All three main indexes opened higher Monday, but only one was in positive territory at the close. Tech stocks were the biggest decliners as bond yields continued to climb, while energy stocks outperformed as oil prices jumped to their highest level since early April.

At the close, the tech-heavy Nasdaq Composite was down 0.5% at 26,090 and the broader S&P 500 was off 0.07% at 7,403. The blue-chip Dow Jones Industrial Average was up 0.3% at 49,686.

Front-month West Texas Intermediate crude futures, meanwhile, climbed roughly 3% to settle at $108.66 per barrel.

"The stock market is coming to the sudden realization that new Fed Chair Kevin Warsh may need to raise rates rather than lower them, and the market hates that," says Richard Reyle, chief investment officer at Questar Capital Partners. "Right now, the bond market is repricing this and rates are drifting higher, which comes just as the hyperscalers enter their most capital-intensive spending cycle, which raises worries about their ability to keep funding this spending."

The CIO says that if bond yields continue to climb, the tech sector's leadership could be threatened. This is because higher interest rates mean future profits are worth less, which is bad news for tech companies whose valuations are based on tomorrow's earnings.

Today, the yield on the 2-year Treasury climbed above the 4.10% level for the first time since June 2025 before ending down 2.8 basis points at 4.056%. The 10-year Treasury yield hit 4.631% — its highest mark since May 2025 — before settling at 4.597%, up 0.2 basis point on the day.

Seagate CEO issues dire warning

Rising bond yields weren't the only headwind tech stocks faced today. Market participants also reacted to a dire warning from Seagate Technology (STX) CEO Dave Mosley.

The executive was asked earlier today at a JPMorgan conference what the data storage specialist could do to meet rising demand for memory chips, which are key to the artificial intelligence (AI) data center buildout.

"If we took the teams off and started building new factories or bringing up new machines [to increase unit capacity], that would just take too long," Mosley said. "You would end up with more capacity, but then you'd slow the rate of growth on that technology."

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The answer only amplified Wall Street's fear that chip production won't be sufficient — and sent STX down 6.9% today.

Nvidia drops ahead of earnings

Nvidia (NVDA) also closed lower today, falling 1.3% ahead of the AI chipmaker's Wednesday afternoon turn on the earnings calendar.

"We fully expect the leading supplier of AI silicon will again exceed estimates and guide above Street given continued positive data points through Q1 as well as 1) healthy 2026 AI infrastructure spend (that we believe likely continues through 2027), and 2) superior supply chain certainty in a period plagued by constraints," says Wedbush analyst Matt Bryson.

The real question, Bryson believes, is whether "we finally see a more positive stock reaction after a series of blasé moves following solid prints."

We're covering all the latest Nvidia news in our live earnings blog.

NextEra Energy drops on $67 billion M&A news

Utility stocks were also lower on Monday after news that NextEra Energy (NEE, -4.6%) will buy Dominion Energy (D, +9.4%) in an all-stock deal valued at roughly $67 billion.

If approved by regulators, the merger will create the country's largest electricity producer, serving 10 million customer accounts in Florida, the Carolinas and Virginia.

"If successful, the deal could result in one of the largest mergers in the power industry," says Mizuho Securities analyst Anthony Crowdell. "The acquisition would give NextEra access to the PJM [Pennsylvania-New Jersey-Maryland] market, and potentially signals NextEra moving beyond renewables-heavy to include an all-form shop."

The transaction is expected to close in the next 12 to 18 months.

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Stocks closed lower Friday as market participants took profits on red-hot tech stocks. Still, all three main indexes were higher on the week, with the S&P 500 and Nasdaq Composite notching their seventh straight weekly wins and the Dow Jones Industrial Average bringing its weekly win streak to three.

Treasury yields spiked heading into the weekend, which didn't help the equity market either. The yield on the 2-year Treasury jumped 8.7 basis points to 4.079% and the 10-year Treasury yield climbed 14.2 basis points to 4.601%. It's the highest level for both in nearly a year.

"A bear-steepening yield surge is igniting turbulence on Wall Street as investors lift inflation expectations amid price pressure readings from around the world that are way too hot," says José Torres, senior economist at Interactive Brokers. "The continued blockage of the Strait of Hormuz, amid oil prices remaining well above $100, is straining the fixed-income complex, as there's no light at the end of the geopolitical tunnel."

Torres adds that many folks were hoping for a breakthrough from this week's meeting between President Donald Trump and Chinese President Xi Jinping, "but a lack of progress on the conflict has folks throwing in their towels as it relates to the possibility for lighter interest rates."

Indeed, CME Group FedWatch now shows futures traders have given up on rate cuts in 2026 and are now pricing in a possible quarter-point rate hike by the end of this year.

As for the stock market, the S&P 500 shed 1.2% to end at 7,408, the Nasdaq slumped 1.5% to 26,225 and the Dow gave back 1.1% to 49,526.

Tech stocks get hit by profit-taking

Several of this week's highfliers finished in the red Friday, including Intel (INTC, -6.2%), Advanced Micro Devices (AMD, -5.7%) and Micron Technology (MU, -6.6%). And artificial intelligence (AI) chipmaker Cerebras (CBRS), which soared Thursday following its blockbuster IPO, slumped 10.1%.

Nvidia (NVDA) ended lower, too, falling 4.4% ahead of its turn on the earnings calendar, slated for after Wednesday's close.

The company "heads into next week's results with expectations already running hot," says Matt Britzman, senior equity analyst at Hargreaves Lansdown. Consensus estimates are near the top end of guidance, "but as is often the case with Nvidia, the market will likely be looking for more than just a clean beat. The scale of any upside surprise will matter."

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Britzman adds that Wall Street will be watching for commentary on the Vera Rubin roadmap, given recent rumors of a potential one-month delay to deliveries. "In isolation, that would be relatively small, but investors will not want to see anything that suggests a more material pushback for Nvidia's next major product cycle."

Bill Ackman's big Microsoft bet

Microsoft (MSFT) bucked the bearish trend, rising 3.1% after Bill Ackman said in an X post on Friday that Pershing Square has initiated a stake in the tech giant.

Pershing began building its position in February, according to Ackman, and the details on the size of the position will be released later today in regulatory filings.

Microsoft is "a company we have followed for many years now offered at a highly compelling valuation," the hedge fund manager explained, and the blue chip stock is now a "core holding."

MSFT has been one of the worst Dow Jones stocks of the year, down X% so far, but Ackman believes Wall Street is underestimating "the resilience" of the company's Microsoft 365 subscription suite and OpenAI investment.

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Who would have believed at the turn of the 21st century that there would be such a thing as a trillion-dollar stock? (Or that the Dow would reach 36,000, for that matter?)

At the end of 2000, the most valuable company was Exxon Mobil (XOM), with a market capitalization — price times shares outstanding — of roughly $302 billion. That's one-fifteenth the value of Nvidia (NVDA) today. Just counting to a trillion incredibly fast, with no bathroom breaks, would take 32,000 years, according to the Q&A platform Quora.com.

In August 2017, however, I wrote, "It may be a matter of months, or more likely a few years, but sometime soon a U.S. company will breach the trillion-dollar mark." I was more right than I expected.

At the time, I offered estimates of when each would hit a trillion in market cap. Apple (AAPL) was first, as I predicted, but it took just 11 months, a year and a half ahead of schedule. The other four quickly followed: Amazon.com (AMZN) in September 2018; Microsoft (MSFT) in 2019; Alphabet (GOOGL), the former Google, in 2020; and Meta Platforms (META), the former Facebook, in 2021.

At that point, I wrote another column, saying, "I'm doubling down and recommending them all." Sure enough, as a group, they have nearly doubled. (Prices, returns and other data are as of September 30; stocks I like are in bold.)

Today, with the additions of Nvidia, Tesla (TSLA), Broadcom (AVGO) and Berkshire Hathaway (BRK.B), membership in the Trillion-Dollar Club (let's call it TDC) has grown to nine. The combined market cap of these stocks accounts for 41% of the capitalization of all the companies of the S&P 500 Index. A mere 10 years ago, the nine largest U.S. stocks had a total market cap of 18% of the S&P 500.

Today, eight of the nine members of the TDC are technology (or tech-related) stocks, and for the ninth, Berkshire, Apple alone represents one-fifth of assets. By contrast, in 2015, the top nine consisted of just five tech stocks, plus companies in banking, pharmaceuticals and energy, along with Berkshire. In 2005, only two tech companies graced a highly diversified top nine.

Concentrated bets

The top-heavy nature of the S&P 500 today should make any investor worried. The market is betting heavily, not simply on tech but on artificial intelligence. But you will notice from the bold-facing that I still like trillion-dollar stocks — at least the initial cohort.

Why? Let's start with Alphabet. Since 2017, revenues have quadrupled and earnings have quintupled, yet the stock's price-to-earnings (P/E) ratio, based on a consensus of analysts' forecasts of profits for the year ahead, has declined from 30 to 25. Analysts at investment research firm Value Line expect earnings will rise an average of 12% annually for the next five years, indicating a perfectly reasonable valuation.

Alphabet owns the global entertainment asset with the greatest potential, YouTube, with nearly 3 billion active users. The company is also sitting on more than $95 billion in cash and has very little debt; it has even started paying a small dividend.

Amazon's P/E has dropped from nearly 200 to 32. It dominates the e-commerce market, accounting for 38% of sales, compared with 6% for number two Walmart (WMT).

Apple's valuation has risen to 33, but it was absurdly low (16) in 2017. The company is a profit machine; it earns about 25 cents on every dollar of sales, and those dollars will exceed 400 billion this year. Microsoft has tripled its earnings since 2017. It has a powerful cloud-computing business and has integrated AI into all its platforms.

Meta gets the least respect. Its forward P/E has fallen from 29 in 2017 to 25, despite net profits rising from $18 billion to close to an estimated $72 billion in 2025. The company, which owns WhatsApp and Instagram, recently won its antitrust case, leaving the ownership of its assets intact.

I am less enamored of the TDC newbies. Nvidia was once a lovely choice. In making it one of my 10 stock picks for 2020, I wrote that it "may be the best artificial intelligence play." Since then, its market cap has risen from $122 billion to $4.5 trillion.

Ponder that number. It’s more than the capitalization of all the listed stocks in the U.K. It is greater than the GDP of Japan. Nvidia, with its graphic processing units, has little competition for top-level AI chips used in data centers, but that is going to change. There is too much money to be made.

Broadcom, a semiconductor company with a niche in AI chips called application-specific integrated circuits, which have specialized functions, is the change agent. It became the newest member of the TDC in December 2024 after its stock price increased by a factor of six in four years. Value Line expects earnings to continue rising at a 24.5% annualized clip through 2030.

Broadcom, like Nvidia, does not own manufacturing plants, or "fabs." That allows the company to retain its capital, but it also leaves it vulnerable to supply interruptions. My other worries about the future of the chip business are government intervention, geopolitical threats and a lack of electricity to power data centers in the U.S.; still, it’s hard not to like Broadcom.

Tesla, which reached $1 trillion in market cap in October 2021, then fell out of the club a few times and came back in, looks more attractive now that its CEO is getting back to work. I am especially excited about its battery storage business.

But Tesla is clearly a meme stock, driven by the enthusiasm of fans. Its revenues have been flat for three years, profits are microscopic by TDC standards, and capital spending requirements are huge.

The outlier, Berkshire, has a P/E in the mid-20s and a brilliant CEO in his nineties. I'm loyal to Warren Buffett and confident in his successors. Berkshire has a hoard of liquid assets, and insurance is the best business in America outside of tech.

When I wrote about trillion-dollar stocks in 2021, I warned about "a sort of law of financial gravity." It's not hard to imagine a stock with a market cap of $100 billion becoming a four-bagger (that is, quadrupling in value) or even a 40-bagger, as Nvidia has proven.

But could Nvidia quadruple from its current value? Could Microsoft or Apple, at $3.8 trillion each? It seems doubtful. Still, doubles or triples are satisfying.

The legacy TDC companies have shown a remarkable ability to innovate and adapt. Operating-system software, for example, used to dominate Microsoft's revenues. Now, it represents only about one-tenth of sales. Server and cloud services account for 40% today, with gaming and LinkedIn making significant contributions.

These are truly exceptional businesses with extensive moats and deep human capital. As crazy as it sounds, they deserve to be trillion-dollar companies — and to keep growing.

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. Of the stocks mentioned here, he owns Amazon.com. You can reach him at JKGlassman@gmail.com.

Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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Stocks opened higher Friday as Amazon.com's (AMZN) impressive results helped ease concerns that big spending on artificial intelligence (AI) isn't bearing fruit. Today's gains had all three main indexes closing out the historically volatile month of October with impressive returns.

At the close, the blue-chip Dow Jones Industrial Average was up 0.09% at 47,562, the broader S&P 500 was 0.3% higher at 6,840, and the tech-heavy Nasdaq Composite had added 0.6% to 23,724. For the month, the benchmarks rose between 2.5% and 5%.

Amazon helped boost all three indexes, climbing 9.6% after its third-quarter results. The e-commerce giant beat on both the top and bottom lines and said revenue in its Amazon Web Services cloud segment was up 20% year over year.

"We continue to see strong momentum and growth across Amazon as AI drives meaningful improvements in every corner of our business," said Amazon CEO Andy Jassy in the earnings release. "AWS is growing at a pace we haven't seen since 2022."

The company also raised its full-year capital expenditures forecast – to $125 billion from $118 billion – and Chief Financial Officer Brian Olsavsky expects spending to be even higher next year.

"We'll continue to make significant investments, especially in AI, as we believe it to be a massive opportunity with the potential for strong returns on invested capital over the long term," said Olsavsky on the earnings call.

Apple edges higher after earnings

Apple (AAPL) bounced between positive and negative territory in Friday's session, eventually closing down 0.4%.

Late Thursday, the tech giant reported higher-than-expected fiscal fourth-quarter earnings and revenue. It also gave a strong revenue forecast for its fiscal first quarter.

But Wall Street seemed a little worried about softer-than-expected iPhone revenue and weak sales in China.

"Tariffs continue to remain a headwind to margins," says Wedbush analyst Daniel Ives, although he notes that the majority of iPhones being sold in the U.S. are now produced in India, "given the complex Trump tariff backdrop."

Ives reiterated his Outperform (Buy) rating on the blue chip stock and raised his price target to $320 from $310 – representing implied upside of more than 18% to current levels – on "increased confidence in the Apple growth story as the iPhone 17 launch is off to a great start heading into the key holiday December quarter in the U.S. and China."

Exxon hikes its dividend for a 43rd straight time

Over in the energy sector, Exxon Mobil (XOM, -0.3%) reported third-quarter earnings of $1.88 per share on revenue of $3.4 billion, beating analysts' estimates even as oil prices slumped more than 4% over the three-month period.

"We delivered the highest earnings per share we've had compared to other quarters in a similar oil-price environment," said Exxon CEO Darren Woods in the earnings release. "In Guyana, we broke records with quarterly production surpassing 700,000 barrels per day," and "we also set another production record of nearly 1.7 million oil-equivalent barrels per day [in the Permian basin]."

Exxon also hiked its quarterly dividend by 4% to $1.03 per share, marking the 43rd straight year its raised its payout.

Why is this important to investors?

"Shares in companies that raise their payouts like clockwork decade after decade can produce superior total returns (price change plus dividends) over the long run, even if they sport apparently ho-hum yields to begin with," writes Kiplinger contributor Dan Burrows in his feature "Best Dividend Stocks to Buy for Dependable Dividend Growth."

Case in point: Over the past 12 months, XOM is down 1.9% on a price basis, but when you add in the dividend, its total return is +2%.

Netflix splits its stock

In non-earnings news, Netflix (NFLX) jumped 2.7% after the streaming giant announced a 10-for-1 stock split. This marks the third stock split for Netflix: a 2-for-1 split on February 11, 2004, then a 7-for-1 on July 14, 2015.

"The purpose of the stock split is to reset the market price of the Company's common stock to a range that will be more accessible to employees who participate in the Company's stock option program," Netflix said in its press release.

The split won't change anything about the company's fundamentals or market valuation. Rather, it's similar to making change. In NFLX's case, it will be equivalent to breaking a $10 bill into 10 $1 bills.

Based on NFLX's October 31 close at $1,118.86, the 10-for-1 stock split will bring the share price to about $112.

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Earnings were the main driver of price action on Thursday, as market participants parsed quarterly results from some of Wall Street's largest companies. A highly anticipated meeting between President Donald Trump and Chinese President Xi Jinping sparked plenty of chatter, too.

Facebook parent Meta Platforms (META, -11.3%) and tech giant Microsoft (MSFT, -2.9%) made two of the most notable post-earnings moves today. Both Magnificent 7 stocks ended sharply lower as spending concerns overshadowed quarterly beats.

Meta, for one, reported higher-than-expected third-quarter earnings and revenue and strong fourth-quarter guidance. It also raised the lower end of its full-year expense forecast by $2 billion, now expecting total expenses of $114 billion to $118 billion in 2025 – up nearly 22% at the midpoint from 2024.

And in Meta's earnings call, Chief Financial Officer Susan Li said the company expects "total expenses will grow at a significantly faster percentage rate than 2025, with growth primarily driven by infrastructure costs, including incremental cloud expenses and depreciation."

Microsoft beat on the top and bottom lines for its fiscal 2026 first quarter, but the company's capex of $34.9 billion came in above the $30 billion it forecast in July.

Additionally, Chief Financial Officer Amy Hood said on the earnings call that the capex growth for fiscal 2026 will "be higher than fiscal year 2025" amid increased spending on "GPUs and CPUs" to power its artificial intelligence (AI) infrastructure.

Wall Street isn't worried about Alphabet's AI spending

Increased spending isn't a concern for Alphabet (GOOGL), though, with the communication services stock jumping 2.5% after its earnings report.

The Google parent said third-quarter earnings rose 35% year over year to $2.87 per share, while revenue increased 16% to $102.3 billion – both figures higher than analysts expected.

Google Services revenue jumped 14% on solid YouTube ad sales, while Google Cloud revenue, which houses its AI segments, surged 34%. Alphabet also increased its full-year capital expenditures amid "growth across our business and demand from Cloud customers."

"Alphabet just delivered its first-ever $100 billion quarter, silencing the doubters with standout performances in both Search and Cloud," said Matt Britzman, senior equity analyst at Hargreaves Lansdown. "AI Overviews and AI Mode are clearly resonating with users, helping to ease fears that Google's core search business is under threat from generative AI."

Chipotle suffers its biggest one-day drop in 13 years after earnings

Elsewhere on the earnings calendar, Chipotle Mexican Grill (CMG) plunged 18.2% after its third-quarter results, marking the blue chip stock's biggest one-day drop since July 20, 2012, whe it fell 21.5%.

The burrito chain's Q3 earnings of 29 cents per share were in line with estimates, but revenue of $3 billion fell short, as traffic declined 0.8%. It also said it expects full-year same-store sales to contract by a low single-digit percentage.

"Our third-quarter performance fell short of our expectations due to persistent macroeconomic pressures," said Chipotle CEO Scott Boatwright in the earnings call.

He pointed to the 25- to -35-year-old age group – a key demographic for Chipotle – as "facing several headwinds, including unemployment, increased student loan repayment and slower real wage growth."

Trump says he'll cut tariffs on China

In one of the week's high-stakes events, President Trump and Chinese President Xi Jinping met in their first face-to-face meeting in six years.

The two leaders reached agreements on several issues, with Trump saying he will lower tariffs on China related to fentanyl to 20% from 10% and extend the pause on reciprocal tariffs for the next 12 months.

Xi, meanwhile, authorized the purchase of agricultural products, including soybeans, from the United States. Beijing will also delay restrictions on rare earth minerals for one year.

The leaders also discussed Ukraine and Russia, with Trump telling reporters that the two countries are "both going to work together to see if we can get something done."

But the agreements weren't enough to overcome disappointing mega-cap earnings. The blue-chip Dow Jones Industrial Average fell 0.2% to 47,522, the broader S&P 500 shed 1% to 6,822, and and the tech-heavy Nasdaq Composite slumped 1.6% to 23,581.

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To help you understand the trends surrounding AI and other new technologies and what we expect to happen in the future, our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts. (Get a free issue of The Kiplinger Letter or subscribe.) You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest…

The tech industry is buzzing about AI agents. Part of the excitement stems from the distinctive, and almost human, way some of them work: They “see” your screen.

Microsoft recently unveiled a way to build an AI agent that “follows a loop of seeing, thinking, and doing,” says Sangya Singh, VP of Power Platform Intelligent Automations at Microsoft. The process goes something like this: An agent uses AI vision to look at the screen, capturing screenshots and interpreting the pixels, so it can navigate a computer desktop or web browser, including buttons, forms and web pages, says Singh.

It’s powered by large language models, the systems at the core of generative AI. Microsoft uses an OpenAI model, which the Microsoft-backed start-up says is “a universal interface for AI to interact with the digital world.”

The AI agent controls a virtual mouse and keyboard, using AI reasoning to navigate a computer just like a human would. “It acts, by clicking, typing, or scrolling, until the task is done,” says Singh.

How does it know exactly what to do? A human gives it instructions in plain English.

This new AI tech offers a promising way to automate any computer task, without needing preprogrammed software or special protocols between apps. Current popular automation methods need to be preprogrammed and work best on tasks with rote steps. In contrast, these AI agents don’t need such programming and can work through various hurdles, such as a screen that looks different than normal or an intrusive pop-up message.

Using vision, this type of AI can take on incredibly complex tasks and navigate any apps or websites that it comes across. For consumers, AI agents could book a hotel, rent a car or buy a product online. At work, uses include data entry, market research and invoice processing, to save time and reduce human error. These examples are just the start of a seemingly endless list of digital tasks, many of which are already emerging.

Microsoft says “irreversible” decisions and “high-risk actions,” such as large financial transactions, will have an alert for human approval. Privacy will be a big concern as AI tools use credit card data and other personal information. There’s also the chance that AI could make mistakes. These issues are well known and safeguards are being put in place.

Note that using this type of generative AI can sometimes be an inefficient way to automate tasks, as it uses a lot of computing power, though it will get more efficient over time. Look for an explosion of AI agents in the coming year or so, using vision to navigate digital chores.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

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"The thing that’s really important to recognize," Nvidia (NVDA) CEO Jensen Huang recently said, "is that this is the largest infrastructure buildout in human history." His remark about artificial intelligence (AI) is not hyperbole.

The rapid adoption of generative AI and large language models (LLMs) has ignited a surge in spending on data centers, networking equipment and specialized semiconductors, chips and processors needed to train and run AI systems.

Generative AI will boost global GDP by 7%, add close to $7 trillion in value and drive increased productivity in the next decade. Venture funding, a key catalyst for growth so far, surged 85% year over year to $211 billion in 2025.

Hyperscale technology companies Alphabet (GOOGL), Amazon.com (AMZN), Meta Platforms (META) and Microsoft (MSFT) are expected to spend about $650 billion on AI-related infrastructure in 2026.

Yet the investment frenzy isn't just about building data centers. Whether you see an AI boom or an AI bubble, the broader promise lies in AI's potential to transform the global economy.

Companies across sectors and industries are deploying AI tools to automate tasks, analyze information faster and improve decision-making processes.

These capabilities can translate into higher productivity, lower operating costs and more efficient workflows.

One of the most promising developments is the rise of AI agents, which autonomously perform complex tasks such as customer service, research, software development and business operations.

Unlike earlier forms of automation that handled narrow tasks, AI agents can coordinate multiple steps in a workflow, interact with other systems and adapt to changing conditions.

As these technologies mature, businesses expect them to unlock new levels of efficiency and innovation.

Who are the big names in this AI revolution? Here's an overview of 10 major players you should know.

Amazon.com

AI applications are often built on cloud platforms. Some of the reasons include scalability, low costs, centralization of data, monitoring, analytics and customization. All that is good news for Amazon, as Amazon Web Services (AWS) is the world leader in cloud technologies.

AWS has been retooled as a comprehensive platform for AI development. Amazon management said AWS generated $35.6 billion in fourth-quarter sales, a 24% year-over-year increase.

AWS offers several systems, such as SageMaker and Bedrock, which make it easier to use, manage and deploy AI models and agents. Bedrock allows companies to access leading generative AI models from multiple providers through a managed service.

Amazon has strengthened its AI ecosystem through major strategic investments and partnerships. The company has invested about $8 billion in Anthropic, whose Claude models are tightly integrated with the Bedrock platform and run primarily on AWS infrastructure.

In early 2026, Amazon struck a major partnership with OpenAI and invested $50 billion as part of a $110 billion funding round. The transaction has expanded a long-term cloud computing contract.

Amazon has also built several AI applications on its AWS infrastructure, such as the Amazon Q assistant, which the company used to save $250 million in a Java migration project. Without this tool, the project would have taken 4,500 developer years. Amazon Q is designed to help developers and enterprise workers generate code, analyze data and automate tasks across AWS systems.

But AWS is more than software. Amazon has invested heavily in creating its own silicon chips for processing AI workloads. The latest offering is Trainium2, which has shown strong performance at relatively low costs.

Amazon has also developed Inferentia chips for AI inference workloads, part of a broader strategy to lower the cost of running large AI models and reduce reliance on third-party processors.

OpenAI

In late 2015, investors including Elon Musk, Reid Hoffman, Peter Thiel and Sam Altman co-founded OpenAI to "ensure that artificial general intelligence — AI systems that are generally smarter than humans — benefits all of humanity."

The first few years were far from encouraging, but in 2019, the company realized that the best strategy was to pursue generative AI, which led to the building of a series of generative pre-training transformer (GPT) models.

This became the foundation for the launch of ChatGPT in late 2022, when generative AI quickly became mainstream. Within two months, it would attract more than 100 million users, making it history's fastest-growing app.

While the AI market has become intensely competitive, OpenAI's models remain highly popular. The company sells access to its models to developers and also generates revenues from different versions of ChatGPT.

Revenue has surged in recent years, hitting about $13 billion in 2025 and reportedly surpassing $25 billion in annualized revenue by early 2026.

OpenAI's models are also widely used by enterprises through cloud platforms and developer APIs. This makes it a foundational layer for many generative AI applications.

A major driver of this growth has been OpenAI's close partnership with Microsoft, which has invested billions of dollars in the company and integrated OpenAI's models into products such as Azure, Microsoft 365 Copilot and GitHub Copilot.

Databricks

In 2009, a group of computer science students at University of California, Berkeley created an open-source project called Apache Spark. They wanted to make it easier to manage data processing for AI models.

The timing was spot-on, as deep learning was becoming more practical and powerful. As Apache Spark grew more popular, the students would go on to found Databricks, a platform for data management, providing analytics, security and governance.

Databricks has since expanded into a broader "data and AI platform," helping organizations store, analyze and prepare massive datasets used to train and run AI models.

More than 20,000 organizations worldwide — including Comcast (CMCSA), Shell (SHEL) and Rivian Automotive (RIVN) — rely on Databricks to take control of their data and put it to work with AI.

Databricks CEO Ali Ghodsi has been aggressive with acquisitions. In 2023 the company acquired MosaicML for about $1.3 billion. This gave Databricks the technology to help customers build and train their own LLMs. Then in 2024, the company acquired Tabular for a reported $2 billion. The deal strengthened Databricks’ capabilities around data lakehouse architecture and open table formats, which are increasingly important for managing the large datasets used in AI applications.

In late December of 2025, Databricks announced its latest funding round of $4 billion at a $134 billion valuation. Investors included Insight Partners, Fidelity, J.P. Morgan Asset Management, Andreessen Horowitz, BlackRock and Blackstone.

Meta Platforms

Unlike many other megacap tech firms, Meta's AI strategy has focused on building open models that developers can freely use and adapt. The company launched Llama in early 2023, and the models quickly became popular with researchers and startups.

