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Nvidia Stock Forecast for 2025: Shares Could Jump 190% Higher

If Nvidia were just a semiconductor manufacturer, the stock would be overpriced. Fortunately for investors, it is much more than a semiconductor company. That’s why our Nvidia stock forecast shows shares nearly tripling from here.

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Nvidia is a growing tech company that could one day rival tech giants like Amazon.com Inc. (NASDAQ: AMZN), Apple Inc. (NASDAQ: APPL), Alphabet Inc. (NASDAQ: GOOGL) and Microsoft Corp. (NASDAQ: MSFT). And that growth could see Nvidia stock jump 190% higher by 2025.

The thing is… Nvidia has an edge as it moves into cloud software and services.

Not only is Nvidia able to create powerful graphics processing units (GPUs) for the gaming and professional markets, as well as system on a chip (SoC) units for mobile computing and automotive market, but the company also pours a large amount of resources into research and development. This has allowed it to develop an expanding suite of cloud-based software.

Why Nvidia’s Cloud-Based Software Will Dominate

If any good has come out of the pandemic, it’s that we’ve seen the potential of cloud-based software and computing with the work-from-home movement. According to Gartner Inc., a tech research and advisory firm, spending on public cloud services is expected to grow 23.1% in 2021 to total $332.3 billion. That’s up from $270 billion in 2020.

But cloud-based software is nothing without the data centers. Think of them as the brain of cloud services that keeps software and services running seamlessly. COVID-19 fast-tracked demand for data centers due to the increased adoption of cloud services. This pushed expectations for the global data center market to hit $117.82 billion by 2028 – a compound annual growth rate of 13.3% from 2021 to 2028.

And Nvidia’s GPUs are at the heart of these data centers.

In the first quarter of 2021, Nvidia generated a record high data center revenue of $2.05 billion, up 79% year over year. That accounts for 36% of total sales for the company.

That’s why Microsoft’s Azure Cloud, Google Cloud, and Amazon’s AWS rely on those very same GPUs to perform data operations. They need the fastest, most reliable processors available.

It’s also worth noting that Nvidia is developing new cloud services of its own such as AI Enterprise and the Base Command Platform to go in direct competition with the tech giants, as well as Omniverse, a creative collaboration tool that leans on Nvidia’s digital communication capabilities.

Artificial intelligence (AI) systems also require fast and reliable processors. To train and run AI systems, a process inspired by the way our brains function via a network of neurons called Deep Learning, they need to be top-notch.

And Nvidia’s GPUs are unmatched.

Google’s TPU (Tensor Processing Unit) was developed for neural network machine learning specific using Google’s TensorFlow. It’s limited to access by third-party use and lacks Recurrent Neural Network (RNN), which helps AI better recognize patterns in data.

But all the Nvidia-made GPUs are able to be purchased directly from the company and applied to hardware rather than just cloud infrastructure. Nvidia also offers its DGX series. These supercomputers are designed to give users powerful tools for AI exploration.

All of this opens the company up to be a benefactor of the global AI market, a market valued at $62.35 billion in 2020. The market is expected to expand at a compound annual growth rate (CAGR) of 40.2% from 2021 to 2028 – reaching roughly $930.72 billion by 2028.

With all the growth in cloud software and AI, semiconductors felt the squeeze during the COVID-fueled demand spurred on by the work-from-home movement.

Why Nvidia Has a Trump Card in the Chip Shortage

Demand for high-end computing boomed so much that semiconductor production couldn’t keep up with demand. While that demand was great for semiconductor companies, it also presented a problem.

Those tech giants turned into direct competition as they started to produce their own semiconductors for their products, like Apple’s M1 processor.

Apple, along with Amazon and Google, all have licensed from ARM, a semiconductor and software design company. They hold an extensive portfolio of chip designs. While it takes a lot of capital to engineer circuitry in-house, these companies have enough spare cash flow for this route to actually make more sense than purchasing from, say, Nvidia.

But there’s a catch… Nvidia is buying ARM.

Though Nvidia claims it wants to keep ARM independent, and though there are concerns over whether regulators will approve of the merger, this is still a huge move for Nvidia.

Should the merger go through, Nvidia will devote more research dollars to ARM and add expansive tech licensing to its portfolio, particularly to the AI department. This might not seem much like a win, especially since Nvidia isn’t going to limit or deny access to ARM’s portfolio of chip designs. But it is. It allows Nvidia to get a cut of the profit from the licensing.

If the merger doesn’t go through, it won’t set Nvidia back much at all. The company already announced new products that focus on the data center market and continues to push for research and development without access to ARM’s portfolio.

In that regard, Nvidia is one of the top spenders in the game, spending one-quarter of its $19.3 billion revenue in sales on research and development over the year for software such as their game streaming platform, GeForce Now.

Either way you spin it, Nvidia is in a great position. The company is going after the expansive software world as tech continues to evolve and improve.

And it helps that Nvidia has a stronghold in an entirely different booming market: the gaming industry.

The Gaming Industry: A Boon for Nvidia

The size and scope of the gaming industry is massive.

