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Yahoo
6 days ago
- Business
- Yahoo
Tariffs Are Weighing Heavily on the Industry, But Shoe Price Increases Have Been Minimal — So Far
Price increases are on the way. Expectations concerning higher costs form the tariff impact on many consumer discretionary items including apparel and shoes haven't yet gained substantial traction on the sales floor. More from WWD Tariffs at 30 Percent Would Be a Tipping Point for European Furniture- and Lighting-makers Kohl's Upping the Ante on Footwear During Critical Back-to-School Season Urban Outfitters Announces First Annual UO Haul Sale Targeting Gen Z Amid Back-to-school Season That not surprising, according to an Goldman Sachs report from July 8 headed by Jan Hatzius, chief economist and head of global investment research. He said the largest tariff hikes went into effect in early April and goods already shipped were exempt. Moreover, the 'front-loading of imports and uncertainty over whether tariffs would stick may have also helped to delay increases in consumer prices,' the report said. A separate Goldman report from July 11 led by economist Joseph Briggs said that tariff passthroughs to consumer prices so far seem more limited than in the 2018-2019 trade war when Trump was first in office. He noted that it might be too early to assess the full, adding that tariff payments can be delayed for up to 1.5 months and that any front-loading of imports likely delayed price increases. For now, consumers are still spending at retail. The U.S. Census Bureau on Thursday said retail sales for June rose 0.6 percent to $720.1 billion from May's revised $715.5 billion, which reflects a 0.9 percent dip. Total retail sales for April 2025 through June 2025 were up 4.1 percent versus the same year-ago period. U.S. President Donald Trump's broad global reciprocal tariff plan was disclosed on April 2. Data points from the report showed that apparel and accessories stores rose 0.9 percent in June to $26.34 billion, on an adjusted basis, which reflects season variation and holidays but not price changes. Sales at shoe stores were not available for June, but data indicates that sales rose 1.5 percent to $3.21 billion in May from $3.16 billion in April, on an adjusted basis. 'June consumer spending was solid, with retail sales ex auto and gas up 4.1 percent relative to last year, similar to the recent trend,' noted David Silverman, senior director at Fitch Ratings. 'Fitch continues to expect a sales moderation as the year progresses given the impact of somewhat moderating consumer health and reaction to the evolving tariff policy, despite the continued strength in recent months.' As for back-to-school product and promotions, Silverman noted: 'As expected, many of the largest retailers are targeting limited price inflation, as they manage their supply chain to offset the impact of tariffs and potentially absorb some of the increase to maintain pricing positions. Smaller retailers will be less able to mitigate and absorb tariffs, which could cause a widening price discrepancy over time.' Which Shoes Are More Expensive? A report from Telsey Advisory Group (TAG) tracked the prices of a cross section of apparel, shoes and home products since April, when reciprocal tariffs were first announced by Trump. In the July 8 report, a Sam Edelman Felicia ballet flat priced at $100 remained at the same price without change since April. That was also true of a Steve Madden Klayton Bootie, priced at $119.95, as well as a Vans Old Skool Shoe at $70. An Ugg Tazz II shoe saw a $5 increase, or 3.6 percent increase, to $145 from week ago prices, while a Hoka Bondi 9 sneaker also rose $5, or 2.9 percent, to $175. In other sneaker news, there was no price change for Adidas Samba OG, which has been $100 since April. There were week-over-week price changes for two On shoes. The Cloud 6 rose $10, or 6.7 percent, to $160, and the Cloudtilt was up $10, or 6.3 percent, to $170. The Nike Vomero 18 didn't see a week-over-week increase, but did have a price increase of $5, or 3.3 percent, to $155 at some point since April. That increase likely occurred on June 1, when Nike began raising prices on select items. Also holding steady since April was an Asics Gel-1130, priced at $100 at Foot Locker, as well as a New Balance 1960 sneaker at $150, also sold at Foot Locker. Those shoe increases appear minimal, when compared to some apparel spikes. Among the week-over-week price increases, a Victoria's Secret Pink fleece campus sweatpant rose $24.95, or 71.3 percent, to $59.95, while a Victoria's Secret Bombshell push-up bra was up $19.95, or 66.5 percent, to $49.95 and a Tommy Hilfiger men's regular fit stretch polo shirt saw a $5.26 increase, or 19.5 percent, to $32.25. The TAG check also noted that the Tommy Hilfiger polo shirt saw an earlier price increase sometime between April and July 8 of $2.26, or 7.5 percent. In addition, the $2,130.00 Louis Vuitton Neverfull MM bag didn't see a week-over-week price change in the July 8 report, but the price was raised by $100, or 4.9 percent, at some point between April and July 8. That was also true for a girls' Cat & Jack legging