Meta has continued to expand the lineup. In 2025 the company released new multimodal versions of Llama capable of processing text, images and other types of data.

A key advantage for Meta in the AI race is its enormous scale. More than 3.5 billion people (PDF) use at least one of the company's apps every day. This gives Meta a powerful distribution channel for AI services.

Meta is also using AI extensively in its core advertising business. The company has been deploying systems to automate ad targeting, creative generation and campaign optimization for advertisers. These efforts have already shown results, with improved revenue and lower costs.

Ultimately, the mission for AI is to build a platform for "personal intelligence." CEO Mark Zuckerberg (PDF) explains it: "We're starting to see the promise of AI that understands our personal context — including our history, our interests, our content and our relationships."

According to Zuckerberg, "A lot of what makes agents valuable is the unique context that they can see, and we believe that Meta will be able to provide a uniquely personal experience."

Alphabet

In 2017, researchers at Alphabet's Google published a paper on machine learning, "Attention Is All You Need." The paper introduced the transformer model (PDF), which is what powers generative AI.

While Google continued the research, it wasn't focused on commercialization until the launch of ChatGPT. Worried that its core search business was in jeopardy, it scrambled to create its own products, such as Bard. But they were disappointing.

Since then, Google has made significant strides. The company's Gemini 3 model has demonstrated strong results against rival LLMs, including those from OpenAI and Anthropic. The chat app has about 750 million monthly users.

"As an ex-Googler, I’m very impressed by the amount of progress and efficiency to become a force in not only building models but also training data," says Shanea Leven, CEO at Empromptu AI.

Google has "such a large corpus of data," Leven adds. "They should be the leaders without much of the backlash OpenAI and Anthropic have been getting."

Google has also aggressively integrated AI across various segments. For example, search has an "AI mode."

Its AI investments are starting to make a major impact on the company’s growth: Alphabet reported an 18% increase in revenue to $114 billion (PDF) for the fourth quarter, driven by increased monetization of the ad business and the cloud division.

Nvidia

Founded in 1993, Nvidia was one of the pioneers of graphics processing units (GPUs) and was initially focused on the fast-growing gaming market.

But in 2012, Alex Krizhevsky, Ilya Sutskever and Geoffrey Hinton showed that Nvidia GPUs could be effective in training sophisticated AI models for tasks such as image recognition. The chips were able to handle huge amounts of data in parallel. Another key advantage was Nvidia’s Cuda software system, which allowed for customization.

At the time, the company had a market cap in the $7 billion-to-$8 billion neighborhood. Elevated by the AI revolution, NVDA is now a $4 trillion stock and is the world's most valuable publicly traded company.

Nvidia earnings continue to grow at a blistering rate. Management reported fiscal 2025 fourth-quarter revenue growth of 73% to $68.1 billion. More than 91% of the top-line came from data center hardware, with a focus on training AI models.

The market is expected to transition toward inference, which is how AI systems respond to queries and actions. Management has been preparing by bolstering its CPU segment, its efforts paying off in February with Nvidia's announcement that Meta will buy "tens of billions of dollars' worth" of Nvidia's Grace and Vera CPUs.

"The part that matters most for the AI trade is not simply that NVIDIA is selling more GPUs," Futurum Chief Market Strategist Shay Boloor observes, "but that the revenue mix is proving the stack is moving from training-only narratives into full AI factories where compute and networking are one integrated purchase decision."

As Boloor sees it, "Jensen Huang has basically framed the company as an AI infrastructure provider rather than a chip vendor."

Microsoft

In 2019, Microsoft CEO Satya Nadella agreed to invest $1 billion in OpenAI. At the time, it was a risky proposition. OpenAI was still a fledgling startup, and the launch of ChatGPT wouldn't happen for another three years.

But Nadella knew AI was strategic to the success of Microsoft, and OpenAI had a standout team of data scientists. He would eventually invest another $13 billion in OpenAI.

The investment has turned into a home run. Microsoft got exclusive access to OpenAI models while becoming its sole cloud provider. This was critical in giving Microsoft a head-start in the AI race.

The OpenAI relationship has been critical for the growth in Microsoft's cloud business, where revenue was up 39% during its fiscal second quarter.

At the same time, Microsoft has struggled with building its own applications, such as Copilot. This system has lagged, such as against rivals like Gemini, Anthropic’s Claude, and ChatGPT.

To bolster its efforts, Microsoft introduced Copilot Cowork, an agentic AI automation system that according to Nadella "turns your request into a plan and executes it across your apps and files, grounded in your work data."

Anduril

Palmer Luckey started building virtual reality (VR) headsets when he was 16 years old. Relentless with his innovation, such as adding stereoscopic 3D, wireless capabilities and wider fields of views, his efforts were the foundation of a startup called Oculus VR, which he launched when he was 19.

To fund the development, Luckey pulled off a successful Kickstarter campaign, raising $2.4 million. In just a couple years, he'd sell the company to Meta for $2 billion.

While working at Meta, Luckey became intrigued with another startup opportunity. The pace of innovation in the defense industry was too slow, he concluded, and he saw an opportunity to build a company that would leverage software, AI and inexpensive hardware.

In 2017, he left Meta to pursue this startup, called Anduril. "The company shows what happens when AI is applied to a specific high-stakes domain," Empromptu.ai co-founder and CEO Shanea Leven said.

At the core of Anduril is its Lattice AI platform, an autonomous command-and-control layer that processes huge amounts of data from sensors. Lattice AI also powers the company's drones, as well as U.S. Air Force jets and undersea vehicles.

Like many companies developing cutting-edge military technology, Anduril has faced setbacks. Some of its autonomous systems and drones have experienced failures during military tests and exercises, including drone crashes and mechanical issues in prototype systems.

Regardless, there remains strong interest from investors. According to The Wall Street Journal, Thrive Capital and Andreessen Horowitz are leading a massive investment in Anduril at an estimated valuation of $60 billion.

Anthropic

Former OpenAI executives Dario Amodei and Daniela Amodei founded "safety-first" AI company Anthropic in 2021 following disagreements with their previous employer about general strategic direction and AI safety in particular.

Anthropic's latest model is Claude Opus 4.6, widely regarded as one of the top frontier AI models for reasoning, coding and complex multistep tasks.

As for the growth of the business, it's been rapid. The annual run-rate is near $20 billion, up from $9 billion in 2025, according to Bloomberg. To fund its future ambitions, Anthropic announced a $30 billion venture round in February at a $380 billion valuation.

A dispute with the Department of War (formerly, the Department of Defense) about the developer's refusal to disable safety features in its models led the Pentagon to label Anthropic a "supply-chain risk," essentially banning its tech or federal use.

Anthropic has filed a lawsuit against the Pentagon, claiming that it had been targeted. The dispute represents a threat to billions of dollars of revenue from government contracts.

xAI

In 2023, Elon Musk founded xAI to build powerful generative AI models and applications. Musk assembled a veteran team of researchers and AI experts from companies such as OpenAI and Google.

The AI application of xAI is Grok, a conversational AI assistant (launched in late 2023). To accelerate distribution, Musk integrated the system into X.

Grok has been controversial, though. Then again, Musk wanted a system that had fewer filters for content moderation. The result is that the responses from Grok have sometimes been offensive or misleading.

For example, critics have alleged that the company's image-generation system creates sexualized deepfakes of unconsenting women and minors. This has led to various investigations and lawsuits.

In the meantime, Musk has made deals to accelerate the growth. Last year, xAI acquired X in an all-stock swap for $33 billion.

In January, xAI announced a $20 billion funding round led by Valor Equity Partners, Stepstone Group, Fidelity, Qatar Investment Authority, Abu Dhabi's MGX and Baron Capital Group. Then SpaceX agreed to purchase xAI, establishing a valuation for the combined entity of $1.25 trillion. The company plans to launch its IPO in July.

According to Musk, SpaceX is "the most ambitious, vertically integrated innovation engine on (and off) Earth, with AI, rockets, space-based internet."

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Editor's note: This is the final segment of a 13-part series about companies whose shares have amassed 100,000% returns for investors and the path taken to generate such impressive gains over the long term. See below for links to the other stocks in this series.

Microsoft (MSFT), founded in 1975 by Bill Gates and Paul Allen, has evolved from a small software vendor into a global technology powerhouse. The company's growth over the years can be attributed to its ability to innovate continuously, adapt to changing market dynamics, and expand its product portfolio.

The first big company to trust Microsoft and give it a big leg up was IBM. Microsoft was tasked with creating an operating system for IBM's line of personal computers, for which they developed the Microsoft Disk Operating System (MS-DOS).

A few years later, Microsoft launched an improved operating system which would eventually become its flagship product, the Windows operating system. This revolutionized personal computing by providing, according to some accounts, an easy-to-use interface and compatibility with a wide range of software applications.

This innovation set the stage for Microsoft's rapid growth in the 1980s and 1990s. As of 2024, Windows continues to dominate the desktop operating system market with a market share of approximately 72% – despite facing competition from Apple's macOS and various Linux distributions.

The company's Personal Computing segment, which includes Windows products, contributed 25% to Microsoft's revenues in 2024.

Another driver of Microsoft's success is its productivity software. Introduced in the late 1980s, Microsoft Office – which includes Word, Excel, PowerPoint, and Outlook – quickly became the industry standard for business applications. Its success was driven by its integration with the Windows operating system.

Today, Microsoft 365, the cloud-based version of the Office suite, commands a market share of 30% in the productivity software market, second only to Google's Office suite.

The launch of Microsoft 365 marked Microsoft's transition of its software products to a subscription model. This shift has provided a more predictable revenue stream, reduced software piracy, and increased customer retention by offering continuous updates and new features.

Further, recognizing the shift towards cloud computing, Microsoft launched Azure in 2010. This move into cloud services marked a significant strategic pivot for Microsoft, aligning the company with the rapidly growing demand for cloud-based solutions.

Azure has since grown to become one of the leading cloud platforms globally, competing directly with Amazon Web Services (AWS) and Google Cloud.

In 2024, Microsoft's Intelligent Cloud segment, driven by Azure and other cloud services, delivered the biggest share of its total revenues at 43%.

Despite the continued success of its product lineup, Microsoft did not rest on its laurels. Historically known for its closed ecosystem, Microsoft has embraced open-source software and cross-platform compatibility in recent years.

The company's acquisition of GitHub, support for Linux on its Azure cloud platform, and the development of cross-platform tools like Visual Studio Code reflect a strategic shift towards openness and collaboration.

This approach has helped Microsoft attract a broader range of developers and enterprises, enhancing its relevance in a multi-platform world.

Looking ahead, Microsoft's investments in emerging technologies, such as artificial intelligence (AI), mixed reality, and quantum computing, are expected to drive future innovation and growth.

As a major OpenAI investor, Wall Street is expecting Microsoft to be one of the first companies to 'monetize' AI. Integrating AI into Azure and Microsoft 365 will likely play a pivotal role in shaping the future of work and digital transformation.

The arc of Microsoft's success has rested on its ability to recognize "the next big thing" in computing and adapt its products or create new ones to earn a material share in several growing markets.

You can see this in its sales which have grown from $39.7 billion in 2005 to $211.9 billion in 2023, an average annual growth rate of 8.7%, with earnings per share growing from $1.13 to $11.86, or 12.5% annually.

Earnings per share have grown because of share buybacks, yes, but margin improvement has played a role as well. The gross margin over the past five years has grown from 64.6% to 68.9%, which is not too shabby.

The real gains, though, have occurred at the operating level. Who knew Microsoft was a cost-cutter? But it is. The operating margin has grown from 27.4% to 42.1%.

We looked at financial statements going back to 2005, which means the results showed the last three years of Gates' tenure with the company. The operating margin for those three years was more or less constant.

Steve Balmer and Satya Nadella have been more vigorous in wielding the knife, and this is reflected in Microsoft's stellar operating margin.

Note: This content first appeared in Louis Navellier's latest book, The Sacred Truths of Investing: Finding Growth Stocks that Will Make You Rich, which was published by John Wiley & Sons, Inc.

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Microsoft (MSFT) stock is the worst Dow Jones stock Thursday, down nearly 6% at last check, after the tech giant beat top- and bottom-line expectations for its fiscal 2025 second quarter but issued a soft outlook for its third quarter.

In the three months ending December 31, Microsoft's revenue increased 12.3% year over year to $69.6 billion, led by 21% growth in Microsoft Cloud revenue to $40.9 billion. Its earnings per share (EPS) rose 10.2% from the year-ago period to $3.23.

"We delivered another quarter of double-digit top and bottom-line growth," said Microsoft Chief Financial Officer Amy Hood in a statement. "Results were driven by strong demand for our cloud and AI [artificial intelligence] offerings while we also improved our operating leverage with higher-than-expected operating income growth."

The results topped analysts' expectations. Wall Street was anticipating revenue of $68.8 billion and earnings of $3.11 per share, according to CNBC.

However, sentiment turned negative toward Microsoft when it provided an outlook for its fiscal third quarter on its conference call. The company expects revenue in the range of $67.7 billion to $68.7 billion, which came in well below analysts' expectations for revenue of $69.8 billion.

Brian Mulberry, client portfolio Manager at Zacks Investment Management, says Wall Street could also be disappointed in the company's 31% year-over-year revenue growth in Azure, its cloud computing platform, which slightly missed analysts' estimates for 32% growth.

"This has been a key component of both revenue growth and profitability that will be critical in funding the capex projects announced around AI infrastructure," Mulberry notes. " Long term, the balance sheet looks healthy and the revenue growth is still a net positive."

Is Microsoft stock a buy, sell or hold?

Microsoft has been choppy on the price charts over the past 12 months, up roughly 9% vs the S&P 500's 23% gain. But Wall Street is keeping the faith on the blue chip stock.

According to S&P Global Market Intelligence, the average analyst target price for MSFT stock is $507.47, representing implied upside of about 20% to current levels. Additionally, the consensus recommendation is Strong Buy.

Financial services firm Wedbush maintained its Outperform rating (equivalent to a Buy) and $550 price target following the earnings release.

"Overall, there was some weak spots along with a 2% currency headwind next quarter that could put some pressure on shares this morning," says Wedbush analyst Dan Ives. "That said, we are laser-focused on the AI piece of this MSFT story and all metrics were ahead of expectations which give us added confidence in the AI Revolution bull thesis for Redmond into the rest of fiscal year 2025."

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Stocks sank at the open and stayed down through Thursday's close, the weight of unmet earnings expectations for several Magnificent 7 stocks dragging the major indexes into the red.

Data showing still-stabilizing inflation and still-healthy employment situations nudged interest rates higher early in the session. Rate-cut odds remain steady, however, a day ahead of the release of the October nonfarm payrolls report.

In today's economic news, the Personal Consumption and Expenditures Price Index (PCE) was up 0.2% in September, according to the Bureau of Economic Analysis, up from 0.1% in September but in line with the consensus forecast.

Core PCE, which excludes food and energy, increased 0.3%. Core PCE is the Federal Reserve's preferred measure of inflation.

The year-over-year increase of 2.1% for headline PCE was the lowest reading since February 2021 and was down from 2.3% in August. Core PCE, meanwhile, was steady at 2.7% on an annual basis.

The yield on the 10-year Treasury note ticked up nearly seven basis points intraday to 4.33% before settling basically flat at 4.28%, though the key benchmark is up nearly a full percentage point, or 100 basis points, in about a month.

The fed funds futures market continues to reflect a greater than 90% probability the central bank will cut its benchmark interest rate by a quarter-percentage point during next week's Federal Open Market Committee meeting.

Employment and inflation

Complementing the PCE data, initial jobless claims came in at a seasonally adjusted 216,000 for the week ended October 26, a decline of 12,000 from the previous week's revised level, according to the Department of Labor.

"The big picture is that inflation continues to head lower, albeit with some bumps (like in September)," says Sonu Varghese, global macro strategist at Carson Group. "This report is unlikely to change the expectation of the Fed cutting rates by 25 basis points at their November meeting, but the December decision may be up in the air depending on upcoming payroll and inflation data."

The Bureau of Labor Statistics (BLS) will release its employment situation summary for October on Friday at 8:30 am Eastern time. A consensus compiled by FactSet forecast nonfarm payroll growth of 120,000, down from 254,000 in September.

The BLS said worker strikes at companies such as Boeing (BA) will reduce the nonfarm payroll number by 41,000. The impact of recent hurricanes in Florida and North Carolina is yet to be quantified.

Economists expect the unemployment rate to be steady at 4.1%.

The S&P 500 shed 1.9% to end October at 5,705. The Dow Jones Industrial Average was down 0.9% to close the month at 41,763. The Nasdaq Composite lost 2.8% this Halloween to 18,095.

And that's all about the gravity of the Magnificent 7. It's just math: Their collective appreciation means they make up big chunks in capitalization-weighted indexes, and when they move those indexes will move with them.

The Magnificent 7 report

Indeed, pre-market trading indicated today's gap-down open, as two Mag 7 bellwethers posted solid operating and financial numbers after Wednesday's closing bell but failed to meet Wall Street's beat-and-raise cadence this time around.

Big Tech capital expenditure budgets continue to expand, though investors and analysts alike keep hoping for improving returns on their significant investments in artificial intelligence (AI).

Meta Platforms (META) stock declined 4.1% even after the Facebook, Instagram and WhatsApp parent beat top- and bottom-line estimates for its third quarter.

User-growth numbers failed to meet forecasts, and Meta's capex budget was up 36% during the third quarter to $9.2 billion. Management said in a statement that it expects a “significant acceleration” in capex spending in 2025.

Like META, Microsoft (MSFT) stock fell 6.1% after the technology giant beat top- and bottom-line expectations for its fiscal 2025 first quarter but issued guidance that came up short.

Management forecast Azure revenue growth of 31% to 32% versus expectations of 32.25%. Azure revenue was up 33% during the fiscal first quarter. Microsoft's capex spending for the third quarter was up 5% to $20 billion.

With results from META and MSFT as well as Tesla (TSLA) and Alphabet (GOOGL) in the books, Amazon.com (AMZN) and Apple (AAPL) are in the earnings calendar spotlight after tonight's close.

Nvidia (NVDA) will be the last of the Mag 7 to report, on November 20.

Carvana soars after earnings, Uber slumps

Carvana (CVNA) stock surged 19.3% after the online used car retailer delivered a top- and bottom-line beat for its third quarter and issued a strong outlook for the fourth quarter.

"The third quarter was another exceptional quarter for Carvana. We had record performance in virtually every key financial measure," said Carvana CEO Ernie Garcia in a statement.

"Most importantly, our customer experiences, our financial performance, and our pace of growth continue to separate us further from the pack in our industry. Today, we are the most profitable and fastest-growing automotive retailer and there is still much more to do."

One analyst sees a lot more upside from here for CVNA.

Uber Technologies (UBER) stock slid 9.3% after the ride-hailing company beat top- and bottom-line expectations for its third quarter but came up just short of gross bookings expectations.

In keeping with the day's theme, Uber also issued guidance for the fourth quarter that was just below expectations.

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Microsoft (MSFT) is the worst Dow Jones stock Thursday after the tech giant beat top- and bottom-line expectations for its fiscal 2025 first quarter but issued an outlook for its second quarter that failed to impress Wall Street.

In the three months ended September 30, Microsoft's revenue increased 16% year over year to $65.6 billion, boosted by 22% growth in Microsoft Cloud revenue to $38.9 billion. Meanwhile, its earnings per share (EPS) rose 10.4% from the year-ago period to $3.30.

"Artificial intelligence-driven transformation is changing work, work artifacts, and workflow across every role, function, and business process," said Microsoft CEO Satya Nadella in a statement. "We are expanding our opportunity and winning new customers as we help them apply our AI platforms and tools to drive new growth and operating leverage."

Microsoft's results came in ahead of analysts' expectations. Wall Street was anticipating revenue of $64.5 billion and earnings of $3.10 per share, according to CNBC.

However, sentiment turned negative toward Microsoft when it provided its second-quarter outlook for the fiscal year. Specifically, MSFT said it expects revenue in the range of $68.1 billion to $69.1 billion, which came up short of the $69.8 billion in revenue analysts are guiding for.

Is Microsoft stock a buy, sell or hold?

Microsoft has lagged the broader market in recent months and is now up 15% for the year to date on a total return basis (price change plus dividends). This compares to the S&P 500's 23% gain. But Wall Street's all-in on the blue chip stock for the long haul, and for good reason considering MSFT's impressive 20-year return. 

According to S&P Global Market Intelligence, the average analyst target price for MSFT stock is $501.99, representing implied upside of more than 20% to current levels. Additionally, the consensus recommendation is Strong Buy. 

Financial services firm Wedbush is one of the most bullish outfits on MSFT stock with a Buy rating and $550 price target.

"In a nutshell, we come away from this quarter more bullish (not less) after seeing this AI growth and Copilot monetization play out in real time for Microsoft," says Wedbush analyst Daniel Ives. "The bears will try to split hairs on any number but ultimately this is a tech stalwart in major growth mode... and we see no signs of slowing down based on our checks and these impressive results and outlook that give us any pause in our bullish thesis."

Ives adds that "we would be strong buyers of MSFT" following this post-earnings weakness.

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To help you understand the trends in AR and other new technologies and what we expect to happen in the future, our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts. (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest…

Consider an augmented reality demo that is so impressive it sparks thoughts of Star Wars. You see stunning holograms and real-time digital information overlayed on a nearby table. You’re left with the impression that the tech has big challenges but is moving fast and could make headway in just two to three years.

No, it’s not Meta’s recent launch of the Orion headset prototype. It’s me testing out the Microsoft HoloLens in 2017. Back then, I wrote for The Kiplinger Letter about being “struck by how these first-generation wireless AR goggles worked so smoothly.” Cut to seven years later and Microsoft is discontinuing support for HoloLens with no public plans for future AR hardware.

Times have changed, but AR challenges remain the same. The technical hurdles stem from the difference between AR and virtual reality. AR glasses are meant to be worn all day, with constant, unobstructed views of the real world. That means a lightweight, fashionable headset packed with sensors, computing power and long battery life. No easy feat, even for a tech giant flush with cash for research and development.

The splashy launch of Orion shows that Meta is all in on building a viable commercial product. The company has already found success with its low-cost VR headsets, which are popular with gamers. CEO Mark Zuckerberg sees AR headsets as an emerging computing platform, like the advent of smartphones, that gives users easy access to AI voice assistants and all sorts of useful digital alerts and information.

The Orion headset impressed those who tested it, but it’s still a work in progress. Demos include overlaying digital graphics about groceries on a table; a game resembling virtual ping pong; and a video call on a holographic computer screen. The company highlights the advanced optics, custom computer chips, miniaturized sensors and snappy wireless connectivity. But there’s no escaping the bulky look, low resolution and limited battery life. Other notable trade-offs include needing a wireless pack for extra computing power and having a wristband that helps interpret finger gestures. Plus, the current production cost is about $10,000.

Zuckerberg has put his money where his mouth is when it comes to his vision of the so-called metaverse, with Meta spending north of $50 billion to date on VR and AR research. Meta says that Orion is “a look at the very real possibilities within reach today” and to expect new AR devices in “the next few years.” It hopes to launch a device that costs around $1,000 at first and declines in price from there.

Meanwhile, Meta has found success with another form of smart glasses that includes cameras and microphones, but no in-display holograms. The Ray-Ban Meta glasses let users take photos or videos, answer calls and messages, listen to music and talk to an AI voice assistant. The glasses can give an audio walking tour as you stroll through a city or provide real-time translation of foreign-language text in front of you. Though much more limited than AR, they look like normal, stylish glasses and are a hit with many users. The competition isn’t sleeping on Meta. Apple surely has a prototype in its labs that is similar to Meta's Orion. Alphabet is likely to get back in the game after its early Google Glass project was nixed a decade ago. Even Microsoft will be eyeing ways it can build new AR software and hardware. There are smaller players, too, such as Vuzix, which sells headsets and underlying tech for business uses.

Expect Meta’s launch to intensify AR efforts at other companies. As Orion gets into the hands of developers, its flaws should help pave the way for more promising hardware. With that in mind, here are five pressing issues for consumer AR in the years ahead.

Five issues for consumer AR

• Finding social acceptance. There’s an obvious need for AR glasses that people are willing to wear in their daily lives for a long period of time. They should look as close to normal glasses as possible. A related challenge: Making the AR headsets socially acceptable for the masses. Besides design, that includes privacy and security, and plenty of marketing to convince buyers.
• Improving low-power chips. To go mainstream, the glasses should work without any extra hardware, even a nearby smartphone. That means low-energy, capable mobile chips that can last for hours on a charge. Qualcomm and big tech companies are working on such chips, but it won’t be easy. Especially early on, makers will have to decide how many features to sacrifice to beef up battery life.
• Finding killer applications. It could be messaging, fitness, music, social media or gaming, but AR glasses need compelling uses to win over skeptical buyers. One of Meta’s priorities is convincing software developers to create apps and content for its headset. It’s an ongoing chicken-and-egg conundrum of creating demand for both apps and users.
• Lowering prices. Meta’s goal of around $1,000 for a consumer device is still too high for mass adoption. Apple, too, is working feverishly to develop a commercial product at a cheap enough price. Don’t be surprised if businesses foot the bill for early editions of Meta’s and Apple’s AR headsets, paving the way for consumers.
• Tapping emerging AI. One of the reasons Meta is so bullish on AR headsets is the emergence of generative AI, which is vastly improving AI voice assistants. An always-on personal AI assistant is a potentially potent app for headsets. Users could ask it questions by voice command or even interact via subtle finger movements.

This forecast is from the team at The Kiplinger Letter, which has been running since 1923. It is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

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Microsoft (MSFT) and BlackRock (BLK) announced today that they are teaming up as part of a broader partnership that includes infrastructure investment firm Global Infrastructure Partners and technology investment firm MGX to invest up to $100 billion in artificial intelligence (AI) infrastructure.

The partnership has been named the Global AI Infrastructure Investment Partnership (GAIIP). It will focus on investing in new and expanded data centers to satisfy the growing demand of computing power, as well as the energy infrastructure required to power those facilities, the companies said in a joint press release.

"Mobilizing private capital to build AI infrastructure like data centers and power will unlock a multi-trillion-dollar long-term investment opportunity," said BlackRock CEO Larry Fink in a statement. "Data centers are the bedrock of the digital economy, and these investments will help power economic growth, create jobs, and drive AI technology innovation."

"The capital spending needed for AI infrastructure and the new energy to power it goes beyond what any single company or government can finance," said Microsoft Vice Chair and President Brad Smith in a statement. "This financial partnership will not only help advance technology, but enhance national competitiveness, security, and economic prosperity."

BlackRock is in the process of acquiring Global Infrastructure Partners for $3 billion in cash and approximately 12 million shares of BlackRock stock. It said it expects the transaction to close on October 1, 2024.

Is Microsoft stock a buy, sell or hold?

Microsoft is recovering from a mid-summer slump and shares remain nearly 15% higher for the year to date. Unsurprisingly, Wall Street is bullish on the Dow Jones stock. 

According to S&P Global Market Intelligence, the average analyst target price for MSFT stock is $502.15, representing implied upside about 16% to current levels. Additionally, the consensus recommendation is a Strong Buy. 

Financial services firm CFRA Research is one of those with a Strong Buy rating and $490 price target on the blue chip stock.

"Looking ahead, we expect primary cash usage to be toward capital expenditures, as MSFT eyes growth tied to AI, but we anticipate that greater cash will be returned to investors as the company likely refrains from major M&A and free cash flow continues to grow," said CFRA Research analyst Angelo Zino in a September 17 note following news that Microsoft authorized a $60 billion share buyback plan and raised its dividend. 

