares keep climbing.

Most importantly, Remitly is showing Wall Street that it can grow while simultaneously expanding its profit margins. Operating margin was a record 13.5% last quarter, driving significant year-over-year growth in operating earnings. Its efficiency in marketing spend and product development indicates that Remitly's customers actually love its product, because it provides an easy way to send money around the globe from their smartphones for a lower fee than legacy competitors.

Image source: Getty Images.

Is it too late to buy?

Remitly is closing in on processing $100 billion in payment volumes every year. This is well below the global addressable market for remittances, which is in the tens of billions when you include all geographies and the new segments Remitly is targeting, such as business transfers and high-dollar-value senders.

This should lead to continued growth in send volume in the years ahead. Total revenue will grow slower than send volume because of a compressing take rate at scale, but I expect it to grow in the double digits as well.

Remitly is guiding revenue to reach just under $2 billion this calendar year. If revenue grows at 15% annually over the next three years, it will reach $3 billion. Profit margin is the big question, but with an operating margin already at 13.5%, it is not unreasonable to expect a business with a 60% gross margin to reach a 20% margin at greater maturity. That would be $600 million in annual earnings power.

After this latest stock pop, Remitly's market cap is $5.6 billion, which is still under 10x earnings based on these financial estimates a few years out. That makes the stock cheap, despite it trading near a 52-week high.

Brett Schafer has positions in Remitly Global. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Shares of Wix.com (NASDAQ: WIX) zoomed over 60% in August, according to data from S&P Global Market Intelligence. The website-building platform was considered an artificial intelligence (AI) loser earlier this year, but that narrative completely reversed this summer, with the company posting solid revenue growth and major margin improvement for its new AI-generative application builder.

Here's why Wix stock was up in August, and whether it is a buy now.

Software rebound

The catalyst for Wix's massive move last month was its earnings report at the beginning of the month. Investors had beaten down Wix, sending shares from close to $200 in September of last year to under $50 by the end of July, on the theory that Wix's website-building platform would lose out to new generative AI tools.

So far, Wix's earnings do not show any signs of AI fatigue. Revenue was up 15% year-over-year last quarter to $563.1 million, with all segments growing in the double digits. Importantly, management said its new and fast-growing application builder, called Base44, should reach 60% gross margins, compared to around 0% at the start of the year.

Later in the month, Wix management confirmed that Base44 had surpassed $200 million in annual recurring revenue (ARR), up from $100 million five months ago. This makes Base44 one of the fastest-growing AI businesses in the world, and could prove a great asset for Wix in the years ahead.

Image source: Getty Images.

Still time to buy?

After jumping in August, Wix now trades at a $3.6 billion market cap. It repurchased $1.6 billion worth of its outstanding shares in the Spring in a tender offer, which has aggresively brought down its share count, with the stock still down 75% from highs set back in 2021.

Wix became unprofitable in 2026 due to major investments in growing Base44 and its new homegrown AI website builder, Wix Harmony. However, in the long term, the high gross margins of Wix's legacy business and the improving gross margins of its AI segments should lead to solid profitability and free cash flow.

Over the last twelve months, Wix's revenue was $2.1 billion. If revenue can keep growing at 15%, it will be over $3 billion three years from now. Assuming bottom-line profit margins can expand to 20%, that is $600 million in annual earnings power, or just 6x its current market cap.

For those with a multi-year time horizon, Wix stock still looks cheap today.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends Wix.com. The Motley Fool has a disclosure policy.

The summer of the space economy is turning into a pumpkin of a fall. Rocket Lab (NASDAQ: RKLB) -- a space stock that saw its shares soar around the Space Exploration Technologies (SpaceX) initial public offering -- has now seen its shares fall 57% from its highs in just a few months.

Today, it trades at a market cap of $38 billion and is slated to try to close its massive deal for Iridium Communications soon. I remain bullish on the company's business prospects as it tries to become the second space economy prime contractor alongside SpaceX.

However, I am still not buying unless shares reach a lower level this year. Here's why.

Ambitious growth plans

It is difficult to boil down Rocket Lab's ambitions for the space economy into just a few paragraphs. The company already has a solid footing in the rocket launch business with its small Electron rocket. As of the latest quarterly results, 90+ contracts have now been signed for Electron launches, the highest level in the company's history.

Other revenue today comes from the growth of Rocket Lab's space systems segment, which builds systems for third parties and the U.S. government that can be deployed into space. For example, it just won a contract with the Space Force to build multiple geostationary satellites. This is just one of the many contracts being won in this division, which is why the company's total backlog has now grown to $2.3 billion.

Rocket Lab is not resting on its laurels with these existing business lines. It is in the process of acquiring Iridium Communications, a satellite internet provider that will help Rocket Lab more directly compete with SpaceX, for $8 billion in a half-stock, half-cash deal. Lastly, Rocket Lab is working hard on debuting its Neutron rocket, which has been years in development and is much larger than the Electron. It will either debut with its first full test flight later this year or in early 2027.

Image source: Getty Images.

Path to profitability

Despite all these investments, Rocket Lab is not profitable, with a negative free cash flow of $371 million over the last 12 months.

There are a few ways it can scale up to profitability. First, the acquisition of Iridium will be an immediate boost, as the company generated $288 million in positive free cash flow over the last 12 months. Second, once the Neutron starts launching for customers, it will go from a science-project money pit to a revenue generator for the business. Third, the continued scaling of the space systems and Electron business will lead to operating leverage.

All of these feats may take a few years to achieve, but Rocket Lab is well on its way.

RKLB Free Cash Flow data by YCharts

Why Rocket Lab is not yet a buy, but should be on your watch list

As a space economy winner, Rocket Lab is most frequently compared to SpaceX. Right now, before the Iridium acquisition closes, Rocket Lab stock has a market cap of $38 billion. SpaceX is approaching $2 trillion. This is a bit of a misleading comparison, because SpaceX is trying to become an artificial intelligence (AI) infrastructure player, which Rocket Lab has never mentioned it wants to do.

A good way to value Rocket Lab stock today is on a price-to-sales (P/S) ratio, which takes out any comparisons to megacap stocks and strictly starts to focus on the fundamentals. On a trailing basis, Rocket Lab trades at a P/S ratio of 48. To be fair, there is a lot of growth coming down the line from the Neutron and this massive backlog, but right now, Rocket Lab trades at a steep revenue multiple. The S&P 500 average is just 3.8, and that is at a record high.

Rocket Lab is a promising business, and I think it will generate billions in revenue in the years ahead. However, I would wait to buy until a much lower price materializes, maybe half of today's level, even though the stock is already down more than 50% from its highs in the last three months.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Rocket Lab. The Motley Fool has a disclosure policy.

A Dividend King is a stock that has raised its dividend payout for 50 consecutive years or more. Very few companies can boast this enduring accomplishment. One of them is Altria Group (NYSE: MO). The tobacco/nicotine giant has raised its dividend for 57 straight years, and 61 times in total, due to the durability of cash flows generated by its cigarette business.

It now trades at a dividend yielding 6.18%. That means, if you have $10,000 invested in Altria Group stock, you will receive a cool $618 in dividends each year.

But does that make Altria Group stock a buy?

Dividend growth math

The tobacco business has been fantastic due to its extraordinary pricing power through the decades. Packs of cigarettes -- along with other types of nicotine products -- have grown steadily above the rate of inflation, leading to growing cash flows for companies like Altria and its Marlboro brand.

This has allowed management to steadily grow its dividend per share payout to shareholders. In the last 10 years, Altria's dividend has grown by 74% cumulatively. For long-term shareholders, this can deliver growing income into your portfolio. An investor who bought at a 6.18% dividend yield 10 years ago would now be receiving $1,075 in annual dividend income.

Dividend growth like this has helped Altria Group outperform the stock indices. In the last five years, it has generated a total return of 104%, beating the S&P 500's 82%.

Image source: Getty Images.

A business struggling to grow

Where Altria Group could run into struggles is its failure to pivot away from smokeable tobacco products like Marlboro or Black and Mild. Cigarette volumes were down 3.2% year over year last quarter and are expected to decline in the future.

Other tobacco giants have worked to replace their cigarette cash flows with healthier alternatives, such as nicotine pouches or electronic vapor. Altria Group is failing to make a dent with its new offerings, such as its on! nicotine pouch brand. Volumes for on! were down 4.2% year over year last quarter, despite a growing overall nicotine pouch category in the United States, and that is with minimal overall market share already.

Unless management can spring a miracle in new nicotine categories, the future of Altria's dividend payments will be from its legacy cigarette business. Specifically, its ability to keep raising prices on cigarette packs sold.

MO PE Ratio data by YCharts

Is Altria Group still a buy?

Where Altria helps itself with dividend growth sustainability is its steady stock repurchase program. It has reduced shares outstanding by 14.4% cumulatively over the last 10 years through these buybacks, which will help grow earnings per share (EPS).

Importantly, for the dividend, a lower total number of outstanding shares will mean that Altria can raise its per-share dividend without increasing the total dollar amount paid to shareholders. This is important for a business whose overall revenue has barely budged in the last five years. You are not buying Altria Group for its growth, but its return of capital to shareholders.

The stock has done well in the last year, with the share price now at $69. It has a price-to-earnings ratio (P/E) of 14.5, which is generally higher than it has been in the last few years, but still, it has one of the fattest dividend yields of the entire market today. What investors need to decide is whether the long history of price hikes and dividend growth can continue for the next decade as well.

I don't think Altria Group stock is a screaming buy right now, but investors will probably do just fine buying today for long-term dividend income, despite the decline in its cigarette business.

Brett Schafer 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.

Micron Technology's (NASDAQ: MU) stock price has cooled off this summer after rising over 1,000% in the last three years. Comments from the artificial intelligence (AI) market may indicate it is set to go even higher.

Projections of spending growth from the likes of Amazon, Alphabet, and now Space Exploration Technologies are not slowing down, meaning demand for AI chips is likely to rise through next year. Micron's memory chips are a key input with growing importance for AI applications.

This earnings growth could mean a soaring Micron stock price. In fact, I predict that at some point in calendar year 2027, it could be above $2,000. But does that mean you should buy the stock today?

Image source: Getty Images.

Growth is slated to continue

Last quarter, Micron's revenue grew 346% year over year to $41.5 billion. This makes it one of the fastest-growing businesses in the world. Most of this growth is due to price hikes on memory chips sold to customers like Amazon, which is why its operating margin has ballooned to 80%. That means operating income was $33 billion last quarter alone.

Micron has its customers captive, with no alternatives except the South Korean memory chip providers, which are also facing shortages at the moment. This means -- if these AI infrastructure players want to keep up in the AI race -- they will need to pay whatever price is necessary to buy AI chips.

New players have entered the race, such as SpaceX, which is slated to spend hundreds of billions in the next few years on data centers. Combine all the players, and Nvidia thinks it can grow its already monstrous revenue by 70% in the next fiscal year. How does this relate to Micron? Well, Micron's memory chips are an input to Nvidia's AI systems, so when Nvidia's revenue grows, Micron's revenue is likely to follow.

The math behind the price target

For the next few quarters, and likely through the end of 2027, massive shortages of memory chips will remain in effect. This should prompt Micron to continue raising prices even as it increases capacity, resulting in further revenue growth. Next quarter, it expects revenue to grow to $50 billion. In 2027, with continued price increases, annual revenue could reach $250 billion.

That would be $200 billion in operating earnings, using Micron's current operating margin of 80%. I believe investors will want to value Micron at least 11 times its earnings power, implying a market cap of $2 trillion or more. The stock currently trades at $948 per share and has a market cap of $1.07 trillion.

Therefore, I think that Micron's stock price could surpass $2,000 at some point in 2027, more than double its current level.

MU data by YCharts

This doesn't mean you should buy Micron stock today

Even if Micron's stock returns to its upward trajectory in 2027, this does not mean you should just pile into shares today, especially if you are focused on buying and holding stocks for the long term.

Why? Memory chip stocks go through wild demand cycles. Right now, Micron is in the driver's seat, with supply of AI chips well below demand. This is going to eventually turn, as it has many times in history, wiping out most of Micron's profits, if not sending it into the red.

This makes the stock difficult to value for someone looking to hold for 10 years. Operating income may hit $200 billion in 2027, but if earnings fail to get close to this level every year for the next 10 years, is the stock truly worth $2 trillion? That is a difficult question to answer, and it may be holding investors back from piling in right now.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.

Just a few years ago, Micron Technology's (NASDAQ: MU) business was in so much pain that it had negative gross margins. This was the down cycle coming out of the pandemic-era semiconductor shortage. In fact, in Q4 of fiscal year 2023, which ended in August of that year, Micron's gross margin was negative 11%, and its stock price was in the gutter.

A few years later, everything has changed. The growing demand for artificial intelligence (AI) chips has boosted demand for Micron's memory products, with limited supply across the industry, leading to soaring profits and a surging Micron stock price. Its shares are now up almost 700% in the last year.

However, as enthusiasm in the AI trade has faded, Micron's stock price has fallen 23% from its highs. Now, Nvidia (NASDAQ: NVDA) may be back to help keep the party going, with comments from the latest earnings call indicating the memory chip shortages will continue. Could this be the turnaround Micron's share price was looking for?

Image source: Getty Images.

Massive growth and pricing power

Micron's latest quarter covered the three months ending in May 2026. Revenue was $41.4 billion in the quarter, up from $9.30 billion in the same period a year ago. Most of this growth is not coming from shipping more memory chip units, but from price hikes, selling to AI companies like Nvidia, or other chipmakers.

This is why gross margin was up to 85% last quarter and 73% over the last 12 months. Operating income was $33.3 billion, for an astonishing operating margin of 80%, making Micron one of the most profitable companies in the world at the moment. It is taking full advantage of the shortages and has decided to significantly hike prices for captive buyers.

For the most recent quarter, which ended in August, Micron guided for $50 billion in revenue. Apply that over a full year, keep operating margins the same, and that is $160 billion in annual operating earnings for Micron. That is more than Amazon and many other big tech companies.

Growth through the next calendar year

AI company executives, including Elon Musk, have said that the biggest bottleneck in AI infrastructure is memory chips. This was further emphasized on the recent Nvidia earnings call, when executives said that the scarcity of memory chips is only increasing. This should benefit Micron.

Nvidia CFO Colette Kress also discussed the company's projections of 70% revenue growth for the next calendar year. Memory chipmakers like Micron are spending heavily to increase capacity, but they won't catch up if Nvidia is growing this quickly, let alone the rest of the AI chipmaking supply chain.