from Target, which didn't see a week-over-week change, but did see a price uptick of $1.50, or 33.3 percent, to $6 over the same four-month period. And while some apparel items saw a price change — such as an Adidas Firebird Loose track pant, down $15 week-over-week, or 20 percent, to $60, and a Calvin Klein men's cotton stretch 3-pack briefs, down $9.50, or 20 percent, to $38 at some point since TAG began keeping an eye on pricing in April — that wasn't true of any of the footwear products on the research firm's tracking list. The Road Ahead Price points thus far are likely to shift upwards going forward. And once that occurs on a broad range of everyday goods, that's when consumer fatigue is expected to set in, according to consumer experts from financial advisory firm EY. 'While the June retail sales data is encouraging and points to modest upside risk to our consumer spending growth estimate of 1.5 percent annualized in Q2, consumers have yet to experience the full impact of price increases,' said EY-Parthenon senior economist Lydia Boussour. She expects that continued tariff and policy volatility, coupled with a slowing labor market and rising inflation, will result in the easing of consumers' personal consumption expenditures from '2.8 percent in 2024 to 1.9 percent in 2025, and 1.4 percent in 2026.' 'June's numbers show how consumers are prioritizing online retailers and apparel, but the remainder of the summer and back-to-school season could prove more fragile than expected,' EY Americas retail sector leader Mark Chambers said. 'Retailers are weathering the storm when it comes to inventory management and supply chain flexibility with tariffs, but the latest numbers indicate they are so far managing price expectations and still delivering what consumers are looking for.' Crocs CEO Andrew Rees in May told investors at the firm's first quarter earnings conference call that the company expects the shoe 'industry to go up in terms of price' due to added costs, whether from tariffs or other factors. He also noted that the company has been 'super strategic' on pricing, with some 'very targeted price increases' to mitigate selective issues. But Rees also said that Crocs was in a 'wait-and-see mode,' waiting to see what happens with tariff rates, among other factors, to determine how to manage future pricing. And Steven Madden Ltd. CEO Edward Rosenfeld said in his first quarter earnings conference call that the shoe firm has been 'moving swiftly to adapt to the changing landscape,' including a focus on mitigating near-term impacts of tariff. Tools at its disposal included a shift in where some shoes are produced, as well as 'selectively' raising prices to both consumers and wholesale customers for fall items. Best of WWD All the Retailers That Nike Left and Then Went Back Mikey Madison's Elegant Red Carpet Shoe Style [PHOTOS] Julia Fox's Sleekest and Boldest Shoe Looks Over the Years [Photos] Se produjo un error al recuperar la información Inicia sesión para acceder a tu portafolio Se produjo un error al recuperar la información Se produjo un error al recuperar la información Se produjo un error al recuperar la información Se produjo un error al recuperar la información
Yahoo
07-07-2025
- Business
- Yahoo
Uncertainty is the new certainty: That's why investors are unbothered by Trump's ongoing tariff chaos
President Trump's latest tariff salvo—threatening 10%-70% levies on non-deal countries and an extra 10% for BRICs—would once have rattled markets. Instead, the S&P 500 now sits at a record high (6,279.35), with volatility muted and the VIX 'fear' index dormant. Analysts say investors now treat policy chaos as background noise; uncertainty is simply the new certainty. President Trump said last night he will begin sending letters to the various countries that did not sign trade deals with the U.S. since April, imposing tariffs upon them of 10%-70%. He also said he would punish any country aligned with the BRICs group (that's Brazil, Russia, India, and China) with an extra 10% tariff. The new deadline for these tariffs to take effect will be August 1. All of this would normally create a great deal of uncertainty in the markets, leading to dramatic selloffs and high volatility. Indeed, we saw that happen in April when Trump first proposed his new tariff levels. Markets plunged. Yet today, the markets will open in New York with the S&P sitting at a new record high. The VIX 'fear' index is asleep. Why are investors so unbothered by Trump's tariff chaos? As Fortune noted recently, everyone expected Trump's policies to damage the U.S. and global economies, but that damage has yet to appear. Some analysts are starting to conclude that investors have become inured to them, and regard all this uncertainty as the new normal. Uncertainty is the new certainty, in other words. An example of that? The Bloomberg Trade Policy Uncertainty Index has declined in recent days despite Trump's theatrics. Goldman Sachs published an interesting note recently titled, 'A Surprisingly Small Uncertainty Drag,' by Joseph Briggs and Sarah Dong. They argue that while the tariffs are a big deal in the U.S., whose consumers will be paying them, the exposure of the economies of the countries that trade with the U.S. is relatively small. Too small to derail global growth, they say. 