In 2019, the global gaming market was worth roughly $151.55 billion. It’s expected to be worth $256.97 billion by 2025 – an annual growth rate of 9.17% from 2020 to 2025.

Most recent data shows there are 3.1 billion gamers worldwide, which means that about 40% of the global population plays video games. Almost half of them are involved in mobile gaming – the fastest growing sector.

Out of that 3.1 billion though, 48% are PC gamers. That’s about 1.5 billion people who either have their own personal gaming PC or access to one so they can game.

Meanwhile, only 8% are primarily console gamers.

Nvidia controls 81% of the discrete GPU market. Discrete simply means that the graphics card is separate from the processor for higher performance. Since Microsoft and Sony don’t use Nvidia products for their consoles, most of Nvidia’s discrete GPU sales come from the PC side of the market.

When it comes down to preference, a Steam Hardware and Software Survey shows that 75.4% of the gaming company’s customers use Nvidia GPUs over AMD or Intel. Even though that’s a select segment of that aforementioned 1.5 billion gamers, it gives you a good idea of the preferred company.

Nvidia has gone a step further by dedicating to the research and development of next generation GPUs to push the gaming industry forward.

In the fiscal 2022 first quarter (which ended May 2, 2021), Nvidia spent a whopping $1.15 billion on research and development efforts. That’s more than 20% of its total revenue, or 31% of its gross profit.

It shows how serious the company is about the gaming industry. With good reason, too. All of Nvidia’s efforts paid off when the company pulled in a record $2.76 billion from gaming revenue in the first quarter of 2021, up 106% year over year.

Out of all Nvidia’s ventures, gaming chips represent 49% of the company’s current revenue.

Although chip sales are a bulk of the company’s revenue, there’s one more thing – one more growth catalyst – that really sets Nvidia apart from other semiconductor companies.

Nvidia Stock Catalyst: Autonomous Vehicles

As if Nvidia’s success in the gaming industry or potential with cloud computing wasn’t enough, the company has a number of other projects in the works that could drive Nvidia stock up. The most promising of the bunch is its work with autonomous vehicles.

Autonomous cars need to make decisions in a blink function. Only the best chips with lightning-quick processing can power these intense functions. Nvidia can more than provide this with its top-of-the-line GPUs. And it’s yet another industry it’s invested in with promising growth.

The autonomous vehicle market was worth $23.33 billion in 2020. It is the future. And that future will lead the market to grow at a CAGR of roughly 63.5% during 2020 through 2027.

It’s expected that 73% of all cars will possess some level of autonomy before fully autonomous vehicles even hit the market in 2025.

That number will continue to grow as technology improves because the technology behind these kinds of vehicles is still new and very complex.

They require consistent high-speed Internet connections to communicate and collect information about conditions, traffic, and obstacles to ensure that passengers arrive at their destinations safely. And 3D mapping provides the necessary level of detail autonomous vehicles require for successful navigation.

This is where Nvidia comes into play.

The company is collaborating with more than 370 companies in the automotive industry from top-tier car and truck manufacturers to HD mapping specialists on its Nvidia Drive system to push self-driving technology from concept to reality. Nvidia Drive is cutting-edge software that is continually improving and evolving through these collaborative efforts.

Autonomous driving only accounts for 4% of Nvidia’s revenue. Once the market opens up to a wider customer base when fully autonomous vehicles are immune to cyber-attacks, self-driving technology could be the catalyst that sends Nvidia stock higher.

Our Nvidia Stock Forecast Shows It’s a Long-Term Investment

Between cloud-based software, the gaming industry, and Nvidia’s collaborative efforts with autonomous vehicles, the company has a number of outlets set to grow as technology evolves.

And that’s what makes Nvidia stock shine. The company is involved with the forefront of technology and spends its money on research and development to remain there.

The company’s strong financials are just a bonus. When you see where it’s come from after knowing what it’s working on, it’s easy to understand how Nvidia stock can make a climb higher.

During the second quarter of 2021, Nvidia earned $5.66 billion in revenue, a year-over-year increase of 83.8%. The landed a net income of $1.91 billion, up 108.51% year over year, and diluted EPS shares were up 105.41% year over year. All said and done, the company’s net profit margin was up 13.44% year over year.

All of this is to say that Nvidia is going strong, has plenty of momentum for solid upwards movement, and is involved in a number of high-growth industries.

Right now, shares are trading at $198.69. Analysts predict that could increase by 190% to $592 by 2025, if not higher. And I agree with them. Nvidia is a strong company with great potential.

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The Bear Case for Apple Inc. Stock: An In-Depth Look

There’s a seeming contradiction when it comes to Apple Inc. (NASDAQ:AAPL). Apple stock now sits just off an all-time high. Last Thursday, its market capitalization hit $934 billion — the highest ever for a U.S. company. The iPhone is the most profitable product ever created — and it’s driven huge returns in AAPL stock, which has nearly tripled over the past five years and risen 600%+ over the past decade.

And yet Apple stock remains cheap. Dirt-cheap, it would seem. At these all-time highs, AAPL still is valued at a little over 14x FY19 (ending September) consensus EPS estimates. The figure is even lower when considering Apple’s huge cash balance.