What does Wall Street think of BlackRock?

Wall Street is also upbeat toward BlackRock, with most analysts hopeful the financial stock can add to its 12% year-to-date gain. 

According to S&P Global Market Intelligence, the average analyst target price for BLK stock is $936.35, representing implied upside of about 3% to current levels. Additionally, the consensus recommendation is a Buy.

CFRA Research also rates BLK stock a Buy with a price target of $935.

"We expect above-peer organic growth; an attractive mandate pipeline; contributions from Aladdin [the asset management firm's tech platform]; and contributions from selective, bolt-on acquisitions aimed at increasing BLK's presence in the alternative space to support the shares' premium valuation versus peers," wrote CFRA Research analyst Cathy Seifert in a July 15 note.

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Microsoft (MSFT) knows how to keep long-term investors happy. The tech giant is returning another $60 billion in cash to shareholders through a new stock buyback plan and raised its dividend by more than 10%.

Microsoft's share repurchase program, which has no expiration date, replaces its previous $60 billion authorization announced four years ago. Meanwhile, investors also cheered the news that shareholders of record as of Nov. 21 will receive a quarterly dividend of 83 cents per share, up from the current 75 cents a share.

Microsoft disbursed nearly $22 billion in dividends over the past 12 months and still had levered free cash flow of $56.7 billion. Even better for long-time dividend-growth investors, Microsoft has hiked its payout every year for more than two decades. If it can keep its streak alive, Microsoft will be eligible for inclusion in the S&P 500 Dividend Aristocrats, which are some of the best dividend stocks for reliable and rising payouts.

Please note that although the share repurchase program matches Microsoft's largest-ever authorization, $60 billion represents only about 1.8% of its massive $3.22 trillion market cap.

Shares in Microsoft, the world's second most valuable publicly traded company after Apple (AAPL), were actually lagging the broader market by about 3 percentage points on a price basis for the year-to-date through September 17. 

But as a long-term holding, MSFT stock is hard to beat. Indeed, anyone who put $1,000 into Microsoft 20 years ago would be very pleased with their returns today.

Wall Street loves MSFT stock

Wall Street analysts were already plenty bullish on the Magnificent 7 stock before it announced its plans to return more cash to shareholders. Only three Dow Jones stocks garner Strong Buy consensus recommendations, according to data from S&P Global Market Intelligence. 

Of the 56 analysts issuing opinions on Microsoft stock, 40 call it a Strong Buy, 14 have it at Buy and two rate it at Hold. Only UnitedHealth Group (UNH) gets a higher rating from industry analysts than MSFT.

Meanwhile, with an average target price of $502, the Street gives MSFT stock implied price upside of 16% over the next 12 months or so. 

Analysts' bullishness on Microsoft stems largely from its enviable position in generative artificial intelligence (AI). 

As the "leading generative AI enabling provider," Microsoft offers the most "comprehensive end-to-end AI tooling stack and cutting-edge front-end generative AI applications across its entire portfolio of products," notes the software team at Truist Securities, which rates shares at Buy.

"Microsoft is expected to be a leading benefactor of AI workloads across each layer of the generative AI value chain," says Truist. "From increased data storage and high-performance compute to additive workloads across their PaaS portfolio. Additionally, their Copilot products are expected to add fuel to expansions and upsells across their application portfolio."

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Microsoft (MSFT) stock is down slightly in Thursday's session after a leaked internal memo revealed the tech giant's decision to eliminate approximately 650 roles at its Xbox gaming division.

"As part of aligning our post-acquisition team structure and managing our business, we have made the decision to eliminate approximately 650 roles across Microsoft Gaming – mostly corporate and supporting functions – to organize our business for long term success," said Microsoft Gaming CEO Phil Spencer in a memo obtained by CNBC. "With these changes, our corporate and supporting teams and resources are aligned for sustainable future growth, and can better support our studio teams and business units with programs and resources that can scale to meet their needs."

Spencer added that there will be no games, devices or experiences canceled and no studios closed as result of these job cuts.

This is the third round of layoffs in the Xbox gaming division since Microsoft closed its $69 billion acquisition of Activision Blizzard in October 2023. 

Is Microsoft stock a buy, sell or hold?

Microsoft is up roughly 26% on a total return basis (price change plus dividends) over the past 12 months and Wall Street thinks the Dow Jones stock has more room to run. 

According to S&P Global Market Intelligence, the average analyst target price for MSFT stock is $502.43, representing implied upside of roughly 20% to current levels. Additionally, the consensus recommendation is Strong Buy. 

Financial services firm Argus Research is one of the more bullish outfits on the blue chip stock with a Buy rating and $526 price target.

"Microsoft continues to pursue long-term growth through its artificial intelligence (AI) and cloud investments, and may just hold the premier position in business technology," said Argus Research analyst Joseph Bonner in a July 31 note. "The company is one of just a few with a complete, integrated product set aimed at enterprise efficiency, cloud transformation, collaboration, and business intelligence. It also has a large and loyal customer base, a large cash cushion, and a rock-solid balance sheet."

Argus Research's $526 price target represents implied upside of nearly 25% to current levels.

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Microsoft (MSFT) stock is in negative territory early Wednesday after the tech giant disclosed its fiscal fourth-quarter earnings report. The results beat top- and bottom-line estimates, but the company's outlook fell short of expectations.

In the three months ended June 30, Microsoft's revenue increased 15% year-over-year to $64.7 billion, due in part to 29% growth in Azure and other cloud services. Its earnings per share (EPS) rose 9.7% from the year-ago period to $2.95.

"In our largest quarter of the year, we again delivered double-digit top and bottom-line growth with continued share gains across many of our businesses and record commitments to our Microsoft Cloud platform," Microsoft Chief Financial Officer Amy Hood said in a statement.

Wall Street was anticipating revenue of $64.4 billion for Microsoft's fiscal Q4 and earnings of $2.93 per share, according to CNBC.

However, sentiment turned negative toward Microsoft for two reasons. One is that its year-over-year revenue growth fell short of the 31% increase Wall Street was expecting. Additionally, the company's revenue outlook of $63.8 billion to $64.8 billion for its fiscal 2025 first quarter is below the $65.2 billion estimate from analysts. MSFT added that it anticipates full-year revenue growth in the double-digits.

Is Microsoft stock a buy, sell or hold?

Wall Street is bullish on the Dow Jones stock, and for good reason. Indeed, shares are up more than 23% in the past 12 months. What's more, MSFT has been one of the best buy-and-hold bets for long-term investors.

According to S&P Global Market Intelligence, the average analyst target price for MSFT stock is $498.07, representing an upside of roughly 20% to current levels. Plus, the consensus recommendation is Strong Buy. 

Financial services firm Oppenheimer is one of the more bullish outfits on the blue chip stock with a Buy rating and $500 price target.

Microsoft is "one of the world's leading platform tech companies, with large franchises in Cloud (Azure), business productivity (Office), personal computing (1.4 billion Windows users), gaming (Xbox), and communications (Teams)," says Oppenheimer analyst Timothy Horan. "Now, artificial intelligence (AI) is improving all the above."

Horan adds that the cloud industry remains only 30% penetrated, even as it grows 20% each year. And MSFT "is especially well positioned for enterprise AI adoption" in the cloud space "due to its large entrenched customer base and infrastructure."

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Stocks opened higher Tuesday but lost steam as the session wore on amid weakness in several mega-cap stocks. It was a full day for economic and earnings reports, but most market participants looked ahead to tonight's quarterly results from Microsoft (MSFT, -0.9%), which kick off a busy stretch of Big Tech earnings, and tomorrow's policy announcement from the Fed.  

Today's jam-packed economic calendar featured the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, which showed home prices were up 5.9% year-over-year in May – though this was slower than the 6.4% gain seen in April. 

New York City, which remains one of the most expensive cities to live in, saw the biggest year-over-year increase (+9.4%), while Portland, Oregon, saw the smallest rise (+1%).

Consumer confidence ticks higher in July

Elsewhere, The Conference Board said its Consumer Confidence Index climbed 2.5 points in July to 100.3 from June's downwardly revised reading of 97.8. 

"Even though consumers remain relatively positive about the labor market, they still appear to be concerned about elevated prices and interest rates, and uncertainty about the future; things that may not improve until next year," said Dana M. Peterson, chief economist at The Conference Board, in a statement.

Job openings barely budge in June

Jobs data was also on Wall Street's radar ahead of tomorrow's Fed announcement and Friday's monthly nonfarm payrolls reports. Shortly after the open, the Bureau of Labor Statistics released the Job Openings and Labor Turnover Survey (JOLTS), which showed job openings remained unchanged at 8.2 million in June from May's upwardly revised level. 

"Nothing much changed in June in regards to job openings – employers again had about 4.9% of roles unfilled, similar to the month prior," says Elizabeth Renter, senior economist at NerdWallet. "However, this is notably lower than a year ago, when 5.5% of jobs were vacant. The share of open jobs is still elevated compared to pre-pandemic, but it's much, much closer."

Howmet stock gets downgraded despite post-earnings surge

In single-stock news, Howmet Aerospace (HWM) jumped 13.2% after the aerospace company reported higher-than-expected earnings of 67 cents on $1.88 billion in revenue. The company also forecast third-quarter and full-year revenue above what analysts are anticipating.

Still, CFRA Research analyst Daniel Rich downgraded HWM to Strong Sell from Sell after the results. Rich says he looks favorably on Howmet's guidance and maintains "positive expectations for global travel," but the stock is trading at a roughly 40% premium to its five-year historical average valuation – much higher than its aerospace peers – which "makes shares more likely to underperform in the near term."

PayPal boosts stock buybacks 

PayPal Holdings (PYPL) stock rallied 8.6% after the payments company beat top- and bottom-line expectations for its second quarter and raised the dollar amount for its share repurchase program to $6 billion from the prior estimate of at least $5 billion.

CFRA Research analyst Alexander Yokum said PayPal's Q2 results "were a step in the right direction. However, he maintained a Hold rating on the financial stock "given the rising number of checkout payment options, which we believe will limit PYPL's margin upside."

Pfizer earnings beat estimates

Elsewhere, Pfizer (PFE) stock rose 2.2% after the pharmaceutical giant reported its first year-over-year increase in revenue since Q4 2022. The company beat on both the top and bottom lines and lifted its full-year forecast.  

P&G sinks after earnings 

On the negative side of the ledger was Procter & Gamble (PG), which declined 4.8% after the consumer products company came up short of revenue estimates for its fiscal fourth quarter, as an unfavorable foreign exchange impact offset price hikes.

As for the main indexes, the Dow Jones Industrial Average added 0.5% to 40,743 on strength in Goldman Sachs (GS, +2.6%). The S&P 500 fell 0.5% to 5,436, while the Nasdaq Composite slumped 1.3% to 17,147, hurt by mega-cap stocks such as Nvidia (NVDA, -7%) and Tesla (TSLA, -4.1%).

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Microsoft (MSFT) shares are trading lower Thursday on news the Federal Trade Commission (FTC) is probing whether the tech giant structured its recent deal with artificial intelligence (AI) startup Inflection AI to avoid an antitrust review, according to The Wall Street Journal.

In March, Microsoft hired Inflection AI's co-founder and nearly all of its employees, agreeing to pay the startup approximately $650 million as part of a licensing deal to resell its technology, the WSJ said. 

However, Microsoft did not acquire the company outright, so the FTC is trying to determine if the deal was structured so that MSFT can take control of Inflection AI without a full review of the transaction by the regulatory agency, the report added, citing a person familiar with the matter and records viewed by The Wall Street Journal.

If the FTC finds that Microsoft should have reported the transaction and submitted it for review, it could bring enforcement action, which could include a fine or suspension of the transaction while it conducts a full investigation. A Microsoft spokesperson said the company is confident it complied with antitrust laws.

Inflection AI, a prominent name in artificial intelligence and the creator of the Pi chatbot, raised over $1.3 billion in a funding round led by Microsoft and top AI stock Nvidia (NVDA) back in June 2023.

In January, the FTC announced an investigation into Microsoft's relationship with OpenAI, as well as other large technology companies with investments in generative AI companies. 

"History shows that new technologies can create new markets and healthy competition," FTC Chair Lina Khan said in a January 25 statement. "As companies race to develop and monetize AI, we must guard against tactics that foreclose this opportunity. Our study will shed light on whether investments and partnerships pursued by dominant companies risk distorting innovation and undermining fair competition."

Where does Microsoft stock stand with analysts?

Microsoft is one of the best-performing Dow Jones stocks this year, up nearly 13%. The company's long-term gains are even more impressive and if you invested $1,000 in MSFT stock 20 years ago, you'd be sitting on a handsome return. 

Unsurprisingly, then, analysts are very bullish on the blue chip stock. According to S&P Global Market Intelligence, the consensus analyst target price for MSFT stock is $482.21, representing implied upside of about 14% to current levels. Meanwhile, the consensus recommendation is a Strong Buy.

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Apple (AAPL) and Microsoft (MSFT) find themselves in a tight race over bragging rights to the title of world's most valuable publicly traded company after AAPL stock popped following a big analyst upgrade.

A poor start to the year already had some bulls saying it's time to buy the dip in Apple stock. But when one of Wall Street's largest broker-dealers joined the chorus before Thursday's opening bell, it helped Apple recover billions in market value.

BofA Securities lifted its recommendation on AAPL stock to Buy from Neutral (the equivalent of Hold), citing the iPhone maker's investments in generative artificial intelligence (AI) and the launch of its Vision Pro mixed reality headset, among other impending catalysts. 

With a new price target of $225 – up from $208 – BofA Securities gives AAPL stock implied upside of about 20% over the next 12 months or so. The Street's average target price stands at $199.40, according to data from S&P Global Market Intelligence, good for implied upside of only 6% in the next year. 

Importantly, while some analysts have cited weaker iPhone sales in China as reasons to become more cautious on AAPL stock, the BofA Securities team led by analyst Wamsi Mohan argued as part of its upgrade that Apple's "China weakness is largely offset by strength in other countries."

Although Apple routinely makes the list of Wall Street's top-ranked Dow Jones stocks, worries over demand in China have AAPL off to a rough start in 2024. Apple stock is up about 38% over the past 52 weeks, but shares have spent all of January in the red on a year-to-date basis, hurt partly by downgrades.

Piper Sandler analyst Harsh Kumar cut his recommendation on the stock in early January to Neutral (the equivalent of Hold) from Overweight (Buy), citing a weak macroeconomic backdrop in China. Kumar's downgrade followed a more bearish downgrade by Barclays analyst Tim Long – to Underweight from Neutral – two days earlier. Long also cited weaker revenue in China as a concern.

Apple has seen iPhone sales soften in China amid an economic slowdown and other factors. Consumers are holding onto their pricey iPhones longer between refresh cycles, analysts note, while a new 5G phone from rival Huawei is also chipping away at iPhone demand. 

Microsoft and Apple run neck and neck

While Apple stock has traded essentially sideways for six months on worries that growth has peaked, fellow Magnificent 7 stock Microsoft overtook it as the global leader in market capitalization thanks to exuberance over generative AI. 

Microsoft, which enjoys a sort of first-mover advantage in AI via its partnership with OpenAI, had already been an outstanding long-term holding thanks to its dominance in cloud services. 

Not only was MSFT one of the 30 best stocks in the world for three decades, anyone who put $1,000 into Microsoft stock 20 years ago would have clobbered  the broader market. 

Check out the stocks billionaires are buying or hedge funds' top blue chip stocks and you'll see that much of the putative smart money agrees with the Street's view, which gives MSFT a rare consensus recommendation of Strong Buy. 

"Microsoft continues to pursue long-term growth through its AI and cloud investments, and may just hold the premier position in business technology," writes Argus Research analyst Joseph Bonner, who rates shares at Buy. "It also has a large and loyal customer base, a large cash cushion and a rock-solid balance sheet."

Have a look at the above chart and you'll see how bullishness like Bonner's helped Microsoft stock return nearly 65% over the past 52 weeks, allowing it to surpass Apple in market capitalization. 

As of Thursday's close, the two tech giants were separated by less than $10 billion in market cap: $2.927 trillion for MSFT vs $2.917 trillion for AAPL, or essentially tied.

Whether the companies' market values diverge from here is the big question. Happily for investors in both names, the Street very much expects AAPL stock and MSFT stock to continue to beat the broader market in the year ahead.

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Stocks closed higher Monday, building on their impressive November gains. There was little in the way of economic news to start the holiday-shortened week, but market participants had plenty of single-stock headlines to track – including a notable analyst note for Wall Street's newest semiconductor stock.   

This morning, Wells Fargo analyst Gary Mobley initiated coverage on Arm Holdings (ARM) with an Overweight rating, which is the equivalent of a Buy. "We view ARM as one of the best positioned companies within the $550 billion global semiconductor industry," Mobley says. Among the things that Arm is "well-positioned to benefit" from are China's developing domestic chip industry and higher royalty rates the company can charge for newer-generation chips. 

Mobley isn't alone in his bullish outlook for Arm stock, which held its highly anticipated initial public offering (IPO) back in September. According to S&P Global Market Intelligence, 19 analysts have a Buy or Strong Buy rating on the chipmaker, compared to eight holds, one Sell and one Strong Sell.

Arm shares surged 6.7% Monday, with fellow chipmakers Intel (INTC, +2.1%) and Broadcom (AVGO, +1.8%) also gaining ground. Nvidia (NVDA) was another industry winner, rising 2.3% ahead of its Tuesday night turn on the earnings calendar.

Microsoft pops after snagging ousted OpenAI CEO

In other equities news, mega-cap stock Microsoft (MSFT) jumped 2.1% after the company said it is bringing Sam Altman on board to head a new advanced artificial intelligence (AI) research team. In a startling move, Altman was fired as CEO of Microsoft-backed OpenAI on Friday and efforts over the weekend to reinstate him in the role failed. Altman, who is one of OpenAI's co-founders, chose instead to join the software giant.

"We remain committed to our partnership with OpenAI and have confidence in our product roadmap, our ability to continue to innovate," Microsoft CEO Satya Nadella said in a statement. The executive added that Microsoft looks forward "to moving quickly to provide" Altman and fellow OpenAI co-founder Greg Brockman "with the resources needed for their success."

Oppenheimer analyst Timothy Horan calls this a "win-win" for Microsoft, "as it still has full access to the best large language models (LLMs) and now the team to possibly make the next great LLM and the best AI minds in the world to help implement AI." Horan has an Outperform (Buy) rating on the Dow Jones stock. 

As for the major indexes, the tech-heavy Nasdaq Composite rose 1.1% to 14,284, the broader S&P 500 gained 0.7% to 4,547, and the Dow Jones Industrial Average finished up 0.6% at 35,151.

As a reminder, the stock and bond markets will be closed Thursday for the Thanksgiving holiday and will close early on Black Friday.

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If you have never given a child shares in a publicly traded company as a gift, that's probably just as well. Presents are supposed to be fun. Investing in equities — as remunerative over the long haul as they have proven to be — isn't much fun a lot of the time.

That said, the desire to give stocks as a gift to a youngster is understandable, even noble. We want children to develop critical life skills around money as early as possible.

And the more they learn about saving and investing — to say nothing of compound interest, dividends and the economic cycle — the better. We know how important this will be for them in ways they can't yet imagine.

Stocks even have a singular appealing quality as a gift: they're dynamic. A child can follow a company and its stock. Hopefully, the stock's value will appreciate over time. Perhaps you and your grandchild will bond as you study corporate developments and stock charts together.

A gift that allows the two of you to spend time together, while learning something and maybe even making a little money, too? Sounds lovely.

Just be aware that if your only goal with this gift is for your grandchild's new investment to beat the market, you are almost certain to be sorely disappointed. Indeed, it's nearly impossible to beat the market every year, year after year.

Over the past 15 years, 93% of all U.S. actively managed domestic equity funds underperformed the S&P Composite 1500, according to Standard & Poor's SPIVA Scorecard. About 90% of all U.S. large-cap funds trailed the S&P 500 over the same time period.

Consider indexing vs buying stocks

The vast majority of full-time professional investors can't beat the market, so why should you?

The simple fact is that most pros can't beat the market because most stocks can't beat the market. Between 1990 and 2020, more than 55% of all U.S. stocks underperformed risk-free one-month U.S. Treasury bills, according to Hendrik Bessembinder, a finance professor at Arizona State University. These stocks didn't just fail to beat the market, they failed to beat cash.

Even more damning, the professor found that the entirety of the $76 trillion in net global stock market wealth created between 1990 and 2020 was generated solely by the top-performing 2.4% of stocks.

Finding winning stocks is like finding needles in haystacks. That's why Vanguard founder and indexing evangelist Jack Bogle always advised clients to "buy the haystack."

So if part of the purpose of giving stocks as a gift is to teach your grandkids about investing, you should probably start by discussing the advantages of indexing. You might also want to let them know about the miracle of compounding. Between the two, passive investors have done quite well for themselves over the years.

If you can achieve an annualized return — also known as a compound annual growth rate — of 7.18%, your initial investment will double every 10 years. Happily for all of us, the S&P 500 has generated an annualized return of at least 7.1% over the past 10, 15, 20 and 30 years — and that's after inflation. The market has basically been doubling our money or better in real terms for decades.

You could explain these facts to your grandchildren as you give them some shares of an S&P 500 ETF, such as the SPDR S&P 500 (SPY) or the Vanguard S&P 500 (VOO). An ETF is probably an even more disappointing present for a kid than stock (or underwear), so it's bound to make an impression. The important part is that the child learns that indexing is generally the best way to go for most retail investors.

The best stocks to buy your grandchildren

If the point of this gift, be it for a holiday, birthday or graduation, isn't to teach your grandchild about the wonders of indexing, then here are some general guidelines for picking equities.

If you give shares in a company to your grandkids as a gift, they probably don't care about dividend yields or price-to-earnings (P/E) multiples or trailing-12-months levered free cash flow. If you must buy individual stocks as a gift, be sure to invest in high-quality companies your grandchild recognizes and maybe cares about.

Blue chip stocks with fortress-like balance sheets and a decent chance of beating the market over the next, say, five to 10 years, are easy enough to screen for. Have a look at what industry analysts believe are buy-rated blue chips with interesting businesses.

Nvidia (NVDA), Amazon (AMZN), Microsoft (MSFT) and Apple (AAPL) are all Buy-rated Dow Jones stocks — and they can be fun (or at least fun-ish) to follow. Walt Disney (DIS) is a Buy-rated Dow stock that likely holds relevance for your grandkid, as is Walmart (WMT).

Wall Street also happens to be bullish on Dow stock McDonald's (MCD) these days. Perhaps your grandchild would like a side of fries with her shares in the Golden Arches?

If you really want to teach your grandkids about investing, it's best to start with indexing. If you want to have fun playing around with individual stocks, go ahead. Just know that you're going to have lots of ups and downs.

After all, volatility is the price of admission. If you put $1,000 into Nvidia stock 20 years ago, it would today be worth a small fortune. Take a look at the chipmaker's chart, however, and you'll see that buy-and-holders experienced plenty of sickening drawdowns along the way.

Bottom line: make sure the stocks you gift are relevant to the person receiving them. If you want this present to hold a kid's attention longer than most gifts do, that's the only hope you've got.

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

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To help you understand how AI and other new technology are affecting energy consumption, trends in this space and what we expect to happen in the future, our highly experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts. (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest…

The rise of AI is pushing tech giants to find new ways to curb energy use. Firms like Alphabet and Microsoft have always strived for energy efficiency, but AI chips are extra power-hungry and will be unsustainable without big changes.

Cue new tools that help users reduce energy usage. Tools being developed by researchers at the Massachusetts Institute of Technology (MIT) lower power needs with simple techniques, such as capping the amount of energy used by hardware.

The researchers have found that such tweaks don’t hinder the AI’s performance. Another idea is optimizing the mix of AI chips with traditional ones for efficiency. Though it could take a while, expect more energy transparency around AI. Users will eventually get an energy report along with their answers from ChatGPT, which signals a trend of large-scale AI. 

According to an article by Scientific American, a continuation of the current trends in AI capacity and adoption is set to lead to NVIDIA, a leader in AI computing, shipping 1.5 million AI server units per year by 2027. These 1.5 million servers, running at full capacity, would consume at least 85.4 terawatt-hours of electricity annually — more than what many small countries use in a year.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

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You might have heard traders refer to "shorting" or "short selling" a stock. But what is shorting a stock? And is it a strategy you should consider?

Let's start with the basics. When you buy a stock – or "go long," in trader-speak – you're betting that the share price will rise.

Shorting a stock is the exact opposite. When you short a stock, you're betting that the share price will decline.

So shorting a stock means you're betting against it.

The mechanics of going long are simple. You pay cash to buy shares from an existing shareholder looking to sell, and your broker handles the details behind the scenes.

Shorting a stock is more complicated because you are selling something that you don't own.

What is shorting a stock using an example? 

Shorting a stock is best explained by an example.

Let's assume you believe shares of Microsoft (MSFT) are overpriced and you expect the price to decline in value.

You decide to sell short 100 shares of Microsoft and place the trade with your broker.

Here's what happens next.

Your broker will borrow 100 shares from another investor to lend to you, which then immediately gets sold. Assuming Microsoft's shares are trading at $350 per share, you receive $35,000 in cash.

But that's just the beginning.

Once you sell shares short, you are obligated to buy the shares back at some point in the future, and during the period that the shares are sold short, you have to pay interest. (Remember, you borrowed them).

The interest rate will vary based on the availability of shares to short. If it is a heavily-shorted stock with limited inventory available to sell, it's going to cost you more in interest.

Let's say Microsoft's shares drop to $340. Great! You can close out the trade by buying 100 shares. You sold at $350 and bought back at $340, netting a $10 per share profit, or $1,000.

Of course, it could also go the other way.

If the Microsoft shares had climbed to $360, you would have spent $36,000 buying them back, meaning you would have lost $1,000.

What are the risks of shorting a stock?

When you buy a stock – assuming you didn't go wild and buy it on margin – your loss is limited.

You can potentially lose your entire investment, but you can't lose more. And your upside potential is unlimited.

A stock can't fall more than 100%, but it can theoretically keep rising until the end of time.

With a short sale, the math gets turned upside down.

Your profit is capped at 100%, and that is if the stock literally falls all the way to zero. But your downside is theoretically unlimited.

Now, generally, "unlimited risk" is manageable if you are careful. If you see the trade getting away from you, you can buy to cover before the losses get out of control.

And your broker may force you to close the position if the value of your account gets close to falling below zero.

But all of this assumes a normal, orderly market.

Things can get nasty fast in the event of a short squeeze. In a short squeeze, a heavily shorted stock starts to rise, which forces the short sellers to buy back the shares they sold short to stop their losses.

This forced buying by the short sellers causes the stock price rise to accelerate, forcing other short sellers to join in the panic buying. This is part of what sparked the GameStop (GME)/meme stock craze in early 2021.

If you're not careful, a short squeeze can wipe you out.

Is it a good idea to short a stock?

If you are an experienced investor comfortable with taking and controlling risk, there is absolutely nothing wrong with shorting a stock.

Why not make money on the downside, particularly during bear markets when prices in general are falling?

Just be smart about it. Understand that the mechanics of short selling are very different than for buying stocks, as are the risk profiles.

You should also avoid heavily shorted stocks that would put you at risk of getting short squeezed.

And, as is the case with any trade or investment, you should keep your position sizes manageable.

If done carefully, shorting a stock is a useful skill that can allow you turn a profit at precisely the time most investors are suffering.

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To help you understand what is going on in the tech sector and what we expect to happen in the future, our highly-experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest...