This should keep shortages in place through the rest of 2027, meaning Micron will likely see stellar revenue growth and profits for at least the next few quarters. Don't be surprised if it reaches $200 billion in operating earnings sometime next year. It already generated $33 billion in earnings last quarter, and the shortages are only getting worse.

Data by YCharts.

Should you buy Micron stock?

Right now, Micron has a market cap of approximately $1 trillion. This looks cheap if the stock ends up generating $200 billion in operating income during the next calendar year.

The problem is determining what happens over the next decade. Memory chip cycles are steep, and can lead to huge demand collapses if supply overstretches what customers need. You can see this in the gross margin chart for Micron, which has dipped into negative territory many times in its history.

Yes, $200 billion in earnings on a $1 trillion market cap looks very cheap. But what will Micron's average earnings be over the next decade if the supply shortage becomes a glut? This should have investors thinking twice before piling into Micron stock, even if earnings are set to soar in the quarters ahead.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.

It has done it again. Nvidia (NASDAQ: NVDA) blew past Wall Street estimates in its second-quarter (Q2) earnings, sending the stock back toward its all-time high share price of $225. The chipmaker now has a market cap approaching $5.5 trillion, making it the largest company in the world.

Where Nvidia truly shone was its guidance for the next fiscal year, which has astounded investors. In fact, it could put the company on the doorstep of becoming the first business in world history to generate $1 trillion in annual revenue, up from well under $100 billion just a few years ago.

But does that make the stock a buy today? Let's find out.

Image source: Nvidia.

Monster guidance for next year

For context, let's give some numbers around Nvidia's current financial performance. Over the last 12 months, it has generated $303 billion in revenue. Last quarter, which ended in August, saw revenue grow 106% to $106 billion. If this type of growth continues for the next two quarters of this fiscal year (which ends in January of 2027), then Nvidia is likely knocking on the door of generating over $400 billion in sales in a 12-month period.

What was even more impressive was the fact that Nvidia is already projecting 70% revenue growth next fiscal year, which is named fiscal year 2028. This is due to the insatiable demand from the cloud providers for artificial intelligence (AI) computer chip systems, neoclouds like Space Exploration Technologies, and Nvidia raising prices. Add 70% growth to the $400 billion in fiscal year 2027 revenue, and Nvidia may generate $700 billion to $800 billion in revenue next fiscal year.

That is up from just $27 billion in revenue in fiscal year 2023, only a few years ago.

The math behind $1 trillion in revenue

If Nvidia can grow its sales by 70% next fiscal year to $700 billion, it will only need around 40% revenue growth in fiscal year 2029 to eclipse $1 trillion in sales. This feels highly achievable if AI infrastructure investments continue to grow at today's pace.

But will Nvidia be the first stock to $1 trillion? That is a harder question to answer because of Amazon (NASDAQ: AMZN). Amazon is already at $775 billion in revenue, meaning it will only need two years of 15% revenue growth to eclipse $1 trillion. Its sales grew 20% year over year last quarter, mainly due to AI demand. What this means is that if Nvidia keeps growing revenue at this pace, Amazon will likely do the same and reach $1 trillion in revenue first.

Either way, both companies -- but especially Nvidia -- are growing rapidly today because of AI.

Data by YCharts.

Is Nvidia stock a buy?

Unlike Amazon, whose capital-intensive e-commerce and cloud operations require significant capital spending, Nvidia can offload capital spending to its hardware providers, allowing it to generate fantastic profit margins. Over the last 12 months, it has posted an operating margin of 65%, implying $650 billion in operating earnings in fiscal year 2029 if this margin is maintained and revenue grows to $1 trillion.

That would be up from $197 billion over the last 12 months, making Nvidia by far the most profitable business in the world. The final question is: How durable would this $1 trillion in revenue and $650 billion in earnings be? If spending on the AI boom slows -- which may happen within the next 10 years -- Nvidia's revenue could be significantly lower in the near future.

This makes the stock very difficult to value today, especially given its $5.5 trillion market cap. That looks cheap compared to $650 billion in earnings a few years from now, but who's to say what the average earnings power for Nvidia will be every year for the next decade?

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

Elon Musk has delivered massive multibagger gains for long-term Tesla shareholders, though the stock is down by more than 20% so far this year. The question for many is whether he can do the same for Space Exploration Technologies (NASDAQ: SPCX) shareholders. After making its debut earlier this summer, SpaceX has become a battleground stock, with some investors thinking the $1.85 trillion market cap company will be worth trillions more in years to come, while others think it is grossly overvalued.

Which team is right? Here is what a $5,000 investment in SpaceX stock today could be worth by 2030.

Growing AI revenues

The company's name might be SpaceX, but its future hinges on its massive investments in artificial intelligence (AI). Since it acquired xAI (which, it should be noted, was also controlled by Musk) early this year for $250 billion, SpaceX has embarked on a massive build-out of data centers for AI infrastructure. This will allow it to meet its own needs for the Grok chatbot and sell computing power to third parties.

Its AI revenue was $2.5 billion last quarter, up from $737 million a year earlier. Capital expenditures for SpaceX's AI segment totaled $15.8 billion in the second quarter alone, a massive amount that it hopes will translate into revenue growth in the near future. It has signed deals to supply computing power to the likes of Alphabet and Anthropi, and on the Q2 conference call, Musk said he believes SpaceX is on pace to reach $100 billion in annual recurring revenue by the end of this year. By 2030, he expects SpaceX's total revenue to reach $1 trillion.

While I would be skeptical that its AI business can go from basically zero to $1 trillion in revenue within five years, there is clearly strong demand for compute capacity, which is why SpaceX is spending so aggressively to build it.

Image source: Getty Images.

Don't forget about Starlink

AI is not the only part of the SpaceX business growing quickly. There is Starlink, its satellite internet connectivity platform, which is supported by SpaceX's own launch business.

Starlink revenue was $4.3 billion last quarter, up 65% year over year. New versions of the Starlink satellites are being built, and it will soon begin launching them into orbit, where they will hopefully enable direct-to-device connections with smartphones. This gives SpaceX a huge addressable market to pursue, and it wouldn't be surprising if the segment generated $100 billion in revenue by 2030 if the bull case plays out.

Still, there are competitors in this sector, including aggressive investors Amazon and AST SpaceMobile. Starlink is the leader today, but it is unlikely that SpaceX will monopolize the skies.

Where will SpaceX stock be in 2030?

To determine where SpaceX stock may be in 2030, we need to consider its current market cap of $1.85 trillion, and a share count that is likely to be boosted by further secondary stock offerings and employee stock-based compensation in the coming years, diluting the current shares' value.

Over the last 12 months, SpaceX's revenue was just $21 billion. This is going to grow quickly over the next few years, possibly surpassing $100 billion in the near future, simply because of its aggressive capital spending plans for AI infrastructure that can generate computing power for sale. But the target of hitting $1 trillion in annual sales -- something no company has ever achieved -- by 2030 feels far-fetched. You also have to ask how profitable it will be to lease compute after supply eventually grows to meet demand.

A hypothetical SpaceX with $500 billion in revenue and a 20% profit margin would have $100 billion in earnings. If the company's market cap stayed essentially flat at $1.85 trillion over those years, that would give it a price-to-earnings ratio (P/E) of 18.5 five years in the future. This may look like an attractive valuation compared to the average for the S&P 500 index, which trades at a P/E of 30 today. However, that figure is based on an extremely optimistic scenario about potential earnings five years in the future for a highly capital-intensive business. In that light, I'd suggest that an investment made in SpaceX today is likely to be worth a lot less in 2030. I'd predict that SpaceX stock should trade around $100 five years from now, which would leave a $5,000 position opened at $140 per share worth about $3,571.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AST SpaceMobile, Alphabet, and Amazon. The Motley Fool has a disclosure policy.

After a few months, Space Exploration Technologies (NASDAQ: SPCX) stock has gone on a wild ride, but it now trades right around its initial public offering (IPO) price of $135. Wall Street analysts are much more optimistic about the stock, with an average price target of $218 across the industry.

Many Wall Street analysts believe that SpaceX's radical ambitions for artificial intelligence (AI) and space-based services will set the record-breaking IPO to the stratosphere, and that the stock price will keep moving higher. But are they right?

Here's a breakdown of SpaceX's business ambitions and whether you should follow Wall Street and buy its stock today.

Ambitious AI growth

AI is the major market theme of the decade, and Elon Musk and SpaceX plan to cash in on it in a big way. The company is aggressively building data center capacity on earth, which will power its own AI services like the Grok chatbot, as well as selling to third-party providers. This makes SpaceX a neocloud company competing with Amazon Web Services (AWS) for compute services.

SpaceX's AI revenue was $2.56 billion last quarter. However, because of its massive capital spending, Musk believes its annual recurring revenue (ARR) will grow to $100 billion by the end of 2026, which could mean about $25 billion in AI revenue in Q4 alone. This will be achieved through contracts with other AI players hunting for computing power, such as Anthropic, which signed a large deal with SpaceX.

Long-term, Musk believes SpaceX can reach $1 trillion in revenue by 2030, primarily through AI infrastructure investments on Earth and, eventually, in orbit. It is going to cost a lot to get these facilities up and running -- AI capital expenditures were $15.8 billion last quarter alone -- but the company believes there is a massive opportunity in AI infrastructure that will lead to billions, and eventually trillions, in revenue.

Image source: Getty Images.

Where will profits come from?

Right now, all these AI investments are losing money for SpaceX. It had a segment operating loss of $1.2 billion and is burning a ton of free cash flow to scale up its infrastructure. Long-term, it is difficult to estimate how fat (or not) the AI segment's profit margins will be at maturity, but it will be a long way until that happens, especially once you consider the costs of delivering and monitoring data center assets in orbit.

In the short-term, profitability can be relied on from the Starlink internet service. Last quarter, its revenue grew 66% year-over-year to $4.2 billion, with $1.67 billion in operating earnings. In fact, it is the only profitable segment at SpaceX, as the space launch segment is currently losing money.

Rapid growth for Starlink gives the business a solid profit trajectory. If Starlink revenue can scale to $50 billion a year within a few years, a profit margin of 39% (which is what the Starlink division generated last quarter) would mean $19.5 billion in segment earnings.

Is Wall Street right about SpaceX?

$19.5 billion in segment earnings may be a lot for most companies, but this is just a splash in the bucket for a stock with a market cap of $1.9 trillion. If it were to reach the average Wall Street price target of $218, the market cap would approach $3 trillion.

Compared to Starlink's segment operating earnings, that would be an earnings multiple well over 100x, based on forward estimates a few years ahead.

With this in mind, the potential for SpaceX stock all comes down to the investments in AI and how profitable they can be. If SpaceX can deliver its promise of $1 trillion in revenue with a decent profit margin, maybe the stock deserves to trade at the average Wall Street price target. But if you think these are grandiose claims with little chance of actually happening, the right bet is to avoid SpaceX stock for your portfolio.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

Bull markets affect not only stock prices but also some underlying businesses in the economy. For instance, trading brokerages -- like Interactive Brokers (NASDAQ: IBKR) -- earn more revenue if more people around the globe trade their equities.

The bull market that began in late 2022 helped Interactive Brokers' stock generate a total return of over 525% in the last five years. That performance is actually crushing the performance of most technology and artificial intelligence (AI) stocks over the same time period.

But what happens when trading eventually slows? Let's discuss the dynamics of the financial brokerage sector and what it could mean for Interactive Brokers investors today.

Image source: Getty Images.

Revenue is built on trading volumes

Interactive Brokers (IBKR) is a global financial asset trading platform. It makes money whenever a customer trades a stock, options, cryptocurrencies, or other financial assets. The more customers it has and the more trades each customer makes, the more money it will make.

The AI-driven bull market has been quite kind to IBKR's growth. Its total customers grew 34% year over year last quarter to 5.19 million, resulting in 30% growth in commission revenue. It also generates net interest income on cash balances and margin loans, which were up 23% year over year.

Profitability is also stellar, with a pretax profit margin of 77% last quarter. IBKR's stock price is up 506% in the last five years due to this stellar profit margin and the fact that it has been able to grow its customer accounts by 5x from around 1 million in 2020. This was helped by its improved product offering for international trading, as well as by the bull market during the pandemic and in the last few years around AI.

Cyclicality is the price of doing business

A market-share-gaining stock brokerage like IBKR is likely to deliver fantastic financial performance in a bull market. Bear markets are not so kind. Sure, trading is still going on, but when stock prices fall, it generally means some individual traders exit the market, and trading volume falls. This turns a previous tailwind into a headwind for as long as stocks remain in the doldrums.

This is the business cycle for IBKR, and a bear market will eventually arrive. In 2022, when stocks were in a bear market amid interest rate hikes and recession fears, IBKR's customer account balance was nearly flat, underscoring how macroeconomic forces can affect its business. Still, the fact that it was able to stabilize its business during a bear market is a testament to its market share gains.

Data by YCharts. PE = price-to-earnings.

Should you buy IBKR stock?

When evaluating brokerage stocks, one also needs to factor in interest rates and how they can affect cash being kept in brokerage accounts. How rates average out through both types of markets will help determine a brokerage's true long-term earnings.

For instance, more assets on the platform at IBKR have meant a growth in net interest income. And yet, this net interest income is currently growing more slowly than the overall customer count. This is because interest rates are down globally in the last year, meaning IBKR doesn't earn as much in interest income on idle cash balances. In a bear market, interest rates are likely to fall, which could affect the business's earnings growth.

Another factor to consider is stock valuation. IBKR stock currently trades at a price-to-earnings ratio (P/E) of 38.5, and this is valuing it on trailing earnings in a multi-year bull market. If a bear market occurs and lasts for years, IBKR's customers, net interest income, and likely overall earnings may fall temporarily. This could make it a dangerous investment to buy at a P/E ratio close to 40.

That's why it's important to make any decision on IBKR stock with a long-term investment view. IBKR should continue gaining market share over the long term, which is why the stock trades at such a premium earnings multiple today. I don't think it is smart to buy into the stock at this premium P/E ratio, but investors should keep it on the watch list to see if it ever gets cheap again. That's when a long-term investment might make sense.

Brett Schafer has positions in Interactive Brokers Group. The Motley Fool has positions in and recommends Interactive Brokers Group. The Motley Fool recommends the following options: long January 2027 $43.75 calls on Interactive Brokers Group and short January 2027 $46.25 calls on Interactive Brokers Group. The Motley Fool has a disclosure policy.