The S&P 500 as a whole trades at more than 17x forward earnings, according to data compiled by Birinyi Associates. In other words, the world’s most valuable company, and the world’s most profitable company — ever — trades at a discount to the overall stock market. How can that be?

But looking closely at Apple’s financials and its outlook, there are good reasons why AAPL stock looks so cheap. Apple is the world’s most valuable company — and it’s also one of the most analyzed. The cheap multiple here isn’t due to the market not paying attention. Real risks lie ahead for Apple.

Given the importance of AAPL stock to the market as a whole, investors of all stripes need to understand those risks. And even AAPL bulls should understand who’s on the other side of the trade — and what the downside could be in AAPL stock.

How Cheap is Apple Stock?

At the moment, AAPL stock trades at about 16.5x consensus EPS for fiscal 2018. That’s a relatively cheap multiple — but it’s even cheaper considering the company still has about $31 per share in net cash, roughly one-sixth of its market capitalization. Backing out that cash, Apple stock trades at what seems like a ridiculously low multiple: 13.8x earnings.

It’s a number that seems like an outlier, particularly among large-cap tech. Alphabet Inc (NASDAQ:GOOGL,GOOG), Facebook Inc (NASDAQ:FB), and Microsoft Corporation (NASDAQ:MSFT) all trade at at least 20x 2018 earnings, even backing out their own net cash balances. And of course Amazon.com, Inc. (NASDAQ:AMZN) and Netflix, Inc. (NASDAQ:NFLX) trade at nose-bleed valuations (80x forward earnings for AMZN, 71x for NFLX).

Simply applying a 20x earnings multiple — still below most of its large-cap tech rivals, which by the way all make much less money than Apple — would value AAPL stock at about $260, 38% higher than current levels. Even the 24x multiple (again, excluding net cash) assigned to Microsoft stock doesn’t seem particularly out of line for Apple. It’s not as if Microsoft is a growth juggernaut. In fact, the Street projects Apple to grow revenue faster than Microsoft in their respective fiscal years. 24x earnings plus the $31 per share in cash would value Apple stock at over $300, 62% higher than current levels.

AAPL stock isn’t just being treated by the market as an average stock. It’s being valued well below the average stock, and sharply less than its similarly well-known and widely-owned tech peers. And this isn’t a new development: Apple’s forward P/E actually is toward the higher end of its multi-year range. AAPL on several occasions has traded below 12x forward earnings — a multiple that suggests its business actually is headed for a decline.

Why? Why is the market acting as if Apple’s earnings growth is going to come to an end?

4 Big Risks for Apple Stock: Source: Oaxis

Risk #1: The Commoditization Risk

There are a number of reasons why investors are skeptical toward Apple’s long-term growth prospects. Most notably, the company remains reliant on the iPhone. And the history of tech hardware shows that eventually even the best products eventually become commoditized.

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It happened to IBM (NYSE:IBM) in mainframes. It happened to Dell Technologies Inc (NYSE:DVMT) and HP Inc (NYSE:HPQ) in PCs — after the Windows operating system helped end Apple’s early leadership in that category. BlackBerry Ltd (NYSE:BB) once was the world’s leader in smartphones; its stock has fallen more than 90% from its June 2008 peak.

All of these companies were victims of commoditization (though all four, notably BlackBerry, also have their share of self-inflicted wounds as well). As hardware products improve, incremental upgrades become less compelling — lengthening replacement cycles. Meanwhile, low-cost competitors inevitably enter with a “good enough” product, undercutting pricing — and margins.

In fact, commoditization already has hit Apple — on multiple fronts. The iPad was introduced in 2010, and basically created the tablet category. It was a massive hit. Revenue neared $5 billion in fiscal 2010 – in less than nine months. By fiscal 2012, sales had exploded to $31 billion — 20% of Apple’s total revenue. But less than three years after its launch, the iPad already had peaked. With cheaper Android alternatives proliferating, iPad revenue would fall 40% over the next four years.

Source: Shutterstock

A worse fate has befallen the iPod. A decade ago, that product drove over $9 billion in revenue. Apple no longer breaks out revenue from the product, but the company now sells just a single model. All of the iPod’s features are built into the iPhone. And consumers can buy a product roughly equal to last decade’s iPods in memory and performance for just a few dollars.

The qualitative driver behind the bear case for AAPL stock is based on the idea that eventually, competition and time come for even the best hardware products. And that process may already have begun for the iPhone as well.

Risk #2: Apple Stock’s iPhone Reliance

The launch of the iPhone X has received intense scrutiny from the media and investors for months now. Reports of potential delays raised initial fears. Concerns about demand seemingly were assuaged by a better-than-expected fiscal Q2 earnings report that has pushed AAPL stock to its new highs.

The focus on the X makes sense. The world’s most valuable company remains heavily reliant on the iPhone.

Source: Apple

62% of Apple’s total fiscal 2017 revenue came from the iPhone, per figures from the 10-K. That proportion has risen to two-thirds through the first half of fiscal 2018.

So the seemingly endless discussion of the prospects for the iPhone X aren’t a matter of investors and analysts having nothing better to do. If the iPhone starts to decline, Apple almost certainly follows. And in fact, the iPhone is showing signs of weakness.