As Apple and Meta battle it out to push virtual reality to the mainstream, don’t overlook the growing array of practical business uses of smart glasses in manufacturing, car repair, energy work, logistics, etc. 

Shipments of smart glasses — a segment that includes augmented-reality glasses that overlay digital information onto the real world, and much simpler devices with a mini-display — are set to jump. It’s still a small category, but ABI Research estimates shipments will hit 25 million among business users in 2027, versus fewer than 2 million in 2022. One big use: Remote assistance, where someone in the field wears glasses equipped with a camera and microphone, and someone back in the office can walk them through the work. 

Expect many success stories for the productivity-boosting tech soon. But also many stumbles. 

The Microsoft HoloLens, a cutting-edge AR device, has had numerous issues being integrated into military training, despite its promise. Google, which made a splash with its early set of glasses, has abandoned the project. Other companies working on promising devices: TeamViewer, Vuzix and Lenovo. One lightweight model from Vuzix used in healthcare and other settings costs $1,800.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

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It was a mixed session for stocks Wednesday as investors mulled over the latest round of corporate earnings. 

Tech stocks handily outperformed thanks to solid earnings reports from blue chip stocks Alphabet (GOOGL) and Microsoft (MSFT), though a hurdle in the latter's merger plans with Activision Blizzard (ATVI) sent shares of the video game maker tumbling. 

Alphabet and Microsoft kicked off a busy stretch of earnings after last night's close when the two tech giants disclosed their quarterly results. Google's parent company Alphabet reported first-quarter earnings of $1.17 per share on $69.8 billion in revenue, with both figures topping analysts' estimates, thanks in part to solid ad revenue. GOOGL was up 2.4% at its session peak, but ended the day down 0.1%.

Microsoft, meanwhile, reported fiscal third-quarter earnings of $2.45 per share on $52.9 billion in revenue, beating analysts' estimates. The company also said revenue from its cloud service Azure came in higher than expected, and it projected stronger-than-anticipated current-quarter revenue. MSFT jumped 7.2% on "AI optimism" and a "consumer business that is much stronger than originally feared," says David Wagner, portfolio manager at Aptus Capital Advisors, an Alabama-based registered investment advisor. 

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Just hours after Microsoft reported earnings, though, U.K. regulators blocked the software company's pending acquisition of Activision Blizzard, citing concerns it will stifle cloud gaming competition. The nearly $69 billion deal was first announced in January 2022. While MSFT managed to brush off the news, ATVI stock tumbled 11.5%.

"Microsoft needs this deal to help stoke growth in the wake of disappointing personal computer sales, with the gaming market a far more high-growth area, which would supplement the group's leading AI position," says Sophie Lund-Yates, lead equity analyst at U.K.-based financial service firm Hargreaves Lansdown. As such, the company could use its more than $50 billion of net cash "languishing on the balance sheet" to appeal the decision, she adds.

As for the major indexes, the tech-heavy Nasdaq Composite climbed 0.5% to 11,854. The broader S&P 500, on the other hand, slipped 0.4% to 4,055, while the blue chip Dow Jones Industrial Average fell 0.7% to 33,301.

How investors can stay defensive

While the earnings calendar continues to be on investors' immediate radar, the next Fed meeting is right around the corner. Fed funds futures are currently pricing in a roughly 76% chance the Federal Reserve will raise interest rates by 25 basis points (0.25%) at its May gathering, followed by a pause in June and potential rate cuts this fall. 

But while "investor optimism has been building as we likely approach the end of the current rate-hike cycle," says Chris Haverland, global equity strategist at Wells Fargo Investment Institute, it would be prudent for market participants to stay defensive – particularly with a potential recession looming later this year. This can be done by targeting the best dividend stocks, as well as the best consumer staples stocks and the best healthcare stocks, which are two traditionally defensive sectors.

Not too long ago, Microsoft (MSFT) stock's glory days looked to be behind it as sales of desktop PCs slipped into a seemingly irreversible decline.

Although the dot-com days of the 1990s minted many a "Microsoft millionaire," the aftermath of the tech bust led Microsoft stock to trade mostly sideways for more than a decade.

But the past 10-plus years have been nothing short of a renaissance for the tech giant. When CEO Satya Nadella ascended to the top job in 2014, he not only began instituting cultural changes, but he transformed Microsoft's core strategy too.

Cloud computing and subscription-based services were in; the days of selling software licenses via physical compact disks were passé.

That focus on enterprise customers and – most importantly – Microsoft's shift to selling cloud-based services such as Azure and Office 365 has been an astounding success.

Today, Microsoft is a dominant player in cloud computing and a leader in artificial intelligence (AI) – and MSFT's returns prove it.

Indeed, Microsoft stock has been so remunerative since Nadella took over that long-term investors might not even notice that dud decade-plus following the tech bust.

Between January 1990 and December 2020, shares in Microsoft, which joined the Dow in 1999 at the height of the dot-com boom, generated a total return of 57,730%. The S&P 500's total return came to a mere 1,950% over the same span.

Along the way, Microsoft generated $1.91 trillion in wealth for shareholders, good for an annualized dollar-weighted return of 19.2%, according to Hendrik Bessembinder, professor of finance at the W.P. Carey School of Business at Arizona State University.

Only Apple (AAPL) generated more wealth for shareholders over those three decades, making Microsoft one of the best stocks of the past 30 years, per Bessembinder's findings, which account for cash flows in and out of the business and other adjustments.

The bottom line on Microsoft stock

Have a look at the chart below and you'll see that if you put a grand into Microsoft stock two decades ago, it would be worth about $25,000 today. That's good for an annualized total return (price change plus dividends) of 17.6%.

The same amount invested in the S&P 500 20 years ago would theoretically be worth almost $8,000 today, or 10.9% annualized.

But wait, there's more.

Over its entire life as a publicly traded company, Microsoft has generated an annualized total return of 21.8%. The S&P 500's total return comes to 10.8% annualized over the same span.

Happily for Microsoft bulls, analysts very much expect shares to continue their market-smashing ways.

Of the 57 analysts issuing opinions on Microsoft stock surveyed by S&P Global Market Intelligence, 43 call it a Strong Buy, 12 say Buy and two have it at Hold.

It's rare for a stock with this much coverage to receive no Hold or Sell calls. The result is a consensus recommendation of Strong Buy with extremely high conviction.

No wonder MSFT routinely ranks as a top-rated Dow Jones stock, as well as one of analysts' top S&P 500 stocks to buy now.

Check out the stocks billionaires are buying or hedge funds' top blue chip stocks and you'll see that much of the putative smart money agrees with Wall Street's assessment.

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There are many ways to measure stability on Wall Street. For you and me and other individual investors, it's a basic question of identifying the best cash cows to buy.

Some market participants prioritize metrics such as the value of a company vs its underlying assets to make sure they're not overpaying for shares. Others seek steady operating cash flow; money comes in steadily and substantially, fueling growth and sustaining a solid business footing.

But value stocks can sometimes be value traps. Cheap stocks are often cheap for good reasons. Often, they do get cheaper. At the end of the day, there really is only one measure of how stable a stock is: cold, hard cash on the balance sheet.

That's the best indicator of a high-quality business, and it's also a sign of a solid stock to buy for the long term.

High-quality cash cows

"The global economy is poised to accelerate in 2026," write UBS Global Research strategists in their 2026-27 markets outlook. "Business and consumer confidence has improved, the global credit impulse has turned positive, and we expect several major advanced economies to benefit from additional fiscal stimulus."

UBS does see "a soft patch" as tariffs feed through to prices and exports, though they believe "high-quality stocks should outperform." And their forecast didn't contemplate war in the Middle East.

Still, the following cash cows have resources that equip them to weather a downturn and to grow their businesses amid inevitable uncertainty about the macroeconomic landscape.

• Sector: Financials
• Market value: $1.1 trillion
• Cash on hand: $397.4 billion

Berkshire Hathaway (BRK.B) is closely watched by many investors for many different reasons. Warren Buffett and his shareholder letters are famous for their down-to-earth market wisdom. The first letter from new CEO Greg Abel, who replaced Buffett in January, promises the same investing playbook, with perhaps a little less folksy flair.

The firm's reputation for shrewd investment means its filings are closely watched as an indicator of what stocks the smart money is watching.

Lately, however, BRK.B has been attracting interest because of how much money it has on the sidelines. At the end of Abel's first quarter as CEO, the company boasted $397.4 billion in cash and short-term investments to set a company record. A recent build-up in Berkshire's cash reserves reflects Buffett's experience as well as Abel's current perspective.

During the 2008 global financial crisis, the company made tremendous use of its stockpile through shrewd and well-timed transactions. At the same time, with volatility and uncertainty spiking, Buffett, Abel and Berkshire may simply not want to risk making a bad move.

Either way, the strong balance sheet makes BRK.B a pretty darn reliable cash cow for the foreseeable future.

• Sector: Consumer discretionary
• Market value: $2.6 trillion
• Cash on hand: $146.0 billion

A dealmaker of a different kind, Amazon.com (AMZN) boasted $146 billion in cash on hand at the end of the first quarter to make it another cash cow worth watching.

The company has a history of bold additions to build out new arms of its business, from paying roughly $1 billion for streaming platform Twitch in 2014 to acquiring grocer Whole Foods for about $14 billion in 2017. In 2022, it snapped up entertainment icon MGM for almost $9 billion.

Management announced a $4 billion investment in AI platform Anthropic in 2023, a deal that seems like only a steppingstone to the $50 billion deal with Open AI signed in February. Indeed, Amazon.com said it will spend $200 billion on AI in 2026.

At the same time, the company's net income continues to grow — as does its impressive cash stockpile.

Regardless, AMZN is a cash cow with plenty of dry powder to make deals — or weather any short-term turbulence in consumer spending.

• Sector: Communication services
• Market value: $4.4 trillion
• Cash on hand: $126.8 billion

Another Big Tech darling, Google parent Alphabet (GOOGL) had $126.8 billion on hand at the end of Q1, up significantly from $95.3 billion a year ago.

That's despite a significant increase in infrastructure capex related to building out AI functionality. Indeed, GOOGL is not afraid to spend. Alphabet is on track to close its $32 billion acquisition of cloud security platform Wiz, and management plans to more than double its capex budget in 2026 to $185 billion from $91 billion in 2025.

Tremendous operational consistency and unrivaled scale make GOOGL one of the most reliable Silicon Valley stocks out there. And it still has tens of billions in dry powder.

This is another cash cow with more than enough resources to weather any short-term disruptions and/or make additional deals in the months ahead.

• Sector: Communication services
• Market value: $1.5 trillion
• Cash on hand: $81.5 billion

The parent of Facebook and Instagram, among other properties, Meta Platforms (META) is a lean and tech-savvy communication services stock with deep pockets and a history of aggressive growth via big-ticket deals.

Examples of Meta's expansive ambitions include the $19 billion takeover of messaging platform WhatsApp in 2014 and the $1 billion acquisition of Instagram in 2012.

Deal place slowed some as Meta faced antitrust scrutiny for its digital media platforms. In November, a judge ruled Meta does not have a monopoly in the social networking space.

Last year, Meta spent $10 billion for a massive AI data center in northeast Louisiana that's powered by dedicated natural gas facilities. And it's announced massive AI spending plans.

And, because CEO Mark Zuckerberg is running a profitable company without any major purchases to pay for, META can spend $135 billion in 2026 on data centers, chips and AI tools.

And its cash pile continues to grow. As of the end of the first quarter, the firm reported $81.5 billion in cash and equivalents.

The ability to invest heavily in infrastructure and still keep growing its bank account makes Meta a cash cow to watch.

• Sector: Technology
• Market value: $3.1 trillion
• Cash on hand: $78.3 billion

Rounding out the list of cash cows is tech leader Microsoft (MSFT), which has long been a leader in corporate America for its bulletproof balance sheet. It's one of just two companies in the U.S. that has a tip-top AAA credit rating from Standard & Poor's. (Fellow Dow Jones stock Johnson & Johnson (JNJ) is the other.)

Microsoft has a slightly smaller stack of cash than these other stocks, but Wall Street sees it as even more creditworthy.

It also pays mammoth dividends to shareholders of about $27 billion annually. That's cash it can fall back on if things ever get tight.

Its massive war chest has survived a bank-busting merger with software giant Activision Blizzard, which closed in 2023 at a value of more than $68 billion.

Microsoft's software-as-a-service revenue model, coupled with a world-class portfolio of business tools, makes for reliable cash flow to ensure it will continue to have deep pockets for many years to come.

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Stocks opened sharply lower Wednesday as investors parsed an onslaught of corporate earnings updates. 

Quarterly results from Microsoft (MSFT, -0.6%) drew the most attention, as it is the first of the big tech giants on the earnings calendar. Late Tuesday, the software maker reported top- and bottom-line beats for the final three months of 2022, which initially sent MSFT stock higher in after-hours trading. However, a closer look at the company's guidance sent shares – and the broader market – lower in today's trading. 

Taking a closer look at the numbers, Microsoft recorded earnings of $2.32 per share in its fiscal second quarter, down 6.5% year-over-year. Revenue of $52.8 billion was up 2% from the year-ago period, though this marked the slowest sales growth since June 2016. Additionally, Azure cloud revenue grew 31% year-over-year. 

"It's no secret that Cloud is front and center for the company right now [and] Azure beat on growth expectations," says David Wagner, portfolio manager at Aptus Capital Advisors. "Everyone knows that growth is slowing in Azure. Investors just want to see that it is slowing less than anticipated. And that's exactly what happened this quarter."

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However, in the company's earnings call with analysts, Chief Financial Officer Amy Hood said MSFT expects moderating "business trends that we saw at the end of December" to have likely continued in its fiscal third quarter as corporate spending slows.

"The celebration that Microsoft received from the market ended as the company's CFO delivered her words of caution," says Quincy Krosby, chief global strategist for LPL Financial. "It has been said so many times that corporate guidance during this fourth-quarter earnings season is crucial for understanding the direction of the market, especially amid a backdrop of weakening economic data."

And for today, that direction was mostly lower. While stocks finished well off their lows, the Nasdaq Composite ended the day down 0.2% at 11,313, and the S&P 500 was off 0.02% at 4,016. The Dow Jones Industrial Average, however, managed to eke out a marginal gain to 33,743.

The Newest Dividend Aristocrats

It was a big day for devout followers of the Dividend Aristocrats – an illustrious group of S&P 500 components that have raised their dividends every year for at least the last 25 straight. The Standard & Poor's annual rebalancing of the S&P 500 Dividend Aristocrats resulted in three new members, effective prior to the Feb. 1 market open, including well-known consumer staples stock J.M. Smucker (SJM).

While this announcement is certainly welcome news for income seekers, investors of all stripes should be focused on dividend-paying names – especially in today's volatile market. "Dividend income, an important element of total return, is often overlooked amid gyrations in the stock market," say John Eade, president and director of Portfolio Strategies, and Jim Kelleher, director of Research at Argus. And dividend-growth stocks, in particular, "tend to hold their value better in periods of rising rates and deliver solid total returns in all markets." With that in mind, here are the best dividend stocks investors can count on for dividend growth.

Tech stocks led the way higher Monday as investors prepared for a heavy batch of corporate earnings reports due out this week. 

Roughly 20% of S&P 500 companies will release their quarterly results over the next five days, with tech giant Microsoft (MSFT, +1.0%) and electric vehicle maker Tesla (TSLA, +7.7%) among the notable names on this week's earnings calendar. But, the focus was on a big layoff announcement from audio streaming service Spotify (SPOT, +2.1%). 

Today, Spotify said it will lay off 6% of its global workforce, or around 600 employees. In a memo sent to staff, CEO Daniel Ek said the job cuts were an effort to bring costs in line amid a challenging economic environment. This follows in the footsteps of several other tech and communication services companies like Microsoft, Meta Platforms (META, +2.8%) and Alphabet (GOOGL, +1.8%) that recently announced layoffs.

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Salesforce (CRM, +3.1%) was another big gainer today after a report in The Wall Street Journal indicated Elliott Management has taken a "big stake" in the software-as-a-service (SaaS) company. 

Semiconductor stocks were also a pocket of strength. Advanced Micro Devices (AMD, +9.2%) outpaced its peers after Barclays analyst Blayne Curtis upgraded the stock to Overweight from Equal Weight, the equivalents of Buy and Hold, respectively. Curtis said AMD's Genoa and Bergamo platforms will likely take market share away from Intel (INTC, +3.6%), and believes the company could get a boost once Facebook parent Meta Platforms ramps up spending later this year. 

As for the major indexes, the tech-heavy Nasdaq jumped 2.0% to 11,364, the broader S&P 500 gained 1.2% to 4,019, and the blue-chip Dow Jones Industrial Average rose 0.8% to 33,629.

The Safest Vanguard Funds to Buy

Today's price action likely sparked a sigh of relief among investors. However, the fact remains that the major benchmarks are still in a bear market. And amid expectations that the U.S. will enter a recession later this year – Kiplinger, for its part, has the odds of a recession at about 60% – stocks could stay in a downtrend for the time being. 

While it's true that this bear market will eventually end, "investors should not assume that the easy times in the market are coming back," says David Bahnsen, chief investment officer at wealth management firm The Bahnsen Group. "We expect enhanced volatility and a focus on cash flow and quality for the foreseeable future." 

As such, Bahnsen says it is "very important to pursue high-quality assets," like the best dividend stocks. Other defensive strategies included targeting stocks in the healthcare and consumer staples sectors. Investors that want more diversification in their portfolio hedges have plenty of options among the best bear market ETFs. But for those looking for below-average expenses, consider the safest Vanguard funds to own in a bear market. The names featured by Vanguard offer short-term defense across a variety of strategies and come with the investment advisor's low costs to boot.

The infamous Dogs of the Dow strategy is simple: At the start of each year, buy the five (or 10) highest-yielding stocks. Remember, high dividends mean low stock prices. The theory goes that as Dow stocks are some of the largest, best-managed companies in the world, they will, inevitably, recover.

While these dogs may not be the best Dow dividend stocks, they certainly offer a lot of yield. For instance, Verizon's (VZ) dividend, at nearly 7%, rivals the long-term return of the S&P 500. In most instances, the proposition here comes down to getting paid a lot to wait out whatever malaise a company is facing.  

This year's crop of Dogs seems to face thornier problems than in years past. From Verizon trying to time the arrival of 5G, to Intel's (INTC) increasingly perilous position in the chip business to IBM's (IBM) fight for share among trillion-dollar tech giants, these dogs face a steep climb. 

But ultimately, every dog has its day, and the ones that were at the bottom of the heap many times show up at the top. The proof is in the pudding. For the 20 years ended 2020, the Dogs of the Dow strategy returned 9.5% versus 7.5% of the S&P 500, a spectacular beat. It underperformed the S&P 500 in 2021 by 16 percentage points and so far this year, the Dogs are down less than the market at large. 

Absent any dramatic changes, here are five of 2023's Dogs of the Dow.

Data is as of Nov. 18. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Stocks are listed in reverse order of yield.

• Market value: $132.3 billion
• Dividend yield: 4.5%

A strong third-quarter earnings report from International Business Machines (IBM, $147.64) in October sent shares up 6%. Though welcome, it feels like Lucy might be yanking the football from Charlie Brown. Again. We've been here before. IBM has been in the doghouse since 2016. That's a lot of yield for investors, but not much growth. Shares of IBM, at about $147, are still below where they started 2018. Hey, they don't call them the Dogs of the Dow for nothing. 

Keep in mind that a decade ago, revenues at IBM were $105 billion, and last year they were $57 billion. It's not that they're caught up selling obsolescing "Big Iron" from a generation ago, but rather shedding lots of businesses and defining their core which now consists of software, consulting and IT infrastructure. There's some chatter that its IT infrastructure group, which accounts for about 25% of total revenue, could be divested, which would take a good chunk out of the $61 billion in 2023 forecasted revenues. 

For investors, that leaves software and consulting as the businesses to watch, which were up 7.5% and 5.4%, respectively, in the last quarter. The core markets these businesses address – cloud computing, consulting and hybrid AI – are growers. Global IT spending is anticipated to rise to $4.6 trillion in 2025, up 5% over 2022, according to research firm Gartner. IBM is poised to increase revenues from this spend, and in this respect, there is an achievable and sustainable path to growth.  However, this growth is likely to be slower and steady rather than rapid and meteoric. After all, Alphabet's (GOOGL) Google and Microsoft (MSFT) are swimming in the same pond. 

Net-net, it's possible that IBM will spend another year in the doghouse. However, waiting it out with a 5% yield, and the financial strength to maintain it, may prove to be alluring for many investors. 

As a footnote, IBM did show an operating loss of $3.2 billion during the last quarter, which might give pause. This loss was attributable to a change in pension operations, resulting in a $6 billion charge that had no impact on the company's cash. For the trailing 12 months ending the third quarter, IBM had free cash flow – cash from operations less capital expenditures – of $7.4 billion, more than three times the $2.1 billion in dividends paid. 

With a lot of overseas business, the historically strong dollar currently delivers a big hit to IBM's revenues, and growth is better than the reported numbers. In its latest earnings report, IBM said it expects revenue growth "above its mid-single digit model," with currency translation presenting a seven percentage point hit. 

IBM's core markets in cloud computing, consulting and hybrid AI, are growers, so there is a path to earnings growth, but with a single digit forecast, it's not going to be fast. 

• Market value: $34.4 billion
• Dividend yield: 4.8%

Walgreens Boots Alliance (WBA, $39.75) has been on a downward trend since 2015 and has been a Dog of the Dow since 2019. 

As with many other retailers, Walgreens is struggling with post-pandemic crosscurrents amid inflation, a perennially shifting healthcare landscape and jittery consumers. WBA's plans for selling its underperforming Boots U.K. business stalled after the company failed to receive attractive bids. In June, it announced its intention to retain the business. 

In addition, online pharmacies are chipping away at Walgreens' market share as consumers are provided a more convenient alternative to buying prescription drugs at brick-and-mortar stores. Amazon.com's (AMZN) entry into the pharmacy sector doesn't augur well for WBA either.  

But aside from its initiative to strengthen its digital transformation to become more competitive in its pharmacy business, Walgreens is trying to make a comeback by restructuring itself into "a consumer-centric healthcare company."

To this end, there has been a flurry of dealmaking at Walgreens. Among the largest is last year's $5.2-billion investment in Village MD, which provides "primary care services" through a variety of outlets. That investment brought Walgreen's stake to 63%. Then in November of this year, Village MD announced its intention to buy urgent care provider Summit Health for $9 billion. 

We've seen this movie before. CVS Health (CVS) went through such a transformative shift, most notably with its November 2018 acquisition of health insurer Aetna for an eye-popping $78 billion. CVS shares have risen about 20% since then while paying a solid 2.3% dividend.  Walgreens, however, has not done anything on the scale of CVS's Aetna deal, but Cigna's (CI) healthcare unit, Evernorth, participated in the Village MD/Summit transaction, which may presage future, strategic deals at Walgreens.

The company is confident these actions will unlock "sustainable shareholder value." They are expecting an adjusted earnings per share (EPS) of $4.45 to $4.65 for the full fiscal year 2023 and raised their 2025 U.S. healthcare sales target from a range of $9 billion to $10 billion to one between $11 billion and $12 billion. From the bottom end of the old range, $9 billion, to the top of the new range is 30%, a big number, so it's fair to assume management is feeling confident. 

Transformations of the kind Walgreens is undertaking take time, and in healthcare, they take a lot of time. Getting paid more than 5% to wait might seem prudent, given the macros driving healthcare. But the devil is in the details, and in healthcare, there's a lot of them. 

• Market value: $123.3 billion
• Dividend yield: 4.9%

Intel (INTC, $29.87) has been one of the most severely hit names in a terrible year for the tech sector. The stock is down 42% for the year-to-date, following a disappointing second-quarter performance where its EPS was off 79% year-over-year, and revenue dropped 17%. Recently reported third-quarter earnings were mixed, neither confirming recovery nor presaging disaster. 

The company has been losing market share to competitors after falling behind Advanced Micro Devices (AMD) in chip innovation and to Taiwan Semiconductor Manufacturing (TSM) in fabrication. Compounding these woes is slowing PC demand. Net-net, rumors and reports of forthcoming layoffs from this tech giant may be well-founded.

The gray cloud hanging over Intel is writ large in the initial public offering (IPO) of its Mobileye Global (MBLY) unit which it acquired for $15.3 billion in 2017. The once ebullient valuation of $50 billion was significantly lowered to $17 billion – just a tad more than what Intel originally acquired it for – when the self-driving car company went public late last month. 

Intel's strategy going forward seems to be doubling down on its manufacturing capability, beginning with its $20-billion project in Arizona for two fabrication facilities. The strategy is to offer its services to produce chips designed by other companies such as Qualcomm (QCOM) and Amazon, among others, to help alleviate supply-chain challenges and to minimize the reliance of U.S. companies on foreign manufacturing. While sound amid surging chip demand, Intel will find a stout competitor in Taiwan Semiconductor, the global leader in chip manufacturing and newest member of the Berkshire Hathaway equity portfolio. 

Of course, all these construction plans consume capital, hence the decline in Intel's free cash flow seen in its second-quarter report. Numerically, it's possible that capital expenditures will squeeze the dividend. Management would be loathed to cut it, but in the uncertain semiconductor landscape, anything is possible. 

While tinkering with the dividend would likely hit shares, if the diversion of funds toward growth pays off, shareholders could be rewarded. After all, putting capital at risk to invest in growth is how capitalism is supposed to work. One wildcard: Intel is expected to be a main beneficiary of the recently signed CHIPS Act to support plans to rescale its manufacturing capability.

Volatility is still a concern in the near term. Shares are trading at 2014 levels. There is a path to growth, but Intel will need to thread the needle. 

• Market value: $35.2 billion
• Dividend yield: 5.6%

Dow (DOW, $50.07) is in the doghouse, and perhaps well it should be given declines and lumpiness in earnings. However, the company might be forgiven in as much as the chemicals business is cyclical. And if you are waiting for the chemical business to come back, getting paid just over 6% is a tenable position for many investors.  

The most recent earnings report from Dow might give investors confidence that it is on the upswing, with the company beating the consensus earnings estimate. However, keep in mind, the total net income was off 55% from a year ago. The nine-month performance was a little more upbeat, with net income off just 14%. Further, it forecast current-quarter sales below expectations and said it expects a $400 million hit to core profit from cost and inflationary pressures. Clearly, Dow sees some bumps in the road ahead. 

Remember, it was just three years ago that Dow was spun out of DuPont (DD), and is still finding its sea legs. Of course, it was just seven years ago that the two merged, with CEO Ed Green promoting the idea that the "transaction is a definitive step toward unlocking higher value." Apparently not, as one look at DuPont's chart shows share prices trading below 2015 levels.

Still, despite the haze and madness that sometimes permeates the executive suite, Dow is well-resourced in ways that may help it through the haze and madness going on in the world right now. 

First, the company puts a bit of effort into touting "feedstock flexibility," which are the inputs to make chemicals, as a competitive advantage, and it's more than management speak. Dow has strategically located its facilities close to low-cost sources. 

In addition, it's invested in the technology to deploy production units, known as "crackers," so that it can quickly adjust to upstream changes with suppliers and downstream requirements from customers. Net-net, Dow is well-positioned to manage rising costs and feedstock bottlenecks, which may materialize in abundance in the coming year. 

Plus, Dow is cutting costs, about a billion in the coming year, which theoretically, should go right to the bottom line. 

Dow just might have enough momentum to achieve the escape velocity from the doghouse. But it will need an assist from the global economy, which may or may not be on tap. 