Nvidia (NASDAQ: NVDA) has done it again. The artificial intelligence (AI) computer chip giant just posted another quarter of 100% revenue growth, reaching $96 billion in quarterly sales. By the end of the fiscal year 2027 in January, the company may generate well over $400 billion in revenue. But that is not the end of the story. On the conference call, Nvidia executives projected that revenue would grow by 70% next fiscal year.

This insatiable growth is hard to fathom at this scale. Here's what it means for Nvidia and other AI-related stocks if it can put up this 70% revenue growth next fiscal year.

Projected growth through the next fiscal year

Nvidia is currently in its fiscal year 2027, which ends in January of next year, but is mainly in calendar year 2026. Fiscal year 2028 will end in January 2028, but is mainly in the calendar year of 2027.

Last quarter, Nvidia's revenue grew 106% year over year to $96 billion, driven by rising demand for data center chips for AI. In Q3, it expects to generate $108 billion in sales, putting it on track to exceed $400 billion in total revenue in fiscal year 2027, provided Q4 shows further phenomenal growth.

That is impressive, but perhaps even more impressive is what Chief Financial Officer Colette Kress said on the earnings call. She said the company is expecting revenue to grow by 70% in fiscal year 2028. If Nvidia reaches $425 billion in revenue this year, that would mean over $700 billion in revenue next fiscal year and knocking on the door of $1 trillion a few years from now.

Clearly, the AI boom is showing no signs of slowing down.

Image source: Nvidia.

Other AI stocks that benefit

Amid the AI spending boom, Nvidia is at the center of the supply chain. As it grows, so too will the rest of the market.

A few stocks that could benefit from rising demand for Nvidia products over the next few years are those that supply Nvidia. These include its manufacturing partner, Taiwan Semiconductor, memory chipmakers like Micron Technologies, or semiconductor equipment specialists like ASML. If Nvidia increases its volume, that will mean more demand for these players.

On the other hand, Nvidia's customers may face pricing pressure as supply still does not meet demand in the AI data center build-out. Nvidia recently raised its prices by 15% for chips shipping next year, due to rising memory chip costs, which are an input to its systems. Infrastructure players like Amazon, Microsoft, or SpaceX that buy a lot of Nvidia chips may face margin pressure starting next year if they cannot pass these price increases on to consumers.

However, overall, the entire AI complex should benefit if Nvidia projects revenue to continue scaling at this rapid rate.

Should you buy Nvidia stock?

Another impressive part of Nvidia's stock run is its profit margins. Operating margin was 64% over the last 12 months, which is incredible efficiency given its 75% gross margin. Assuming Nvidia can reach $700 billion in revenue in fiscal year 2028, a 64% operating margin would equate to $448 billion in operating earnings, making Nvidia by far the most profitable business in the world.

Today, the stock has a market cap of $5 trillion and may head higher on bullish revenue growth guidance. That is still just a multiple of 11x these 2028 earnings projections, which looks cheap.

The big question is how sustainable these earnings would be over the next decade. If you believe AI infrastructure demand is here to stay or will grow, then Nvidia stock should be worth much more five years from now, making it a buy at today's prices.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Amazon, Micron Technology, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

The worst-performing stock of this week may just be Dick's Sporting Goods (NYSE: DKS). Shares fell over 30% on Tuesday, Aug. 25, after the company reported disappointing earnings and lowered its full-year guidance while warning about aggressive promotional activity in the footwear and apparel market.

Here's what's wrong with Dick's stock, and whether now is a good time to buy the dip.

Weak earnings and reduction to guidance

On Aug. 25, Dick's reported earnings for the three months ended in July. It missed both revenue and earnings per share (EPS) estimates. It had $5.59 billion in revenue compared to estimates of $5.65 billion.

More importantly, full-year EPS guidance was slashed to $10.94-$11.94, significantly below Wall Street analysts' $14.20 estimate. It is this huge disappointment that likely has the stock collapsing this week, along with management warnings that the apparel and footwear market is in a highly promotional environment.

The main culprit for Dick's is its recent acquisition of Foot Locker, which generated negative operating earnings in the quarter, leading to a decline in consolidated earnings.

Dick's own business grew Q2 comps by 4.9% on the back of the FIFA World Cup and higher average tickets. At the same time, Foot Locker comps fell 3.6% and are now guided to a full-year loss of $40 million to $80 million.

Management sees long-term value in the Foot Locker business, but the price-sensitive mood of the athletic footwear market makes 2026 a challenging year.

Oops, one more stroke. Image source: Getty Images.

Time to buy the dip?

After this fall, Dick's trades at a forward price-to-earnings ratio (P/E) of just 12, which is well below the S&P 500 index average. It is tough to value this stock with Foot Locker dragging it down, but if you believe the company can continue to dominate the sports equipment and apparel market, now could be a good time to pick up some shares on the cheap.

Brett Schafer 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.

When a raging bull market eventually loses momentum, investors generally rotate into stable, income-generating stocks. When most stocks look expensive, dividend stocks can be reliable income payors that send you checks regularly.

However, investing in broad index funds isn't the solution either, with the S&P 500 Index's average dividend yield near an all-time low of 1.05%. If you're looking to generate real income, you have to hunt for individual standouts.

There are still a few quality dividend stocks investors can buy today, even in this age of low yields. Here's why Pfizer (NYSE: PFE) and Nintendo (OTC: NTDOY) are two forgotten dividend stocks investors can lap up for their portfolios today.

Pfizer's high dividend payment

Pfizer is a pharmaceutical giant whose stock has been stuck in the mud. In fact, over the last five years, the stock's shares have fallen 38% while the broad indexes have soared.

The problem is threefold. Pfizer was a major beneficiary of the COVID-19 pandemic by selling vaccines and treatments for the infection, including the treatment Paxlovid. Now, COVID-19 revenue has completely collapsed. Second, Pfizer is facing a patent cliff with certain drugs such as Eliquis for blood thinning and Ibrance for breast cancer. Third, the company took on significant debt to acquire companies such as Seagen and Matsera, with total net debt exceeding $53 billion.

However, the world is not ending for Pfizer. The pharma giant has a highly diversified revenue base and generated nearly $11 billion in free cash flow over the last twelve months. Its Seagen acquisition delivered 21% revenue growth for its cancer drugs, while Metsera is exploring products in the weight-loss drug category.

Right now, Pfizer's stock is being heavily discounted, with a dividend yield at 6%. If you believe the company can slowly pay down its debt and grow through its new acquisitions and internal research pipeline, this dividend should provide reliable income that can grow over the coming years.

Image source: Getty Images.

Nintendo's growing earnings power

One of the most underrated dividend stocks out there is the video game giant Nintendo. It has durable entertainment franchises along with a vertically integrated gaming hardware model that keeps players coming back for its products time and time again. With its profits, it has a stated dividend policy of paying out dividends twice a year, with the total payout ratio being the greater of 40% of consolidated operating earnings or 60% of its consolidated net profit after taxes.

This means, if Nintendo's earnings rise, so will its dividend payouts. Last year, Nintendo launched the Nintendo Switch 2, which has already sold close to 24 million units globally in the last twelve months. With gaming devices in customers' hands, customers will begin buying highly profitable first-party gaming titles.

We can see this in net income growth, which has already surpassed $3 billion over the last twelve months. Once more people buy Nintendo Switch 2's over the next five years and beyond, it will be able to sell more software to them, and grow profits, which will lead to higher dividend payments. Right now, Nintendo has a dividend that yields 2.45%, but I believe its future dividend payouts will be much higher, making it a fantastic dividend stock to buy now.

PFE Free Cash Flow data by YCharts.

Why these are great dividend stocks

Pfizer and Nintendo make great dividend stocks for different reasons. Pfizer starts at a high dividend yield, and has a diversified business and sufficient free cash flow to cover dividend payments and service its debt.

Nintendo is at a profit inflection and has a mandated payout ratio that should lead to solid dividend payments in the years ahead. Combined, they will make great dividend stocks to add to your portfolio over the next few years.

Brett Schafer has positions in Nintendo. The Motley Fool has positions in and recommends Nintendo and Pfizer. The Motley Fool has a disclosure policy.

Many artificial intelligence (AI) stocks have seen declining share prices to start the second half of 2026. Skittishness around AI spending on data centers and growth from start-ups like Anthropic and OpenAI have Wall Street concerned at the moment.

This has led to a rebound in stocks considered to be AI losers, such as Nintendo (OTC: NTDOY). The video game maker has seen its stock price collapse amid fears of supply being crowded out for memory chips, but has since rebounded more than 30% during the past 30 days.

Here's why I think Nintendo stock will outperform the "Magnificent Seven" in the second half of 2026, and why it is a buy right now.

An anti-AI stock with earnings growth potential

Last year, Nintendo released the Nintendo Switch 2, a gaming console that followed up on its hit Nintendo Switch. In the first 12 months after launch, it has already sold close to 24 million units, confirming that gamers still love the form factor for playing.

However, with upgraded device specifications comes more memory chip usage per device. Memory chip prices have soared during the past year due to growing demand for AI-related services, and investors have feared this will crowd out Nintendo's supply. Nintendo has responded by raising the price of the Nintendo Switch 2 in the U.S. by $50, up to a $500 selling price.

Although this will be a slight headwind for Nintendo, the company is showing so far that it will not be the end of the world financially. It still generated about $900 million in operating income last quarter, with revenue up close to its record of more than $15 billion in the middle of the COVID-19 pandemic, only a year into the Switch 2's existence.

Image source: Getty Images.

Nintendo's cheap valuation

Once more players get their hands on the Switch 2, Nintendo will start selling more of its popular software titles, which is where it makes a profit. Right now, Nintendo is projecting a net profit of $1.92 billion, down from last fiscal year. This could concern investors, but Nintendo is notoriously very conservative with its forecasts and will likely beat this figure when reporting in the quarters ahead.

Right now, Nintendo's stock trades at a market cap of almost $64 billion, which brings its enterprise value down to less than $50 billion when including the cash and assets on its balance sheet. If Nintendo can show its earnings are growing as Switch 2 players adopt its games, the stock will look cheap relative to its earnings potential, which will likely be priced in later this year. If the memory chip supply crunch begins to unwind, that may be further fuel for Nintendo's share price.

NTDOY data by YCharts

Why the "Magnificent Seven" may struggle the rest of this year, and whether it matters

So far in the second half of 2026, Nintendo is outperforming every Magnificent Seven stock, up 27% since July 1. Microsoft is the only one close, up 26%.

These stocks have generally risen due to the narrative of insatiable demand for computer chips and cloud computing from AI services. If this narrative reverses, the Magnificent Seven stocks could see a pullback for the rest of this year, while Nintendo continues to rebound as more people buy the Switch 2 and start playing games.

In the long run, I still think most of the Magnificent Seven companies will do fine for shareholders. However, Nintendo looks like a much cheaper contrarian pick right now, with the stock set up to deliver solid returns for shareholders for the rest of 2026 and over the long haul. I don't fault anyone for holding Magnificent Seven stocks in their portfolio, but if you are looking at a diversification strategy with new cash deposited into your account, Nintendo may be a good bet right now.

Brett Schafer has positions in Nintendo. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nintendo, Nvidia, and Tesla. The Motley Fool has a disclosure policy.

No company has ever generated $1 trillion in revenue in a calendar year. Andy Jassy, chief executive officer of Amazon (NASDAQ: AMZN), thinks one of its divisions is well on its way to surpassing that figure on its own. Last quarter, Amazon Web Services (AWS) hit $169 billion in annual recurring revenue (ARR) and sales rose an astonishing 37% year-over-year.

Previously, Jassy has said that AWS could reach hundreds of billions of dollars in annual revenue. On the latest Amazon earnings call, he revised this estimate, saying the company now believes annual revenue for this division could eventually surpass $1 trillion. Here's when it could happen and what it could mean for Amazon stock.

AWS' growing potential in AI

AWS is the largest cloud provider in the world by revenue. The company builds data centers and then contracts the computing power to third-party companies, such as its long-term relationship with Netflix for video streaming. Companies have transitioned their IT infrastructure to the cloud during the past decade, allowing providers like AWS to continue gaining market share in services such as compute, storage, databases, and more.

This business model has been supercharged by demand for artificial intelligence (AI). For example, AWS has a major partnership with the fast-growing AI lab Anthropic, which plans to spend tens of billions on cloud computing in the coming years. Spending from AI start-ups is why AWS revenue growth accelerated to 37% last quarter, its fastest pace of revenue growth since 2021, when the business was significantly smaller than it is today.

With the boom in AI spending and the continued shift of traditional IT spending to the cloud, AWS could average 20% revenue growth during the next decade. That would bring its ARR to $1 trillion by the beginning of 2036, or about 10 years from now. It may seem outlandish, but this is the power of compounded growth in the double-digit percentages.

Amazon CEO Andy Jassy. Image source: Amazon.

How much profit will $1 trillion in revenue earn?

Where AWS shines is in its superb profit margins, stemming from years of operating its data centers after enormous upfront spending. Amazon has forecast capital expenditures of as much as $220 billion this year, primarily to expand AWS data center capacity.

Last quarter, AWS had a trailing-12-month operating margin of 37%, indicating how much profit it can earn from its existing infrastructure. Applying a similar figure if AWS reaches $1 trillion in sales would equate to between $300 billion and $400 billion in operating earnings, depending on exactly where margins end up a decade from now.

During the past 12 months, Amazon's total operating earnings were $98 billion.

AMZN EBIT (TTM) data by YCharts

Buying Amazon stock today

Taking the long view with Amazon stock could be fruitful during the next decade. AWS revenue of $1 trillion could mean hundreds of billions in earnings power. That is cheap compared to the stock's current market cap of $2.8 trillion.

This also excludes the steadily growing e-commerce and retail operations, which generated $450 billion in revenue in North America alone during the past 12 months. That segment will probably reach $1 trillion in revenue before AWS does, albeit with lower profit margins.

Together, Amazon's retail business, advertising revenue, and cloud segment should lead to trillions in revenue and hundreds of billions in earnings power by the middle of the next decade. Assuming it can reach $400 billion in consolidated earnings, a typical price-to-earnings ratio of 20 would translate into an $8 trillion market cap, meaning multibagger returns during the next 10 years. That makes Amazon stock a solid stock to buy right now.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Netflix. The Motley Fool has a disclosure policy.

