Author: openjargon

The last two years have been a volatile time for ASX real estate shares. The question is, where to from here? The outlook for FY25 is uncertain.

Property is one of the most important sectors in the Australian economy, with how much value there is across the commercial and residential sectors.

There are a lot of different ASX shares related to property, including Goodman Group (ASX: GMG), REA Group Ltd (ASX: REA), Scentre Group (ASX: SCG), Stockland Corporation Ltd (ASX: SGP), Vicinity Centres (ASX: VCX), GPT Group (ASX: GPT), Mirvac Group (ASX: MGR), Dexus (ASX: DXS), Charter Hall Group (ASX: CHC), Brickworks Limited (ASX: BKW) and National Storage REIT (ASX: NSR).

Let’s look at what may affect the different areas of the property market.

Interest rates

The cost of debt is a key factor for property because it affects the amount of debt investors can take on and their repayments.

We can’t know what the Reserve Bank of Australia is going to do, but it remains focused on bringing down inflation in Australia. In its latest monthly decision, the RBA said the following:

Inflation is easing but has been doing so more slowly than previously expected and it remains high. The Board expects that it will be some time yet before inflation is sustainably in the target range. While recent data have been mixed, they have reinforced the need to remain vigilant to upside risks to inflation. The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.

The Board will rely upon the data and the evolving assessment of risks. In doing so, it will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.

It seems likely that interest rates will stay high during FY25, and depending on how strong inflation is, a rate rise could occur in the next few months of 2024. This is a strong headwind for ASX real estate shares in FY25.

Solid residential market?

Property builders and real estate portals rely on buyer demand for their sections of the market.

Some capital cities, such as Perth, Adelaide, and Brisbane, have seen strong price growth, whereas others (particularly Melbourne) are experiencing challenging conditions amid higher property taxes.

Mortgage arrears are rising, though listings have increased in Melbourne and Sydney, which is helping REA Group’s realestate.com.au business. In its latest quarterly update, REA Group said:

Australia’s residential property market remains strong, particularly in the Melbourne and Sydney markets. Supply is benefiting from property prices rising to record levels and increased investor selling in some markets, while demand continues to be supported by strong fundamentals including low unemployment and high levels of immigration.

Australia’s population growth may continue to help this segment.

Mixed REIT performance

The commercial property sector has various segments, the main ones being industrial, office, and shopping centres. I think the commercial real estate investment trust (REIT) ASX real estate shares may see varied performance in FY25.

Industrial property is seeing strong demand as companies onshore more of their supply chain in limited capital city locations, as reported by Centuria Industrial REIT (ASX: CIP). Strong rental growth could continue in this sector during FY25.

Office buildings, particularly in Melbourne and Sydney, face uncertainty and lower tenant demand amid the COVID work-from-home shift. Dexus recently revealed a double-digit percentage decrease in the value of the office buildings in its portfolio. Depending on interest rate developments, there could be more office pain in FY25.

The largely resilient Australian economy is ensuring that households are collectively still spending money at shops, which is helping the shopping centre REITs. Scentre said in the three months to 31 March 2024, its tenants achieved $6.5 billion in sales, up 2.4% year over year. Time will tell if retail can continue to perform in FY25.

FY25 could be a very interesting year for ASX real estate shares, but it may not be close to the best-performing sector.

The post Are ASX real estate shares building towards a better FY25? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Brickworks. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks, Goodman Group, and REA Group. The Motley Fool Australia has positions in and has recommended Brickworks. The Motley Fool Australia has recommended Goodman Group and REA Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

With many analysts expecting the gold price to remain elevated in the coming years, having some exposure to the gold sector could be a good idea for a portfolio.

But which ASX 200 gold stock should investors consider buying right now? Let’s take a look and see what analysts at Goldman Sachs are recommending.

Which ASX 200 gold stock is a buy?

Goldman Sachs has recently made site visits to the Northparkes and Cowal gold operations of Evolution Mining Ltd (ASX: EVN) and was pleased with what it saw.

According to the note, the broker believes the site visits have given it improved clarity in respect to the ASX 200 gold stock’s medium-term outlook. It explains:

We see the improved clarity on the medium-term outlook across both assets and the broader portfolio lessening the risk of significant capex increases/production softness relative to expectations vs. peers, and reducing uncertainty. The timing of major capex later this decade across Northparkes, Cowal, and Ernest Henry is not seen as a risk, where assets largely fund their own capital requirements (GSe net cash by FY27).

What sort of returns are possible?

The note reveals that Goldman Sachs sees a lot of value in Evolution Mining’s shares.

In response to the site visits, its analysts have reaffirmed their buy rating with a reduced price target of $4.00.

Based on the current Evolution Mining share price of $3.48, this implies potential upside of 15% for this ASX 200 gold stock over the next 12 months. It commented:

Our Northparkes valuation increases on deferred capital, offset by a reduction in our Cowal valuation on increased medium-term capex vs. our prior expectations. However, on aggregate with the recent quarter to date production update (and carry over impacts into FY25) our FY24/25/26E EPS is +1%/-20%/-36%, in part on increased non-cash inventory charges (particularly at Cowal).