• Market value: $161.9 billion
• Dividend yield: 6.8%

The last time Verizon Communications (VZ, $38.55) was not among the top five Dogs of the Dow was in 2009. VZ has been in the doghouse so long, the reasonable investor might question whether it will ever get out. The telecom business is tricky, and every time Verizon zigs, telecom zags. The latest example was in 2021 when the company spent nearly $46 billion – more than any other major telecom company – on broadband licenses in anticipation of a 5G world that has yet to materialize. 

At current prices, VZ stock is at 1997 levels. One reason to consider Verizon at the moment is the dividend yield. At current levels, it nearly equals the 7.3% annualized return on the S&P 500 for the last 50 years. (The total annualized return of the SPY during that time frame, which includes dividends, is 10.3%.) 

Verizon is a dividend grower, though modestly so, at an average annual rate of 2.4%. But intrepid investors who take the plunge with VZ now will see this add to their already spectacular yield. 

All this suggests that buying VZ now requires faith that it can maintain its dividend. Can it?  A look at the cash flows for the first six months of the year shows about $5.4 billion in dividends paid, which was covered more than three times over by almost $18 billion in cash flow from operations. (Last year, dividend coverage was nearly 4x.) Even if performance deteriorates, there's plenty of cushion, though if a downturn was bad, Verizon would need to make some difficult decisions about reinvesting in the business.  

Verizon sports an eye-popping $136 billion in debt, but is a strong enough credit to be able to refinance this out into the future ad infinitum. Indeed, the current portion is just $13 billion.  For this reason, and its strong cash flows, Value Line rates the stock A++ for financial strength, a designation that no other telecom has, including AT&T (T). 

So, if you are going to buy VZ, buy it for a dividend that can keep you even with the broad market indexes. Capital appreciation may be part of the picture, but there is no immediate visibility on it. If you adhere to the Dogs of the Dow strategy, you may likely find you will be overturning your position in VZ come this time next year. 

Equal-weight S&P 500 exchange-traded funds (ETFs) could be poised to have their day in the sun, and here's why. 

A stunning selloff in Big Tech has the S&P 500 Index down by more than 17% so far in 2022 – on pace to close out its worst year since 2008. And this has ETFs based on the index becoming far less reliant on mega-cap stocks like Apple (AAPL) and Amazon.com (AMZN) that have lost massive amounts of market value this year, reducing their weightings in the S&P 500.

As one example, the iShares Core S&P 500 ETF (IVV) currently has 18.1% of its nearly $303 billion in net assets invested in five stocks: Apple, Amazon, Microsoft (MSFT), Alphabet (GOOGL) and Meta Platforms (META). That’s down from its high of more than 24% in September 2020.

That's a good thing. 

Estimates suggest that as much as $7 trillion was invested in S&P 500-linked ETFs and mutual funds at the end of 2021. Heading into 2023, buyers of these funds will get a more balanced portfolio than in recent years.

That's also a good thing. 

Still, many of these index ETFs that assign weight based on market value still have outsized exposure to tech stocks. And with the Federal Reserve committed to keeping interest rates higher for longer in order to bring down inflation, the troubles Big Tech has seen this year could continue for the time being. 

One solution for investors is to use equal-weight S&P 500 ETFs that don't play favorites. 

The problem: There are only two U.S.-listed S&P 500 equal-weight fund options available to investors. And both are offered by Invesco.

The Invesco S&P 500 Equal Weight ETF (RSP) tracks the performance of the S&P 500 Equal Weight Index. Both the ETF and the index are rebalanced quarterly. Based on 503 holdings, each stock in the ETF is rebalanced to a weighting of 0.20% on the third Friday in March, June, September and December.

By looking at RSP's current holdings, you can tell that 304 are either flat or in positive territory since the last rebalancing in the third week of September, with the next rebalancing in December.    

The top three sectors by weighting for RSP are industrials (14.8%), technology (14.7%), and financials (13.6%). In addition, five sectors have a weighting of 10% or higher.

By comparison, the market cap-weighted IVV's top three sectors by weighting are technology (26.5%), healthcare (14.9%), and financials (11.6%). All five of the tech stocks mentioned earlier are in the top 10. However, none are in RSP's top 10. 

In terms of performance, the equal-weight S&P 500 ETF is down 12.3% year-to-date, 510 basis points better than the market cap-weighted one. (A basis point = 0.01%.)

The mutual fund version is the Invesco Equally-Weighted S&P 500 Fund (VADAX). It, too, tracks the performance of the S&P 500 Equal Weight Index, and has a similar number of holdings and rebalances four times a year. 

The big difference is that the mutual fund has an expense ratio of 0.52% (or, $52 annually for every $10,000 invested), more than twice the RSP's 0.20% fee.

Other broad-market equal-weighted ETFs revolving around the S&P 500's 11 sectors include the Invesco S&P 500 Equal Weight Technology ETF (RYT), the Invesco S&P 500 Equal Weight Health Care ETF (RYH), Invesco S&P 500 Equal Weight Consumer Staples (RHS). There are similar ETFs for energy, financials, utilities, consumer discretionary, materials, industrials, real estate and communication services.

Lastly, if you want something less broad, Invesco offers the Invesco S&P 100 Equal Weight ETF (EQWL). It tracks the performance of the S&P 100 Index, a collection of 100 large-cap, blue-chip U.S. companies. 

Instead of rebalancing each quarter to 0.20% per holding as RSP does, it rebalances to 1.0%. EQWL charges five basis points more in expense fees than RSP, but Morningstar gives it an overall five-star rating out of 1,153 funds.  

As Big Tech struggles, RSP, VADAX, and the other Invesco offerings are worth considering in 2023 and beyond.    

Stocks blazed a path higher Thursday after the latest consumer price index (CPI) showed inflation cooled in October.

Ahead of the opening bell, the Labor Department said consumer prices increased 7.7% year-over-year in October – the slowest annual gain since January. On a monthly basis, the CPI was up 0.4%. Both figures were smaller than economists were anticipating. Core CPI, which excludes volatile energy and food prices, also increased at a slower-than-expected pace last month.

Many of Wall Street's top minds were quick to chime in following this morning's release of the October CPI, including Michael Reinking, senior market strategist at the New York Stock Exchange. "Today's data is an obvious step in the right direction," Reinking says. "While we have seen false dawns before, given the broader economic backdrop, it does seem this could be the start of the rollover." He adds that this inflation data "opens the door to the Fed to slow the pace of rate hikes going forward, and we are now seeing markets price in an 80% probability of a 50 basis point rate hike in December." (A basis point = 0.01%.)

The tech sector (+8.2%), whose components are most sensitive to interest rates, were the biggest gainers today. Among individual stocks soaring were Apple (AAPL, +8.9%), Meta Platforms (META, +10.3%) and Microsoft (MSFT, +8.2%). 

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As such, the tech-heavy Nasdaq Composite spiked 7.4% to 11,114, while the broader S&P 500 Index (+5.5% at 3,956) and the blue-chip Dow Jones Industrial Average (+3.7% at 33,715) also scored notable gains. It was the best day for the stock market since 2020.

What Do Tech Layoffs Mean for Stocks?

Today's inflation data sparked an appetite for even the riskiest of assets. Bitcoin, for example, jumped 11.2% to $18,008. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.) This marks quite a change of pace for the digital asset, which has plummeted this week on news of a major shakeup in the crypto space. 

To quickly recap that drama: Crypto exchange Binance initially said it would buy the non-U.S. assets of rival FTX, amid liquidity challenges at the latter firm, before backing out of the deal due to "the latest news reports regarding mishandled customer funds and alleged U.S. agency investigations," per a statement on Twitter. With Binance no longer giving FTX a lifeline, many are speculating that the crypto exchange is teetering on bankruptcy, given that it needs $4 billion to remain solvent, according to its CEO, Sam Bankman-Fried.

The upheaval in the cryptocurrency space creates bigger waves for the already embattled tech sector, which is trying to navigate slower growth for the first time in years. Most recently, that has resulted in several big tech firms announcing massive layoffs, including Facebook parent Meta Platforms (META), which said earlier this week it is firing roughly 13% of its global workforce. What do these tech layoffs mean for investors? Read on as we take a closer look.

Equities closed out an otherwise strong October in the red on Monday, as a rise in bond yields and declines in some big technology stocks weighed on the major indexes. 

The blue-chip Dow Jones Industrial Average slipped 0.4% to finish at 32,733, while the broader S&P 500 fell 0.7% to 3,872. The tech-heavy Nasdaq Composite slumped 1.0% to close at 10,988. 

Major tech names continued their selloff from last week, which featured a slew of disappointing quarterly earnings reports and forecasts. Dow components Apple (AAPL, -1.5%) and Microsoft (MSFT, -1.6%) were just two of the names in the multi-trillion-dollar-market-cap club to once again lose ground on Monday. Google parent Alphabet (GOOGL, -1.9%) and Amazon.com (AMZN, -0.9%) likewise continued to struggle, as did Facebook parent (and former mega-cap darling) Meta Platforms (META, -6.1%). 

Meanwhile, the yield on the benchmark 10-year Treasury note rose to 4.07% ahead of the Federal Reserve's regularly scheduled two-day policy meeting later this week. Market participants expect the central bank to once again raise short-term interest rates Wednesday, with a fourth 0.75%-point swipe at persistent inflation. 

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In October, Stocks Soared. Is the Bear Market Dead?

October might have ended with a whimper, but the month overall delivered big-time gains for equity investors. The S&P 500 rose 8.0% on a price basis for the month, and even the beaten and bruised Nasdaq tacked on a respectable 3.9%.

But no one did better than investors in the bluest of blue-chip stocks. The Dow, that elite bastion of just 30 blue chips, rose 14.0% for the month. Indeed, it was the Dow's best October since 1975. Partly that's a function of the Dow being a haven for companies with rising and reliable dividends. Indeed, a mini-portfolio of the Dow's best dividend stocks is clobbering the broader market so far this year. The Dow is also home to some of the best stocks to own in a bear market. 

What's most encouraging is what has historically come next when the Dow produces a boffo October: the blue-chip barometer has gone on to generate even more impressive upside over the following three-, six- and 12-month periods. 

It remains to be seen if October will maintain its reputation as a bear-market killer, but so far so good. Read on to see what history has to say about the market's prospects after the Dow logged one of its best Octobers in ages.

Markets ended the week on a positive note Friday, finishing sharply higher after some economic data raised the possibility of a slower pace of rate hikes from the Federal Reserve. 

The blue-chip Dow Jones Industrial Average soared 2.6% to finish at 32,861, while the broader S&P 500 jumped 2.5% at 3,901. The tech-heavy Nasdaq Composite vaulted 2.9% to end at 11,102. 

Friday's session made for an upbeat end to a tumultuous week of mixed trading driven by disappointing quarterly reports from a slew of the biggest technology companies. On Friday, it was Amazon.com's (AMZN, -6.8%) turn to take a dive, as shares tumbled after the e-commerce and cloud-computing giant gave a downbeat revenue forecast for the holiday shopping season. Google parent Alphabet (GOOGL), Facebook parent Meta Platforms (META) and Microsoft (MSFT) all delivered discouraging results earlier in the week. 

But Friday's action was dominated by a better-than-expected reading on inflation. The core Personal Consumption Expenditure Index, which is the Fed’s preferred measure of inflation, gained 0.5% month over month in September. That was just below economists' expectations, and fueled hope that the central bank could slow down its pace of interest rate increases.

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The Best Healthcare Stocks to Buy

A slower pace of inflation is to be expected if the economy really is set for a slowdown, and that only reinforces the case for equities that hold up well in a down market. Although the initial reading on third-quarter gross domestic product came in at a better-than-expected 2.6% annual rate – and rebounded after two consecutive quarters of contraction – experts say the underlying data reveal an increasingly weak economy. If that does turn out to be the case, investors would be well-advised to adopt strategies that work in a bear market. Adding reliable and rising dividend payers to a portfolio can certainly help folks' returns hold up in down markets, especially when those names are concentrated in defensive sectors. The best consumer staples stocks are a good place to start. 

But few sectors are as dividend-rich and defensive as healthcare. The driving narrative of the past few years has been the industry's response to COVID-19, and some of those tailwinds are beginning to abate. We've found several healthcare stocks set to reach new heights as the pandemic continues to ebb.

Among the many challenges confronting investors in 2022 is the dizzying rise of the U.S. dollar. From the start of the year through September 9, the Dollar Index (DXY) surged 14%, reaching its highest level in 20 years. The three largest components in the index’s basket of currencies—the euro, Japanese yen and British pound—have all slumped 15% to 25% against king dollar over the past 12 months.

Exchange-rate movements are driven by an amalgam of factors including interest rates and monetary policy, inflation and economic growth, trade balances and perceived geopolitical risk. For example, higher U.S. interest rates and aggressive Fed monetary tightening help to strengthen the value of the dollar. So does the relative strength of the U.S. economy compared with Britain, the eurozone and Japan. 

And the tragic war in Ukraine only raises the risk profile in Europe. “When things go bad, generally the dollar trades as a safe haven, and today there is a shortage of safe havens,” says Brent Donnelly, president of Spectra Markets, a macroeconomic and currency-trading adviser.

Ukraine War’s Effect on Stocks

The Russian invasion of Ukraine has severely disrupted the supply of oil and natural gas to Europe. European countries now face a nasty energy crisis and a cold, dark winter ahead. The eurozone’s ill-considered dependence on the kindness of Vladimir Putin for the supply of natural gas through an extensive pipeline network emanating from Russian gas fields has backfired. The price of gas and electricity in Europe (including in Britain) has skyrocketed to stratospheric levels, with the price of imports of energy and other raw materials escalating far faster than the export price of, say, a BMW. The U.S., a net exporter of energy and agricultural goods, is in a much stronger terms-of-trade position. 

What does this mean for U.S.-based investors in stocks? There are multiple implications, many of which defy easy solution. “The trouble of a strong currency in the U.S. is that it creates more losers than winners,” says Andy Kapyrin, co-chief investment officer at Regent-Atlantic. About 30% of revenues of companies in the S&P 500 index are generated overseas. Profits on those sales decline when they’re repatriated to the U.S. from weak-currency markets and translated into strong dollars. 

The equation for international stocks is mixed. In theory, the earnings of a foreign multinational such as Toyota Motor, with costs in weak-currency Japan and revenues in the strong-currency U.S. market, should benefit when those dollars are exchanged for yen. But not every foreign company shares those favorable economics, and the thought of exchanging dollars today for the stock of an overseas company denominated in a shrinking foreign currency is a bit intimidating. Says Simon Lack, comanager of Catalyst Energy Infrastructure Fund, “If you think the dollar is going up, you want to minimize international exposure.” 

Currency volatility is a complicated issue for investors—and keep in mind that there are many other confluent factors influencing stock prices, including valuation, product pricing power and competitiveness. In fact, some professional investors simply refuse to play the game of trying to time movements and cycles of currencies. “Obviously there are no easy answers, so we simply try to invest in good companies trading for reasonable valuations to be held through several business cycles rather than thinking that we can figure out the gyrations of fickle currency traders,” says John Buckingham, editor of The Prudent Speculator.  

Considering this confusing brew, we have provided some suggestions for investors to think about and invest in today’s strong-dollar environment. All investment returns are through September 9 unless otherwise indicated.

You can loosely divide U.S. companies into three groups: those negatively affected by dollar appreciation, those helped by a strong greenback, and domestically oriented outfits that are not directly impacted by currency movements. Large multinational corporations, such as Microsoft and Apple, that book most of their revenues abroad are hurt when foreign profits in weak currencies such as the euro and pound are translated back into U.S. dollars.

Importers are one type of business that, in theory, could benefit, because the cost of shopping abroad for parts and finished goods declines with currency weakness—as it does for American tourists shopping in Italy or Britain. Joe Duffy, director and investment specialist at Harbor Capital Advisors, cites TJX Companies (TJX), a large off-price retailer of clothing and home fashions, as an example of a firm that buys abroad but sells predominantly in the U.S. 

In the same vein, Kapyrin likes Home Depot (HD), which imports much of its home-improvement merchandise from factories in weaker-currency locales, including China and Mexico, and registers about 90% of sales in domestic stores. The stock yields 2.5%, and the company has jacked up the dividend 16% annualized over the past five years. The stock is a member of the Kiplinger Dividend 15, the list of our favorite dividend stocks.  

A Domestic Focus Helps These Stocks 

You could call the third category stay-at-home companies, whose costs and (more importantly) revenues are principally here in the U.S., so they earn money in super-strong dollars. These tend to cluster in certain domestic industries. One is real estate, which Kapyrin calls “agnostic to the value of the dollar.” Lisa McIntire Shaw, managing partner of Charlotte, N.C.–based Cygnus Asset Management, is particularly attracted to warehouse, storage, cell tower and 5G infrastructure real estate investment trusts, which are well represented in exchange-traded fund Vanguard Real Estate (VNQ). 

Another expanding sector dominated by domestic revenues is defense contracting. Alex Seleznev, director of wealth management and financial planning services at Councilor, Buchanan & Mitchell, likes Lockheed Martin (LMT). The company’s sales are predominantly in the U.S., and it is exposed to long-term growth businesses including the F-35 fighter, hypersonic missiles and space militarization. Lockheed, another Dividend 15 stock, yields 2.7% and has raised its dividend for 19 consecutive years. Rising geopolitical tensions with countries such as Russia, China and Iran should provide a nice budgetary tailwind for defense contractors. If you’d rather spread your defense bets, consider iShares Aerospace & Defense (ITA). 

In health care, as with Lockheed Martin, Seleznev likes UnitedHealth Group (UNH) for the long run. By far the largest health insurer, domestically focused UnitedHealth has negligible currency-exchange risk and will continue to benefit from the inexorable growth in the number of Medicare patients (it’s the leading provider of both Medicare supplemental insurance and Medicare Advantage insurance) and demand for medical care from an aging population. 

Several energy companies, with revenues mostly in greenbacks, also look attractive. Stewart Glickman, energy analyst at investment research firm CFRA, is drawn to domestically focused exploration and production companies, including EOG Resources (EOG), which has low debt and a clean balance sheet. EOG recently announced a large find of natural gas in South Texas, which is conveniently located close to Gulf Coast facilities at which natural gas is converted into liquefied natural gas (LNG) through a cooling process that shrinks the volume of gas 600 times, enabling it to be exported to the world. 

Even before the dollar went on a tear, international stocks were trailing badly behind U.S. markets in performance. That has made individual investors and financial advisers unusually wary of holding foreign stocks. “Domestic U.S. investors in equities second-guess any foreign exposure whatsoever,” says Peter Essele, head of portfolio management at Commonwealth Financial Network.

Jed Weiss, manager of Fidelity International Growth, a member of the Kiplinger 25 list of our favorite no-load funds, sees international investing’s prolonged stretch of underperformance as an opportunity because the asset class is now inexpensive relative to U.S. stocks. (For instance, the price-to-book-value ratio of the S&P 500 index is more than double that of the MSCI EAFE index of international stocks, which offers an average yield of 3.3%, or nearly double that of U.S. stocks.) 

As for currency impact, Weiss cites LVMH, the French maker of luxury goods such as Louis Vuitton bags. LVMH, which was a top-five fund holding at last report, produces mainly in Europe (with a weak currency) and books a large chunk of sales in U.S. dollars (a strong currency), which should bolster profits. Airbus, another large fund holding, becomes more competitive against Boeing because the former’s plants are in the eurozone and Boeing’s are in the U.S. 

The trouble is that the energy crisis in Europe will likely sink the continent into a recession and potentially even spark political and social instability. Given energy shortages, Mike Green, portfolio manager and chief strategist with Simplify ETFs, anticipates a “wartime” economy in Europe this winter, with governments forced to make invidious decisions about rationing and allocating scarce energy resources among households and businesses—and about how much to subsidize electricity for end users. That just doesn’t sound like a good recipe for visibility of corporate profits.

Should You Hedge Currencies? Probably Not. 

One tactic to address the issue of a strong dollar and weak foreign currencies for U.S.-based investors is to hedge currencies. Because this involves buying and managing portfolios of currency contracts such as futures or options, realistically this is a game best left to professional investors, and not all agree it’s necessary. Fidelity International Growth does not hedge currencies, for one.

Many pros also seem to be shying away from currency hedging these days. Peter Essele, head of portfolio management for Commonwealth Financial Network, calls currency hedging “an exercise in futility and frustration” since there’s a mismatch between the short-term, risky challenge of predicting currency movements and long-term investing in foreign companies. Brent Donnelly, president of Spectra Markets, a macroeconomic and currency-trading adviser, has been engaged in foreign currency markets for nearly three decades. “Hedging has a little bit of a bad name since it has a cost and the benefit isn’t always clear,” he says. “The risk-averse approach is to never hedge.” If you feel vulnerable to currency volatility, there is a way to play it both ways: 

IQ FTSE International Equity Currency Neutral (HFXI) is an exchange-traded fund aimed largely at investment advisers that maintains a 50%, or neutral, currency hedge on its portfolio of international stocks by using derivatives contracts on each of the underlying currencies and resetting the balance monthly. “We think of it as the hedge of least regret,” says Sal Bruno, chief investment officer of IndexIQ, the fund’s parent. So far this year through September 9, the semi-hedged fund’s loss of 14.1% was roughly six percentage points less than that of the fund’s underlying unhedged international index. 

It has been a rough year for the stock market but even more so for mega-cap tech stocks. From the start of 2022 through early August, the four largest technology companies lost an average of 14% of their value, including dividends, compared with a decline of 12% for the benchmark S&P 500 Index. (Prices, returns and other data are as of Aug. 5 unless otherwise noted.)

The four biggest tech firms also happen to be the biggest U.S. companies of any kind, as measured by market capitalization (price times shares outstanding). In order of size, the Mega Four are Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL) and Amazon.com (AMZN). Over the past five years, their share prices have more than tripled, and each has a market cap of more than a trillion dollars. But investors are bewitched by what behavioral economists call "recency bias," or putting too much emphasis on the latest events, so losses over the previous few months are prominent in investing decisions.

Smart investors take a long view, both forward and backward. They look carefully at a company's progress over the years and then try to forecast a decade out. With this kind of analysis, the 2022 decline is clearly a buying opportunity for three reasons:

Adaptability. Each of the Mega Four started with a single big idea: search-based advertising for Google, personal computing for Apple, online shopping for Amazon and operating-system software for Microsoft. None has abandoned its original business, but all have moved into other sectors. Those transitions have been impressive and nearly unique among corporations. The flexibility that the Mega Four have displayed bodes well for future adaptation to changing markets.

For example, every one of the four is a leader in the supremely profitable business of cloud computing, which lets users store massive amounts of data remotely and securely, accessible anywhere in the world. Three-fourths of Amazon's profits last year came from its cloud-computing unit. For the quarter ending June 30, Microsoft's Intelligent Cloud revenue represented 39% of total sales for the company; Alphabet's cloud revenues jumped 35% in the same quarter.

Even Apple, a manufacturing company, understands the value of cloud computing. Revenues from the company's services division, which in addition to the cloud includes Apple TV+, Apple Music, the Apple Card and the App Store, are growing three times as fast as iPhone sales. Forbes predicts profits from services will reach $50 billion a year, surpassing the profits from iPhone sales, by 2025.

All the companies are using a subscription model, the best example being Amazon Prime, to guarantee a flow of cash. In addition, both Apple and Amazon have made major investments in video production and streaming.

Alphabet's YouTube, even though it is blocked in China, has become a huge global advertising vehicle, with 2.6 billion users. Meanwhile, Microsoft is one of the three largest gaming companies in the world. Alphabet's Google owns Nest thermostats and Verily Life Sciences. Amazon owns the Whole Foods Market chain, with $17 billion in revenues. Alphabet's Gmail service is the largest in the world, accounting for 37% of all email openings last year.

Not all the tech companies' investments (or "other bets," as Alphabet officially calls them) have paid off – Google Fiber, bringing super-high-speed internet connections to about a dozen cities, has been disappointing, for one – but the Mega Four have remarkable acquisition track records and plenty of cash to buy more businesses. Among the three of them, Microsoft, Apple and Alphabet collectively have a total of nearly $300 billion in cash and short-term investments on their balance sheets.

Congress and regulators, of course, may stand in the way of further growth by acquisition. But the big tech companies have also grown organically, with such great businesses as Amazon Web Services, the largest cloud-services organization in the world, generated within their own organizations.

Profitability. The reason the Mega Four have so much cash is that they are absurdly profitable. Take return on equity, which is net income divided by shareholders' equity (a firm's net worth, or what would get turned over to the stockholders if a company were liquidated). According to a Nasdaq primer, return on equity "enables investors to identify companies that diligently deploy cash for higher returns." Apple's current return on equity is 153%. In other words, raising $1 million in equity produces profits of $1.53 million! For comparison, Zack's, an investment research firm, reports that the average for the mini-computer sector is 19%.

A cruder profit measurement is operating margin, or return on sales – that is, profits divided by revenues. For all U.S. industries, the average figure is about 11%, but Microsoft's is nearly 40% over the past 12 months, and Alphabet's is about 30%. Amazon is mainly a retailer, so its margins are lower, but its cloud business has an operating margin of about 30%. There's no need to get bogged down in statistics. It's sufficient to say that these companies are profit machines, even when the economy appears to be slowing down as the Federal Reserve raises interest rates to thwart inflation.

Valuation. Now I get to the best part of the Mega Four story: These stocks are cheap. I can't predict whether they'll get cheaper in the short run, but it's clear that becoming partners in some of the best businesses in the world is a better deal today than it was at the start of the year.

Alphabet, whose shares have dropped from $148 earlier this year to $117, now carries a forward price-to-earnings (P/E) ratio, based on a consensus of analysts' earnings forecasts for the next 12 months, of 22, and Apple's is 27. Despite a recent bounce, Amazon is considerably less expensive than it was two years ago, and Microsoft has lost $59 a share since it traded at $342 in November 2021.

The company that used to be the fifth-largest U.S. stock and now ranks 11th, Meta Platforms (META), the former Facebook, provides a striking contrast to the Mega Four. Some 97% of Meta's total revenue comes from advertising sales, which fell in the most recent quarter because of vulnerability to trends in the overall global economy and increased competition. Meta is trying to make its own shift, "moving beyond 2D screens toward immersive experiences like augmented and virtual reality to help build the next evolution in social technology," as its latest earnings report says.

Can Meta's management lead this kind of massive, risky transition? That's uncertain, but when it comes to valuation, Meta is hard to resist. The stock has plunged 50% this year, and its P/E is currently a mere 18. Meta and Johnson & Johnson (JNJ) have the same market cap, but Meta earned about 40% more in the most recent quarter.

Of all the ideas that created America's biggest tech companies, Facebook's was the most simple and revolutionary. It completely changed the way we connect with other people and upended the advertising world. Today, one out of every six ad dollars in the world is spent on Facebook – twice as much as on Google.

The main case for the Mega Four – or Five – is their success. I realize that the market battlefield is littered with giant winners that have become losers, General Electric (GE) being the prime example. There are no guarantees in investing. But when the market sours on companies because of the state of the economy, it's a good time to be buying the best.

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. Of the stocks mentioned here, he owns Microsoft and Amazon.com. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. You can reach him at James_Glassman@kiplinger.com.

The U.S. dollar is the strongest it’s been in decades, and it’s showing no signs of cooling off. Given the continuing focus by financial markets on the aggressive monetary policy tightening by the Federal Reserve, the dollar’s strength should continue against most foreign currencies at least until year-end. That has major implications for multinational companies, and for the investors who buy their stocks.

An easing of inflationary pressures and improving global growth conditions are likely needed to bring about a peak in the dollar, conditions that are unlikely to materialize anytime soon. Investors around the world have flocked to the dollar because it is a source of stability amid weak global economic conditions. The greenback has also benefited from the high commodity prices this year stoked by Russia’s war in Ukraine.