Unit sales peaked in 2015 at 231.2 million. Over the past twelve months, the figure is about 6% lower, at 217.2 million. And in fact, iPhone revenue has declined over that period as well, by about 1%. The strong dollar has been a headwind — constant-currency revenue almost certainly is positive — but what growth Apple is grinding out comes from pricing.

So the bear case for Apple stock starts to become a bit more clear. The iPhone is driving 60%+ of revenue. Increasingly, it looks as if unit sales may already have peaked. The X, then, is a test case for whether Apple can continue its growth by increasing prices – which the entire history of hardware suggests should be impossible to do forever.

That’s why the Street was seemingly so negative on AAPL heading into the report. Weakness in the X suggested the end of revenue growth for the iPhone — for good. And it’s why the better-than-expected numbers on that front in Q2 have led Apple stock to bounce back so sharply. Despite the ecosystem it has built, and despite its other offerings, Apple stock still comes down to the iPhone.

Risk #3: The Rest of Apple

The reliance on the iPhone is magnified by the fact that the rest of Apple’s business has growth challenges of its own. As I pointed out last year, from fiscal 2012 to fiscal 2016, non-iPhone revenue barely moved. iPad growth was offset by declines in the iPod and the Mac line. As the Apple Watch came online, the iPad started to fade.

Apple is making some progress of late. According to SEC filings, non-iPhone revenue rose 11% in fiscal 2017, and another 14% in the first half of FY18. Still, hardware represents an issue beyond the iPhone as well. iPad revenue actually has risen through the first half of fiscal 2018 — somewhat surprisingly. Mac sales rose a sharp 13% in 2017 — but declined over the previous four years and are down again in the first six months of this year.

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Looking forward, growth in tablets, desktops, and laptops seems likely to be muted at best. Indeed, given longer replacement cycles, declines wouldn’t be a surprise.

The only two potential growth categories are Services and Other Products. There’s a reason why CEO Tim Cook has targeted $50 billion in services revenue by 2021, up from roughly $30 billion in FY17. Other Products — a category which includes Apple Watch, Beats, the iPod, Apple TV, and the recently released HomePod — has posted consistent double-digit growth since 2015.

But the concern is that those businesses simply aren’t that big. Combined, they generated about 20% of the company’s revenue over the past twelve months. Even assuming the Services business hits its $50 billion target, and is valued at an aggressive 4x revenue, it still would drive barely 20% of the value of Apple stock.

Source: Apple

Apple Watch has been a success — it’s the clear leader in smartwatches, and its growth has sent shares of rival Fitbit Inc (NYSE:FIT) plunging. Yet the product is not even big enough for Apple to break out its contribution. It just doesn’t materially change the company-wide financials.

This is the flip side of the iPhone’s success. It has made Apple so big, and so valuable, that what would be a massive hit for any other company simply doesn’t even move the needle.

The distribution of revenue by product seems to support the bear case that Apple’s growth will end at some point relatively soon. 60%+ of sales come from the iPhone. Unless pricing can go to $1,199 and beyond in perpetuity, revenue from that product is going to peak at some point. Another ~18% of revenue comes from the Mac lines and the iPad. Both of which are in clearly flattish long-term trends that could turn negative. Services and Other Products, then, are going to have to offset any weakness in iPhones on their own.  That’s a big ask given that their contribution to revenue is less than one-third that of the iPhone.

Risk #4: International Concerns

The breakdown of revenue by country, meanwhile, raises its own set of concerns.

42% of sales come from the Americas, the majority of that from the U.S. Apple continues to drive growth in that region, with a 12% increase in sales in FY17 followed by 13% growth in the first half. Still, the core concerns about iPhone growth would seem to apply heavily to the U.S. market, particularly with the end of subsidies from carriers like Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T).

Source: Shutterstock

Sales in the company’s Europe segment continue to rise — though that business also includes the Middle East, Africa, and the key Indian market. On the Continent, Apple has lost share in the four largest markets. It’s in developed markets where the commoditization concerns are likely to have the most impact. And in terms of unit sales, the iPhone already has started to stumble there.

Meanwhile, Apple could miss out on the two key developing markets.

Revenue in Greater China dropped 24% between 2015 and 2017. Strong performance in that region admittedly has been a big piece of good news this year. Sales have grown 15% through the first two quarters. But Apple still is losing share in that market to lower-priced in-country competitors. Additionally, trade war concerns are mounting. And at almost 20% of total sales, China is too important for Apple to lose.

In India, meanwhile, a twice-raised import tax makes the iPhone prohibitive. That leaves Apple mostly on the outside looking into the one of the world’s most important markets.

Looking geographically, then, an investor can see the risk to Apple’s revenue. The iPhone has to at least hold sales flat. But that will be a challenge in developed markets. And developing markets aren’t driving the growth needed. And it’s not as if consumers in those markets don’t have phones. They do. They just don’t have iPhones, and even the growing middle classes may not be able to afford them.

