Motley Fools Tech
PwC research estimates that artificial intelligence will contribute more than $15 trillion to the global economy by 2030, so consider investing in Microsoft. Thanks in large part to its multibillion-dollar investment in OpenAI (the organization behind ChatGPT), Microsoft has made inroads into the fast-growing AI space — and it's adding AI-powered features to many of its products. Is. Because Microsoft's platform Azure is the cloud provider for all of OpenAI's computing needs, it could drive a great deal of cloud activity for Microsoft as AI grows.
Meanwhile, Microsoft's new Copilot acts as a coordination service, bringing together multiple AI systems into a single framework. In a world where AI still excels at specialized, well-defined tasks, the integration of Copilot can help streamline the interface for humans using these devices.
Even if investor enthusiasm for AI creates a bubble, it is likely that AI will eventually become a part of our everyday lives. As a well-invested early mover with access to not only leading AI technology, but key use cases for it, Microsoft thrives as AI becomes embedded in our lives. This makes it a compelling candidate for portfolios of long-term investors. (The Motley Fool owns shares of Microsoft and has recommended its stock and options.)
Ask a fool
From RS of Augusta, Ga.: How can I learn about company risks?
The fool replies: Publicly traded US companies are actually required by the Securities and Exchange Commission to detail their risks in the annual “10-K” reports they file with the SEC. You can find 10-Ks at SEC.gov/edgar and often on companies' websites, under their “Investors” (or “Investor Relations”) section. A 10-K report is a wealth of information, providing a detailed review of a company's operations and financial health, and listing the many risks it faces.
The 2024 10-K from Walmart includes 14 pages of “Risk Factors.” For example: “If we do not identify or respond effectively to consumer trends or preferences in a timely manner, it may harm our relationships with our customers, the demand for the products and services we sell, our market share and our business. may adversely affect the development of and “global or regional health epidemics or outbreaks … could adversely affect our business, financial position and results of operations.”
Don't let a long list of risks immediately put you off a stock, but consider them carefully. Most companies face many risks and are probably well managed through insurance and various contingency plans.
From LL of Tacoma, Wash.: What is “diluted” EPS?
The fool replies: On a company's income statement, you'll find its profit, or “net income,” near the bottom, where it's divided by the total number of shares outstanding to arrive at earnings per share.
EPS can be reported in two ways: “basic” and “diluted”. Basic EPS uses the number of shares that are currently outstanding, while diluted EPS includes the number of shares that could potentially be outstanding — say, if people with stock options exercise them. It is generally better to focus on weak EPS, as it is a more conservative figure.
The Fool School
Growth investors favor stocks growing at an above-average rate. Some of them may be overvalued, selling for more than they are worth. On the other hand, value investors like Warren Buffett favor undervalued stocks. But just because a stock has a seemingly low price doesn't mean it's worth buying. This can be a “value trap,” which looks like a good deal but really isn't. Some signs of a value trap are:
— Valuation issues: Is the company's price-to-earnings (P/E) ratio or other valuation metric lower than its average or that of its peers? If so, see why. Any challenges the company faces should be short-term and not difficult to overcome.
— Dividend problems: If a company is paying more dividends than it earns, its dividend may be reduced or even eliminated.
— Debt problems: Does the company's recent balance sheet indicate that debt is increasing? Is there enough money to meet the debt payment obligations? A company that is deeply in debt will be able to reduce opportunities.
— Management issues: Has there been significant executive turnover? Does management have a solid strategy, and do you trust them to execute it well? Is someone receiving a big raise while the company is failing?
– Competitive and operational issues: How is the company doing compared to its peers? Is a competitor taking away market share? Does the company rely heavily on just a few products or customers? Are expenses growing faster than income?
– Cyclical issues: A cyclical company's fortunes will rise and fall with the economy. (Carmakers, for example, may sell fewer cars during a recession.) If a cyclical company is struggling when it should be doing well, that's a red flag.
With any potential value trap, do a lot of digging before committing any dollars. Or just avoid it; Instead, look for healthy and growing companies that seem undervalued or, at best, reasonably valued.
My stupid investment
From DV: My saddest investment move? I shorted shares of the S&P 500 index fund.
The fool replies: It is possible to make great wealth without any protection. With shorting, instead of buying low and selling high, your goal is to first sell high and then buy low. For example, if you think shares of Alphabet City (ticker ABCDE) are overvalued and likely to fall, your broker should borrow and sell shares from someone else's account. (This is legal and normal.) Later, when the shares fall, you can buy them back on the open market at a lower price and replace them – through profits. But stocks don't always behave as expected. If the stock goes up, you'll have to replace the borrowed shares at some point — and pay much more than you pocketed when you shorted it.
When you buy stocks normally, you can lose up to 100% of your money, but your gains are unlimited. With shorting, you can only get close to 100%, and your downside is unlimited if the stock continues to rise. Meanwhile, when you bet against a company, you have its management and employees working against your interests.
If you short the entire S&P 500, you are essentially betting against the US economy. The market occasionally pulls back, but you never know exactly when it will. Think twice before shorting any security.
who am I?
I trace my roots back to 1864 in Tennessee, when my namesake learned to make whiskey from a preacher and a slave man who later became its head distiller. In 1866, I opened the first registered distillery in America, now on the National Register of Historic Places. I stored my stuff throughout prohibition. One of my sellers has been around for 120 years. I have hosted an invitational barbecue competition since 1989. Some of my offerings include cinnamon, honey, and apples. Frank Sinatra was one of my fans. who am I?
Don't remember last week's question? Find it here.
Last week's answer: Tyson Foods