'Trade policy uncertainty rose after President Trump's election but has recently pulled back according to standard indices. Our own and the Fed's statistical estimates (as well as economic theory) imply that the drag on growth from uncertainty peaks shortly after it first increases, implying that uncertainty should have already slowed global growth. There are very few signs that uncertainty is taking a toll on activity, however, as investment, manufacturing employment, spending, and overall activity have all held up globally in 2025H1,' the note said. At UBS, Paul Donovan noted that today's trade letters will actually push back further any negative impact they create: 'Allowing for some stockpiling ahead of Christmas, consumers may not experience the inflation spike from these taxes until January next year—assuming that Trump does not retreat again,' he told clients this morning. Here's a snapshot of the action before the opening bell in New York: S&P 500 futures were off 0.43% this morning, before the open. The S&P 500 index closed up 0.83% on Friday, hitting a new all-time high at 6,279.35. Bitcoin was above $109K. Japan's Nikkei 225 fell 0.56% this morning. China's CSI 300 fell 0.43%. Stoxx Europe 600 was flat in early trading. This story was originally featured on Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
28-06-2025
- Business
- Yahoo
Goldman Sachs warns tariffs won't help the U.S. boost manufacturing productivity as tech in American factories continues to lag
U.S. manufacturing has decelerated recently, both as a result of increased competition from China and as part of a broader manufacturing productivity slowdown. Goldman Sachs analysts argue tariffs will not lower supply chain and labor costs enough to boost reshoring, and instead, increased automation will be the most likely driver of a manufacturing productivity boost. As China continues to best the United States in manufacturing capabilities, tariffs may not be America's best bet to boost factory productivity. Instead, the U.S. should look to AI and automation to gain an edge in manufacturing, Goldman Sachs analysts argue. President Donald Trump aspires to return factory jobs to American shores by imposing steep tariffs on U.S. manufacturing rivals, but the taxes can only incentivize reshoring so much, analysts said in a note published Thursday. Instead, manufacturers should look to automation and the ever-more-accessible artificial intelligence as their best chance for boosting domestic manufacturing. 'A pickup in the pace of innovation—potentially from recent advances in robotics and generative AI—therefore remains the catalyst most likely to reverse the long-run stagnation in manufacturing productivity,' analyst Joseph Briggs and colleagues said in the note. As China capitalizes on automation and cheaper labor to grow its export footprint, the Bank of America Institute has found mounting evidence of a recent U.S. manufacturing slowdown, including U.S. Census Bureau data showing new orders for manufactured durable goods decreasing 6.3% in April. The Institute of Supply Management Manufacturing Purchasing Managers' Index (PMI) has fallen since March, also indicating a contraction. The U.S.'s productivity woes are part of a larger manufacturing productivity slowdown happening over the last two decades as a result of investment pullback following the global financial crisis, as well as a slowdown in the burst of technological advancements of the early 2000s, according to Goldman Sachs. Trump's tariff plans for China—which the president has not disclosed, despite touting a new trade deal—aim to help the U.S. claw back manufacturing opportunities from its economic rival. But while they make consumers' lives more expensive, they are not a panacea for manufacturers, the bank argued in its note. 'Tariffs are unlikely to result in much reshoring because production costs in other countries are well below the U.S.' for most products (even after accounting for tariffs), and China will likely continue to grow its exports on the back of cost advantages and industrial policy support,' the note said. Instead, analyst Briggs said, the U.S. should focus on another area in which it's lagging: automation. The U.S. has trailed other manufacturing giants in implementing AI into factory operations, according to a Boston Consulting Group (BCG) Henderson Institute report released earlier this month. Only 46% of U.S. respondents of BCG's Global Manufacturing Survey of 1,000 manufacturers reported multiple use cases of AI in their plants, falling short of the 62% average and lagging behind China's 77%. 'This is one of the key technologies that I think could drive productivity growth in a cost-competitive manner,' Briggs told Fortune. 