Combining the Risks for Apple Stock

Tying all the risks together for Apple creates a model in which revenue is currently at a peak — and earnings likely are as well. The iPhone drives 60%+ of revenue, and its unit sales may already have peaked. That figure has risen just 0.4% year-over-year so far in 2018 — and over the last four quarters remains below fiscal 2015 levels.

The U.S. market is saturated. Estimates suggest that on a unit basis, the U.S. drives about one-third of iPhone sales. China is the second-largest market — and has been negative over the past few years. Add in weakness in large European markets and something in the range of two-thirds of iPhone revenue — thus ~40% of Apple’s total revenue — is at risk of declining if and when Apple no longer can hike prices so aggressively.

Another 20% or so comes from developing markets where the iPhone is falling behind. Apple did post record first-half sales in India, according to the Q2 conference call — but most estimates suggest its presence in that country is small. The iPhone is #1 in China, according to the same call, but in a fragmented market, and revenue has been falling even accounting for currency headwinds.

20% of overall revenue is derived from the iPad and Mac lines, which are unlikely to grow much, if at all, going forward. The last 20% comes from Services and Other Products.

And so the calculation here becomes clear. Apple’s low-teen P/E and P/FCF multiples imply that the company’s growth is about done. But from a revenue standpoint, that’s potentially right.

Barring an acceleration in iPhone sales in China and/or India, the Services and Other Products business have to grow faster than the developed market iPhone business declines. But those businesses combined are half the size. So they’d need to grow twice as fast to account for iPhone declines.

The Bearish Scenario for Apple Stock

Understanding the distribution of revenue across products and geographies highlights the bearish scenario for Apple stock. Here’s how it could happen:

Source: Shutterstock

In developed markets, the iPhone has peaked. The X launch becomes the last major release that drives real buzz — and pricing power. Unit sales fall double-digits in 2019, in line with past performance after major launches. (iPhone unit sales fell 8% worldwide in FY16, for instance.)

Developing markets can’t pick up the slack. In Africa, and the Middle East, iPhone sales grow, but off a small base. Import taxes continue to drive Indian customers to in-country manufacturers as the government intended. Trade war rhetoric and low-cost competitors mean sales in China fall off in FY19 after a rebound year driven by the X.

Apple raises its prices modestly. But a shift to lower-priced models, particularly overseas, leads average selling prices downward. (This, too, is what happened in fiscal 2016: iPhone revenue fell 12%.) iPhone revenue drops from a record $160 billion in fiscal 2018 to $140 billion in fiscal 2019.

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Now, the narrative has changed. iPhone sales in both units and dollars are below their levels from four years ago. Apple breaks out Watch revenue for the first time: it has risen from ~$7 billion in FY19 to $9.5 billion in fiscal 2020. Investors point out that the figure is roughly 4% of Apple’s total sales.

The Services business is growing nicely — still at a double-digit pace — but slowing iPhone unit sales suggest little growth in the user count driving that revenue. A renewed decline in the iPad offsets modest growth in Mac sales. Apple’s overall revenue falls 5% in fiscal 2019 — and investors start asking how the decline will be reversed.

Again, this scenario is one in which most things go wrong for Apple. And I’d argue it’s more likely to occur (if it does) in fiscal 2021 than fiscal 2019. But it’s hardly based on outlandish assumptions.

Developed market iPhone revenues are going to turn south at some point. To offset those losses will require growth elsewhere. Services seems the most likely candidate — but even double-digit growth there only adds 2-3 points to the overall growth rate. The iPhone either needs better performance in developing markets — or the Watch, AirPods, and/or HomePod have to be multi-year winners.

A Cyclical Business

Some version of that bear case has surrounded Apple stock for years now. And, on occasion, it has gained some traction. In late 2012, Apple stock broke $700 (it has since split 7-for-1) for the first time. Within a matter of months, it had lost over 40% of its value. (iPad sales surprisingly turned south and investors worried the iPhone wouldn’t pick up the slack.) In 2015, cyclical worries again hit the stock. AAPL stock dropped about 35% over the next 15 months.

And it’s not just a matter of perception, either. Apple’s earnings have grown, but hardly in a consistent manner. Net income dipped between 2012 and 2014 before jumping in 2015. It fell again over the next two years, before heading to what seems likely to be a new peak in 2018.

It’s easy at the moment to assume AAPL bears (myself included) simply have been wrong the whole time. Apple stock is at an all-time high. The X looks set to perform better than skeptics believed. Services is growing nicely, and diversifying Apple away for the hardware business. Long-time (and well-respected) Apple analyst Gene Munster argued this month that we have entered a new “Apple story”. But investors need to remember that bulls thought the same in 2012 and 2015 as well.

Does The Bear Case Hold Water?

Admittedly, I’ve been proven wrong on Apple stock. And I’m not sure the bear case is that compelling at this point.

Source: Shutterstock

I do see long-term risk to the iPhone, but there’s also a scenario where Apple can offset any declines in that product. Services, Watch, and maybe AirPods and the HomePod can pick up some of the slack. Apple’s immense cash hoard is setting up a windfall for shareholders, as I wrote back in January. Even ~zero revenue growth likely leads to some profit growth, given that gross margins in the Service segment are higher than those in hardware categories. At 14x earnings, ‘some’ profit growth is enough to justify the current valuation.