One of the best-performing stocks of the artificial intelligence (AI) era is Palantir Technologies (NASDAQ: PLTR). The company has become the enterprise software extraordinaire in the last few years, showing tremendous revenue growth from enterprises looking to adopt its systems.

The stock price is up more than 600% in the last five years, and it now has one of the largest market caps in the world, at $416 billion as of this writing. Where will Palantir's share price be at the end of 2030, over four years from now? Let's run the numbers and find out.

Image source: Palantir Technologies.

Rapid growth in AI services

Enterprise AI has been a growing trend in recent years, with large organizations looking to build custom tools for their businesses. Instead of outsourcing all of their data to start-ups like Anthropic, Palantir can step in and help these businesses build custom AI tools to give them what it calls "AI sovereignty" over their data.

This has led to huge growth from U.S. commercial customers. Last quarter, Palantir's revenue grew 93% year-over-year to $1.9 billion, with U.S. commercial revenue up 149% to $764 million. The company keeps signing massive deals for businesses to build them AI analytical tools, signing 73 deals worth $10 million or more last quarter alone.

All of these figures are impressive, but investors need to ask how fast the company will grow from now until 2030. It has already shown signs that future revenue growth may slow from the current blistering pace, with total deal value of $3.37 billion signed last quarter, up 49% year over year. Still nice figures, to be sure, but the percentage of growth from the business looks like it will slow at a higher revenue level, which happens to most stocks.

Tremendous margin expansion

What makes Palantir perhaps most impressive is its ability to grow with rapidly expanding profit margins. Last quarter, its GAAP (generally accepted accounting principles) operating margin was 47%, meaning $912 million in quarterly earnings. The company has to invest in research and sales to win contracts, but it is currently doing so very efficiently.

This proves that Palantir's software is legitimately valued by enterprises, which should lead to durable revenue and earnings in the years ahead. Once you pay Palantir to set up a vast analytical system for your business, it is unlikely you will get rid of it, and if you do, not for many years. This should make the business highly predictable in terms of contract revenue.

PLTR PS Ratio data by YCharts

Where Palantir's stock price will be by 2030

For Palantir investors today, the question is not whether it is a good business that will benefit from AI, but how big its revenue and earnings will be in the years ahead. Right now, the stock trades at a market cap of $416 billion, while generating just $6.2 billion in trailing revenue. That is a price-to-sales ratio (P/S) of 73, making Palantir one of the most richly valued stocks out there today.

Hundreds of billions of dollars are spent globally on enterprise software each year, a figure that continues to grow in the age of AI. For Palantir, it wouldn't be surprising if its revenue grew to $15 billion to $20 billion by 2030, as long as it continues to win AI deployment contracts. And $20 billion in revenue, with its profit margin potential, could mean $10 billion in annual earnings, at least before taxes.

Still, that is more than 40x the stock's current market cap. Unless Palantir can sustain an ultra-premium multiple of its earnings, the share price is likely lower at the end of 2030 than it is today.

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

The artificial intelligence (AI) world revolves around bottleknecks. Racing ahead are the world's largest companies getting infrastructure up and running, with the goal of staying ahead in the latest AI technologies. This will require hundreds of billions in capital expenditures.

Elon Musk and Space Exploration Technologies (NASDAQ: SPCX) are going all in AI, with plans to get 15 to 20 gigawatts of capacity up and running for its data centers by the end of next year. However, according to Musk on the SpaceX conference call, there is one bottleneck above all others preventing this growth: memory computer chips.

Here's what Musk said about memory chips and what it could mean for the sector as it looks to capitalize on the AI spending boom.

Image source: Getty Images.

Massive compute investments

When making investments in AI data centers, allocators such as Musk prefer to describe capacity in gigawatts. A gigawatt is a unit of electric power, which translates to 1,000 megawatts or 1 billion watts. For reference, New York City will consume 10.4 gigawatts of power at peak energy demand during a summer heat wave.

Data centers rely on electricity to keep their compute infrastructure running, so securing these power sources is important to project success. Musk wants to build more than the maximum demand of all of New York City for SpaceX's AI data centers in less than two years. It's an ambitious goal that could put the competition for computing power into overdrive.

This will translate into massive amounts of demand for computer chips like Nvidia's, but also for memory chips.

Memory chip demand

With the rise in demand for AI from consumers and enterprises, cloud computing services like the ones being built at SpaceX are racing to secure advanced memory chips. Why? These chips store all the data used by these AI models, as well as consumer data. In the last SpaceX conference call, Musk said that unit volume for memory chips is growing only 20% year-over-year, compared to 200% growth in customer demand.

In other words, the demand he is projecting for SpaceX and other AI cloud players still greatly outpaces the growth in memory chip output from the large manufacturers. This will keep the memory chip supply a bottleneck for the industry, allowing companies to keep raising prices. At the same time, it gives them the runway to keep expanding production volumes.

This dynamic can be seen in Micron Technology's (NASDAQ: MU) financials. Micron is one of the few providers of memory chips globally and saw its revenue grow to $41 billion last quarter, up from $9.3 billion in the same quarter a year prior. It is currently producing an operating margin of 80%, meaning $8 of every $10 in revenue is falling to the bottom line as profit. Simultaneously, Micron's capital expenditures have grown to $25 billion in the trailing 12 months and are likely to continue to grow in the years ahead to meet demand from companies like SpaceX.

MU Capital Expenditures (TTM) data by YCharts

Should you buy memory chip stocks?

Right now, Micron's business is firing on all cylinders. If it maintains this 80% operating margin, revenue can keep growing at this insatiable clip; it could see total revenue grow to $200 billion in a single 12-month period, with more than $150 billion in operating income. This is the future Musk is painting for Micron in the ensuing quarters.

That looks cheap compared to Micron's current market cap of $1.06 trillion. The question is whether this memory-demand boom is sustainable in the years ahead or headed for an eventual bust. Memory chip demand has fallen off a cliff many times in the past few decades, sending the profits (and share prices) of stocks like Micron down with it.

If you believe AI demand has changed the memory chip market from a cyclical industry to secular growth, Micron stock may be a buy right now. Otherwise, it is best to avoid this stock for the time being.

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

In July, Interactive Brokers (NASDAQ: IBKR) proved yet again that it is one of the fastest-growing brokerages in the world. Customer margin loans surpassed $100 billion in July, and were up 49% year over year.

This indicates that the animal spirits of the bull market are in full swing and that Interactive Brokers is capturing significant market share in the financial asset trading space. Here's why the electronic broker's margin debt has grown so quickly, and what it means for earnings this quarter.

Growing customers means growing interest income

In July, the total number of Interactive Brokers customers grew 34% year over year to 5.3 million. The company is attracting increasingly sophisticated customers and professionals to its platform due to its global coverage of financial assets and its low margin-debt rates.

Margin loans offer a way for a brokerage's customers to bet more aggressively on stocks, as well as the interest charged on short-selling. When the customer base grows, so too will Interactive Brokers' total margin debt. In fact, last month, it grew much faster than the overall customer count, likely due to aggressive trading in the artificial intelligence (AI) market.

Margin debt growing by 49% year over year is going to provide a huge boost to the company's net interest income in Q3, at least, if it continues to grow this quickly in August and September. Last quarter, net interest income grew 23% year over year to $1.06 billion. At this rate of margin debt growth, Interactive Brokers should see an acceleration in net interest income growth this quarter.

Image source: Getty Images.

Should you buy Interactive Brokers stock?

One potential headwind to Interactive Brokers' net interest income would be a decline in interest rates. The company charges interest on clients' margin loans at a variable rate based on standardized cost-of-borrowing benchmarks such as the Secured Overnight Financing Rate (SOFR). In the last two years, the Federal Reserve has begun to lower its benchmark interest rates, which is a headwind for the company's net interest income.

Depending on where interest rates head over the next few years, they will be either a headwind or a tailwind for the low-cost broker's net interest income, which provides the majority of its revenue. Today, the stock trades at a price-to-earnings ratio of 36, which indicates that investors do not believe interest rates will fall in the near future, and that they anticipate that Interactive Brokers will continue to grow its total customer count at a similar pace to previous years. If they are correct on both counts, then Interactive Brokers stock will probably prove a good buy at today's levels.

Brett Schafer has positions in Interactive Brokers Group. The Motley Fool has positions in and recommends Interactive Brokers Group. The Motley Fool recommends the following options: long January 2027 $43.75 calls on Interactive Brokers Group and short January 2027 $46.25 calls on Interactive Brokers Group. The Motley Fool has a disclosure policy.

A brutally frozen housing market has taken a toll on the stock prices of many different businesses. Homebuilders, makers of construction supplies, and real estate brokerages are all in the doldrums. One previously hot stock trying to turn things around amid this headwind is Opendoor Technologies (NASDAQ: OPEN).

The iBuying platform operator got a new CEO last year and recently announced it had taken out convertible debt to raise funds to repurchase 5% of its outstanding stock. Despite these headlines, its shares continue to fall due to the pain in the housing market and the business's inability to generate a profit.

Here's what the transaction means for the company, and whether Opendoor stock looks like a good value right now.

Financial engineering, but at what cost?

Convertible notes are bonds with low interest rates -- sometimes as low as zero percent. But investors in said bonds can convert them into newly issued shares of stock at a certain price, which is a good deal if the stock is trading above that level.

Opendoor just took out 0% 2030 convertible notes -- meaning they are due in 2030 -- worth $650 million. It is using $158 million of this capital to repurchase around 5% of its common stock, as announced in a press release. The convertible price for these bonds is just $4.71, which is about a 32% premium versus Wednesday's closing share price of $3.58.

To offset potential dilution, Opendoor bought capped calls, which artificially inflate the conversion price. In this case, the new converted price is $6.98, below which no shareholder dilution will occur.

While management may proclaim that this is a bond with no upfront costs, the actual cost to shareholders will be borne in these capped-call transactions (a direct cash cost at the time of bond issuance), and in potential dilution years down the line. Bondholders could see significant gains if the stock price rises from here, which existing shareholders will pay for through new share issuance. Otherwise, Opendoor will be forced to repay the principal in cash.

Image source: Getty Images.

A business model in need of repair

Financial engineering can create value for shareholders, provided a business is doing well. Opendoor is on a shaky financial footing.

Last quarter, revenue fell by nearly half year over year to $883 million. With slim gross margins on the iBuying business, its gross profit was just $86 million. The business model is to buy homes directly from consumers and resell them, which comes with low gross margins and requires stuffing existing inventory on the balance sheet, sometimes funded with debt.

Existing home sales in the United States are down to around 4 million a year, as compared to over 5 million a year prior to the COVID-19 pandemic. Opendoor has failed to gain market share with its iBuying strategy, which has been a double-edged sword amid this macroeconomic environment. The company posted a net loss of $162 million last quarter, and it has never generated a profit.

OPEN Gross Profit (TTM) data by YCharts.

Should you buy Opendoor stock?

Management taking out a nifty convertible bond does not change anything about Opendoor's failed business model. The company is trying to pivot to new business strategies, such as automated pricing and offering new services to homebuyers and sellers, but it is failing to generate interest at the moment.

A frozen housing market is going to make it difficult for even the best businesses in the sector, let alone one that has never generated a profit. Right now, Opendoor's market cap of $3.25 billion is more than 10 times its trailing gross profit generation. (We cannot value Opendoor relative to its earnings since it has none.) Gross profits have been declining for many quarters.

Add everything up, and this repurchase authorization fueled by debt is likely a bad sign for the company, not a good one. Avoid buying the dip on Opendoor stock.

Brett Schafer 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.

Artificial intelligence (AI) is moving beyond just cloud computing for software. It is moving into the real world and onto the factory floor.

One example of this is Nvidia's (NASDAQ: NVDA) recent partnership in Japan. The country is a leader in advanced manufacturing techniques and wants to maintain its lead in the age of AI and robotics. Japan is creating a 44-company consortium of industrial giants, called Noetra, to bring AI onto the factory floor, powered by Nvidia.

Here's the skinny on Nvidia's deal with Japan, and what it could mean for the stock going forward.

Image source: Nvidia.

Robotics as the next stage of AI development

The collection of companies operating under the Noetra umbrella is part of the Japanese government's drive to remain relevant in the age of AI. Specifically, it aims to dominate advanced manufacturing techniques while remaining relatively independent of Chinese- and United States-based AI models.

To spark this growth, the Japanese government is providing $6.1 billion in subsidies for AI across manufacturing and industrial use cases. Nvidia was chosen as the compute backbone for the investment and is providing its advanced GPU clusters to power these innovations.

It is unclear exactly how much the Japanese government and Noetra group will spend on Nvidia chips, but it could be in the tens of billions over many years. Sovereign AI investments are a growing theme in places like Japan, South Korea, and the Middle East, as a way to diversify away from the leading private companies from the U.S. and China. Nvidia has positioned itself to benefit from both use cases.

What does this mean for Nvidia?

Japan and its industrial giants are poised to invest billions in AI infrastructure in the years ahead, with Nvidia powering it. While this will not be a negative for the company, it is actually small compared to the overall revenue.

In the last 12 months, Nvidia's revenue was $253 billion. It had $37.4 billion in revenue from AI cloud and industrial use cases last quarter alone, excluding the traditional hyperscaler cloud computing business. This is up from $21.5 billion in revenue from the same quarter a year prior.

Noetra is a part of this growth segment for Nvidia, but still a small part of it. The big question for Nvidia and its price-to-earnings ratio (P/E) of 35 is whether it can maintain its aggressive growth rate at such a massive scale, not whether Japan decides to subsidize less than $10 billion in AI compute capacity for factories.

Brett Schafer 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.

Last year, Opendoor (NASDAQ: OPEN) had a new CEO, Kaz Nejatian, take the helm, promising a massive turnaround for the struggling pandemic-era real estate technology company. The stock price rose from under $1 to $10 in a year, with investors betting that the pain was finally over.

Today, shares are back down to $3.50. The financial results for the real estate buying platform continue to deteriorate, with housing market activity frozen shut in the United States.

Here's what Opendoor's future may look like, and whether the stock looks cheap again, down 90% from 2021 highs, as a bet on an eventual reversion to the mean in homebuying activity.

A struggling turnaround

When joining Opendoor, Nejatian wanted to reinvigorate the business by becoming leaner on costs and adding new features for real estate buyers and sellers on its platform. Historically, Opendoor's business model has been to buy and sell homes directly, which has proved tough to finance as a start-up trying to hold more and more inventory on its balance sheet.