'And we just haven't seen that occur on a meaningful scale yet.' The U.S. did not previously invest in factory automation as a result of a 'hangover' from the global financial crisis, Briggs said, but the U.S. now has a real shot at prioritizing factory technology updates, given the growing ubiquity and therefore affordability of automation and AI. Companies such as aviation precision parts-maker MSP Manufacturing have already begun to adapt accordingly. MSP president and chief operating officer Johnny Goode recently learned of an AI-powered software able to program the machine building the precision parts, reducing production time from an hour and a half to seven minutes per part—plus 15 minutes necessary for a human operator to refine it. 'I was like, holy snap, this is going to be a game changer,' Goode told Fortune's Jeremy Kahn this week. 'Going from 90 minutes to 22 minutes is a big deal, and we've seen that get even better as we've learned to use the software more.' Goldman Sachs analysts conceded that while automation provides the largest area for growth in manufacturing productivity in the U.S., it is unlikely to solve the broader manufacturing slowdown, which is global. The slowdown is 'historically unusual,' Briggs said, with the maturation of the tech sector the likely culprit. Any hope for a global uptick in productivity would come from mass advancement and adoption of AI and robotics on a large scale. 'The main thing that would drive a large pickup in manufacturing productivity and manufacturing growth would be a sharp increase in the pace of innovation,' Briggs said. 'And this type of inflection upwards and technological progress are very hard to predict.' Advancement in tech could have a two-fold benefit for domestic manufacturing productivity, both in driving factory investments and in bettering technology to be installed in factories to automate tasks. But with the specifics of the future of AI and automation applications still unknown, it's difficult to predict whether a reversal of a domestic manufacturing slowdown is truly possible. 'We just need to see it happen before we have a lot of confidence in that dynamic being a big driver,' Briggs said. This story was originally featured on
CNBC
20-05-2025
- Business
- CNBC
Chinese exporters are offering sweet deals to U.S. businesses. They often come wrapped in fraud
Chinese exporters are offering lucrative deals to U.S. customers with promises of bearing the full burden of tariffs. Look beneath and there's a web of illicit activity that's propping up these shipments from China. By using the "delivered-duty-paid" shipping approach where sellers pay for all import duties, and by under-invoicing shipments, some Chinese sellers are able to offer U.S. customers pre-tariff prices, while still turning a profit, according to legal experts and industry veterans. Here's how the scheme plays out: Chinese exporters, often through freight forwarders — companies that handle the logistics of shipping merchandise — understate the value of goods or mislabel them, often both, in the shipping documents to draw lesser duties. Shipments are then routed through shell companies, registered under names of foreign entities or individuals, that act as "importers of record," which the U.S. government deems responsible for the accuracy of customs filings and all applicable duties. Importers are required to secure a minimum $50,000 customs bond from U.S. surety providers as a guarantee to the government that they will pay tariffs. When they fail to settle the tariffs on time, the bond covers the duties. Once the bond has been utilized, often these shell companies default and cease operations, only to quickly set up a new entity — and the cycle repeats. "Often these companies don't bother to file bankruptcy. They simply turn off the phone, close email accounts, and choose whatever mailing address they have [to open a new firm]," said David Forgue, partner at Chicago-based law firm Barnes, Richardson & Colburn, making it difficult for the surety to chase them for tariff reimbursement. This tactic is not new. "The incentive to underreport always exists while tariffs are in place, said Joseph Briggs, managing director at Goldman Sachs. Now, it has gained greater momentum, as businesses scramble to sidestep the new levies imposed by U.S. President Donald Trump in his second term. A search for "double clearance and all tax inclusive" on Chinese social media Xiaohongshu turns up numerous ads promising cheap delivery for furniture, refrigerators and other big-ticket houseware goods to the U.S. ports, with all tariff fees included. Many are able to offer such deals by under-valuing and misclassifying shipments, industry veterans told CNBC. "It's an open secret in the industry," said Ash Monga, founder and CEO of Guangzhou-based Imex Sourcing Services, a supply chain management company. "Opening a shell company is easy, you can do that in a couple of hours. You can open as many companies as you want. The cost is a few hundreds, so this whole process is easy to execute and can be replicated as many times as you want," Monga added. Adopting this practice is being increasingly discussed among U.S. firms sourcing in China, as businesses look to skirt Trump's latest tariffs, he said. An owner of a Guangdong-based electronics manufacturer told CNBC on condition of anonymity that there have been an increase in U.S. buyers pushing Chinese suppliers to go down this