Apple’s performance so far in 2018 also has undercut the bear case. I wrote after the Q2 report that even a skeptic like myself had to be impressed. The growth in China so far this year is important. So is the performance of the X. The Services business, as Munster pointed out, is becoming a bigger part of the narrative as it becomes a larger part of revenue. And somewhat quietly, margin pressures from a stronger U.S. dollar and higher memory prices are starting to reverse in Apple’s favor.

Still, from a long-term perspective, I do believe the bill is going to come due for Apple at some point.

Every hardware manufacturer has lost its technological advantage eventually. And I do believe the bear case merits consideration — even from ardent Apple bulls. There’s a reason why Apple stock looks cheap, and why it’s looked cheap for years. While the company may be able to grind out earnings growth, and upside in Apple stock, going forward, the long-term risks to the business model suggest that Apple stock never will get a market-level earnings multiple again.

As of this writing, Vince Martin has no positions in any sec

2018’s Biggest Stock Market Winners so Far

After a nearly perfect 2017 that saw big gains happen alongside mitigated volatility, the stock market hasn’t been able to replicate that success in early 2018.

Year-to-date, the S&P 500 is essentially flat. More than that, at one point in late January, the S&P 500 was up nearly 8% on the year. By the beginning of February, it was down 1% on the year.

In other words, the stock market of 2018 has looked very little like the stock market of 2017. Big gains have been replaced with sideways trading. And volatility has once again reared its ugly head.

But the broad market’s struggles don’t apply to every stock.

Thus far in 2018, the stock market has had some pretty big winners. And by big, I mean big. The market’s best-performing stocks have staged huge rallies of 50% and up thus far in 2018.

With that in mind, here are a few of the stock market’s biggest winners so far in 2018.

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Best-Performing Stocks #1: Netflix (NFLX) Netflix NFLX stock Source: via Netflix

Nothing seems to knock secular growth giant Netflix, Inc. (NASDAQ:NFLX) off its horse.

The other FANG names have struggled some in 2018. Facebook, Inc. (NASDAQ:FB) has been hit with data leak and personal privacy concerns. Alphabet Inc (NASDAQ:GOOG) is struggling to keep its margins up during a big investment period. Even Amazon.com, Inc. (NASDAQ:AMZN) has felt pressure recently due to regulatory threats.

But Netflix has faced zero meaningful threats so far in 2018. Meanwhile, the company continues to report strong beat-and-raise quarters that blow out expectations on every key metric from revenue to margins to earnings to subscribers.

That is why NFLX stock is up 70% year-to-date.

At this point, it seems that Netflix has reached escape velocity and is marching towards becoming the world’s biggest entertainment company. The Netflix streaming service just has such a powerful value prop (only $10-$15 per month for a seemingly unlimited library of exclusive content) relative to alternative entertainment options that global adoption at this point seem likes a question of when, not if.

That said, buyers should beware of valuation on Netflix stock at current levels.

I know that sounds silly for a stock that has done nothing but soar over the past several years, but even under bullish modeling assumptions of global domination and huge margin ramp, I still think the stock is only worth about $290.

Thus, at $320, it feels like the stock price has sprinted ahead of fundamentals in the near-term. In other words, if you want to buy this top-performing stock, it won’t hurt to wait for a meaningful pullback. 

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Best-Performing Stocks #2: Fossil Group Inc (FOSL) Fossil Group, Inc. (NASDAQ:FOSL) Source: Joe King via Flickr (Modified)

Not many people would guess this, but struggling traditional watch giant Fossil Group Inc (NASDAQ:FOSL) has actually outperformed streaming TV giant Netflix so far in 2018.

And its not because Netflix has struggled. Netflix stock is up 70% year-to-date. Fossil stock? It’s up 90%.

What is happening under the hood? Fossil is morphing into one of Wall Street’s most powerful turnaround stories.

For several quarters, Fossil fell victim to the smartwatch trend which destroyed the traditional watch market. Fossil’s core watch business tumbled. Sales got sliced. Margins were crushed. Net profits turned into net losses. And Fossil stock dropped from $130 to $5.

Yes, that is right. Fossil stock went from $130 to $5.

Seem overdone? It was.

Fossil wasn’t just laying idle as the smartwatch market killed its traditional watch business. They invested big into developing hybrid smartwatches, which are essentially the result of traditional watch fashion converging with smartwatch technology. Last quarter, FOSL gave the market signs that these hybrid smartwatches are starting to gain serious traction.

This momentum should persist.

Apple Watch won’t entirely dominate the smartwatch market. Instead, there will be multiple players in the smartwatch market, and one of the bigger players will be the company that most successfully integrates traditional watch fashion with smartwatch technology. Right now, Fossil is doing that best. Considering Fossil is the traditional watch giant, it is also pretty likely that Fossil continues to be the best at this for several years to come.

Meanwhile, Fossil stock is still at just $19. Again, this used to be a $130 stock. Therefore, it is pretty easy to conclude that if the smartwatch business continues to scale, Fossil stock still has a lot of room to run higher.