This business model broke down amid the rising interest-rate environment of 2022, which drove many transactions out of the U.S. housing market. Opendoor's revenue has steadily declined from its peak, reaching $3.2 billion over the last 12 months, down from over $15 billion at one point in 2021.

Nejatian wants to scale up home acquisitions again, but more efficiently. Last quarter, Opendoor had 6,900 acquisition contracts but spent just $5 million on marketing. That compares to a similar level of acquisitions back in Q2 2022, when Opendoor spent $81 million on marketing.

At the same time, Nejatian wants to turn over homes more quickly, reducing the time this inventory sits on the balance sheet. Opendoor is making progress in this regard, with the percentage of homes on the market at over 120 days down to 9% last quarter, compared to 10% a year prior.

Image source: Getty Images.

Should you buy Opendoor stock?

Despite efforts to improve the core business model and layer on new products, such as automated pricing and mortgage lending through Opendoor, the business remains in rough financial shape.

Last quarter, Opendoor had a net loss of $162 million. It has never generated positive profitability, no matter how hot or cold the U.S. housing market is. Right now, the housing market is ice cold when it comes to transactions, and Opendoor and its investors are betting that an eventual turnaround will finally lead to profitability.

Investors should not automatically expect the housing market to return to the level it was at during the COVID-19 pandemic. We may be in a new environment of higher interest rates and an aging population that lessens the importance of this sector. And Opendoor operated in a hot housing environment a few years ago, and it still could not generate a profit. For these reasons, investors should stay far away from this stock.

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

The financial world changed when the Federal Reserve began raising interest rates in 2022 to combat inflation. Some firms -- like the now-shuttered Silicon Valley Bank -- were ill-prepared for this interest rate rise. Others, like Interactive Brokers (NASDAQ: IBKR), had balance sheets ready to capitalize on rising rates.

Last quarter, IBKR's customer equity rose 40% to $930 billion, making it one of the fastest-growing brokerages in the world by asset value. Here's how it can capitalize on today's interest rates to generate earnings for shareholders.

Exploding net interest income

As a brokerage, IBKR earns interest income in a few ways. First, it can invest idle cash balances in short-term Treasury bonds, sharing some of the proceeds with customers before pocketing the rest. Second, it earns interest income by making margin loans to customers, backed by customers' equity, as well as short-sale loans.

Even though IBKR offers strong profit sharing on idle cash and low-margin loans compared to the competition, it is still printing gobs of interest income at today's interest rates. Its net interest income rose from $1.148 billion in 2021 to $3.56 billion in 2025, driven by growing customer account balances and rising interest rates, which allowed it to earn more per customer.

Last quarter, net interest income was $1.06 billion, up 23% year over year. It is actually the largest revenue segment for IBKR.

Image source: Getty Images.

Balancing long-term growth

IBKR's stock price went up by 500% in the last five years, much of which is due to the explosion in net interest income feeding through to the bottom line. For any shareholder today, there is a risk that this tailwind over the last few years will turn into a headwind if interest rates fall.

At the same time, IBKR has a fantastic growth opportunity to attract more customers to its platform, which can offset any interest-income headwinds. Total customers grew 34% year over year last quarter to 5.19 million, with daily active revenue trades (DARTs) up 36%. Commission revenue grew 30% year over year to $673 million, which is highly correlated with customer and DART growth.

With its superior global trading platform, IBKR should steadily attract new customers in the years ahead. However, the company is currently trading at an elevated valuation, with a price-to-earnings ratio (P/E) of 37 in a time when interest income may be higher than normal. For this reason, investors should avoid buying IBKR stock for the time being.

Brett Schafer has positions in Interactive Brokers Group. The Motley Fool has positions in and recommends Interactive Brokers Group. The Motley Fool recommends the following options: long January 2027 $43.75 calls on Interactive Brokers Group and short January 2027 $46.25 calls on Interactive Brokers Group. The Motley Fool has a disclosure policy.

The interest in all things artificial intelligence (AI) in the stock market went back into overdrive in August. Unfortunately, Meta Platforms (NASDAQ: META) failed to join the party.

The company, led by founder Mark Zuckerberg, is investing heavily in AI but is not being rewarded by the market, and adoption has failed to materialize across most of its software services.

Now, Zuckerberg and the team are considering selling some of Meta's compute power in a new AI cloud business. Does that make the stock, now trading below $600, a buy? Here's my honest take.

Image source: Getty Images.

New cloud business?

Last quarter, Meta spent $30 billion on capital expenditures, nearly doubling its capex year over year. For the full year, Meta expects to spend $130 billion to $145 billion on capital expenditures, mainly related to artificial intelligence. Some of this will be used to advance its advertising platform, but the majority will go toward frontier research and inference capacity for AI models.

Right now, Meta's AI models do not see much external use, so it is already building up excess capacity in data centers that is not being utilized. Zuckerberg said that other AI companies have reached out to Meta Platforms to buy access to its compute capacity at a premium over the purchase price, although the exact financial details of the arrangement are unclear. However, if we compare it to recent deals signed by Space Exploration Technologies that are set to generate tens of billions in annual revenue, Meta could quickly grow this AI cloud business if it wants to turn on the spigot.

The risk arises because Meta is already struggling to identify internal use cases for its AI infrastructure. It could sell these services to third parties today in a similar move to SpaceX, CoreWeave, or Nebius Group, but eventually, the AI software providers are going to stick with the best-in-class hyperscalers like Amazon Web Services that can provide a comprehensive cloud service above just reselling compute, such as databases and other software. Meta is years away from doing this, if it even wants to.

Solid core operations

What all this means is that if Meta is already thinking of selling excess compute capacity to third parties, it is a bearish signal for the company. This means it cannot find ways to directly monetize the AI services it has spent tens of billions developing. According to third-party estimates, Meta's AI chatbots have just a sliver of market share, losing out to competitors like Alphabet's Gemini, OpenAI's ChatGPT, and Anthropic's Claude.

I believe Wall Street is right to be bearish on all the investments Meta is making in AI. However, it still has a phenomenal advertising business across Facebook, Instagram, and WhatsApp that is seeing accelerating growth due to improvements in targeting technologies. Last quarter, Meta's revenue grew 28% year over year to $61 billion, mainly driven by advertising growth. It couldn't outpace expense growth on AI and Reality Labs (Meta's wearables division is losing billions every quarter), with operating margin falling from 43% a year ago to 31% in Q2 2026, but it can help stabilize the ship as more money is spent every quarter on AI capital expenditures.

Data by YCharts.

My honest take on Meta stock

For the first time in a long while, Meta's operating earnings fell last quarter. Over the last 12 months, earnings before interest and taxes (EBIT) were $87 billion and are likely to continue falling over the next few years if capital expenditures continue to grow without an AI business model in place. Why? Because there will be massive amounts of depreciation flowing through to Meta's income statement. Advertising revenue is growing quickly, but it is already unable to keep up with these rising expenses.

The stock trades at a discount to many big technology peers, with a price-to-earnings ratio (P/E) of 22. However, Meta's earnings are likely to shrink in the years ahead unless it reverses these aggressive AI investments or finds a way to monetize said investments, generating tens of billions in revenue overnight. I have my doubts that this will happen, which is why I don't think Meta stock is a buy, even as it trades below $600.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Meta Platforms. The Motley Fool has a disclosure policy.

Space Exploration Technologies (NASDAQ: SPCX) generated $18.7 billion in revenue in 2025. Chief Executive Officer Elon Musk just predicted that the company will hit $100 billion in annual recurring revenue (ARR) by the end of this year, and $1 trillion in revenue by 2030. That would be a more than a 50-fold increase in five years, mainly on the back of artificial intelligence (AI) data center sales.

No company has ever generated $1 trillion in revenue in a single year. How likely is it that SpaceX can achieve this number by 2030? Here's my honest take on whether SpaceX stock is a buy today.

Less space, more AI

SpaceX just went completed the largest initial public offering (IPO) in history. The company is known today for space services, but it's transitioning quickly into an AI infrastructure business. Capital expenditures were $19 billion across the business last quarter, mainly attributable to building data centers for AI.

Musk, unsurprisingly, is being aggressive in building out data centers to serve the AI market. The company has signed deals with the likes of Alphabet and Anthropic that could get ARR up to $100 billion by December, Musk said on the company's first earnings call since the IPO earlier this month.

By the end of next year, Musk expects to bring on between 15 and 20 gigawatts (GW) of electric power capacity for SpaceX's current and future AI data centers. With the cost of bringing on a gigawatt of capacity approaching $50 billion, it will take enormous capital spending for SpaceX to deliver on its plans.

Since AI compute is a hot commodity at the moment, SpaceX can sign lucrative deals with third parties to lease out this computing power, even if those third parties are competitors to the company's own AI software services, such as Anthropic.

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

Long-term, SpaceX is developing a data center concept that will operate in Earth orbit to save on power costs by using solar arrays outside Earth's atmosphere. Along with the terrestrial data centers, Musk and SpaceX believe there will be enough demand for AI software to reach $1 trillion in revenue by 2030. That's an audacious plan, to say the least.

Risks and profit margins

Some revenue will come from other services provided by SpaceX, such as its Starlink internet and rocket launch contracts for third parties. However, if revenue hits $1 trillion in 2030, the vast majority of SpaceX's business will be AI data center contracts.

Right now, SpaceX is getting a nice level of revenue from such infrastructure deals, and likely with good margins. However, there is a risk that the AI spending boom could turn into a bust if demand for AI services does not meet these projections. This could lead SpaceX to build a gargantuan number of AI data centers as demand dries up.

SPCX Capital Expenditures (Quarterly) data by YCharts.

Is SpaceX stock a buy?

Today, SpaceX trades at a market cap of $1.9 trillion. In an ultra-bullish scenario, this $1 trillion in cloud computing revenue by 2030 could translate into hundreds of billions in earnings, at least compared to the competition, whose profit margins hover at about 30%. That might make the stock cheap for anyone buying right now.

However, investors should be skeptical of Musk's promises, especially when it means revenue increasing 50-fold in five years. Musk is notorious for making financial projections or product launches that only materialize years after his deadlines, and I think this $1 trillion revenue projection by 2030 is one of them.

Avoid buying SpaceX stock for this reason.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Amazon. The Motley Fool has a disclosure policy.

Last year, Space Exploration Technologies (NASDAQ: SPCX) generated $18.7 billion in revenue. By 2030, founder and CEO Elon Musk believes that figure will hit $1 trillion. How? Well, it's complicated, but it mainly has to do with an extremely rapid build-out of artificial intelligence (AI) data centers, both on earth and in orbit.

No company has ever hit $1 trillion in revenue in a single calendar year. Musk believes SpaceX can achieve this feat five years from now. Will SpaceX be the first company ever to hit $1 trillion in revenue, and can it be the first to reach this goal?

When you run the numbers, it is clear what the answer likely will be.

Image source: Getty Images.

Aggressive investments for AI data centers

To grow revenue from less than $20 billion in 2025 to $1 trillion in 2030, SpaceX will need to compound sales at more than 100% annually for five straight years. It is working to do so by spending a boatload on constructing AI data centers. Capital expenditures on AI infrastructure were $15.8 billion last quarter alone, roughly double its revenue for the period.

If its current build-out trajectory holds, SpaceX will generate $100 billion in annual recurring revenue (ARR) by the end of this calendar year. That is according to Elon Musk on the latest earnings call. From there, SpaceX plans to maintain its aggressive capital investments, believing there is near-unlimited demand from AI companies for cloud computing services.

On top of AI data centers, SpaceX has a highly promising business in Starlink internet, which grew revenue by 66% year over year and is regularly launching new, more powerful satellites into orbit to expand its global coverage and bandwidth capabilities. The segment is now at $4.3 billion in quarterly revenue, and could generate tens of billions in revenue in the near future. Still, compared to the $1 trillion goal by 2030, it will not make a massive dent in these plans. To hit $1 trillion, most of the revenue will have to come from AI data centers.

What the math suggests

Investors should be confident that SpaceX can accelerate its revenue growth through the rest of 2026. It already has contracts with other AI companies, such as Alphabet and Anthropic, worth around $26 billion a year. The company's recent IPO gave it a massive war chest of around $100 billion, which it can use to invest in infrastructure that will likely lead to meaningful revenue gains in the near future. Musk himself said there is a line of sight to $100 billion in ARR by the end of this year.

However, to reach $1 trillion in revenue four years after 2026, Musk and the SpaceX team will have to 10x revenue, mainly from AI data center spending. This is going to run into electric power, computer chip, and construction bottlenecks.

Plus, even if SpaceX reaches $1 trillion in revenue by 2030, it will likely not be the first company to do so. Amazon has generated $775 billion in revenue over the last 12 months, and only needs to grow revenue by 10% per year for the next three years to surpass the $1 trillion mark. Amazon's revenue grew 20% year over year last quarter.

If the SpaceX bull thesis holds and it becomes one of the world's largest companies by revenue, the timeline is likely closer to the end of the next decade than to 2030. It is simply too difficult for a company to grow this quickly.

AMZN Revenue (TTM) data by YCharts

Is SpaceX stock a buy?

A more important question for investors is whether the inflection in AI revenue makes SpaceX stock a buy today.

Even if you are a believer that SpaceX will dominate the future of the AI market -- along with its bold plan for orbital data centers -- it will take many years, if not more than a decade, for it to reach $1 trillion in sales. On those sales, it is unclear what profit margins will be as a reseller of AI compute, much of which is sold to competitors today, like Alphabet and Anthropic. A 10% profit margin would equate to $100 billion in earnings on $1 trillion in revenue.

Today, SpaceX has a market cap of $1.93 trillion, meaning it trades at a price-to-earnings ratio (P/E) of 19 based on these estimates at some point over the next 10 to 20 years. This indicates a ton of future growth is already priced into SpaceX stock, meaning investors should avoid buying today.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

It takes a lot for Elon Musk to admit he's wrong. A year ago, the leader of SpaceX and Tesla said that Anthropic would never be a leader in artificial intelligence (AI). Today, he has admitted this was incorrect, with Anthropic the fastest-growing AI start-up in the world, with annualized revenue estimated at double that of its competitor OpenAI.

For Musk, this means potential AI infrastructure revenue at SpaceX, which just signed a nice commitment from Anthropic. But there is another megacap technology company that may benefit even more from Anthropic's meteoric rise: Amazon (NASDAQ: AMZN).