route. China Council for the Promotion of International Trade, a trade body under the Ministry of Commerce, did not immediately respond to CNBC's request for comment. American businesses are underestimating civil and criminal risks, whether they actively pressure their suppliers to circumvent tariffs or are unwitting beneficiaries of the practice, legal and customs experts warned. "It is scary how businesspeople, like 90% [of them], believe that if they are not listed as the official importer of record, they are somehow immune from any civil or criminal liability for the import," said Dan Harris, an attorney and partner at Seattle-based law firm Harris Sliwoski. There is also a rise in cases where businesses are being hit with tariff payments, even though they are not the designated importers on record. Harris said there's been an increase in his clients facing unexpected customs bills and seized shipments, as the overseas sellers failed to settle import duties. It is "a horrible game" for U.S. businesses complicit in this scheme, as they could face substantial liability under the customs law and other laws like the False Claims Act, said Forgue. For businesses still paying pre-tariff prices on imports from China, claiming ignorance of potential customs fraud is unlikely to stand as a credible defense, Harris warned. "There's no way an American company that had been paying $20 for products, paid only $25" when there was a double-digit tariff, Harris said. The importers could request their suppliers for a copy of the customs documents to check classification and declared values to mitigate risks, Harris said. Businesses worry that competitors accepting these deals may undercut prices, leaving law-abiding firms at a disadvantage. "Consumers are most likely to choose the cheapest options and it will be very difficult to compete with people who do business illegally," said Cze-Chao Tam, founder and CEO of Trinity International, a California-based houseware provider. The company manufactures and sources its items from China and Southeast Asia, besides the U.S. Facing import duties of up to 55%, Tam is negotiating with key buyers on price hikes. "Our buyers are not going to accept a full pass-through," she said, adding that she expects the company's margins to take a hit. Trump's tariff policy is a giant stress test for U.S. Customs and Border Protection, or CBP — the government body tasked with collecting tariffs and policing imports. "There's a massive volume of trade coming in from China and other countries ... there just simply wouldn't be enough resources to be able to to screen them all," said Alex Capri, a former U.S. customs officer in Los Angeles. As the CBP inspect only a fraction of incoming cargos, a "laser-focused" cargo selectivity system that sorts high-risk shipments and determine the type of examination required becomes increasingly crucial in curbing tariff evasion through under-invoicing and mislabeling, said Capri. Underscoring how enforcing tariffs could be tricky, Trump had to delay the repeal of duty-free imports of low-cost packages from China to put enforcement procedures and systems in place. In April, there was a 10-hour "glitch" in the customs system that prevented importers from inputting a code that would have exempted freight already on water from being subjected to higher duties. Illicit transshipment, where goods are routed through a third-country to conceal their Chinese origin, has also been used to dodge tariffs at the risk of fines and jail time. A Goldman Sachs' report released in January estimated that the tariffs Trump imposed on China during his first term saw evasions worth $110 billion to $130 billion in 2023, with understating value and mislabeling each contributing $40 billion and rerouting accounting for $30 billion to $50 billion. In comparison, the total duty, taxes and fees collected by CBP in fiscal 2023 was $92.3 billion, according to government data. To curb illicit tariff evasion, Capri expects the U.S. government to put pressure on foreign governments during ongoing trade negotiations to enhance law enforcement efforts at the point of departure. "You simply cannot wait until the cargo is either on the water or arriving at the U.S. port," he said, adding that it will be more efficient to put the onus on the exporting country. Matthew Galeotti, the head of the Justice Department's Criminal Division, issued a new guidance last week that that prioritized trade and customs fraud, particularly tariff evasion, as one of the focus areas for investigation and prosecution. Trump has said the federal government is taking in $2 billion a day from tariffs. While official figures indicate that was an overstatement, customs duties collected did hit a record level in April, totaling $16.3 billion, according to data from U.S. Treasury Department. A CBP spokesperson told CNBC that tariff enforcement was being done through "a combination of legal authority, advanced systems, and operational procedures designed to ensure that duties owed are paid." "As a result of recent presidential actions, enforcement will include the most severe penalties permitted by law," the spokesperson said.
