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The U.S. remains in the lead over Greater China with the most companies
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Globe and Mail
6 minutes ago
- Globe and Mail
Undervalued and Profitable: 3 Artificial Intelligence (AI) Stocks for Buffett-Minded Investors
Key Points Although Arm Holdings doesn't physically manufacture anything, it's cashing in on the ever-growing need for efficient, high-performance AI hardware. As much as the semiconductor industry is trying to wean itself from its dependence on Taiwan Semiconductor, it just can't. Think of DigitalOcean as a key consumer staples company of the artificial intelligence industry. 10 stocks we like better than Arm Holdings › Warren Buffett's never been a big fan of technology stocks. He says they're too difficult to understand and often vulnerable to change. He'd rather own more predictable picks, which means he prefers investing in already-profitable companies with simple business models. This preference disqualifies many artificial intelligence (AI) stocks from becoming a Berkshire Hathaway holding. Not every technology stock, however, is the clichéd dot-com type of investment that Buffett has sought to avoid. A handful of AI stocks are arguably justifiable additions to Berkshire's portfolio based on their predictability, profitability, and of course, their potential upside. Here's a closer look at three such AI prospects that Buffett might actually approve of if given a closer look. They may be a good way of adding some AI exposure to your portfolio as well. Arm Holdings OK, Arm Holdings ' (NASDAQ: ARM) revenue and earnings may not be perfectly predictable from one quarter to the next. The company's top and bottom lines do reliably grow though, and it is reliably (and increasingly) profitable. ARM Revenue (Quarterly) data by YCharts. But what is it? This company is frequently categorized as a semiconductor stock, which isn't an inaccurate description. It's not a manufacturer in the same vein as Intel (NASDAQ: INTC) or Qualcomm, though. Rather, Arm only designs microchip architecture and then licenses this intellectual property to chipmakers that often outsource the production of these chips to a third-party manufacturer. For instance, Apple 's (NASDAQ: AAPL) latest iPhone processors are based on Arm's chip architecture, but this particular silicon is actually made (per Apple and Arm's specs) by a company called Taiwan Semiconductor Manufacturing (NYSE: TSM), also known as TSMC. Arm only collects a relatively small amount of revenue for every iPhone sold with its tech built into it. But since Arm incurs no production or distribution costs, this is high-margin revenue. Last fiscal year Arm Holdings turned $4 billion worth of sales into nearly $800 million worth of net income. Given the technological prowess of outfits like Intel, Apple, and Qualcomm, it seems strange that they should rely on -- and pay -- a company like Arm for something as relatively common as chip design. But it actually makes a lot of sense for a couple of reasons. First, all of Arm's know-how is patented, so using it would be illegal even if it is a logical and intuitive solution. And second, Arm's solutions are actually superior, particularly when it comes to power efficiency. Its cloud-computing data center processors require up to 60% less electricity than comparable processors from rivals, for example, answering one of data center operators' biggest frustrations. That's why Arm believes it could control as much as half of the data center processor market by the end of this year, up from only about 15% as of 2024. Taiwan Semiconductor Taiwan Semiconductor Manufacturing doesn't just make Apple's newest Arm-based iPhone processors. It manufactures high-performance chips for most of the major semiconductor names including Nvidia, Qualcomm, Advanced Micro Devices, and Broadcom -- just to name a few. Indeed, analysts' estimates put TSMC's market share of global production of high-performance processors anywhere from 80% to as high as 90%. What gives? As it turns out, manufacturing computer processors is complicated and expensive. It's often easier and cheaper to punt this work to an organization with the experience, expertise, and capacity to make these chips than it is to try and do it yourself. Over the course of the past couple of decades, TSMC has emerged as the industry's premier contract manufacturer This satisfies a couple of Buffett's most important rules for buying stocks. As he advises, look for proven, high-quality companies with a wide competitive moat. TSMC offers both. A handful of chipmakers are attempting to wean themselves from reliance on silicon made in the Pacific region particularly by TSMC. Back in 2022, for instance, Intel committed billions of dollars to establishing its own chipmaking foundries in Europe and the U.S. The fact that much of this work has been delayed due to complications and recently scaled back, however, underscores the difficulty of getting into or expanding the chipmaking business when players like TSMC are already so well established and so far ahead, technology-wise. Apple's strategy is more aligned with reality. It's partnering with TSMC to establish a manufacturing presence within the U.S. that it can enjoy some control of and that won't simultaneously require it to fend off competition while these factories are being built. More important to Buffett-minded investors, while the business may ebb and flow from time to time, the world's never not going to need new and better computer chips. DigitalOcean Finally, add DigitalOcean (NYSE: DOCN) to your list of undervalued and profitable AI stocks that Warren Buffett could appreciate. It's probably the least-known name of the three AI prospects in focus. In fact, there's a good chance you've never even heard of it. Its market cap of less than $3 billion just doesn't turn many heads, and it's seemingly not nearly as critical to the AI industry as Arm or TSMC. Don't be dissuaded by its relatively small size or lack of recognition. It's arguably the most Buffett-like of all three AI stocks highlighted here. DigitalOcean provides a range of cloud-based services to clients that simply want to outsource their data center needs. These include blockchain solutions, simple web hosting, video streaming technologies, online video games platforms, and yes, a whole bunch of AI solutions like AI training, virtual customer service agents, and automated coding. Although DigitalOcean doesn't strictly serve the AI industry, AI is an increasingly bigger profit center. But that's not what makes this outfit such a Buffett-esque pick. Rather, Warren Buffett would very likely fall in love with this stock due to the nature of its business model and the fact that it's reliably profitable. DigitalOcean's clients pay for access to its technological solutions on a predictable, monthly basis. As of Q1 of this year, its annualized recurring revenue run rate stands at $843 million (up 14% from the year-earlier comparison) versus 2024's total top line of $781 million, of which $84 million was turned into net income. As long as the world needs the cloud -- and needs cloud-based AI solutions in particular -- this company's revenue and earnings are apt to grow in step with both industries. Should you invest $1,000 in Arm Holdings right now? Before you buy stock in Arm Holdings, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Arm Holdings wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $625,254!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,090,257!* Now, it's worth noting Stock Advisor's total average return is 1,036% — a market-crushing outperformance compared to 181% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of July 29, 2025 James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Berkshire Hathaway, DigitalOcean, Intel, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: short August 2025 $24 calls on Intel. The Motley Fool has a disclosure policy.