Nearly all currencies have fallen against the buck over the past several months. While currencies in emerging markets generally feel pressure when investors flock to the dollar, those of developed countries also have fallen this time. The ICE U.S. Dollar Index, which measures the dollar against a basket of currencies from major trading partners such as Japan, the U.K. and the eurozone, has mounted a steep climb this year. The index is up more than 13% in 2022.

The strong dollar will likely have an impact on earnings of many publicly traded companies. Several, including Microsoft (MSFT), IBM (IBM), Nike (NKE), Johnson & Johnson (JNJ) and Philip Morris (PM) have recently highlighted the surging dollar as a factor that weighed on revenues in their second quarter results. Goldman Sachs (GS) estimates that a 10% appreciation in the dollar would reduce earnings by companies in the S&P 500 by 2%-3%. Companies in the S&P 500 index generated 29% of sales outside of the US in 2021. Here’s a rundown of stocks that stand to gain or lose due to the dollar’s strength.

Wednesday was a busy, but successful, day for stocks, with today's upside fueled by a well-received round of earnings and the latest Fed policy update.

There was no shortage of corporate updates for investors to sift through, but last night's results from Big Tech titans Alphabet (GOOGL, +7.6%) and Microsoft (MSFT, +6.7%) drew the most attention.

While Alphabet missed on both the top and bottom lines, the company did see strong growth in Google Search revenue thanks to travel and retail searches. Microsoft's fiscal fourth-quarter results also came up short, but it expects double-digit revenue and operating income growth in fiscal 2023 (on a currency adjusted basis). Both firms reported their slowest revenue growth since 2020, and pointed to a stronger dollar as a significant headwind.

Also in focus today was the Federal Reserve, which, as expected, raised interest rates by 75 basis points (a basis point is one-one hundredth of a percentage point).

"With some softening of recent economic data, Fed officials likely didn't feel the pressure to go beyond market consensus with regards to the level of rate change in the policy rate," says Charlie Ripley, senior investment strategist at Allianz Investment Management. He adds that there is plenty of time between now and the Fed's September meeting for the central bank to see if policy changes that have already been made are working. Overall, there were no surprises in today's meeting, and what happened this afternoon ultimately leaves the central bank's options open this fall, he says.

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Stocks were solidly higher heading into the mid-afternoon central bank announcement, but skyrocketed following it. The Dow Jones Industrial Average jumped 1.4% to 32,197 and the S&P 500 Index soared 2.6% to 4,023. The Nasdaq Composite, meanwhile, spiked 4.1% to 12,032, its best day since April 2020.

Other news in the stock market today:

• The small-cap Russell 2000 rose 2.4% to 1,848.
• U.S. crude futures advanced 2.4% to settle at $97.26 per barrel.
• Gold futures eked out a marginal gain to end at $1,719.10 an ounce.
• Bitcoin enjoyed an 8.9% boost to $22,769.69. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
• Chipotle Mexican Grill (CMG) rallied 14.7% after the burrito chain reported second-quarter earnings of $9.30 per share, more than analysts were expecting. And while revenue was up 17% year-over-year for the three-month period, it came in just below the consensus estimate. CMG also said it will raise prices again in August ot counter inflation. "We believe that Chipotle has a healthy balance sheet along with robust mobile ordering and delivery platforms that will help it to recover as the economy reopens," says Argus Research analyst John Staszak (Buy). "While some consumers may be put off by Chipotle's relatively high prices, we expect its strong brand to continue to attract customers."
• Enphase Energy (ENPH, +17.9%) was another post-earnings winner. The maker of solar energy microinverters reported higher-than-expected Q2 revenue of $530 million, boosted by a 69% quarter-over-quarter spike in European sales. "Beyond energy security concerns in the European Union, we believe the electrification of both the heat and transportation markets are going to drive demand for distributed power assets as existing infrastructure struggles to keep pace," says Oppenheimer analyst Colin Rusch (Outperform). "We are also beginning to see the impact of inflation on delivered electricity prices, which is helping solar + storage unit economics while grid reliability has become increasingly challenged."

It's Been a Rocky Road for Airline Stocks

Red-hot inflation is not only a thorn in the Fed's side, but it – as we have witnessed time and time again – is also weighing on consumer-facing companies. Take for instance the airline industry, which is seeing higher fuel costs weigh on financial results. "Inflation is a major headache for all industries and the airline business is not immune to rising costs," says Peter McNally, global sector lead for industrials, materials and energy at research firm Third Bridge Group.

And these rising costs are creating a less profitable business environment than before the pandemic, even as "the underlying demand for air travel is strong." But, he adds, business and international travel have yet to recover at the same pace that leisure has, and these two areas could create a key source of future profits for airlines.

While there is certainly a reason to hold out hope for the industry, not all airline stocks are created equal. Here, we take a closer look at seven airline companies to see which ones are best positioned to ride out this rocky recovery.

Karee Venema was long GOOGL as of this writing.

Stocks endured another roller-coaster session on Thursday as investors weighed a weak forecast from one tech giant, the latest comments on the Federal Reserve's rate-hike timeline and mixed jobs data.

Microsoft (MSFT, +0.8%) was the main catalyst for the broader market's slow start this morning. The Redmond, Washington-based software developer lowered its current-quarter sales and earnings guidance citing the impact from a stronger U.S. dollar, which is currently trading near a 20-year high relative to its global counterparts.

MSFT now expects fiscal fourth-quarter revenue to arrive between $51.94 billion and $52.74 billion, down from its prior outlook for sales of $52.40 billion to $53.20 billion; and earnings per share of $2.24 to $2.32, compared to previous guidance for earnings of $2.28 per share to $2.35 per share.

Also on Thursday, Federal Reserve Vice Chair Lael Brainard said in an interview on CNBC that it is too early to tell if inflation has peaked and that it is "reasonable" for the central bank to issue 50 basis-point (a basis point is one-one hundredth of a percentage point) rate hikes at each of its next two meetings (in June and July). The Fed will need to see more current economic data to determine the appropriate path forward from there – though the central bank is unlikely to pause raising rates, she added.

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And ahead of tomorrow's May nonfarm payrolls update, data from ADP showed the U.S. added a much lower-than-expected 128,000 jobs last month. Separately, a report from the Labor Department indicated weekly jobless claims fell by 11,000 to 200,000 in the week ended May 28.

The broader markets spent most of the morning in negative territory, but were higher by lunchtime and closed near their intraday peaks. The Nasdaq Composite finished up 2.7% at 12,316, the S&P 500 Index gained 1.8% to 4,176 and the Dow Jones Industrial Average was 1.3% higher at 33,248.

Other news in the stock market today:

• The small-cap Russell 2000 spiked 2.3% to 1,897.
• U.S. crude futures gained 1.4% to settle at $116.87 per barrel after OPEC+ agreed to boost production to 648,000 barrels per day from 432,000 barrels per day.
• Gold futures gained nearly 1.4% to finish at $1,873.60 an ounce.
• Bitcoin edged up 0.5% to $30,262.62. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
• Chewy (CHWY) jumped 24.2% after the online pet supplies retailer reported earnings. In its first quarter, CHWY reported a per-share loss of 4 cents on revenue of $2.43 billion, beating analysts' estimates for a per-share loss of 14 cents and revenue of $2.42 billion. "CHWY protected margins during the first quarter by raising prices to offset costs and managing advertising tightly (lowest % of sales on record) but lost customers along the way – net ads declined for the first time as a public company and could still be negative in the second quarter," says Needham analyst Anna Andreeva. While Andreeva raised her full-year revenue and EBITDA (earnings before interest, taxes, depreciation and amortization), she maintained a Hold rating. "We think both positive net ads and margin expansion are necessary for the story to work from here," the analyst adds.
• Generac Holdings (GNRC) spiked 10.3% after UBS Global Research analyst Jon Windham (Buy) named the industrial stock a "top pick" in alternative energy. "We forecast GNRC's clean energy revenues to grow from ~$550 million in 2022 estimates to $1.7 billion by 2026 estimates (~ 23% revenue)," Windham says. "GNRC's diverse product suite, dominant market position in home standby power, and existing national installer network are hard to replicate assets that in our view position GNRC as a long-term winner in the emerging U.S. smart home energy market." The analyst also said Generac stock provides an "attractive buying opportunity" following its nearly 24% year-to-date decline.

Are Brighter Skies Ahead for Investors?

This could be the case, say Jeff Buchbinder and Ryan Detrick, equity strategist and market strategist, respectively, at independent broker-dealer LPL Financial, but it will require investors to look through some heavy cloud cover.

"We fully acknowledge how tough it is to see the bull case for stocks right now, and a retest of recent lows is certainly possible," the strategists say, but they believe a second-half recovery could be in the cards.

For starters, the two expect inflation pressures will likely ease over the next seven months should progress be made on supply-chain disruptions, the Ukraine war and the labor front (specifically, more workers entering the market). And since lower inflation tends to support higher valuations, this could be a "powerful combination" alongside solid earnings momentum to help get the S&P 500 back into the green by year-end, Buchbinder and Detrick contend.

A second-half recovery could spell good things for growth stocks, which have been particularly beat down in 2022's market meltdown. And while investors still need to be prudent when sifting through the rubble, this sharp selloff has some of Wall Street's most coveted stocks trading at much more attractive valuations.

These growth-at-a-reasonable price (GARP) stocks, for instance, are all attractively priced but are still expected to grow earnings by double digits over the next year. Another potential source of inspiration is this list of top-rated high-growth stocks that analysts expect will see an average of 20% earnings and revenue growth over a two-year timeframe. While many of the names featured here have had a rough 2022, investors with a long-term horizon may want to take a closer look.

The major indexes managed to mostly stop the bleeding after yesterday’s rout, but they didn’t gain much ground, either, amid mixed earnings reports from a range of blue-chip stocks.

Microsoft (MSFT, +4.8%) shares were jolted higher Wednesday following the software maker's stellar quarterly report last night. Microsoft grew sales by 18% in its fiscal Q3, beat top- and bottom-line expectations alike, and provided current-quarter outlooks for all three of its operating divisions that were better than Wall Street forecasts.

"With software investors keyed in on every word, MSFT (yet again) demonstrated the resilience of its platform and ongoing benefits stemming from the strategic shift towards cloud," says Wells Fargo analyst Michael Turrin, who rates the stock at Overweight (equivalent of Buy).

Wedbush's Daniel Ives (Outperform, equivalent of Buy) was even more effusive:

"There are some moments in the financial markets that are pivotal and historical when put in context (e.g., Dimon's JPM conference calls and hand holding in the financial crisis 2008-09 timeframe)," he says. "Last night was one of them, when, in a white-knuckle market with the whole Street watching Microsoft's earnings with a close eye, Nadella & Co. gave a robust cloud guidance 'for the ages' that will calm Street nerves this morning and was a bullish data point for MSFT and importantly the whole tech sector moving forward."

Also jumping Wednesday was Visa (V, +6.4%), which credited a rebound in business and personal travel for its first-quarter revenues-and-earnings beat. It also predicted "high-teens" percentage growth in sales for all of 2022.

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Google parent Alphabet (GOOGL, -3.7%) was a drag, however. While Google Cloud revenues were slightly better than expected, a wide miss on YouTube advertising revenue caused overall profits and sales to fall short of Wall Street estimates.

Boeing (BA, -7.5%) also had a litany of bad news to report: The aircraft maker lost $2.75 per share in Q1 – wider than its year-ago $1.53 in red ink – said it would temporarily suspend production of its 777X passenger jet, and logged $660 million in first-quarter charges related to its deal with the Trump administration to provide new planes for the Air Force One fleet.

The Nasdaq Composite briefly dipped to a new intraday low for 2022 before recovering, though it still finished with a marginal loss to 12,488. The S&P 500 was up a modest 0.2% to 4,183, and the Dow Jones Industrial Average gained 0.2% to 33,301.

Other news in the stock market today:

• The small-cap Russell 2000 was off 0.3% to 1,884.
• U.S. crude oil futures were up marginally to $102.02 per barrel after a greater-than-expected drop in gasoline and distillate inventories helped oil recover from an intraday decline below the $100 mark.
• Gold futures fell 0.8% to end at a two-month low of $1,888.70 an ounce.
• Bitcoin jumped 2.5% to $38,859.58. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
• Robinhood Markets (HOOD) ended the day down 4.9% after the trading platform said it would let go of roughly 9% of its workforce, or more than 300 employees. This comes as a period of "rapid headcount growth has led to some duplicate roles and job functions," said Vlad Tenev, co-founder and CEO of Robinhood, in a blog post late Tuesday. "Layoffs can't be a good sign, but bringing cost down to Earth is a positive," says Mizuho Americas analyst Dan Dolev (Buy).
• F5 (FFIV) plunged 12.8% after the network applications specialist reported earnings. In its fiscal second quarter, FFIV reported earnings of $2.13 per share on revenue of $634.2 million, more than analysts were expecting. However, the company lowered its full-year revenue growth outlook to a range of 1.5% to 4% versus previous guidance for growth of 4.5% to 8%. Still, Needham analyst Alex Henderson maintained a Buy rating on FFIV. "F5 is undervalued," Henderson writes in a note to clients. Plus, "FFIV offers a strong blend of accelerating revenue growth, expanding gross margin and operating margin, a strong balance sheet with nearly $10/share in cash, a $500 million annual buyback and free cash flow generation."

Could Stocks Swoon More in Summer?

The natural question on many investors' minds: Have we finally hit the bottom for 2022? The answer … well, we won't know the answer until it's in our rear-view mirror, but history suggests this summer could be worse.

"Could stocks' bottom for the year [be] in March or April? Sure, but history would say midterm year lows tend to be later in the year," says LPL Financial Chief Market Strategist Ryan Detrick. "Midterm years see the S&P 500 bottom on Aug. 14 on average, and the median bottom is in early September."

But that's no reason for panic – or necessarily even a guarantee that stocks will finish the year in the red.

"Many investors forget that double-digit declines during a year are actually normal," Detrick adds. "After only one 5% pullback all of last year, markets have provided an unfriendly reminder in 2022. In fact, since 1980, the average correction each year is 14.0%, putting this year's 13.0% correction in perspective.

"Taking this a step further, 21 times since 1980 the S&P 500 has been down double digits at one point from its peak, with an impressive 12 of those years managing to come back and finish the year positive."

For now, investors might best be served by making lemonade out of the market's lemons. A number of tech stocks with appealing long-term business theses suddenly find themselves in the discount bin. Of course, even when tech goes on sale, it's sometimes still not a true bargain – it's cheaper, but not necessarily cheap.

If you demand a bona fide value, consider these 15 value-priced stock picks. Each of these names appears undervalued based on several metrics, despite convincing bull cases that could pull them back up by the end of 2022:

The busiest week of second-quarter earnings season is upon us. Wall Street will be privy to results from some of the biggest names in technology, with Apple (AAPL, $155.35), Amazon.com (AMZN, $124.63), Alphabet (GOOGL, $114.34), Meta Platforms (META, $183.17) and Microsoft (MSFT, $264.84) among those on this week's earnings calendar.

"With the major U.S. tech names set to start reporting, traders will be poised to see how margins are holding up in the previous stock-market darlings, and hoping they paint a prettier picture than the underperformance from U.S. banks," says Sophie Lund-Yates, equity analyst at U.K.-based financial firm Hargreaves Lansdown.

Apple Margins Expected to Stay High

CFRA Research analyst Angelo Zino (Buy) expects Apple to report gross margins between 42% and 43% when it unveils its fiscal third-quarter results after the July 28 close.

"AAPL's gross margins remain elevated, benefiting from the ongoing shift towards services and better mix within products," says Zino. "Positive tailwinds ahead will include more favorable selling prices and mix towards services while unfavorable forex is expected to act as a headwind over the next several quarters."

Overall, analysts, on average, expect AAPL to report earnings per share (EPS) of $1.16, down 10.8% year-over-year (YoY), and revenue of $82.6 billion (+1.5% YoY).

Analyst: Amazon Remains a Top FANG Stock

Amazon.com will release its second-quarter earnings report after Thursday's close. Consensus estimates are for AMZN to unveil earnings of 15 cents per share (-80% YoY) and revenue of $119.1 billion, up 3.4% over the year-ago period.

BofA Global Research analyst Justin Post (Buy) recently lowered his Q2 revenue outlook for AMZN amid forex headwinds. "Key topics for the quarter will likely be inflation impact on the consumer spend, retail gross margins given Target's (TGT) second-quarter guidance update, still elevated gas prices and labor cost impact on operating costs and forex pressure," Post says.

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But while "inflation and recession risk clouds the near-term revenue and margin trajectory," Amazon remains Post's top pick among FANG stocks. Indeed, following its roughly 25% year-to-date decline, AMZN stock is one of the best deals around.

Alphabet Faces Tough Comps in Q2

Alphabet enjoys a Buy rating from CFRA Research analyst Angelo Zino due to its "valuation versus large-cap tech peers, free cash flow potential and [the] belief that GOOGL can sustain a 10%-plus long-term EPS growth pace." However, Zino admits that there are risks ahead, including currency headwinds and regulatory issues.

Another potential drawback for GOOGL in Q2 are tough year-over-year comparisons. The company saw Google search revenue jump 63% YoY in Q2 2021, while YouTube ad revenue was up 83%. This time around, Zino expects those figures to come in closer to 10% and in the high-teens percentage, respectively.

GOOGL will report its second-quarter results after Tuesday's close. Analysts, on average, see Alphabet's total revenue growth moderating to just 13.1% YoY to $70.0 billion, while earnings are expected to decline 4.4% to $1.30 per share.

Meta Earnings Will Be "Better Than Feared," Say Analysts

Meta Platforms reports its second-quarter earnings after Wednesday's close. Fellow social media stock Snap (SNAP) reported dismal results on July 21, missing on both the top and bottom lines and saying it will "substantially slow our rate of hiring, as well as the rate of operating expense growth" amid a challenging macroenvironment.

SNAP stock sold off sharply as a result, raising the question: Does the same fate await META shares?

Deutsche Bank analysts Benjamin Black and Lee Horowitz (Buy) believe the Facebook parent will post Q2 results that will be "better than feared." True, macro headwinds and engagement trends driven by the rise of TikTok have sparked concerns, but "our intra-quarter checks point to slightly more benign challenges. As such, we think an outcome better than feared should suffice to support shares, particularly with the company signaling perhaps even more cost discipline over the next 6-12 months," the two say.

Analysts' consensus estimates are for Meta Platforms to report second-quarter earnings of $2.61 per share (-38.3% YoY) and revenue of $29.0 billion (+3.9% YoY).

Microsoft Expected to Post Modest Growth in Q2

Microsoft is one of a number of Dow Jones stocks making an appearance on this week's earnings calendar, with the tech giant slated to unveil its fiscal fourth-quarter results after Tuesday's close.

Analysts, on average, believe MSFT will report earnings of $2.30 per share (+6.0% YoY) and revenue of $52.5 billion (+13.7% YoY) for the three-month period.

Morgan Stanley analyst Keith Weiss admits that multiple crosscurrents could impact Microsoft's results, including declining PC shipments, forex headwinds and easing consumer demand. However, thanks to strong feedback on the resiliency of MSFT's consumer business and data gathered from a recent management survey, Weiss has confidence the company can sustain its growth going forward. The analyst has an Outperform rating on MSFT, which is the equivalent of a Buy.

Karee Venema was long AAPL, AMZN and GOOGL as of this writing.

The market began the week just as it ended the last one, with interest rates rising and tech shares selling off.

Indeed, rates rose for a seventh straight day to hit levels not seen in some time. The yield on the 10-year Treasury note spiked 5.7 basis points Monday (a basis point is one-one hundredth of a percentage point) to a three-year high of 2.77%.

Predictably, the technology sector was one of the worst-performing sectors, sinking 2.5%.

But it was the energy sector (-3.0%) that led the market lower, hurt by a drop in oil prices. U.S. crude oil futures shed 4% to settle at $94.29 per barrel amid fear that extended COVID-19-related shutdowns in China will sap global energy demand.

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The Nasdaq Composite ended the day down 2.2% at 13,411, hurt by weakness in big-cap tech stocks like Microsoft (MSFT, -3.9%) and Nvidia (NVDA, -5.2%). The broader S&P 500 Index (-1.7% at 4,412) and blue-chip Dow Jones Industrial Average (-1.2% at 34,308) likewise finished the session in the red.

As a reminder, it's a short week for traders and investors. The stock market will be closed on April 15 for Good Friday.

Other news in the stock market today:

• The small-cap Russell 2000 gave back 0.7% to 1,980.
• Gold futures gained 0.1% to settle at $1,948.20 an ounce.
• Bitcoin plunged 6.4% to $40,034.52. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
• Twitter (TWTR) stock was down more than 3% at its session low following news that Tesla (TSLA) CEO – and new TWTR stakeholder – Elon Musk would not be joining the social media firm's board of directors, as reported late last week. "Musk's decision to not join the board of Twitter is the culmination of a week of bizarre behavior and is simply a distraction from the many operational woes facing Tesla," says David Trainer, CEO of investment research firm New Constructs. "The Musk bump in Twitter shares is likely to fade as investors realize the only value Musk brought was publicity - not all of it good. Although Twitter remains a popular platform, it has its own problems and suggestions like removing a letter from its name can do more harm than good." TWTR was able to shake off its earlier weakness and end the day up 1.7%.
• AT&T (T) jumped 7.7% after the telecommunications firm's WarnerMedia unit on Friday officially completed its merger with Discovery. (The combined company – Warner Bros Discovery – began trading on the Nasdaq today under the symbol "WBD.") Additionally, J.P. Morgan analyst Philip Cusick resumed coverate on T with an Overweight (Buy) rating. "The company is investing in its wireless network with its 5G build out as well as expanding its fiber footprint to 30 million locations by 2025," Cusick writes in a note. "The network enhancements support wireless subscriber and service revenue growth in Mobility and broadband services in Consumer and Business Wireline."

Earnings Season is About to Begin

Although interest rates have been the market's main driver for months, earnings season will likely steal away traders' attention soon enough. Corporate results start flowing this week, and they're not projected to be as robust as we've come to expect.

"Analysts and companies have been more pessimistic compared to recent quarters in their earnings estimate revisions and earnings outlooks for the first quarter to date," says John Butters, senior earnings analyst at FactSet.

The current estimated earnings growth rate for the S&P 500 is 4.5%, which would mark the lowest earnings growth rate since Q4 2020, Butters says. However, considering that the majority of S&P 500 companies report earnings above estimates, the analyst expects the actual growth rate to top 10% for a fifth consecutive quarter.

JPMorgan Chase (JPM) headlines this week's earnings calendar when it unveils first-quarter results before Wednesday's opening bell, marking a stretch of reporting from a number of Dow Jones stocks and financial firms. Speaking of the latter, high inflation and rising interest rates put financial earnings in particulary sharp focus. Here, we've compiled a list of some of the most compelling plays in the sector, according to Wall Street's pros.

The major U.S. indexes continued to radiate anxiety on Wednesday heading into and after the afternoon release of the Federal Open Market Committee's most recent minutes.

At last month's meeting, Fed officials tentatively agreed to a quantitative tightening plan that would see the central bank sell off $95 billion in assets each month – $60 billion in Treasuries and $35 billion in mortgage-backed securities. Also, several FOMC members said 50-basis-point hikes to the Fed funds rate could be on the table to help curb inflation.

Stocks, which had largely headed lower all day, turned volatile after the minutes. While they ultimately finished in the red, they did so off the session's lows.

Mega-cap technology (-2.4%) and consumer discretionary (-2.6%) names including Microsoft (MSFT, -3.7%), Amazon.com (AMZN, -3.2%) and Tesla (TSLA, -4.2%) weighed heaviest on the Nasdaq Composite (-2.2% to 13,888). The S&P 500 (-1.0% to 4,481) and Dow Jones Industrial Average (-0.4% to 34,496) also finished lower.

"While the market has taken a bit of a breather anticipating an aggressive Fed posture, some fears may have been put to ease with the release of the minutes," says Mike Loewengart, managing director of investment strategy at E*Trade. "Half-point-basis point hikes are on the table, but that's where the buck stops – it's not guaranteed that half-point increases are the new norm.

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"And most predicted that a balance sheet plan would be rolled out, so the market might have already priced that piece in."

Other news in the stock market today:

• The small-cap Russell 2000 slid 1.4% to 2,016.
• Reports the International Energy Agency (IEA) will release 120 million barrels of crude oil from its reserves and data from the Energy Information Administration (EIA) that showed domestic inventories unexpectedly rose last week sent U.S. crude futures tumbling below the $100 per-barrel mark (ending down 5.6% at $96.23 per barrel).
• Gold futures fell 0.2% to settle at $1,923.10 per ounce.
• Bitcoin plunged 4.9% to $43,755.65. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)
• JetBlue Airways (JBLU) tumbled 8.7% after the airline made an unsolicited bid to buy fellow travel stock Spirit Airlines (SAVE, -2.4%) for $3.6 billion in cash. This comes after SAVE in February said it was merging with carrier Frontier Group (ULCC, -11.0%) in a deal valued at $6.6 billion – and one that was approved by both companies' boards of directors. In reaction, Raymond James analyst Savanthi Syth downgraded JBLU to Market Perform from Outperform (the equivalents of Hold and Buy, respectively). "While there may be longer term merits to the deal, execution risk is greater than that of the proposed Spirit-Frontier merger with dis-synergies likely to precede any meaningful synergy benefits," Syth writes in a note.
• Rivian Automotive (RIVN) slid 5.0% even as the electric vehicle maker said it is on track to meet its annual production goal of 25,000 vehicles this year. This comes as the company delivered 1,227 vehicles in the first quarter, more than the 929 it delivered in all of 2021. "Given that its production rate should continue to increase in the coming months, we think investors might view its 2022 production guidance of 25,000 units as more achievable than they were previously, which suggests that perhaps the worst of Rivian's operational challenges are behind it," says CFRA Research analyst Garrett Nelson (Hold).

Retail Stocks Could Sing

Inflation might be hot, but so is the money burning a hole through consumers' pockets. The retail industry has been met with more than its fair share of difficulties, including rocketing input costs and supply-chain disruptions, which have only gotten worse amid Russia's invasion of Ukraine.

And yet, retail sales were up nearly 18% year-over-year in February. And the National Retail Federation's outlook for 2022 is for retail sales growth of between 6% and 8%.

"Despite all that's been thrown at them including inflation, supply-chain constraints, market volatility and significant geopolitical events, consumers remain able and willing to spend," says NRF chief Matthew Shay.

Broadly speaking, investors can get access to many of the retailers benefiting from this trend in the consumer discretionary and (to a lesser extent) consumer staples sectors.

But for a short list of some of the current top plays, consider these five retail stocks, each of which boasts a crowded Wall Street analyst bull camp and share-price upside of between 25% and 80%.

In one of the most volatile episodes in stock market history, investors early last year took the shares of a company called GameStop (GME) on a wild ride that few would have expected for a business that's mostly a brick-and-mortar antique, the gaming version of a chain of video stores. Its shares went on an adventure that echoed the characteristics of the video games on its shelves: fantasy, violence and a romantic quest for justice and vengeance.

In real life, however, GameStop has had a lousy year, losing money once again. But the rest of the gaming sector has taken up the mantle. It's booming, becoming the backbone of the metaverse, a three-dimensional online environment that is likely the "next big thing" in consumer technology.

In 2020, partly because the pandemic kept Americans indoors, gaming revenues exceeded those of movies and sports events combined. Global gaming sales in 2021 are estimated at $178 billion and projected to rise to $269 billion by 2025. According to the consulting firm Accenture, one out of every three people in the world is a gamer.