Yahoo
31-01-2025
- Business
- Yahoo
Amazon.com, Inc. (AMZN): Expanding Generative AI with Databricks Deal
We recently published a list of . In this article, we are going to take a look at where Inc. (NASDAQ:AMZN) stands against Coatue's other most important AI stocks. Artificial intelligence (AI) has fueled a major rally in the technology sector, driving up key market indices. Over the past year, the S&P 500, heavily influenced by tech giants, has risen by nearly 22%, while the tech-heavy NASDAQ Composite has surged over 26%. Initially, market analysts had predicted an increase in interest around growth options for 2024 due to easing inflation and potential rate cuts. However, AI has taken this expected interest and amplified it into an economy-wide wave of optimism. While tech stocks have been the primary beneficiaries, AI's influence is expanding across industries such as manufacturing, supply chain, transportation, entertainment, and retail. Investment in AI is growing rapidly across various sectors. A recent Goldman Sachs report estimates that global businesses will invest nearly $1 trillion in AI infrastructure over the next few years. Venture capital (VC) investments in AI startups are also on the rise. In the first half of 2024 alone, VC firms made approximately 200 AI-related deals, injecting nearly $22 billion into the sector. The average AI startup funding round now exceeds $100 million, with company valuations averaging over $1 billion. In contrast, non-AI startups typically receive around $20 million in funding and have valuations near $200 million, indicating AI's outsized appeal to investors. Companies that were early adopters of AI have experienced significant gains, particularly those specializing in graphics processing units (GPUs), AI chips, and generative AI technologies. The median returns of AI-linked firms in the S&P 500 stand at 20%, compared to just 2% for non-AI stocks. AI companies are also responsible for 90% of the total returns on the NASDAQ Composite Index. These gains are expected to drive earnings growth and contribute to broader economic expansion. According to Joseph Briggs, a senior global economist at Goldman Sachs, AI is projected to automate 25% of all work tasks in the next decade, increasing US productivity by 9% and boosting GDP growth by more than 6%. Read more about these developments by accessing 10 Best AI Data Center Stocks and 10 Buzzing AI Stocks According to Goldman Sachs. Philippe Laffont of Coatue Management argues that AI could be the start of a new 'super cycle' in the tech industry. Previous cycles included the rise of personal computers in the 1980s, networking in the 1990s, wired internet in the 2000s, and mobile internet in the 2010s, leading to the cloud era. However, software and internet experts Kash Rangan and Eric Sheridan highlight a key difference: this time, companies are linking AI investments directly to revenue generation, providing a financial safety net that was absent in past cycles. Since the launch of ChatGPT by OpenAI in early 2023, the industry's focus has shifted from software to AI hardware and infrastructure. AI infrastructure companies have collectively added nearly $6 trillion to their market capitalization since Q1 2023. Before large-scale AI automation becomes commonplace—MIT economist Daron Acemoglu estimates this will take more than a decade—AI infrastructure is expanding into areas such as utilities, energy, internet, and industrials. Interestingly, companies in these sectors that support AI development have posted returns rivaling those of traditional AI firms. The growing demand for AI-driven data centers is also driving investments in the energy and utilities sectors. Goldman Sachs analysts Carly Davenport and Alberto Gandolf expect AI adoption to drive a surge in electricity demand not seen in decades. However, whether AI's growth will align with energy infrastructure investments remains uncertain due to regulatory constraints and supply chain limitations in the utilities sector. Even if necessary investments materialize, their full benefits may take years to reach AI companies. Read more about these developments by accessing 30 Most Important AI Stocks According to BlackRock and Beyond the Tech Giants: 35 Non-Tech AI Opportunities. Some investors remain cautious, fearing an AI bubble similar to the dot-com crash of the early 2000s. However, current