Massive cloud commitments

Amazon made an early bet to become the lead infrastructure backer for Anthropic, likely after its cloud competitor, Microsoft, did the same with OpenAI. Amazon has invested over $10 billion in Anthropic and has committed to investing a total of $33 billion in the start-up. In return, Anthropic is going to utilize Amazon Web Services (AWS) as its primary cloud provider, spending $100 billion or more with Amazon.

This could be highly meaningful for AWS, especially if Anthropic keeps up this growth trajectory and soon clears $100 billion in annualized revenue, eventually reaching hundreds of billions a year. Last quarter, AWS revenue grew 37% year over year to an annualized run rate of $169 billion. A lot of this growth is due to Anthropic.

On top of this revenue growth, Amazon holds an equity stake in Anthropic estimated at over 10% (the exact figure is not known today). If Anthropic goes public in the largest initial public offering (IPO) in history -- which it is reportedly preparing for later this year -- Amazon's stake could be worth something like $250 billion.

Elon Musk. Image source: The White House.

Is Amazon stock a buy because of Anthropic?

The appreciation of Amazon's stake in Anthropic will be a nice boost for Amazon, but the real value comes from Anthropic's commitments to AWS, including Amazon's homegrown computer chips. This will set the standard for other AI start-ups and Fortune 500 enterprises, leading to even more revenue growth in the years ahead.

Amazon management believes that AWS can eventually grow to $1 trillion in revenue. It may take a decade or longer for that to happen, but it gives the business a massive growth runway. Right now, Amazon trades at a market cap of $2.86 trillion. If Amazon grows its AWS revenue to $1 trillion, the stock may be worth multiples of that on its own, not even including the e-commerce and advertising businesses.

For its relationship with Anthropic and more, Amazon stock is worth buying right now.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Microsoft, and Tesla. The Motley Fool has a disclosure policy.

Shares of Trump Media & Technology (NASDAQ: DJT) fell 18.1% this week, according to data from S&P Global Market Intelligence. The holding company for the Trump family media businesses reported earnings earlier this week, posting large losses on its cryptocurrency assets as it searches for a business model.

Shares are now down 87% from the time of Trump Media's merger with a special purpose acquisition corporation (SPAC) in March of 2024. Here's why shares fell this week, and whether now is a good time to buy the dip.

Selling posts, huge losses

On August 10, Trump Media & Technology reported its Q2 earnings. The company generated just $1.7 million in revenue in the quarter, mainly from advertising on the Truth Social platform. However, it had a net loss of $238 million, mainly due to the decline in digital cryptocurrency assets held on its balance sheet, such as Bitcoin.

The company has two new initiatives for the rest of this year. First is the merger with a nuclear fusion company called TAE Technologies, which it expects to close later this year. This is a peculiar merger, as it is a deep technology start-up that generates close to zero revenue and is working on a technology that has never been solved before.

Second, the company is trying to sell investment firms the Truth+ API for upwards of $100,000 a month, which would give immediate access to President Trump's posts on the platform. The service is already being scrutinized closely by the media and courts, as it appears to be a way to sell potentially market-moving information before the wider public sees it.

Image source: Getty Images.

Should you buy the dip?

The stock still has a market cap of $2.3 billion and barely any business model today. It has cash and cryptocurrencies on the balance sheet, but the net book value is still around half of where the shares trade today.

Add it up, and investors would be smart to avoid buying the dip on Trump Media & Technology stock today.

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

The shine has come off Tesla (NASDAQ: TSLA) in the last few years. At one point, it was considered the definitive growth stock for investors to own, with shareholders betting that founder Elon Musk would take the lead in the emerging electric vehicle (EV) industry, along with other promises in areas like energy storage and self-driving technology.

There was no price too high to pay for owning Tesla. Now, investors have begun to sour on the EV maker, in favor of other artificial intelligence (AI) stocks, including the other Musk-led business, Space Exploration Technologies (SpaceX).

In 2026, Tesla shares are down 26% year to date. Here's what the business needs to do to get the share price moving in the right direction.

Upcoming AI products

Originally, Tesla was a bet on the growth of electric vehicle sales. It showed tremendous growth in scaling up production of its Model 3 and Model Y, increasing from 100,000 total deliveries in 2017 to 1.8 million in 2023. However, since 2023, total vehicle deliveries have stalled, leading to a similar stagnation in the share price.

Musk has pivoted Tesla's business toward new AI products, while keeping his chatbot and cloud computing ambitions within the xAI/SpaceX corporation. These Tesla AI products include the Cybercab, a two-seat vehicle that will be the flagship of the company's self-driving taxi network, similar to how Waymo operates today. It also has its standard full self-driving (FSD) software, which is sold on top of vehicles. It is a bit confusing because this is not necessarily fully autonomous software right now, but it has 1.48 million active subscriptions, growing 56% year over year.

Lastly, Tesla is working extensively to embed AI in robotics with its humanoid robot, Optimus. This is in even earlier days than the Cybercab, but the company is working to scale up a factory in California for humanoid robot production as we speak.

Image source: Getty Images.

Margin recovery

Besides revenue stagnation, a major deterioration in profit margins is a key reason why Tesla's stock price has struggled recently. It had an operating margin of 4.6% over the last 12 months, which is much lower than its historical peak of over 15% and has only declined in the last few years.

Margin recovery will be key to Tesla's share price recovering. An even higher hurdle for said margin recovery is being erected by guidance for a record $25 billion in capital expenditures this year, roughly double what the business spent in the last 12 months. Capital expenditures will flow through the income statement as depreciation in the future, which will be a headwind to profit margins.

This means that, to improve its profit margin, Tesla will need to grow its revenue significantly to get a return on all this capital spending. It won't be easy, but Musk has pulled plenty of miracles out of his hat before.

A merger miracle in waiting?

With Tesla's market cap at $1 trillion, the company will need to show strong growth in its AI-related hardware products for the stock price to start rising again. It can sell more vehicles, but Tesla is already valued at a higher market cap than even the world's largest automakers. Shareholders are focused on FSD and Optimus, and will be disappointed if these products don't deliver on the gains Musk promised, despite vehicle deliveries returning to growth last quarter.

Where a miracle may arrive is in a potential merger with SpaceX. During Tesla's most recent earnings call, a Wells Fargo analyst asked Musk about speculation swirling around the prospective deal. Musk said he couldn't speculate about mergers, but mentioned the growing overlap between the two businesses.

A merger could be a life vest for Tesla at a time when the stock is struggling to meet high expectations, and it seems to have a decent chance of happening over the next few years. I wouldn't buy the stock solely because of a potential merger with SpaceX, but it does add a nice potential catalyst for anyone holding shares today.

Brett Schafer 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.

The electric vertical takeoff and landing (eVTOL) business just took the next step. Archer Aviation (NYSE: ACHR) is seeing its stock rebound after announcing a partnership with aerospace giant Boeing. Boeing is giving Archer Aviation three of its eVTOL and drone-related subsidiaries in exchange for a stake in the business, plus stock warrants.

Archer's stock has soared off the lows on the back of this announcement, with shares up 50% in the last month. Does this momentum make the stock a buy today?

Boeing partnership and stock rebound

Archer Aviation's stock has risen from $4.50 to almost $7 in a month due to a recently announced deal with Boeing and other defense initiatives by the eVTOL company. As a part of this deal, Archer is taking control of Wisk, Skygrid, and Insitu, which are Boeing subsidiaries working on advanced air traffic management, drones, and eVTOLs. In return, Boeing is being allocated 20% of Archer's outstanding common stock, along with warrants to purchase additional shares if Archer's share price rises.

For Archer, the company is getting some revenue on its income statement (Archer is currently close to pre-revenue for its eVTOL ambitions), as well as backing from the aerospace giant. This can help it negotiate the integration of its urban air transportation technology into the current aerospace and air travel ecosystems worldwide. Boeing in your corner pulls a lot of weight.

On top of Boeing's deal, Archer announced in July that Anduril Technologies -- the defense-contracting start-up -- will work with it to build a defense-focused eVTOL product. This focus on defense contracts has investors bullish, as the path to utilizing eVTOL and autonomous aircraft has a much more straightforward demand path in war/defense capabilities than in civilian urban areas.

Image source: Getty Images.

Is Archer Aviation a buy?

After this stock jump, Archer now has a market cap of $5.2 billion, which will be further diluted by the Boeing acquisition. It will likely need to raise more capital due to its growing losses, which will continue for years as it works through aircraft certification and ramping up manufacturing. Free cash flow was negative $615 million over the last 12 months on close to zero revenue.

Even though Boeing may help Archer grow, it is hard to value a stock that is burning so much cash today without a product approved by regulators. For now, investors should avoid taking on the risk of buying Archer Aviation shares.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Boeing. The Motley Fool has a disclosure policy.

Western Union (NYSE: WU) has been around since 1851, and this may be the lowest point it has ever experienced in its history. Its shares are down 75% from their highs, reaching a 21st-century low as its physical remittance business is rapidly being disrupted by digital peers.

Many investors look at Western Union and its dividend, which now yields 13.5%, as an attractive value stock to bet on. However, the opposite is true. Western Union looks like a prototypical value trap, while its competitor, Remitly Global (NASDAQ: RELY), looks like a great stock to buy for the long haul.

Here's why I'm betting on Remitly Global and avoiding buying Western Union's 13.5% dividend yield.

Image source: Getty Images.

Struggling market transition

Before the internet and digital money, Western Union had built itself a nice business for international money transfers. Through retail partnerships worldwide, the company made it easy for citizens of one country to deposit money at a Western Union branch and have the recipient pick it up anywhere in the world. All with Western Union's cut, of course.

Now, the vast majority of people worldwide would rather send money digitally via smartphones, which is leading to significant declines in physical retail revenue. The company is trying to transition its customer base to its own digital product, which grew revenue by 7% year over year last quarter. However, it hasn't been able to offset the decline in physical retail and comes with much lower profit margins.

Western Union's operating margin was 13% last quarter, down from 19% the year prior. Significant declines in the physical retail business will lead to further margin compression in the years ahead unless it can accelerate market share gains in the digital remittance space. As this margin continues to decline, Western Union will have trouble paying its dividend, which is likely to be cut in the near future.

Remitly's market share gains

Contrast these margin declines with Remitly, a pure-play digital remittance operation that's lapping up Western Union's market share losses while benefiting from its leaner operating model.

Last quarter, Remitly's customer base grew 20% year over year to 10.1 million. Revenue also grew 20% to $495 million, with total send volume across the platform up 27% to $23.5 billion. The company may not be as big as Western Union today, but it's taking market share while the former is losing share, and quickly.

At the same time, Remitly's margins are beginning to expand as it gains operating leverage over its existing remittance rails. Last quarter, it actually had the same operating margin as Western Union, at 13.5%, even though it is still investing heavily in marketing, product development, and opening up new remittance corridors.

As Western Union continues to struggle, Remitly should capitalize on its losses, leading to further market share gains and revenue growth in the coming years.

WU EBIT Margin (Quarterly) data by YCharts

Why Remitly is a better buy

The one reason to buy Western Union stock is its high dividend yield in the double digits. However, with operating income declining 30% year over year last quarter, the company will likely need to cut its dividend quickly and manage the $2.7 billion in debt on its balance sheet. No matter how cheap the stock looks today, earnings declining at this rate will almost certainly lead to trouble.

Contrast this with Remitly, which has a market capitalization of $4.9 billion and expects to generate more than $3 billion in revenue by 2028. If it can keep expanding its profit margins to 20%, this $3 billion in revenue could turn into $600 million in bottom-line earnings, or just a price-to-earnings ratio (P/E) of 8. This makes the stock much cheaper than Western Union if you plan to hold for multiple years, and look beyond timestamp metrics like trailing dividend yield.

Brett Schafer has positions in Remitly Global. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Palantir Technologies (NASDAQ: PLTR) saw its stock soar this month after reporting another strong earnings result. It now has a market cap larger than every defense contractor in the world.

However, because of its high price-to-earnings ratio (P/E) and price-to-sales ratio (P/S), investors would be smart to avoid buying Palantir stock after shares have soared hundreds of percentage points in the past few years.

Instead, someone looking to bet on growth in U.S. defense spending should consider these two legacy providers. Here's why Lockheed Martin (NYSE: LMT) and General Dynamics (NYSE: GD) are solid buys with the market near all-time highs.

Image source: Getty Images.

Replenishing inventories for missile defense

Lockheed Martin is a defense contractor specializing in fighter jets and missile systems, with its F-35 line serving as the current workhorse fighter jet for the United States and its allies. The F-35 program has long lead times and maintenance requirements, which will lead to durable recurring revenue for the business over the coming decades.

Second, Lockheed Martin is the maker of THAAD missile interceptors, which have been used extensively in the conflict with Iran, so much so that the United States just awarded Lockheed Martin a $35 billion contract to quadruple the production rate of these interceptors. This is the main reason the company's backlog hit a record $230 billion at the end of last quarter.

This backlog is being converted into revenue quickly, with management upgrading its full-year guidance to over $80 billion and boosting free cash flow to over $7 billion. With the growing need for Lockheed Martin's programs and the steady demand for the F-35, the company should see consistent sales growth in the years ahead.

Steady revenue from submarine contracts

Another company with steady, long-term contracts with the United States is General Dynamics. It's the main contractor for building nuclear-powered and nuclear-armed submarines, which are a priority program for the U.S. Navy. The new Columbia-class submarines will be built over the next two decades, will have a service life that extends into most of this century, and will cost almost $10 billion each to build. This will provide General Dynamics with high-quality revenue for years to come.

Outside of nuclear submarines, General Dynamics operates Gulfstream, a leading private aviation company, and has many contracts for software, cybersecurity, and other IT services for the United States government.

Combined, General Dynamics saw its backlog rise to $136.5 billion last quarter, with a book-to-bill ratio of 1.4. This means that for every dollar General Dynamics billed for under contracts, it was able to book $1.40 in new contract value.

Revenue grew 8% year over year last quarter, and full-year revenue guidance was just raised to $55.7 billion. With these nuclear submarine contracts, General Dynamics should be delivering solid growth for shareholders for years to come, with high predictability.

Data by YCharts.

Why these two defense contractors are solid buys

When debating which stock to add to your portfolio, you might argue that Palantir is a better buy because of its rapid revenue growth. However, with a P/E ratio of 150, a lot of future growth is already priced into the stock.