Globe and Mail
6 minutes ago
- Globe and Mail
PayPal Stock Dropped 9% After Earnings. Is it a Red Flag, or a Buying Opportunity?
Key Points The recent selloff for PayPal stock could be an overreaction, given management's full-year forecast. Some lackluster results in some key metrics should give investors pause before buying. 10 stocks we like better than PayPal › Shares of financial technology (fintech) company PayPal (NASDAQ: PYPL) dropped 9% on July 29 after it reported second-quarter financial results. I believe it was a clear overreaction. Investors seemed to head for the exits after looking at PayPal's second-quarter free cash flow. In Q2, the company generated free cash flow of $692 million, which was down a whopping 49% year over year. That certainly looks troubling. Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More » In reality, PayPal had been expecting $6 billion to $7 billion in free cash flow in 2025. After reporting Q2 results, its expectations are unchanged. The 49% Q2 drop is simply a cash-flow timing issue, not a sign of something problematic. Consequently, I believe the 9% drop for PayPal stock was overdone. But is the drop in PayPal stock's price a buying opportunity? That's a question worth exploring. What's going right for PayPal PayPal is a low-growth business at this point with just 5% Q2 revenue growth. Active accounts were only up by 2%. But the company is turning some heads when it comes to profitability. When PayPal hired Chief Executive Officer Alex Chriss in 2023, he immediately took notice of the company's transaction margin. To win large accounts, the company had lowered its prices, particularly when it was working behind the scenes with unbranded checkouts. PayPal has renegotiated some of its top contracts since Chriss' arrival, and it's lifted how much profit it makes per transaction. In Q2, the company's transaction margin dollars increased by 7%, which was notably ahead of its 5% revenue growth. When it comes to the bottom line, it gets even better for PayPal. Management has aggressively bought back stock with its profits, lowering the share count and consequently boosting its earnings per share (EPS). Q2 EPS was up 20% year over year, which is something that shareholders love to see. Since early 2022, the share count for PayPal has steadily dropped, as the chart below shows. PYPL Average Diluted Shares Outstanding (Quarterly) data by YCharts There are some caution flags out PayPal stock dropped 9% after earnings, as mentioned. It's also down 23% from 52-week highs, as of this writing. So, investors want to know if this pullback is a buying opportunity. After considering what's going right, some may be inclined to believe that it is indeed an opportunity. There is more to consider, however. First and foremost, PayPal's user growth has stalled. Active accounts were only up 2% in Q2. But more troubling was the 4% drop in transactions per active account on a trailing-12-month basis. The downward trend started in the first quarter, when transactions per account had dropped by 1% (after years of increases), but it looks like it's picking up steam now. With account growth stalling and transactions dropping, PayPal doesn't offer much to investors when it comes to revenue growth. That's why these are caution flags -- stocks that outperform the S&P 500 usually have above-average top-line growth. What's the verdict? While PayPal's recent growth leaves a lot to be desired, better growth could be around the corner. For starters, PayPal owns Venmo, and it accounts for 18% of the company's total payment volume -- a meaningful amount. Venmo's growth has accelerated in recent quarters. In the second quarter of 2024, Venmo's volume was only up 8% but it was up by 12% in Q2. This acceleration is promising. Moreover, PayPal just announced PayPal World, a partnership that will allow for interoperability with major digital wallets worldwide. Early joiners include Latin America's MercadoLibre and China's Tencent. This partnership could boost PayPal's adoption, but investors won't know for sure until after it officially launches this fall. For me, the verdict is that PayPal stock is a buy, with a caveat. The caveat is that I don't believe the company's current growth can lift the stock above the S&P 500 over the next five years. Shareholders need some of its growth initiatives to pay off. However, PayPal stock is low-risk. Its scale is vast, it's generating substantial free cash flow, and it's boosting shareholder value with stock buybacks. Even if growth continues to sputter, the company's EPS should increase modestly, lifting the shares. Because PayPal stock is down significantly from its 52-week high, there's a margin of safety with this investment. In conclusion, if things go as they are now, there may be little downside for investors. And if things get better due to things such as Venmo's growth, then it could be a market-beating investment. Should you invest $1,000 in PayPal right now? Before you buy stock in PayPal, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and PayPal wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $625,254!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $1,090,257!* Now, it's worth noting Stock Advisor's total average return is 1,036% — a market-crushing outperformance compared to 181% for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of July 29, 2025
CBC
17 minutes ago
- CBC
Canada says no deal is better than a bad one
Aug. 1, 2025 | Canada's federal government insists it won't accept a bad trade deal from the U.S. Plus, cracks in the U.S. economy emerge and U.S. President Donald Trump lashes out as well as Canada's staycation summer.