No wonder so many big tech players are investing in the business. In 2000, Microsoft (MSFT, $306) launched the game-playing console Xbox, and in 2014 the company bought Minecraft, a survival-themed game, for $2.5 billion; Minecraft now has 131 million active monthly users. In January, Microsoft announced that, pending regulatory approval, it will spend $69 billion to purchase ActivisionBlizzard (ATVI), which has 400 million gamers a month playing such popular titles as Call of Duty and World of Warcraft.

Trying to stay abreast, Sony Group, maker of the wildly popular PlayStation console, announced Jan. 31 that it was buying Bungie, the private developer of the Halo and Destiny franchises, for $3.6 billion. (Stocks I like are in bold; share data are as of Feb. 4.)

Amazon (AMZN, $3,153) entered the market in 2014 with the purchase of Twitch Interactive for $970 million. Twitch lets gamers livestream themselves to viewers, who can watch and comment. Twitch has about 8 million active users. It dominates the market, but competition is growing from such big players as Alphabet (GOOGL, $2,866), with YouTube Live; and Meta Platforms (FB, $237), the former Facebook.

Facebook, walloped by a disappointing revenue projection for the first quarter of 2022, has thrown in its lot with the metaverse. It’s an idea with roots in Second Life, a computer game Facebook created in 2003. When I was a State Department official, my avatar gave an interactive speech in 2008 with the avatars of pro-democracy Egyptian students. In the metaverse, you can go to concerts, hold business meetings where you are immersed in, say, a construction site or restaurant, or drop down onto a virtual football field and run a few plays. The key for investors is that the metaverse depends on technology developed for video games.

How to Get in on Game Stocks

The metaverse, with its promise of interconnected worlds, may be the next frontier for gaming, but for investors, gaming poses challenges. You could buy the tech giants because gaming is a growing part of their businesses, but recognize that it is dwarfed by, say, online retailing, cloud computing and advertising. And many of the best developers of video games are private firms, so you can't invest in them. So, what are the best pure plays to take advantage of a craze that could still be in its infancy?

Look first to the companies that make the games. Many games today are so sophisticated that they can cost as much to make as the most dazzling Hollywood films. Grand Theft Auto 5 required 250 programmers and other employees of Rockstar working for five years at a total expense of $265 million. That's more than the films "Titanic" or "The Dark Knight Rises." The investment paid off. GTA5 has grossed more than any movie ever made.

Take-Two Interactive Software (TTWO, $175) owns the Rockstar label and has been gobbling up smaller developer firms, including Zynga (maker of FarmVille, a huge hit that was introduced as an app in 2009). Take-Two, with a market value of $18 billion, is solidly profitable, but shares have dropped about 20% in the past two years. With a market cap of $37 billion, well-managed, independent developer Electronic Arts (EA, $138), makes such games as Battlefield, The Sims and Madden NFL. It trades at a reasonable price-earnings ratio of 18.

Nvidia (NVDA, $243) makes semiconductors for a variety of sectors, but, as the world's largest designer of graphic processing units, its chips are popular in video games, including those that create virtual environments for immersion in the metaverse. In its latest quarterly report, Nvidia reported that gaming revenues rose 42% and are approaching half of the company's total sales. Still, shares fell by nearly one-third in the first three weeks of 2022, creating a buying opportunity.

Other metaverse stocks were also caught in the undertow of fears of higher interest rates and falling valuations. With a market cap of $30 billion, Unity Software (U, $109), which operates a development platform for the software that powers complex games, fell in price by about half from November to January, despite a surge in revenues. Over the same period, Matterport (MTTR, $8), which captures the feel of interior space with its 3D cameras, dropped by two-thirds, even though analysts see revenues rising in 2022 from $109 million to $160 million. The company is still unprofitable, and its $2.6 billion valuation is lofty, but if you can tolerate risk, Matterport could be a good long-term investment.

A few exchange-traded funds focus on gaming stocks. Global X Video Games and Esports (HERO, $27), with an expense ratio of 0.50%, was launched in 2019. Among the top holdings are NetEase (NTES, $101), a large Chinese developer, and Ubisoft (UBSFY, $12), a mid-cap French maker of such games as Rainbow Six Extraction and Just Dance.

With expenses of 0.55%, Van Eck Video Gaming and eSports (ESPO, $63) dates from 2018, with a small portfolio similar to that of the Global X ETF. Both funds lean toward high-profile stocks such as Nvidia and Electronic Arts, but one notable highlight of the Van Eck ETF is NEXON (NEXOY, $20), a Japanese firm with an emphasis on the fast-growing Asian market. Unlike many other gaming companies, Nexon's shares have been rising since last fall. Van Eck's top asset is Tencent Holdings (TCEHY, $62), the giant Chinese social media company that is, by some calculations, the largest gaming business in the world through its online offerings. Tencent has suffered from Chinese government intervention, so there's political risk to consider.

Game stocks carry the likelihood of substantial returns – perhaps, if regulators allow, through acquisitions by giants such as Alphabet, Microsoft and Sony. And their prospects, unlike the plotlines of many of their products, are built on a real-life foundation.

These stocks and funds stand to gain from the virtual-reality world known as the metaverse.

James K. Glassman chairs Glassman Advisory, a public-affairs consulting firm. He does not write about his clients. His most recent book is Safety Net: The Strategy for De-Risking Your Investments in a Time of Turbulence. Of the stocks mentioned here, he owns Amazon, Microsoft and Nvidia. Reach him at James_Glassman@Kiplinger.com.

Long-suffering shareholders — not to mention canny value investors — were rewarded for their patience in Activision Blizzard (ATVI, $65.39) Tuesday when Microsoft (MSFT, $310.20) agreed to pay $68.7 billion, or $95 a share in cash, for the troubled video game publisher.

After all, ATVI, the developer of global hits such as World of Warcraft and the Call of Duty franchise, had an annus horribilis in 2021.

Allegations of sexual harassment, litigation, a torrent of bad press and calls for CEO Bobby Kotick to step down would have been trouble enough. Tough year-over-year comparisons against 2020's pandemic-fueled growth only made matters worse.

Shares in Activision Blizzard, which closed at an all-time high of $115.82 in February, lost 28% last year. That lagged the tech-heavy Nasdaq Composite by nearly 50 percentage points.

Shares naturally popped on the Microsoft news – a deal in which the software titan is paying a premium of roughly 30% to the video game maker's Friday closing price. ATVI stock was up more than 25% as of midday Tuesday. (U.S. markets were closed Monday in observance of Martin Luther King Jr. Day.)

Some newer ATVI shareholders will close out their investment with losses, but longer-term holders will go out with a smile.

MSFT shares were slightly lower Tuesday, but Microsoft shareholders should like this arrangement for the long run. The acquisition unites Activision’s considerable talents for content production and distribution with MSFT's Xbox console and subscription-based gaming business.

It's the largest deal in dollar terms in Microsoft's history, and comes as the emergent metaverse and other industry trends are forecast to deliver outsized industry growth for years to come.

Why Microsoft Bought Activision Blizzard

The global gaming market is projected to expand to $546.0 billion in 2028 from $229.2 billion last year, or a compound annual growth rate of 13.2%, according to data from market researcher Fortune Business Insights.

Not only does the deal create the world's third-largest video game company, but — perhaps more importantly — it gives MSFT another way to leverage its behemoth of a cloud-based services business.

Indeed, gaming's future as a cloud-based product was one of the reasons behind Cambiar Investors' interest in Activision Blizzard, says Chief Investment Officer Brian Barish.

Cambiar, a Denver-based active value manager with $8.1 billion in assets under management, initiated stakes in ATVI in the fourth quarter. The video game publisher accounts for 2% to 2.5% of the funds that own it; namely, Cambiar Opportunity Fund (CAMOX) and Cambiar Aggressive Value Fund (CAMAX).

Barish saw value in a stock beaten down by scandal, negative press and difficult year-over-year comparisons — especially one that was trading at just around 13 times free cash flow.

"The conclusion at the time of purchase was there was some component of 'inevitability' that the management suite drama would conclude in some constructive fashion, along with scarcity value for a major video game studio," Barish says.

And make no mistake: That scarcity value is key at a time when major cloud companies such as Amazon.com (AMZN), Google parent Alphabet (GOOGL) and Microsoft all have designs on the space.

"Eventually we expect video games to become a cloud-based product (as compared to console based), and more content to throw at the customer should expedite this process," Barish adds.

That's the strategic rationale behind Microsoft’s deal for Activision, Barish surmises. "The migration will take a lot of time, however," he cautions.

Bottom Line

It appears investors in ATVI can put the drama surrounding the C-Suite and the stock behind them. MSFT, meanwhile, looks to have made a bold strategic acquisition in a massive and fast-growing industry.

And as for investors in other video game studios? Does the MSFT-ATVI marriage make those assets more valuable?

"Possibly," Barish says.

The Dow Jones Industrial Average shook off COVID-19, supply-chain snafus, inflationary pressures and myriad other worries to deliver an outstanding year in absolute terms. Indeed, the blue-chip bastion of Dow stocks generated a price gain of 19% through Dec. 30.

To get a sense of what an outlier 2021 was for the blue-chip average, the Dow's 30-year annualized price return comes to 8.7%.

Although the Dow as a whole powered through the pandemic, there's no question COVID-19 factored heavily in deciding the average's winners and losers in 2021, which we list in full down below. Naturally, the pandemic remains a key variable in the minds of Wall Street analysts as they rate the 30 Dow Jones stocks' prospects for 2022.

Either way, many of this year's best Dow stocks are expected to continue their market-beating ways in the new year.

Take Home Depot (HD, $409.94) and Microsoft (MSFT, $339.32), for example. The Dow's top stocks of 2021 – each up by more than half – are forecast to put up more big gains in the year ahead thanks to a continuation of current trends.

In HD's case, the pandemic led to changes in consumer consumption patterns. Folks stuck at home decided to feather their nests, embrace do-it-yourself (DIY) projects and invest newfound discretionary income into their dwellings. The red-hot housing market also remains a tailwind at HD's back.

MSFT, meanwhile, has become a king of cloud-based services. The rise of remote work accelerated companies' embrace of Microsoft products such as Azure and Office 365. Looking ahead, analysts say enterprise customers are still in the early innings of their digital transformations.

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On the other side of the ledger, analysts say some of this year's losers are set to become 2022's winners. Look no farther than Walt Disney (DIS, $155.93) for an example.

Disney was the Dow's worst stock in 2021, losing almost 14%. The media and entertainment conglomerate was essentially undone by the emergence of the Delta and Omicron variants of COVID-19. Anything that creates uncertainty around the health of Disney's all-important theme parks and resorts – not to mention its filmed entertainment business – is bad for DIS shareholders.

As much of a bummer as 2021 was for DIS, the Street gives shares a consensus recommendation of Buy, with fairly high conviction to boot. The pandemic can't last forever, the thinking goes, and shares look cheap.

Here's hoping, anyway.

Without further ado, have a look at how all 30 Dow stocks fared in 2021 in the table below:

Five of the largest and best-known companies in the world are the FAANG stocks.

Or the FAAMNGs. Or the FANTAMANs. Whatever the acronym of the day is.

The original "FANGs" – Facebook, Apple, Netflix and Google – was a clever way to refer to four mega-cap tech stocks. But as other companies grew, and some of the original names changed, this alphabet soup evolved. FANGs became the FAANGs, then morphed into other less popular iterations.

The reason these acronyms stick around is because they collectively have a massive impact on the major U.S. stock market indexes thanks to their size. In fact, seven technology or tech-adjacent mega-caps – Apple (AAPL), Microsoft (MSFT), Amazon.com (AMZN), Facebook parent Meta Platforms (FB), Google parent Alphabet (GOOGL), Netflix (NFLX) and Tesla (TSLA) – account for roughly half of the weight of the Nasdaq-100 index and more than a fifth of the S&P 500.

However, for several of these stocks, their prominence has also resulted in rich valuations and share price gains that have outstripped profit growth, making them difficult for value-minded investors to swallow.

Fortunately, you can partake in the impressive business models of these mega-cap stocks without necessarily paying an exorbitant share price. The strategy is simple: Buy shares of businesses that provide products or services to these companies and thus benefit peripherally from the group's phenomenal growth. FAANG stocks and other giant tech firms drive outsized revenue and profit gains for their value-added resellers (VARs), software developers, component manufacturers, landlords and dozens of other business partners.

Here are seven better ways to make money off FAANG stocks. The names featured here are riding the coattails of their mega-cap partners to outsized top- and bottom-line growth. Better still, most are valued at cheaper price-to-earnings (P/E) multiples than the FAANGs they partner with, suggesting these names may still have room to run.

Data is as of Nov. 9.

• FAANG/Mega-cap relationship: Meta Platforms
• Market value: $8.5 billion

Zynga (ZNGA, $7.65) is an industry leader in mobile game development. The company initially built market share by partnering with Meta to launch mobile games like Zynga Poker, Words with Friends and Farmville that are multi-generational franchises.

It has since established download partnerships with FAANG stocks AAPL and GOOGL and, most recently, teamed up with social media firm Snap's (SNAP) Snapchat. The company's portfolio of gaming titles has been downloaded more than 4 billion times on mobile devices and reaches customers in over 175 countries.

In March, Zynga acquired cross-platform game developer Echtra Games, a move that should help extend its reach from mobile devices into PCs and consoles and expand its addressable market. And in August, the company bought Chartboost, a mobile advertising firm. Combining Chartboost's advertising and monetization platform that has an audience of roughly 700 million monthly users with Zynga's games should be a catalyst for revenue growth.

More good news for Zynga arrived in September when a California judge ruled that Apple cannot prevent game developers from bypassing its App Store and the 15%-30% commissions the tech giant charges on app purchases. This ruling enables gaming companies to reduce costs and retain a higher percentage of revenues.

In the third quarter, Zynga's bookings rose 6.4% year-over-year to $668 million and revenues surged 40.2% to $705 million. The company also reported $1.3 billion in cash and investments, up 76.8% from Q3 2020, which it says it will use to fund future acquisitions.

Over the last three years, Zynga has grown revenues 45% annually and has more than doubled normalized net income and levered free cash flow – the amount of cash a company has on hand after meeting its financial obligations – on an annual basis.

Wall Street analysts are bullish on ZNGA, too. Of the 19 following the stock that are tracked by S&P Global Market Intelligence, 13 say it's a Strong Buy, five call it a Buy and one rates it at Sell. Plus, the pros' consensus price target of $11.12 represents implied upside of 45.4% over the next 12 months or so.

• FAANG/Mega-cap relationship: Apple
• Market value: $187.7 billion

Qualcomm (QCOM, $166.74) has benefitted from its long – not always amicable – relationship with Apple and remains a key chip supplier for new iPhone models. Apple's 5G enabled iPhone 12 uses QCOM chips and teardowns of the recently launched iPhone 13 show it contains Qualcomm modems.

Apple is starting to design its own chips, but Qualcomm should continue to be at the forefront of the transition to 5G technology. According to QCOM, its Snapdragon processors offer the fastest 5G speeds available, with devices powered by these chips downloading content roughly 67% faster than the next largest competitor. Over 225 million 5G enabled smartphones shipped in 2020 and J.P. Morgan Research estimates this volume will more than double to 525 million this year and hit 725 million in 2022.

QCOM is further hedging its bets by making big investments in the Internet-of-Things (IoT) and in connected cars. During this year's September quarter, Qualcomm's IoT revenues rose 66% year-over-year to $1.5 billion. The global industrial IoT market was valued at $216 billion in 2020, according to market research firm Grand View Research, and is projected to grow 23% annually through 2028.

Qualcomm's product offerings for connected cars range from telematics to connectivity platforms and digital cockpits. Two years ago, less than 50% of new cars incorporated internet connectivity, but that percentage is expected to rise to 70% by 2025. QCOM's automotive revenues increased 44% during the September quarter to $270 million and reached $975 million for all of fiscal 2021.

Supporting this growth is the company's recent acquisition of Arriver whose driver assistance assets will be integrated into Qualcomm's own ADAS (advanced driver assistance systems) platform.

QCOM's revenues increased 43% year-over-year to $9.3 billion during the September quarter and adjusted earnings per share of $2.55 were up 76%. In its fiscal first quarter, the company is guiding for revenues of $10.0 billion to $10.8 billion and adjusted EPS to arrive between $2.90 and $3.10.

Of the 32 analysts covering the shares tracked by S&P Global Market Intelligence, 16 call it a Strong Buy, six say Buy and 10 have it at Hold. QCOM shares trade at a reasonable 15.8 times forward earnings – well below AAPL's forward P/E ratio of 27.

• FAANG/Mega-cap relationship: Netflix
• Market value: $63.0 billion

Roblox (RBLX, $109.52) develops on-line gaming platforms that offer users an immersive, virtual 3D experience. Last year's pandemic-induced lockdown fueled a surge in new players and was a major growth catalyst for the company. The number of daily active users on its platforms is up 31% from one year ago to 47.3 million. Although not yet profitable, revenues for RBLX more than doubled in the September quarter to $509.3 million and free cash flow rose 7% to $170.6 million.

The company is poised for even stronger growth in the second half of this year thanks to the recent launch of its 3D game that mimics "Squid Game" – Netflix's hugely popular new TV series. Since its mid-September release, the South Korean horror/drama about players in a deadly tournament of children's games has become Netflix's most-watched series to date, with interest already exceeding previous hits like "Stranger Things," which was also the theme of a sponsored Roblox event.

Netflix is not Roblox's only partner. The company teamed up with Sony Music Entertainment in July to build metaverse music experiences around Sony artists and create new revenue streams tied to virtual entertainment.

Analysts forecast 47% revenue growth for RBLX this year, followed by 20% annual growth over the next two years.

Of the 10 analysts following RBLX stock tracked by S&P Global Market Intelligence, four call it a Strong Buy, three say Buy, two believe it's a Hold and one deems it a Sell. CFRA Research analyst John Freeman is one of those with a Strong Buy rating on RBLX, calling the company's third-quarter results "outstanding" and projecting "even stronger preliminary numbers" for the start of the fourth quarter.

The stock surged more than 40% in the wake of its solid third-quarter earnings report, so this may be one to watch for an entry point on price weakness.

• FAANG/Mega-cap relationship: Amazon
• Market value: $109.8 billion

A simple and safe way to capitalize on Amazon's stellar growth is to own shares of its largest landlord, Prologis (PLD, $148.45). This preferred partner of most leading e-commerce and logistics businesses is also the world's largest warehouse real estate investment trust (REIT). Prologis owns roughly 4,700 properties totaling nearly 1 billion square feet of leasable space and has operations across 19 countries.

The FAANG member is PLD's largest tenant by far, accounting for roughly 22 million square feet of leasing space and 6.1% of net rents. Prologis' next largest tenants are Home Depot (HD, FedEx (FDX), UPS (UPS) and XPO Logistics (XPO). Together these four firms contribute 6.1% of annual rents.

The e-commerce tailwinds that help Prologis show no signs of slowing. During the pandemic, customers increasingly shopped online and that trend continues to build. According to market research firm eMarketer, online purchases in the U.S. are forecast to rise from approximately $709.8 billion – or 14.5% of all retail sales – currently to $1.0 trillion, or 18.1% of retail sales, in three years. And this trend could fuel demand for an additional 1.0 billion square feet of warehouse space by 2025, says global commercial real estate services firm JLL.

According to Prologis, every $1 billion increase in e-commerce sales creates demand for another 1.2 million square feet of warehouse space. Amazon alone added $49.4 billion to sales in the third quarter.

Prologis has consistently ranked among the best-performing REITs in the warehouse sector. On an annual basis, core FFO (funds from operations, a key REIT earnings metric) per share has risen 10% and dividends have risen 9% over the past five years.

During the September quarter, Prologis CEO Hamid R. Moghadam said vacancies were at unprecedented lows and that "space in our markets is effectively sold out." The REIT is guiding for roughly 7% core FFO per share growth in 2021, supported by an industry-leading balance sheet and a land portfolio with an estimated $21 billion buildout potential.

Barclays analyst Anthony Powell initiated coverage of PLD with an Overweight (Buy) rating in September, saying industrial is his favorite REIT subsector. CFRA Research analyst Stewart Glickman recently said "fundamentals point to an enviable supply-demand situation heading into 2022," but lowered his rating from Strong Buy to Hold recently due to price gains on PLD stock that have outpaced its REIT peers so far this year.

• FAANG/Mega-cap relationship: Alphabet (Google)
• Market value: $72.8 billion

Workday (WDAY, $293.48) hit the ground running ahead of its October 2012 initial public offering (IPO) by signing search giant Google as one of its first customers. Google replaced parts of its internally developed human resources (HR) software with Workday software. Since then, WDAY has become the industry leader in cloud-based software that helps companies manage finance, HR and strategic planning functions.

Workday has grown to more than 55 million users worldwide and claims over 50% of Fortune 500 companies as customers.

The company delivered a stellar June quarter with revenues up nearly 19% year-over-year to $1.26 billion, fueled by a 20% rise in subscription revenues. Workday's adjusted EPS came in at $1.23, more than 46% higher than the year prior, and the company raised its full-year guidance for subscription revenues and operating margins.

Workday's new strategic partnership with Google Cloud is expected to spur growth for both companies by enabling customers to deploy Workday finance, HR and strategic planning software on Google Cloud. The multi-year partnership also includes co-marketing and cross-selling programs to increase new business opportunities across the U.S. In addition, the two companies plan to explore opportunities to co-develop cloud-based applications for customers in the retail, healthcare and financial services industries.

Google subscribed to additional products in September – Workday Adaptive Planning, Workday Extend, Workday Prism Analytics and Workday Strategic Sourcing – and expanded its use of WDAY human resources tools by adding new applications.

Barclays analyst Raimo Lenschow upgraded WDAY shares to Overweight in August based on his expectations of increased IT spending in the second half of 2021. Most analysts are bullish on Workday. Of the 34 covering the stock tracked by S&P Global Market Intelligence, 19 say it's a Strong Buy, 9 believe it's a Buy, five deem it Hold and one calls it a Sell.

Plus, the company is forecast to grow EPS 26% annually over the next three-to-five years, or nearly twice the anticipated growth rate of the overall IT sector.

• FAANG/Mega-cap relationship: Microsoft
• Market value: $8.5 billion

Arrow Electronics (ARW, $119.98) built its business supplying semiconductors to original equipment and contract manufacturers. The company has been a Microsoft partner for over a decade, providing electronics and services that are directly integrated into MSFT portals for service provisioning and configuration. In 2019, Microsoft named the company its Indirect Provider of the Year.

More recently the company began offering enterprise computing software for data center, cloud, security and analytics services. Already a Microsoft Cloud Service Provider, Arrow is partnering with MSFT to deploy tools on its Azure platform that speed development of IoT solutions. By participating in the IoT space, Arrow benefits from an expected surge in global IoT spending.

Earlier this year, Arrow expanded its relationship with one of the original FAANG stocks: Amazon.com. Per its agreement with Amazon Web Services (AWS), Arrow will be able to resell, manage, service, support and bill AWS accounts on behalf of their customers. Arrow is also working with AWS to support OEM customers that are building smart devices incorporating the cloud technology.

Thanks to its massive scale, Arrow was able to secure semiconductor inventories in 2021 that many competitors could not. As a result, the company's September quarter sales improved 18% year-over-year and EPS rose 94%. Analysts think Arrow will improve on its impressive EPS growth rate by delivering 17% annual EPS gains over the next three to five years.

ARW shares are cheap, too, trading at 6.8 times forward earnings. For the sake of comparison, Microsoft's forward P/E ratio is 36.8 and Amazon's is 55.9.

• FAANG/Mega-cap relationship: Tesla
• Market value: $603.1 million

Modine Manufacturing (MOD, $11.63) designs, manufactures and sells heat transfer products used by customers in the HVAC systems, commercial and industrial, heavy-duty equipment and automotive markets.

The company has long been a key supplier of battery chilling technologies to Tesla, the world's largest manufacturer of electric vehicles (EVs). In the first nine months of 2021, TSLA produced nearly 625,000 vehicles – up almost 88% from the year prior.

Demand for electric vehicles is forecast to rise nearly 22% annually to 233.9 million units by 2027 – valuing the market at nearly $2.5 trillion by 2027 – according to market research firm Meticulous Research. Wisconsin-based Modine's established relationship with Tesla could become a major growth catalyst, particularly if worsening trade relationships with China cause Tesla to shift more of its business to reliable U.S. suppliers.

Modine recently sold its traditional automotive business and plans to focus more resources on computer data center cooling products, industrial HVAC and electric vehicles. Expanding in more profitable niches will enable Modine to increase operating margins and free cash flow and to accelerate repayment of debt.

In September, Modine said it is creating a separate business unit focused exclusively on cooling technologies for electric vehicles. The company is in discussions with 30 customers, has commenced production on three programs and won five additional contracts that will launch over the next 12 months.

Modine achieved double-digit sales growth in three out of four of its business units during the September quarter, though total year-over-year revenue growth came to a more modest 4% amid supply chain issues, a global semiconductor shortage and a loss associated with the sale of its air-cooled automotive segment.

Modine has Strong Buy ratings from both of the Wall Street analysts tracking the stock. It also looks bargain-priced at 7.5 times forward earnings – especially when compared to TSLA's forward P/E ratio of 26.7.

In a year when high-flying meme stocks have grabbed more than their fair share of headlines, investors would do well to remember that what really moves the market are mega-cap stocks.

After all, the S&P 500 is not a social media popularity contest. It's an index weighted by market capitalization. Size matters. The biggest companies by market value – Apple (AAPL), Microsoft (MSFT) – have far more impact on our collective equity wealth than whatever stock du jour is being debated on Reddit.

Mega-cap stocks – or roughly speaking, equities with market values of at least $200 billion – are where the really big money places its bets. Billionaires, hedge funds and other institutional investors love mega-cap stocks. For one thing, mega caps are proven businesses, and leaders in their respective industries. Secondly, mega caps' massive liquidity allows big investors to buy or sell large positions with relative ease.

Mega caps also happen to be some of the country's best-known companies – and analysts' favorite stocks.

With that in mind, we decided to find Wall Street's favorite mega-cap stocks to buy now. Here's how the process works: S&P Global Market Intelligence surveys analysts' stock ratings and scores them on a five-point scale, where 1.0 equals Strong Buy and 5.0 means Strong Sell. Any score of 2.5 or lower means that analysts, on average, rate the stock a Buy. The closer the score gets to 1.0, the stronger the Buy call.

Our screen left us with these five mega-cap stocks, all of which get rare Strong Buy consensus recommendations from Wall Street analysts.

Share prices and other data are as of Nov. 4, courtesy of S&P Global Market Intelligence and YCharts. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Companies are listed by strength of analysts' consensus recommendation, from lowest to highest.

• Market value: $251.7 billion
• Dividend yield: 0.2%
• Analysts' consensus recommendation: 1.50 (Strong Buy)

Thermo Fisher Scientific (TMO, $639.76) is often called the "Amazon of the healthcare industry" because of the mega-cap stock’s wide-ranging portfolio of life sciences products, analytics instruments and laboratory tools.

As such, Thermo Fisher has been highly active in the fight against COVID-19, which in turn has raised its profile and investor interest. Indeed, TMO stock is up about 37% for the year-to-date. That leads the S&P 500 by about 12 percentage points.

But there's more to TMO beyond the boost it's getting from the fight against COVID-19, bulls note.

"The company is investing its substantial cash flow in product development, capacity expansions and acquisitions," writes Argus Research analyst David Toung, who rates shares at Buy. "We believe that these investments, along with strength in the base business (excluding COVID-19 testing revenue), will drive growth on the other side of the pandemic."