On the other hand, General Dynamics and Lockheed Martin trade at P/E ratios of 24 and 22, respectively, with steady, long-term contracts. Both companies return capital to shareholders through share buybacks, reducing shares outstanding and increasing earnings per share (EPS), while Palantir's shares outstanding have risen 20% in the last five years.

Plus, both of these legacy providers pay a nice dividend as a cherry on top. Combine it all together, and General Dynamics and Lockheed Martin should deliver better returns at lower risk than owning Palantir over the next decade.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.

Shares of Fermi (NASDAQ: FRMI) fell 37.9% in July, according to data from S&P Global Market Intelligence. The AI trade came to a halt in July, and power beneficiaries like Fermi crashed along with it. A company trying to build a private electric grid in Texas, Fermi made its public markets debut last year and has seen its stock sink a quick 80% from its highs.

Here's why it fell again in July, and whether shares are worth buying the dip on today.

Huge cash burn

Fermi's pitch to investors is to build a massive amount of power generation in Texas for private consumption, meaning for artificial intelligence (AI) data centers. There are clearly a ton of data centers being built in Texas, which Fermi could help companies get to market by bringing power directly to them.

The stock went public in late 2025, but it quickly dropped after a major partner backed out of its AI energy campus in Texas, leading management to raise money to pursue its ambitions. The company has continued investing capital in its campus, resulting in significant cash burn before its power plants are operational.

Last month, Fermi raised capital through a convertible notes offering. Capital raises generally mean a falling share price as the market digests the potential dilution or debt being added to the balance sheet, and this is exactly what happened with Fermi in July.

Fermi spent $441 million on capital expenditures in the first three months of 2026, while generating zero revenue, indicating an aggressive build-out plan. Still, it has delayed bringing these energy assets online until 2027, instead of its original goal of this year.

Image source: Getty Images.

Time to buy the dip?

Fermi is going to keep burning cash as it aims to build up these power assets in Texas, which will lead to more capital raises and likely a falling stock price.

Long-term, it's possible that value can be created if Fermi can lock in long-term contracts with power-hungry data center companies. It aims to deliver up to 17 gigawatts of power, which would be a staggering amount for a company invented out of thin air a few years ago.

The stock has quickly fallen 80% from its highs, but still has a market cap of $3.9 billion. There is likely further shareholder dilution and additional debt to be added to the balance sheet, making it difficult for Fermi to bridge the gap from start-up to revenue generation. Stay away from putting this stock in your portfolio.

Brett Schafer 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.

Shares of QuantumScape (NASDAQ: QS) fell 31% in July, according to data from S&P Global Market Intelligence. The battery technology outfit had a rough month after reporting its Q2 earnings, amid a decline in stock prices across high-risk areas of the stock market.

After a brief rise at the start of August, QuantumScape now trades at $6 per share and is down 95% from its highs. Here's why it was falling again in July.

Breakthroughs in battery technology

After going public in 2020, QuantumScape stock rose during the COVID-19 electric vehicle (EV) bubble, before slowly falling back to earth. The company has been working for years on a solid-state battery technology for EVs, which promises better performance and less fire safety risks compared to current liquid lithium-ion systems.

Still, in 2026, it had failed to make enough progress with its batteries to reach full production. The company has never generated a lick of revenue and is burning hundreds of millions of dollars in free cash flow each year.

Now, the company has begun to give up its hopes of manufacturing batteries at scale, instead licensing these systems to other manufacturers, such as automakers. This did not go over well with Wall Street and is a reason the stock fell in July.

In July, QuantumScape reported second-quarter earnings, but they are not very relevant to the business today, as it has no products to sell. Investors need to look closely at the company's product development to see whether it is meeting its timeline for implementing this technology in EVs at scale. Right now, management believes it will be ready by 2029.

Image source: Getty Images.

Should you buy the dip on QuantumScape stock?

QuantumScape has $860 million in cash on its balance sheet. It is currently burning just under $300 million in cash per year, giving it around three years of product development before it needs to raise more money.

The stock now trades at a market cap of $3.7 billion, down significantly from previous highs but still at a premium for a company that has never generated revenue. It has proven much more difficult to develop these battery innovations than previously assumed, and Wall Street is beginning to get impatient with the stock.

QuantumScape believes it is on a better track by not manufacturing its own batteries and by partnering with companies across the automotive sector, like Honda, but it still needs a working battery if this business is going to have a whiff of viability. Don't buy the dip on QuantumScape stock.

Brett Schafer 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.

Shares of Wix.com (NASDAQ: WIX) jumped 21.3% in July, according to data from S&P Global Market Intelligence. The website software provider saw its shares jump due to an unwind of AI winner-and-loser trades, with Wix considered a loser. Shares then continued to jump at the beginning of August after the company reported its second-quarter earnings.

The stock is still down 83% from its highs. Should you buy the dip on Wix stock after it began to turn things around in July?

Software stock rebounded

Many investors betting big on artificial intelligence (AI) have also made large bets against sectors they believe will be AI "losers," such as software. Wix and its website-building platform have been tossed into this loser camp, with professional investors taking heavy short positions against them.

One such massive investor was Situational Awareness, an upstart hedge fund that was betting heavily on AI stocks and against AI losers, and with a lot of debt. When some of its AI stocks began moving against it, the hedge fund was forced to close all its trades quickly and sell its entire portfolio in a block to the massive investment firm Citadel.

For Wix, this is likely why the share price rose in July: when a short seller covers their position, they are forced to buy back the stock on the open market, which can create upward pressure on the share price.

Image source: Getty Images.

Should you buy Wix stock?

Wix stock began to move aggresively higher with the rest of the software sector heading into its Q2 earnings report, which was a few days ago in early August.

The company showed no signs of AI disrupting its offering, with revenue up 15% year-over-year in the period, strong gross margins, and positive free cash flow. Wix's stock initially jumped on these results but has since given back some of the gains in recent days.

Today, Wix trades at a market cap of $2.5 billion. It generated $2.1 billion in revenue over the last 12 months and more than $450 million in positive free cash flow. Management is taking this cash and returning it to shareholders, spending an aggressive $1.6 billion on repurchases last quarter alone, which is quickly reducing shares outstanding.

There may be risks that AI could disrupt Wix, but the company is still chugging along at a pace similar to its historical pace. Right now, with a market cap of $2.5 billion, it is trading at a single-digit multiple of its trailing free cash flow, which could make shares a good buy for the long-term.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Wix.com. The Motley Fool has a disclosure policy.

Shares of IonQ (NYSE: IONQ) crashed 31.6% in July before rebounding in August, according to data from S&P Global Market Intelligence. Quantum stocks crashed along with the artificial intelligence (AI) trade last month, and IonQ was no exception.

The quantum computing upstart reported its earnings in early August, and the stock is reacting well to the news. Still, shares are down 47% from all-time highs set in late 2025. Here's why IonQ stock fell in July, and whether you should buy shares today.

Quantum growth troubles

Last year, quantum computing stocks became the talk of the stock market. IonQ -- a leading pure-play developer of quantum technologies -- is a stock that led the charge in this rally, rising from under $10 to $80 within a year, driven by executive orders and Wall Street price target increases.

Today, shares have fallen to $43. Nothing has changed about the business, which is still in the early start-up phase as it works to improve its quantum computing technologies. In July, the stock slipped amid strong insider selling and waning enthusiasm for high-risk stocks.

IonQ reported Q2 earnings in early August, reporting strong revenue growth but heavy losses for its quantum computing technology. Again, this technology is still in its very early days, with struggles to make it work properly for commercialization. Revenue grew to $80 million last quarter, but the company reported an operating loss of $337 million.

Image source: Getty Images.

Should you buy IonQ stock on a rebound?

IonQ has sought to capitalize on its rising share price to raise capital and now has $3 billion in cash and equivalents on its balance sheet. This has come at the expense of its outstanding shares, which have nearly doubled over the last three years, a headwind to per-share value creation.

This is a lot of capital to keep investing in quantum computing research, but it only gives IonQ a few years of runway at its current burn rate of $570 million in free cash flow, a figure that keeps getting worse every quarter despite scaling revenue.

Even if IonQ can start generating true profits from its quantum computing technology -- something that is many years away -- shares trade at a high price right now. It has a market cap of $17 billion vs. guidance for $285 million in revenue this year, or a forward price-to-sales ratio (P/S) of 61. That is not cheap, and should keep investors from investing in IonQ shares.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends IonQ. The Motley Fool has a disclosure policy.

Warren Buffett famously said 35 years ago that value investing and growth investing are "joined at the hip." A stock with a price-to-earnings ratio (P/E) of 5 may actually be expensive because of its deteriorating business, while one with a P/E of 50 may be cheap because of upcoming years of hypergrowth.

One financial technology company that has historically traded at a premium earnings multiple is Nu Holdings (NYSE: NU). It trades at a high P/E ratio compared to its consumer banking competition but is growing earnings at a rapid clip.

Does it still deserve a growth multiple? Here's why now might be a perfect time to buy Nu Bank stock.

Massive user base

Nu Holdings is the parent company of Nu Bank, a consumer banking application that has taken Latin America by storm --specifically, in the three largest countries by population: Brazil, Mexico, and Colombia.

Management and founder David Velez's strategy was simple. Use the fact that the average bank in these countries drowns customers with high fees, long in-person visits, and predatory loan products to build something much superior. Nu Bank is a bank that customers can easily manage on their mobile devices, offering services such as credit cards and consumer loans with value propositions that vastly improve on those of legacy institutions.

It is this mousetrap of treating your customers better that has led 135 million people to sign up for a Nu Bank product across its three operating countries. Within these markets, average revenue per active customer just hit $16, up from $7 in the same period in 2022. Nu Bank is not only attracting new customers but also increasing usage over time.

This is why revenue is up 170% in the last three years, with a positive earnings inflection for a company that came to the public markets unprofitable. Net income was up 41% year over year last quarter and $3.2 billion over the last 12 months.

Image source: Nu Holdings.

Why Nu Holdings' stock deserves its high earnings multiple

Nu Holdings trades at a P/E ratio of 22, which is higher than most banking stocks. Banks tend to trade at lower earnings multiples due to the inherent cyclicality of the lending business, which Nu Bank is not immune to.

However, Nu Bank has a much better growth runway ahead than the average bank, in both revenue and earnings. If it keeps doing what it's doing with adding new users and expanding revenue per user, total revenue will likely double within a few years, with net income growing faster. This makes the stock cheap even though it trades at a high P/E ratio for a bank.

Brett Schafer has positions in Nu Holdings. The Motley Fool has positions in and recommends Nu Holdings. The Motley Fool has a disclosure policy.

Shares of IREN Limited (NASDAQ: IREN) slipped 19.50% in July, according to data from S&P Global Market Intelligence. The neo-cloud provider for artificial intelligence (AI) fell along with many other thematic stocks this month and came under pressure after management awarded itself massive executive compensation.

The company is trying to build a data center business for AI compute, a hot stock market theme at the moment, but faces significant competition. Here's why the stock fell in July and whether it looks like a buy right now.

Transitioning from crypto mining to cloud computing

IREN began operations as a cryptocurrency miner, which involved buying up a bunch of advanced computer chips for processing. It turns out those chips can be repurposed for AI compute, which is facing a massive shortage at the moment. IREN management decided to pivot its business toward building data centers for the AI market and recently won a $3.4 billion contract from Nvidia, which plans to start early next year.

The company has not seen soaring revenue yet, but it is in the middle of building a massive number of data centers to serve partnerships like Nvidia. It plans to deploy 5 gigawatts of computing power across the globe for AI infrastructure, which, at today's prices, could translate into tens of billions in revenue.

Investors are not so certain this will happen, and if the company is focused closely on this matter. Shares of the stock fell in July when management was granted restricted stock units (RSUs) valued at $832 million at the time of the grant. IREN currently has a market cap of just $14 billion, meaning this is a sizable portion of its outstanding shares.

What's more, the company signed a deal to become a jersey sponsor of the Golden State Warriors. This is coming at an inopportune time, when the company needs to spend billions on capital expenditures to build its data centers.

Image source: Getty Images.

Should you buy IREN stock?

You might think it is smart to buy IREN stock at a market cap of $14 billion when its revenue could soar to tens of billions in the years ahead.

However, it is hard to see how the company gets the funding to do this. It is currently burning $2.2 billion in free cash flow per year, which will wipe out its cash balance in about 12 months. To build all this infrastructure, the company will need far more cash than this, and it is already taking on significant debt to do so.

This looks like a tough liquidity situation that may prevent a management team -- already with one eye off the ball -- from executing on its stated vision. Stay away from buying the dip on IREN Limited stock.

Brett Schafer 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.

Shares of Alibaba (NYSE: BABA) rose 27.4% in July, according to data from S&P Global Market Intelligence. The technology giant in China did not report earnings last month, but investors enjoyed a massive turnaround in its share price due to growing demand for its cloud computing services and the success of artificial intelligence (AI) models emerging from the country.

As of the close on August 6, Alibaba shares are down around 19% this year. Here's why it rose in July and whether it is a buy right now.

Stellar cloud and AI growth

Like its peer from the United States, Alibaba is known for its e-commerce platform, and has pivoted to the fast-growing cloud computing market with great success. It is the leading cloud provider by market share in the Asia Pacific region, with revenue growing 38% year-over-year to $6 billion last quarter.

Now, there has been a resurgence of AI models from Chinese companies that cost less to run than those from competitors, at least on average. This happened in early July and spurred Chinese technology stocks, such as Alibaba, to rise. At the same time, Alibaba itself operates one of these models, Qwen, which is becoming an increasingly popular option for companies worldwide.

These two factors -- potential increases in cloud demand and the growth of Qwen -- have helped Alibaba stock recover in July.

Image source: Getty Images.

Should you buy Alibaba stock?

There is no doubting that Alibaba's cloud business is growing, and quickly. However, its legacy e-commerce and retail business is growing only 6% year-over-year due to intense competition in China and low consumer spending in the years after the country's massive property bubble burst. With Alibaba's "other" revenue segment seeing a sharp decline, consolidated sales only grew 3% year-over-year last quarter.

This growth rate may improve this quarter and in the years ahead if Alibaba maintains its leadership position in cloud computing in Asia, along with the growth of its own AI models.

Today, Alibaba stock trades at a price-to-earnings ratio (P/E) of 20, which is lower than some of its big tech competition from the United States. Management is also repurchasing a lot of stock, bringing shares outstanding down 8.5% in the last three years.