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Best-Performing Stocks #3: Chipotle Mexican Grill, Inc. (CMG) cmg stock Source: Shutterstock

The comeback in Chipotle Mexican Grill, Inc. (NYSE:CMG) has finally arrived. After the company hired a new CEO (who they stole from Taco Bell) and reported pretty good first quarter numbers, CMG stock has taken off and not looked back.

Year-to-date, CMG stock is up nearly 50%. And that includes a big drop in mid-February on bad Q4 numbers. Since then, CMG stock is up nearly 70%.

I was a vocal bear turned vocal bull on CMG stock. I hated the stock on the way down because it felt like health food trends had moved on from CMG and towards poke and superfood bowls. But then the tide started turning. Chipotle stores started filling up again, and the new CEO gave me faith that a Taco Bell-like turnaround was coming to Chipotle (that means targeted advertising, store redesigns, and menu innovations).

That said, after this blistering 70% rally off its 2018 low, CMG stock looks maxed out. The company faces a lot of competition in the quick casual restaurant space. Poke and superfood bowls are still very popular. Meanwhile, McDonald’s Corporation (NYSE:MCD) is actually reinventing themselves to be somewhat healthy with fresh beef patties and “Better Chicken” offerings (maybe not entirely healthy, but at least healthier than before).

Plus, margins will remain under pressure into the foreseeable future thanks to wage hikes.

Overall, then, if you put the current turnaround euphoria in context with the broader picture of a rebounding food chain in an only increasingly competitive QSR space, it is easy to see that CMG stock may have sprinted ahead of fundamentals in the near-term. Indeed, by my numbers, any price tag over $400 seems a little overdone here and now.

As such, while Chipotle has been one of the best-performing stocks so far in 2018, I expect gains from here through the rest of the year to be largely muted.

As of this writing, Luke Lango was long FB, GOOG, AMZ

3 Stocks Growing Faster Than Both Amazon & Netflix

In the stock market, e-commerce and cloud giant Amazon.com, Inc. (NASDAQ:AMZN) is considered the superhero of growth stocks. Meanwhile, Netflix, Inc. (NASDAQ:NFLX) is the very noteworthy sidekick. But these aren’t the fastest growing stocks on the market.

There is good reason for Netflix and Amazon’s shared reputation. Despite their increasing scale, Amazon and Netflix are among the fastest growing stocks in the world. Just last quarter, Amazon reported revenue growth of 43%, while Netflix reported revenue growth of 40%.

That is pretty impressive considering both Amazon and Netflix are already among the largest companies in the world. Thus, not only are they among the fastest growing stocks, but they are also among the biggest stocks. This combination of size and strength has led to AMZN and NFLX stock being big winners.

But just because these two stocks are the headline growers, that doesn’t mean that there aren’t stocks out there which are growing faster.

Back in March, I highlighted 3 stocks growing faster than Amazon and Netflix.

But things change quickly in the stock market, so let’s take a look at the fastest growing stocks now, in light of earnings season. Indeed, there are a handful of stocks which reported revenue growth in excess of Netflix’s 40% last quarter.

Not all of them are winners. Nor are all of them destined to be like Amazon or Netflix one day. In fact, most of them won’t ever get close to Amazon or Netflix’s size. But a few could, and those few could be huge winners over the next several years.

With that in mind, here’s a list of the 3 of the best growth stocks in 2018, all of whom are growing faster than Amazon and Netflix.

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Fastest Growing Stocks #1: Facebook (FB) Congressional Hearings Likely Harden the Battle Lines Over FB Stock Source: Shutterstock

Surprise, surprise.

The most troubled stock in the FANG group, Facebook, Inc. (NASDAQ:FB), is also the fastest growing. Revenue growth at Facebook last quarter was nearly 50%, basically 10 percentage points higher than what was reported at Netflix and Amazon.

What is driving this growth? Well, no one seems to care at all about a loss of privacy in social media. And that make sense. At the end of the day, consumers are getting Facebook’s platforms (Facebook, Instagram, Messenger, and WhatsApp) entirely for free, and this “for free” value prop seems to outweigh compromised personal privacy.

As such, everyone is using Facebook and its suite of products as much as they ever have. Meanwhile, advertisers continue to pull money from traditional mediums and throw it into Facebook’s advertising ecosystem, which features 1 platform with 2 billion-plus users, 2 platforms with 1 billion-plus users, and 1 platform with nearly a billion users.

This trend will continue. Instagram is clearly dominating ad spend in the youth-oriented market. Just look the recent miserable numbers from Snap Inc (NYSE:SNAP). Clearly, Facebook’s Instagram is winning and Snapchat is losing.

Meanwhile, Facebook is pushing forward with enhanced revenue opportunities through Watch and Marketplace, two features which haven’t even scratched the surface of their potential. Even bigger yet, Messenger and WhatsApp, with a combined 2.8 billion users, have barely begun monetization efforts.

All together, this a huge growth story with longevity. Facebook stock, though, trades at a rather paltry 23.5-times forward earnings. This combination of big growth and cheap valuation should power FB stock significantly higher over the next several quarters and years.