data suggests that AI valuations are far more grounded than those of the dot-com era. At the height of the dot-com bubble, software firms traded at price-to-earnings (P/E) ratios of 132x, compared to a five-year average of 37x in 1999. In contrast, in 2023, even the biggest AI stocks had P/E ratios around 39x, with a five-year average of 40x. These figures suggest that AI valuations are not overinflated, reinforcing investor confidence in AI's long-term potential. AI companies are increasingly targeting multi-trillion-dollar valuations, comparable to today's largest software and internet firms. Over the past decade, tech giants have scaled their businesses to unprecedented levels, combining billions of users, hundreds of billions in revenue, and tens of billions in net income. Today, a handful of firms account for 80% of the valuation of the Fortune 500. These companies dominate industries such as smartphones, e-commerce, cloud computing, and software-as-a-service (SaaS), all of which AI is poised to disrupt. As a result, these firms are aggressively incorporating AI into their business strategies to maintain market leadership. Some investors worry that AI firms could overshadow software companies, impacting long-term valuations. The price-to-sales (P/S) ratio for software stocks, which peaked in 2021, is now at an all-time low. Slower earnings growth has also contributed to negative sentiment in the sector. Coatue's research shows that over the next twelve months, only 1% of SaaS companies expect 30% earnings growth, down from 30% during the SaaS boom. However, as human-machine interaction shifts towards natural language processing and generative AI, software companies that successfully integrate AI into their platforms are likely to thrive. As inflation cools, rate hikes ease, and prospects for a soft economic landing improve, AI's macroeconomic outlook remains strong. AI is now the primary driver of future earnings growth in the S&P 500. According to Coatue's projections, AI-linked stocks are expected to grow at a compound annual rate of nearly 20% over the next three years, outperforming non-AI stocks by approximately 14%. Additionally, 40% of future tech sector earnings are expected to be fueled by AI advancements. All available data points to a bright future for AI investments, with its influence extending far beyond traditional tech firms. As companies continue integrating AI into their operations, productivity and economic growth are set to accelerate, making AI one of the most transformative forces in modern history. For this article, we selected AI stocks by combing through a note on the AI industry by Coatue Management. These stocks are also popular among other hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (). A customer entering an internet retail store, illustrating the convenience of online shopping. Number of Hedge Fund Holders: 286 Inc. (NASDAQ:AMZN) operates as a technology conglomerate with core interests in the ecommerce business. In the report for the third quarter of 2024, operating cash flow increased 57% to $112.7 billion for the trailing twelve months, compared with $71.7 billion for the trailing twelve months ended September of the prior year. Free cash flow also increased to $47.7 billion for the trailing twelve months, compared with $21.4 billion for the trailing twelve months ended September of the prior year. This demonstrates the company's strong cash generation, with significant improvements in both operating cash flow and free cash flow over the past year. In addition, the company's strategic collaboration with Databricks aims to accelerate the development of custom models built with Databricks Mosaic AI on AWS and for Databricks to leverage AWS Trainium chips as the preferred AI chip. This would help customers improve price performance when building generative AI applications, solidifying the company's position in the competitive market. Overall, AMZN ranks 1st on our list of Coatue's most important AI stocks. While we acknowledge the potential of AMZN as an investment, our conviction lies in the belief that some stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a stock that is more promising than AMZN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock. READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap Disclosure: None. This article is originally published at Insider Monkey.