Still, investors should be concerned about the e-commerce business and, as foreign investors, about putting money in China. This is a country that is hard to understand as a foreigner, with a government that can change a sector's profitability at will (as happened to big tech companies like Alibaba a few years ago). This should keep you cautious about buying Alibaba stock after last month's rise.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.

When the market is soaring, safety can get thrown by the wayside. Everyone is making money and looks smart, so why do all the boring work of actually researching whether your portfolio is built to survive through the market cycle?

It is these time periods -- when the S&P 500 is rocketing to all-time highs -- that can be most impactful to prepare your portfolio for future bear markets. You do not want to sacrifice all your gains over the last few years and risk your portfolio dropping sharply.

To counteract these risks, it can pay (literally) to own dividend growth stocks with long histories of low volatility. Here are three healthcare giants that have fantastic track records of helping investors sleep well at night.

Steady dividend payments

One of the longest-running dividend growers is Johnson & Johnson (NYSE: JNJ). You may know the company from its consumer brands, but these have actually been sold off, and the remaining business focuses on pharmaceutical products and medical device sales, with a wide diversity of products.

The healthcare giant, with a market capitalization of $612 billion, grew sales 6.6% year over year last quarter to $25 billion. This steady growth enables J&J to grow its dividend per share every year. Its payout has increased 67% over the last 10 years, with 64 consecutive years of increases. This makes it a Dividend King, or a company that's grown its dividend payment for at least 50 consecutive years.

What's more, the stock is not one to experience any massive volatility. In the last 10 years, it has experienced only one 25% drawdown, and that was a brief moment during the March 2020 market panic.

Image source: Getty Images.

A health insurance giant

UnitedHealth Group (NYSE: UNH) may not seem like a sleep-well-at-night candidate, but its long-term history has been much steadier. In recent years, the largest health insurer in the United States has seen its stock price collapse by more than 50% due to increased claims costs in 2024 and 2025, which have proven temporary, as well as overspending/fraud among the various sectors UnitedHealth Group serves.

Before that, UnitedHealth stock had never experienced a drawdown of more than 25% following the great financial crisis in 2008, riding the steady tailwind of healthcare cost inflation to higher premium revenues. This, in turn, has made UnitedHealth a nice dividend stock, with its dividend per share up 271% in the last 10 years.

Now, you can buy this dividend growth stock at a much higher yield than historically, with a current yield of 2.26%. With healthcare spending set to continue rising over the next decade, investors will do well owning UnitedHealth stock in their portfolios as a dividend grower.

JNJ Dividend data by YCharts

A supply chain giant

A hidden winner in the healthcare supply chain has been McKesson (NYSE: MCK). It is the largest pharmaceutical distributor in the U.S., with a market cap of just under $100 billion. The leader in its sector has ridden the rising tide of healthcare spending in the country, much like the other two stocks.

It had one 50% drawdown from 2015 to 2018, but aside from that, the last 15 years have been close to smooth sailing for this business. Dividend payments have steadily grown, with the dividend per share up 193% in the last 10 years.

Healthcare as a defensive investment

Overall, healthcare is one of the best sectors to invest in if you are worried about bear markets or a cyclical bust. No matter how well the economy is doing, people will spend money on healthcare services, as they are almost always non-discretionary. This is why McKesson, UnitedHealth Group, and Johnson & Johnson have been great dividend growth stocks and should continue to deliver solid gains for investors in the years ahead.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson, McKesson, and UnitedHealth Group. The Motley Fool has a disclosure policy.

For the time being, oil prices have begun to fall as a promised resolution to the global conflict with Iran nears the finish line. While this may change by next week, this news has helped airline stocks hit multiyear highs. In fact, the US Global JETS ETF is close to eclipsing its pre-pandemic high.

Many readers may be looking for the best airline stock to buy to ride the falling oil prices. Which airline is a better bet today: Delta (NYSE: DAL) or American (NASDAQ: AAL)? The answer is clear when you look at the numbers.

Faster revenue growth

The airline industry experiences rising demand along with the growth of the global economy. Wealthier citizens will, on average, want to travel around the world more or visit different regions domestically than was previously viable within their annual budgets.

This generally means rising demand for airline tickets each year, except during periods like the COVID-19 pandemic. Airline brands will compete for these ticket sales, with the better customer experience likely to drive faster revenue growth, either through increased traffic or higher ticket prices.

When comparing Delta and American -- the two largest airlines in the U.S. by traffic -- it is clear which has won the revenue race coming out of the pandemic. Delta's revenue is up 180% during the last five years, compared to 138% growth for American, likely due to Delta's higher ratings, reliability, and in-flight experience. This is likely to continue in the years ahead.

Image source: Getty Images.

Loyalty ecosystem driving margin expansion

For a business with high input costs, such as fuel and labor, revenue growth is not the only metric airlines should care about. Profit margins are just as important, if not more so.

The company with vastly superior profit margins is once again Delta, with an 8% operating margin versus 1.8% at American. This gap has actually widened during the past few years.

Why is Delta so much more profitable? It comes down to its superior loyalty program, which drives high-margin spending.

Delta is the leader in the U.S. among airline credit card issuers, with a long-standing partnership with American Express. Loyalty revenue grew 19% year over year last quarter for Delta, with 16% growth in remuneration from American Express of $2.4 billion. That means it is collecting about $10 billion annually from its credit card partner. American's loyalty program only drove 8% growth in card spending last quarter and is much smaller than Delta's.

DAL Total Return Level data by YCharts

Should you buy airline stocks?

If you are weighing two airline stocks, it is clear Delta is the better business to bet on right now. However, when looking at stock returns across the entire industry, the case for buying airline stocks as a whole becomes much more difficult.

Airline stocks severely underperform relative to another part of the air travel supply chain: airports. Airports are local monopolies that charge these airlines every time they fly. In other words, airlines operate and pay for the flights, while airports operate as toll roads.

This superior business model is why airports have delivered strong returns for shareholders. Even for Delta, one of the best airline stocks, the returns of the Mexican airport operator Grupo Aeropuertario del Centro Norte and the Spanish operator Aena have trounced its returns during the past few years. This is because airports simply collect fees on flight traffic, while airlines have to deal with fuel costs, safety regulations, labor unions, and other expenses that can erode profit margins.

A person clamoring to buy an airline stock will do fine owning Delta. But if you want superior long-term returns, it is probably best to consider airport stocks for your portfolio instead.

American Express is an advertising partner of Motley Fool Money. Brett Schafer has positions in Grupo Aeroportuario Del Centro NorteB. De C.v. The Motley Fool has positions in and recommends American Express. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.

Despite retiring as CEO five years ago, founder Jeff Bezos still has a few passion projects at Amazon (NASDAQ: AMZN), including Prime Video. The streaming video service that bundles with the Prime delivery subscription has been trying to gain global market share in TV viewing through heavy investments in original content, the acquisition of the renowned MGM Studios, and inroads into expensive sports rights.

Now, Bezos has steered the division to utilize more artificial intelligence (AI) to drive user engagement. Here's what it means for the division and how it could impact Amazon stock.

AI embedded into video streaming

This year, Amazon expects to spend $220 billion on capital expenditures, up from its original guidance of $200 billion. Almost all this spending is related to data center investments for AI cloud computing to serve customers like OpenAI and Anthropic.

Bezos and the rest of the Prime Video team want to leverage these AI advancements for Amazon's internal use. For example, they want to layer in more personalized recommendations on the Amazon Prime home screen, changing them entirely based on your watch history. It could also lead to AI-generated tiles that people can click to decide what to watch on Prime Video.

All this is being done to drive further engagement on Prime Video for TV households globally. Utilizing these modern AI tools serves the same purpose as sports rights at the end of the day: driving more watch hours. If total watch hours grow, Prime Video becomes more valuable to Amazon, giving the Prime subscription greater pricing power. Amazon's subscription revenues grew 12% year over year last quarter.

Jeff Bezos, Amazon executive chairman. Image source: Amazon.com.

What does this mean for Amazon stock?

These personalized recommendations may be even more important for Amazon to drive strong advertising revenue growth. Advertising revenue for Prime Video will grow as more people watch the service, driven by better-personalized advertisements enabled by AI enhancements.

This is one reason Amazon cited for its advertising segment's 26% year-over-year revenue growth last quarter. Indeed, advertisers spent $76 billion on Amazon ad services over the last year -- either on Prime Video or through shopping recommendations -- which is bringing in extremely high-margin revenue to its income statement.

Internally, Amazon can get a good return on investment on its AI infrastructure costs if advertising revenue keeps growing at a good clip. This is one reason the stock has soared to an all-time high after its latest earnings report.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.

It can pay to track what the big investors on Wall Street are trading in quarterly 13-F filings. This quarter, legendary hedge fund manager Stanley Druckenmiller added to his largest stock position, buying more Natera (NASDAQ: NTRA) for his family office. The innovative genetic testing company now accounts for 18% of Druckenmiller's 13-F portfolio, which includes all his U.S.-listed stocks.

Should you follow Druckenmiller into Natera stock? Let's take a closer look at the numbers and find out.

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

Advances in DNA testing

Modern medicines and treatments have led to a growing demand for advanced patient diagnostics. To tailor medicines for patients in prenatal care or with cancer, you need to understand more about their bodies and specific genetic makeup.

Natera specializes in bridging the gap between doctors and patients, using innovative cell-free DNA testing to help diagnose outcomes. Specifically, it serves the prenatal and cancer testing markets. For pregnant patients, a doctor can use a Natera test to diagnose any problems with the fetus, all with minimal physical intervention. Its cancer testing has a variety of use cases, but an important one is checking for residual disease evidence in patients, which can be invaluable for someone dealing with cancer in remission.

This market is growing like a weed, and Natera is leading the way with its best-in-class testing innovations and patent protections. It has also recently made strides in a new pillar of its business: organ donor testing, which evaluates how well a new organ functions after transplantation.

Total revenue grew 39% year over year last quarter and is up 1,000% over the last 10 years. It is this growth inflection -- and the prospects for continued tailwinds in the sector -- that led Druckenmiller to make Natera his largest stock position.

Is Natera stock a buy?

While Natera has been a nice winner for Druckenmiller over the last few years, the stock is up almost 100% over the last 12 months, driven by solid revenue growth. Is it still a buy today?

Right now, Natera trades at an expensive-looking price-to-sales (P/S) ratio of 15, which is significantly higher than the stock market average in the United States. Investors like Druckenmiller are quite optimistic about this business's growth prospects.

We cannot value the business on earnings, since it has not generated a net profit in the last few years. However, it does have very high gross margins -- 65% last quarter -- that indicate the business will have strong bottom-line margins at greater maturity.

This means investors could earn strong long-term returns by owning Natera stock, but they should only buy if they believe this durable revenue growth will continue in the years ahead.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Natera. The Motley Fool has a disclosure policy.

When you hear the name Warren Buffett and the conglomerate Berkshire Hathaway that he built into one of the world's largest market caps, you do not think of cutting-edge technology or artificial intelligence (AI). Buffett made his dough mostly in insurance, newspapers, and consumer goods brands like Coca-Cola.

However, before retiring from day-to-day operations at the end of 2025, Buffett began making a massive new Berkshire investment in Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), the parent company of Google, as he confirmed in a recent CNBC interview. Berkshire now has a whopping $30 billion bet on Alphabet.

Should you follow the Oracle of Omaha and buy Alphabet stock for your portfolio?

Warren Buffett: Image source: The Motley Fool.

Berkshire's bet on Alphabet

Back in June, Alphabet sold $10 billion in newly issued common stock to Berkshire Hathaway at a price of roughly $350 per share. On July 30, the stock closed at $333.

That happened after Berkshire's open-market purchases in late 2025, which amount to approximately $20 billion at current trading prices. (Buffett said in a mid-July interview with CNBC's Becky Quick that he initiated that investment.) Therefore, the conglomerate now has a total investment in Alphabet of $30 billion, making it quickly its third- or fourth-largest position.

The investment came as a bit of a surprise, as Berkshire Hathaway is typically one to eschew technology investments. Buffett told CNBC that it was a mistake for Berkshire Hathaway to exclude owning Alphabet for so many years, given how attractive he thinks the Google Search business is.

Image source: Getty Images.

Taking the long view in AI

Buffett may have told CNBC that he initiated the Alphabet investment because of Google Search, but the business is much more than that. Alphabet is one of the largest AI infrastructure providers through its Google Cloud division, which is growing like gangbusters.

Google Cloud revenue grew at an astonishing 82% year-over-year last quarter, reaching $24 billion with an operating income of $8.8 billion. This was a business with little revenue 10 years ago that was hemorrhaging cash, but Alphabet had the vision that it could deliver massive gains due to the tailwinds in cloud computing and AI, and it is beginning to deliver.

Overall, Alphabet's Google Services revenue grew 15% year over year to $94.5 billion in the recent quarter. Despite fears that AI services like ChatGPT or Claude would dethrone Google, the business is still growing revenue at a double-digit rate. Services like Gemini -- Alphabet's direct competitor to ChatGPT -- are also growing quickly, with 950 million monthly active users last quarter.

The company is generating a boatload in earnings before interest and taxes (EBIT) and trading at a reasonable enterprise value, which is a valuation tool that takes into account debt and cash on the balance sheet.

GOOG EV to EBIT data by YCharts.

Is Alphabet a buy now?

The newest Berkshire investment was part of equity offerings totaling $80 billion that Alphabet announced June 1. The company noted it would use proceeds for " ... general corporate purposes, including capital expenditures to scale AI infrastructure and global compute."

Alphabet needs capital to fund data centers for its Google Cloud business. Berkshire Hathaway has the necessary capital to buy these newly issued shares of stock and can put the Buffett stamp of approval on the equity raise as Wall Street gets nervous over all the capital being deployed into AI infrastructure.

Despite negative cash flow, Alphabet stock does not look overly expensive today. Investors cannot use the price-to-earnings ratio (P/E) to measure the stock because of the one-time gains Alphabet has with its Space Exploration Technologies investment that impact net income (earnings), but the enterprise value-to-EBIT (earnings before interest and taxes) ratio -- as seen in the chart above -- can be used to value the stock right now.

As of this writing, the stock's EV/EBIT is 26, which is quite reasonable for those who think this double-digit revenue growth will continue because of the AI revolution. Buffett and Berkshire certainly seem to think so. If you are looking for a nice buy-and-hold AI stock, look no further than Alphabet as a candidate to include in your portfolio today.

Brett Schafer 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.