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Fastest Growing Stocks #2: Shopify (SHOP) Shopify Inc (SHOP) Stock’s Earnings Dip Is a Chance to Buy! Source: Shopify via Flickr

Shopify Inc (NYSE:SHOP) makes the list of fastest growing stocks for the second time. I’ve been pounding on the table about the digital commerce solutions provider for a while now. And I continue to pound on the table today.

Over the past year, Shopify stock has risen by 60%. That big rise has been driven by a red-hot growth narrative that isn’t slowing down by all that much. Last quarter, revenue growth was 68%. That is basically the same as it was in the prior quarter (+71%) and the year ago quarter (+75%).

The reason for this sustained robust growth is that the company continues to thrive in the overlap of the sharing economy and digital commerce.

The sharing economy is the future. Look no further than mega-successful companies like Uber, Lyft, Airbnb, YouTube, Instagram, and others to see proof of this. Each of these companies has made an absolute killing by taking power from the few and giving it to the many.

Uber and Lyft said you don’t need taxis to get around. All you need is a car. Everyone has a car, so everyone can be a “taxi.” That idea has worked out brilliantly.

Airbnb did the same thing with hotels. YouTube did the same thing with video personalities. And Instagram did the same thing with aesthetic models (think the whole class of Instagram models that became popular simply as a result of Instagram.)

Shopify is doing this same thing in the digital commerce space.

Shopify is saying that you don’t need to be a big and powerful retailer in order to sell stuff online. Everyone has a computer, and everyone has access to Shopify’s suite of digital commerce solutions. Therefore, everyone can be their own “online store” and make money through the internet.

It is a brilliant concept that mirrors the success stories of Uber, Lyft, and Airbnb. But it mirrors them in the secular growth digital commerce market, meaning Shopify’s growth trajectory could ultimately be more impressive.

All together, SHOP stock is a long-term winner. Valuation looks challenged in the near-term, but this stock is one to own for the next 5-10 years.

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Fastest Growing Stocks #3: GrubHub (GRUB) 3 Reasons to Be Cautious About GRUB Stock Source: Shutterstock

Whereas Shopify is the sharing economy play on digital commerce, GrubHub Inc (NYSE:GRUB) is the at-home economy play on food ordering and delivery.

There is no denying the fact that we are moving increasingly towards the at-home economy. Consumers are doing everything from the convenience of their homes. As opposed to going out and shopping, consumers are now more frequently shopping on Amazon. Likewise, as opposed to going out and watching movies, consumers are now more frequently watching Netflix.

GrubHub fits this same narrative. As opposed to going out and grabbing a bite to eat, consumers are now more frequently turning toward food ordering and delivery apps and having lunch/dinner served directly to them.

GrubHub is the king of this space. That is why revenue growth was 49% last quarter.

This space is also really, really big. That is why, despite increasing competition, GrubHub’s revenue growth trajectory is actually accelerating.

As such, GRUB stock is not only one of the fastest growing stocks in the market, but it also has an exceptionally long runway for that big growth to continue.

There are competitive threats here. Uber Eats is stealing market share away from GrubHub at a very quick rate, and especially so in critical, high-value urban markets. GRUB stock doesn’t appear priced for these competitive threats. The stock trades at nearly 60-times forward earnings.

For these reasons, I’m not a buyer of GRUB stock here and now. But any meaningful pullback of 10-20% should be viewed as a long-term buying opportunity.

As of this writing, Luke Lango was long AMZN, F

How Amazon Is Saving Sears

Sears Holdings Corp. (NASDAQ: SHLD) saw its shares make an unprecedented gain after it was announced that the retailer would be collaborating with Amazon.com Inc. (NASDAQ: AMZN). Specifically, these two companies will be working to provide full-service tire installation and balancing for customers who purchase any brand of tires on Amazon.

The collaboration stems from a growing relationship between Sears and Amazon, when Sears began selling Kenmore appliances on Amazon in July 2017.

With this collaboration, Sears Auto will become the first nationwide auto service center to offer Amazon customers the convenient Ship-to-Store tire solution integrated into the Amazon checkout process, which is easy and convenient. Amazon customers simply select their tires, the Sears Auto location and their preferred date and time for the tire installation. Sears Auto Centers then contact them to confirm their appointment.

The new Ship-to-Store capability will be initially available at 47 Sears Auto Centers in eight metropolitan areas. Following the initial launch, Sears Auto Centers quickly will expand this service to Amazon customers through its 400 plus Sears Auto Centers nationwide.

Tom Park, president of Kenmore, Craftsman and DieHard brands at Sears Holdings, commented:

Amazon.com customers can expect terrific performance and reliability from DieHard tires and professional installation from Sears Auto Centers. We’re thrilled to expand our assortment of this iconic brand to include passenger tires on Amazon.com.

This service will be rolling out to customers across the United States over the coming weeks.

Shares of Sears were last seen up about 22% at $3.37 on Wednesday, with a consensus analyst price target of $2.00 and a 52-week trading range of $1.99 to $11.49.

Amazon traded up just less than 1% at $1,604.73 a share, with a consensus price target of $1,820.20 and a 52-week range of $927.00 to $1,638.10.

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