Of the 22 analysts issuing opinions on the stock, 15 rate TMO at Strong Buy, four say Buy, two rate it at Hold and one calls it a Sell, according to S&P Global Market Intelligence. They expect the company to generate average annual earnings per share (EPS) growth of 13.1% over the next three to five years.

• Market value: $301.6 billion
• Dividend yield: N/A
• Analysts' consensus recommendation: 1.49 (Strong Buy)

The Street adores Salesforce.com (CRM, $308.04). The software-as-a-service juggernaut is also one of the hedge fund industry's favorite stocks, and it's beloved by billionaire investors too.

Shares in the Dow stock are up more than 38% year-to-date, and the Street says they've still got plenty of upside left.

After all, Salesforce, which provides customer relationship management software to enterprise customers, was essentially providing cloud-based services before they were cool. That early-mover advantage continues to benefit CRM today.

Deutsche Bank analyst Brad Zelnick initiated coverage of the company at Buy in November. Among other points, the analyst calls out the market's failure to properly value CRM's 2020 acquisition of communications platform Slack.

"Even with sentiment recovering since announcing the $28 billion Slack deal last year, we believe the market under-appreciates the long-term opportunity in front office applications, Salesforce’s leadership of the category, and the scale at which it is succeeding," Zelnick writes.

He's hardly a lone voice in the wilderness. Thirty-two analysts rate CRM at Strong Buy, 10 call it a Buy and seven have it at Hold. Collectively they forecast the mega-cap stock to deliver average annual EPS growth of 23.3% over the next three to five years.

• Market value: $1.97 trillion
• Dividend yield: N/A
• Analysts' consensus recommendation: 1.35 (Strong Buy)

Google parent Alphabet (GOOGL, $2,973.66) is another mega-cap stock that hedge funds, billionaires and Wall Street analysts lavish with praise.

That's due in large part to the company's domination in search and other web services. At its foundation, Google forms a duopoly with Facebook parent Meta (FB) in the relentlessly growing market for digital advertising. Combined, the two companies will claim roughly 54% of all global digital ad revenue in 2021, according to eMarketer.

"These companies [also including Apple, Microsoft and Amazon.com] have come to dominate new developments in mobile, public cloud and big data analytics, as well as emerging areas such as artificial intelligence, virtual/augmented reality and even quantum computing" says Argus Research analyst Joseph Bonner (Buy).

Importantly, Alphabet's multiple areas of interest belie criticisms that it's “a ‘Johnny One Note' for its dependence on digital advertising," the analyst adds.

Alphabet's earnings power is all the more impressive given how massive the company has become. GOOGL is knocking on the door of $2 trillion in market value, and the Street believes it can still generate average annual EPS growth of 22% over the next three to five years.

As such, it's really no surprise that of the 46 analysts issuing opinions on GOOGL tracked by S&P Global Market Intelligence, 31 rate it at Strong Buy and 14 call it a Buy, while a mere one pro says Hold.

• Market value: $2.53 trillion
• Dividend yield: 0.7%
• Analysts' consensus recommendation: 1.34 (Strong Buy)

Only two of the Dow Jones Industrial Average's 30 stocks currently earn a consensus Strong Buy recommendation from Wall Street analysts: the aforementioned Salesforce.com, and mega-cap stock Microsoft (MSFT, $336.44).

But MSFT outpaces CRM in this little race in a big way: Of the 41 analysts issuing opinions on Microsoft tracked by S&P Global Market Intelligence, 29 rate it at Strong Buy, 10 say Buy and two call it a Hold.

The Street's overwhelmingly bullish view on MSFT stock is predicated on Microsoft's overwhelming success in cloud services, with products such as Azure and Office 365 fueling accelerated growth.

"With workforces expected to have a heavy remote focus, we believe the cloud shift is just beginning to take its next stage of growth globally," says Wedbush analyst Daniel Ives (Outperform). "We believe this disproportionately benefits cloud stalwart MSFT, as it is so well-positioned in its core enterprise backyard to further deploy its Azure/Office 365 as the cloud backbone and artery."

As with Alphabet, the law of large numbers doesn't seem to apply to MSFT. Consider that Microsoft boasts a market value in excess of $2.5 trillion, yet analysts still expect average annual EPS growth of 15.4% over the next three to five years.

• Market value: $1.76 trillion
• Dividend yield: N/A
• Analysts' consensus recommendation: 1.27 (Strong Buy)

Analysts' hands-down favorite mega-cap stock is Amazon.com (AMZN, $3,477.00).

True, the company coughed up some disappointing third-quarter results. AMZN's earnings and revenue missed Street estimates and it issued downbeat guidance to boot.

But while the market might not be too hot on AMZN right now, analysts could not be more bullish. After all, how many $1.76 trillion companies are forecast to deliver average annual EPS growth of almost 27% over the next three to five years?

True, COVID-19, supply-chain snafus, rising labor and input costs and other headwinds are serious near-term challenges for Amazon, analysts say. However, the long-term bull case remains intact, and it's simply too compelling to ignore.

"Amazon.com is one of the few large-cap companies benefiting from the secular shift to e-commerce," writes Oppenheimer analyst Jason Helfstein, who rates AMZN at Outperform (Buy). "The company continues to gain share of global e-commerce with its deep product selection, low-cost express delivery through its Prime program, and breakthrough success of Kindle, Prime Video and Amazon Music. Furthermore, AMZN's Web Services segment is now the global leader in cloud computing and has significant value."

Oppenheimer's view isn't just the majority opinion on the Street; it's the only opinion on the Street. Thirty-six analysts rate AMZN at Strong Buy and 13 say Buy. No Holds, no Sells.

I recently wrote an article about Dying Careers, and many of you were outraged, saying that the careers I mentioned were not going to disappear. My goal was to explain that in order to be part of the new world of work, you have to be part of the new world of work. The advent of the smart computer is here to stay and will supplant many of your careers.

Hiding your head in the sand will not help you to hold onto your job. Wake up. Google, Amazon, Apple and Microsoft are spending billions on AI products and services. MIT alone is spending $1 billion on a new college devoted solely to computing, with an AI focus, not-to-mention the billions that the U.S. government is pouring into AI research and development.

Naysayers of the future of AI – I defy you to tell me a major modern industry that has not been affected by AI. That was my point. If you don’t adapt to this new world and the skills that it demands, you will be left behind.

You can hang on to your vinyl records, video cassettes, princess phone and typewriter, but if you ignore developments in technology with your own career, you may end up as out-of-work as the sales clerk at Blockbuster who was waiting for Netflix to fail.

The jobs that will disappear seem to share characteristics: They manufacture products or supply services that involve repetitive skills, are simple to automate, and are prone to fluctuate with demand (like creating books on demand, or other products where retailers don’t want to carry inventory).

Like it or not, AI (Artificial Intelligence) is here to stay and is taking quantum (no pun intended) leaps every day. AI is basically intelligence demonstrated by machines, as opposed to natural intelligence demonstrated by humans. Applications include web search (Google); recommendation systems (YouTube, Amazon and Netflix); understanding human speech (Siri and Alexa); self-driving cars (Tesla and Pony.ai); and even competing at strategic games (chess or racing-car games). AI machines can even learn from each other, and they can see and detect things much better than a human can.

Which Careers Could Be in Jeopardy Due to AI

Let’s look at some careers that may be in jeopardy. Let’s look a little further into what AI can and can’t do and how you can prepare for the inevitable:

Doctors/health care

AI can search data and input past and current diagnostic tests, like blood pressure, heart rates, BMI - height/weight, CT scans, EKG, bloodwork, etc. But now suppose an AI-enabled device could tap into genetic history? Suppose a digital instrument could assess and order all of the tests needed? And then instantaneously search globally for data on all other people with the same symptoms? Then suppose it could tell what protocols were used for treatment and their outcomes?

Diseases could be more quickly diagnosed and treatments found, drugs or other treatments could be recommended, virtual nurses could monitor the patients, and this could all be done via big data collection and dissemination. Like it or not, that is the future of medicine. AI will be able to collect and analyze patient data gathered from multiple sources. These data collectors will also be able to commingle data from fitness trackers, at-home monitors and any tests administered. No one doctor can do that. And some need for certain doctors may even disappear. For instance, it’s conceivable that much of the work performed by radiologists, pathologists and cardiologists may soon be replaced by machines.

What AI can’t do, thus far, is to read the psychological state of the patient and to see beyond the tests. There are also medical situations in neurology, for instance that require high-level patient-doctor interaction and critical thinking. I’m not sure I’d be comfortable with just a robot’s input to interpret a challenge in my life. Will doctors still be needed? I think, yes. But not in all cases. On the positive side, AI will make health care more accessible to the masses.

If you are in health care, what can you do? Get computer savvy. That means you have to get ahead of the trends, including AI diagnostic tools, shared research, big data and telehealth. Med schools have recognized this trend and they are also focusing some of their curricula on technology. In fact, the Icahn School of Medicine at Mount Sinai now offers a new Ph.D. concentration in AI and Emerging Technologies in Medicine.

Transportation

It is thought that autonomous vehicles may be commercially available and legal in some places by the late 2020s. The initial costs will probably be high. Like most innovation, the initial products are expensive but as the acceptance and manufacturing costs shrink, so will the price tag. Remember the first electronic calculator, the Bowmar Brain? It originally sold for $245 in 1971 (which equates to almost $1,700 today), when it was a revolutionary new product. Within a decade, similar calculators sold for $10.

If you’re a driver, what can you do? Jobs are also created with automation. You can learn the skills to build and maintain the tools for automation.

Manufacturing

The U.S. has lost over 60 million jobs to robots, and AI is projected to take millions more. The World Economic Forum (WEF) has indicated that there is a potential to have AI replace a large portion of existing human jobs. Depressed? Read on: Data shows that as many as 73 million jobs could be lost in the U.S. due to automation moving forward.

If you’re a factory worker, what can you do? Upskill. Again, learn the skills necessary to build and maintain those robots. Engineering is a great field with lots of demand. Rather than complaining, look into retraining. Many companies will pay for workers to be retrained in new skills. Software company Element AI estimated that in 2019 there were around 144,000 AI-related job openings, but only about 26,000 developers and specialists seeking work. There is a company called Retrain.ai that “… uses AI and machine learning to help governments and organizations retrain and upskill talent for jobs of the future, enable diversity initiatives, and help employees and jobseekers to manage their careers.”

Libraries

If the town library does not catch up, evolve and lead the way for the new digital age, it will be left behind to die. The Dewey Decimal System is a relic and so is that wonderful librarian with leather elbow patches on his cardigan sweater. Google has eaten into their kingdom shrouded with ink and paper.

If you’re a library professional, what can you do? The role of the library has to be reinvented. If you are a person studying library science and the curricula has not been redesigned … run. Libraries are publicly funded to a large degree, so they need to be considered a “public-service” provider. What does that mean? They can fix some of the things that are broken in the community. Currently, neither wide-ranging digital access nor community gathering places for education are available for all people. Libraries have to be the new community center of inclusion and technology offering the best in the new digital world of research, family entertainment and access to innovation. Am I saying that they have to morph into remediating institutions? Yes.

What Jobs Can’t Be Done by Bots (Yet)?

The messy ones. So, I think if you get your hands dirty in your job (literally or figuratively), your job-security is safe — for now. Some messy jobs:

Construction

AI is being used in many trades, in fact, robots can even lay bricks. Architectural plans are being created by AI. But the messy, hands-on work of plumbing and electrical work will still have to be done by humans, for now. I haven’t met a bot that is willing to stick its metal arm down my clogged toilet, but I can still count on my friendly plumber to do so.

Car/truck mechanic

Speaking of messy. AI can diagnose the cars’ problem via its computer system and may even recommend a solution. But for now, a human has to roll up their sleeves, crawl under that car and fix that chassis or even a flat tire.

Funeral directors

I don’t envision AI stepping into this role. Machines can dig graves, but they can’t comfort families.

Psychiatry/psychology

It seems really strange to tell a robot about your dysfunctional family life. Or even worse, listen to their advice.

Hairdressers/barbers

No robot can dye or cut hair or talk-the-talk of your hairdresser. For now, it’s creepy to think of gossiping with a machine (unless they can dish-the-dirt).

Lawyers

The research and case preparation are being done now, more and more by AI, so that will cut down on the number of lawyers needed. That being said, it’s hard to envision a robot arguing for you in court. However, you might want to stay clear of the administration part of this field, as you will be competing with the digital world.

Remember the saying, “The best way to predict the future is to create it.”

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

It has been a tough year for investors who include environmental, social and corporate governance (ESG) factors when assembling their portfolios, as well as our picks of companies and funds that are ESG leaders.

The 15 stocks in the Kiplinger ESG 20 returned an average of 4.3% over the past 12 months, compared with 15.9% for the S&P 500. Just six of our stock picks outpaced the index. Of our favorite ESG funds, only one outperformed its respective peer group, and we're making several changes.

When we looked at the landscape a year ago, the climate for ESG investing was turning hostile. A number of companies, faced with pressure on social media, retreated from policies designed to promote diversity, equity and inclusion.

Large investors began to pull out of groups formed to advocate that companies adhere to tough climate goals. Despite that, our picks did well compared with the broader market in the 12 months that ended August 31, 2024.

The election of President Donald Trump accelerated the attacks on ESG. From November 5 through August 31 of 2025, our ESG stock picks averaged a 3.7% return, while the S&P 500 rose 14.3%. There's no doubt ESG investing is in the crosshairs.

The Trump administration's Department of Justice asserts that DEI policies amount to illegal discrimination, for example. And Trump has repeatedly expressed disdain for renewable energy, particularly wind power.

Many investors are following Trump's lead, pulling $12.2 billion from U.S. sustainable-investing funds in the first half of 2025, according to investment research firm Morningstar.

Should investors stay the course or flee?

Is it time to walk away from these stocks and the whole concept of ESG investing? That may be hasty.

"One hundred percent, this is a short-term panic" because of the priorities of the Trump administration, says Nell Minow, a corporate governance pioneer and founder of a research firm called The Corporate Library.

ESG-focused investing, also known as socially conscious or sustainable investing, has been a strategy for some investors for decades, and it will likely remain so for a core group seeking to invest in line with their values.

Importantly, we believe our ESG picks represent good business prospects as well. Indeed, some experts believe the current backlash presents an opportune moment for investors with a longer-term view.

"When people are beginning to question the validity of ESG, if you really understand these issues you can start to find some good investment opportunities because people are mispricing or misunderstanding the moment," says Ed Farrington, the North American president of ESG-oriented investment firm Impax Asset Management.

It's worth noting that although U.S. investors continued to flee ESG, the story is different outside the country. Morningstar says European investors poured $8.6 billion of net new money into ESG funds in the second quarter, offsetting the U.S. decline and making the global number positive.

Kiplinger's favorite ESG stocks and funds 

With this in mind, here is the Kiplinger ESG 20, a list of our favorite stocks and funds with an environmental, social or governance focus and healthy financial prospects.

Each of our picks for the best stocks to buy has a strong record on at least one ESG pillar. We reviewed ESG ratings from Morningstar Sustainalytics, Institutional Shareholder Services and LSEG Data & Analytics, among others.

But no company can be all things to all people; a firm we've highlighted for its strong governance focus, for example, may not also be an environmental star. As such, we have broken down our stock picks into three separate categories:

Environmental stewards: These companies offer products, services or technologies that provide solutions to problems such as greenhouse gas emissions, air and water pollution, or resource scarcity.

Social standouts: More companies are explicitly abandoning diversity policies and programs and scrubbing their corporate reports of any mention of DEI. But we'll note that diversity is only one of the criteria for this category, which also encompasses a company's broader treatment of its employees, customers, suppliers and community.

Governance leaders: These companies are committed to diverse and independent boards, strong ethics policies, responsible executive pay that is tied to performance, and combatting corruption.

Meanwhile, our five favorite ESG funds are all focused on sustainability, but each has a unique approach. These funds might focus on an ESG category, seek a measurable impact on a specific challenge, integrate ESG criteria into a broader strategy or engage with firms to improve ESG practices.

For details on how our picks have performed and why we think they are standouts, read on. All returns and data are as of August 31, unless otherwise noted.

First Solar (FSLR) finds itself a direct target of the Trump administration's attack on renewable energy, and spooked investors have sent the shares down 14.2% over the past year.

The outlook for the largest U.S. producer of solar panels is better than you may think: The One Big Beautiful Bill Act preserved a tax credit that benefits First Solar bigly.

And the government's desire to push Chinese companies out of the market is a plus. Twenty-nine of 35 analysts who cover the stock rate it a Buy, according to S&P Global Market Intelligence.

Shares in Levi Strauss (LEVI), an apparel company best known for its denim wear and given high marks for its greenhouse-gas emission reductions and water management, gained 18.8% over the past year.

The company exceeded expectations for revenue, profits and profit margins in its most recent quarter and is generating healthy cash flow with very little debt.

Analyst Jay Sole of investment firm UBS, who likes the consumer discretionary stock, says the company is transforming into a global retailer with a "lifestyle brand" that appeals to both men and women.

Microsoft (MSFT) was the top performer in the environmental steward category, gaining 22.3%. Thanks to cloud computing and artificial intelligence, the maker of the fusty Windows software is getting bigger, faster, in its fiftieth year.

Year-over-year revenue growth at its Azure cloud business, home to many of its AI services, hit 39% in the quarter that ended June 30, compared with a 31% growth rate two quarters prior.

The promise of AI suggests Microsoft may defy the law of large numbers and keep posting impressive sales and profit gains, analysts say.

Brian Schwartz, of investment firm Oppenheimer, says Microsoft is his firm's top large-cap stock idea for AI and cloud investing. Of course, the computing power required for AI is an energy hog. Microsoft retains its place on our list by maintaining its goals to be carbon negative and water positive — replenishing more water than it consumes — by 2030.

Prologis (PLD) is a real estate investment trust (REIT) with more than 1.3 billion square feet of warehouse space worldwide. It continues to be an environmental leader with emissions lower than its industry average and a commitment to renewable energy.

But the shares have fallen 7.9% over the past 12 months as investors worry that a downturn in consumer spending could clip Prologis's rental income. That's short-term thinking, considering Prologis's size, quality markets, and healthy balance sheet.

"Despite its blue-chip REIT status, the company does not trade at a meaningful premium to peers, and we think it should," says analyst Jonathan Petersen, of investment firm Jefferies.

Global freshwater scarcity means high demand for the kind of water-filtration equipment that Xylem (XYL) produces, and the industrial stock is a popular pick for funds that focus on sustainability.

Xylem returned 4.1% over the past year as investors worried about tariffs driving up the costs of the parts and raw materials the company uses to make its systems.

Now, though, Xylem is passing along those costs. Profit margins are growing as the firm emphasizes profitable markets and product lines, says analyst Jonathan Sakraida, of research firm CFRA, one reason for his Strong Buy rating on the stock.

Costco Wholesale (COST) joined the ESG 20 in May, not long after it pushed back on DEI opponents and reaffirmed its support of the policies. Costco is also known for compensating employees fairly and treating suppliers well.

Shares are up a modest 6.3% over the past year, as fears about a potential slowdown in consumer spending have prompted a retreat from the stock's February highs. The stock still isn't cheap, trading at 49 times estimated earnings for the year ahead, but we're not checking out of Costco.

Morgan Stanley analyst Simeon Gutman says Costco's customer traffic, sales gains and membership growth are "best in class," and he sees the company steadily increasing its earnings and profit margins.

Novo Nordisk (NVO), the maker of the Ozempic and Wegovy drugs, is in our penalty box. The shares are down a disastrous 58.2% from a year ago.

Novo disclosed disappointing results in a late-stage trial for one of its newer weight-loss drugs in December and cut its sales outlook in July. Many investors believe competitor Eli Lilly (LLY), maker of Zepbound, will pull ahead of Novo with its new pill, which will be easier to use than the current injectables.

Others think there's room enough for two in a weight-loss market that could top $200 billion in the next decade — and that investor negativity has made Novo a good value.

With shares trading at about 15 times earnings for the year ahead — a third of the multiple it carried in the summer of 2024 — we'd like to give Novo some time to succeed.

Salesforce (CRM) is the leader in customer relationship management software, with the most comprehensive set of CRM products and a client retention rate above 90%.

Among its social strengths are strong policies to ensure its suppliers pay attention to human rights and treat their workers fairly. The stock is up just 2.0% for the past 12 months, reflecting a transition as the company pivots from focusing on sales growth to focusing on profitability. Profit margins are catching up to (but still behind) the average for software companies in its peer group.

The challenges for Salesforce are reflected in its discounted valuation, says Jefferies analyst Brent Thill, who rates the shares a Buy. We're watching closely to see how quickly the firm can close the gaps with peers.

Investors' desire for all things AI has swept up Trane Technologies (TT), which has seen its shares rise 15.9% over the past year — on par with the S&P 500.

Trane makes heating, ventilation and air conditioning systems, and AI needs AC (otherwise the computers in the data centers will overheat).

The stock may be a bit overheated, however, given recent weakness in Trane's residential business. A drop in the shares in late July may not have been quite enough to create a compelling opportunity for new buyers, as the stock still trades at 30 times estimated earnings.

But analyst Andrew Kaplowitz, of investment bank Citi, says he believes Trane deserves its premium valuation because of its innovative products and strong execution. We'll be watching upcoming results closely.

Industrial supplier W.W. Grainger (GWW), ranked as a "best place to work" by several organizations, is up just 3.8% over the past year. (In November 2024, we warned that a 39% gain in the previous year made it unlikely that the shares would outperform the broader market the following year.)

The lackluster return includes a double-digit drop in August, when Grainger lowered its profit expectations for the remainder of the year due to the cost of tariffs on its imported products.

That's a blip for a company that has consistently shown excellent profitability, and Baird analyst David Manthey believes Grainger will continue a long-term track record of successfully passing along cost increases to its customers.

Novo Nordisk might be in the penalty box, but Accenture (ACN) is in the DOGEhouse.

Shares in the global consultant, which gets high marks for its anti-corruption and anti-bribery policies, fell 22.2% over the past year on worries about cuts to government contracting inspired by the Department of Government Efficiency.

Indeed, Accenture reported that while its sales increased 8% in the quarter that ended May 31 from the same quarter a year ago, its bookings — or new contracts on which it hasn't yet done the work and earned the revenue — fell 6%.

David Grossman, an analyst at investment firm Stifel who likes the shares, says the report wasn't as bad as it looked and that Accenture is both well positioned for AI and "consistently the best-managed business in the sector."

The current fears allow you to pick up shares in this top consulting firm at a discount.

Applied Materials (AMAT) shares fell 17.6% over the past year, illustrating that AI hype hasn't lifted all boats.

The company is one of the world's largest makers of equipment for the semiconductor industry. It stands to benefit from growth in AI, but the company is also more exposed to tariffs than its peers, and a disappointing earnings report in August was a setback.

The company issued weak guidance to Wall Street analysts about earnings prospects in the short term, but that "doesn't change our view of Applied's position to capitalize on AI investment longer-term," says Morningstar analyst William Kerwin.

We think the company, praised for excellent compensation disclosure and a strong code of business ethics, can weather the storm.

Real estate services company CBRE Group (CBRE) makes our list because key board committees are fully independent, and governance monitors give the company plaudits for transparency in how it discloses pay matters.

CBRE delivered a one-year return of 40.8%, among the best of all real estate companies in the S&P 500.

Don't bet against it, say most of the analysts who follow the stock. Even though CBRE hit new 52-week highs in August after strong earnings and a buoyant outlook, analyst Stephen Sheldon, of investment firm William Blair, says CBRE's outlook for 2025 earnings is conservative.

Hilton Worldwide Holdings (HLT) boasts a highly independent board and is a guardian of shareholder rights. The stock gained 26.0% over the past year, but there may be no room at the inn for similar gains over the next 12 months, especially if the economy falters and travel trends worsen.

That said, Hilton is the biggest hotel chain in the world and, says analyst Chad Beynon, of investment firm Macquarie, "the most stable and resilient operator" in case of a recession.

Investors have bid up the price of Hilton shares in a flight to quality, but given a muted outlook for travel, investors may be able to pick up this stock at cheaper prices in the months ahead.

Nvidia (NVDA) has been one of the best stocks of the century — logging a 126,100% return over nearly 25 years. A one-year gain of 45.9% is nearly as impressive, given the colossus it has become.

Nvidia's chips are tops for the complex computing that artificial intelligence requires. As companies such as Microsoft and Facebook plow billions into computing's future, much of that money goes straight to Nvidia, which we consider a governance leader due to its independent board and laudable compensation practices.

Reaction to Nvidia's most recent quarterly results were mixed, but traders eventually concluded that the AI boom will remain intact.

Impax Global Environmental Markets (PGRNX) is out to make way for the iShares Environmental Infrastructure & Industrials ETF (EFRA).

The exchange-traded fund tracks a global index of utility, industrial and basic materials companies that support energy efficiency and emissions mitigation; reduce air, water or land pollution; or minimize land-use and local environmental impact.

Top holdings include Xylem, sustainable paper and packaging business Smurfit Westrock (SW), and Core & Main (CNM), which provides essential products for community infrastructure, including pipes, valves and pumps for wastewater and storm drainage. The fund's 12-month return is 8.1%.

Learn more about EFRA at the iShares provider site.

The iShares ESG Aware 60/40 Balanced Allocation ETF (EAOR) replaces the Green Century Balanced Fund (GCBLX).

The iShares global moderate-allocation fund hews to sustainable screens — such as no weapons makers or firms embroiled in human-rights or labor issues — and focuses on stocks and bonds with strong ESG traits.

It is a fund of funds: Just over 60% of assets sit in four ESG stock funds that invest in U.S. and foreign shares; the rest is in iShares ESG Aware U.S. Aggregate Bond. The fund's 12-month, 10.2% return beat 59% of its peers.

Learn more about EAOR at the iShares provider site.

The Fidelity Sustainable Core Plus Bond ETF (FSBD) replaces the Brown Advisory Sustainable Bond Fund (BASBX). The Fidelity ETF, yielding 4.4%, is run by bond-picking veterans we know well, including Ford O'Neil and Celso Munoz, who also have a hand in Fidelity Strategic Income (FADMX), a member of the Kiplinger 25, our favorite no-load mutual funds.

The managers invest in bonds with positive ESG traits. Though 80% of the fund is invested in high-quality securities, up to 20% can be high-yield debt. That side bet, currently just under 12% of assets, helped in recent months, as did an overweight position in government mortgage-backed securities.

Over the past year, the fund's 3.0% gain has kept pace with the Bloomberg U.S. Aggregate Bond index.

Learn more about FSBD at the Fidelity provider site.

The FlexShares STOXX Global ESG Select ETF (ESGG) has been a Kip ESG 20 member from the start.

The ETF focuses on large-company stocks in the U.S. and foreign countries that comply with the United Nations principles of behavior governing human rights, labor, the environment and anti-corruption. Top holdings include Nvidia, Apple (AAPL) and Amazon.com (AMZN).

No surprise, then, that the fund has done well over the past 12 months, with a 15.7% return. That beat 71% of its peers in the global large-stock blend category.

Learn more about ESGG at the FlexShares provider site.

Actively managed Putnam Sustainable Future ETF (PFUT) focuses on companies that provide solutions to the world's social, environmental and economic-development problems.

The fund's growth-tilted portfolio has been volatile. From its December 2024 peak through April 8, the fund fell more than 27%, as trade worries rocked U.S. stocks. It has rallied 30% since, but the bumpy ride has left the fund with a 12-month return of 3.6%.

Top holdings include Hilton Worldwide, infrastructure firm Vertiv Holdings (VRT) and power company Vistra (VST).

We expect volatility with a fund like this, and we'll wait out this soft patch for now. But we're watching closely.

Learn more about PFUT at the Putnam Investments provider site.

Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.

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