The broker then highlights that the company’s shares are trading at an attractive level based on its long term gold price forecasts. Goldman also notes its strong free cash flow yields in comparison to peers. It adds:

On our LT gold price of US$1,800/oz, EVN is trading on ~1.1x NAV (on our medium-term Red Lake production remaining below original FY24 guidance), or pricing ~US$1,825/oz gold, broadly in line with peers (average ~1.1x NAV and ~US$1,800/oz), though near-term FCF yields of c. 10% in FY25/26E remain attractive vs. peers at c. 0-10% on average.

The post Want gold exposure? Goldman Sachs says this ASX 200 gold stock is a buy appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Qantas Airways Ltd (ASX: QAN) shares are flying in the green today.

Shares in the S&P/ASX 200 Index (ASX: XJO) airline stock closed flat yesterday, trading for $6.06. In morning trade on Tuesday, shares are swapping hands for $6.08, up 0.3%.

For some context, the ASX 200 is up 0.8% at this same time.

Now, here’s how Qantas aims to improve its regional network.

ASX 200 airline spreading its regional wings

Qantas shares are marching higher today after the company reported it is investing in 14 new DeHavilland Dash 8 turboprop aircraft (Q400) for its regional QantasLink routes.

Qantas said that 19 of its smaller Q200 and Q300 turboprop aircraft will gradually be phased out of its regional fleet.

The first new Q400 is scheduled to take to the air by the end of calendar year 2024.

Regional passengers will be pleased to find the new planes are 30% faster than the Q200 and Q300 aircraft they’ll eventually replace.

This investment will bring the number of Q400 aircraft in the fleet to 45.

Among the potential benefits for Qantas shares, management said the new Q400 aircraft will help improve operational reliability. And the consolidation of three sub-fleets into a single fleet of turboprops is expected to lower maintenance and operating costs for QantasLink.

Once the fleet changes are completed, there will be no material change to QantasLink’s overall turboprop capacity.

What did management say?

Commenting on the new investments that could help support Qantas shares longer-term, CEO Vanessa Hudson said, “As the national carrier, we are proud of the role we have played for more than 100 years keeping regional communities connected, and this investment ensures there will be ongoing reliable air services across many parts of regional Australia.”

Hudson added:

QantasLink turboprops carry more than 3.5 million customers to more than 50 destinations around regional Australia every year, and these next-generation aircraft allow us to improve the travel experience with a faster and more comfortable experience…

We know sustainable travel is important for our customers. These additional Q400s allow us to provide certainty to the regions over the next decade while we work with aircraft manufacturers and other suppliers on electric or battery powered aircraft that are the right size and range for our network.

Qantas regional turboprop aircraft investment comes as the ASX 200 airline progresses with its broader jet fleet renewal program. QantasLink’s third Airbus A220 aircraft is expected to be delivered in the next few weeks.

How have Qantas shares been tracking?

A strong run higher commencing in early March sees Qantas shares up 13% in 2024. Shares are up 1% over the past 12 months.

The post Qantas shares lift amid new investment in next-generation aircraft appeared first on The Motley Fool Australia.

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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Paladin Energy Ltd (ASX: PDN) shares have returned from their trading half on Tuesday and are sinking.

At the time of writing, the uranium producer’s shares are down over 7% to $12.26.

Why are Paladin Energy shares sinking?

Investors have been selling the company’s shares today after it announced an agreement to acquire Fission Uranium Corp. (TSX: FCU). It’s possible that some investors think the company is overpaying and are hitting the sell button today.

According to the release, the two parties have entered into a definitive arrangement agreement that will see Paladin Energy acquire 100% of Fission Uranium for 0.1076 shares for each Fission share.

The offer consideration represents an implied value of C$1.30 (A$1.43) per share. This equates to a 25.8% premium to its last close price and values the Canadian uranium miner at C$1.14 billion (A$1.25 billion).

Following the unanimous recommendation by its special committee of independent directors, Fission Uranium’s board of directors recommends that its shareholders vote in favour of the transaction.

Cantor Fitzgerald has provided an opinion to the special committee to the effect that the offer consideration is fair, from a financial point of view to the Fission shareholders.

Why is it acquiring Fission Uranium?

Paladin Energy’s CEO, Ian Purdy, believes that the acquisition is a natural fit for its portfolio. He said:

The acquisition of Fission, along with the successful restart of our Langer Heinrich Mine, is another step in our strategy to diversify and grow into a global uranium leader across the top uranium mining jurisdictions of Canada, Namibia and Australia. Fission is a natural fit for our portfolio with the shallow high-grade PLS project located in Canada’s Athabasca Basin. The addition of PLS creates a leading Canadian development hub alongside Paladin’s Michelin project, with exploration upside across all Canadian properties.

Purdy notes that the combination of the two companies will create one of the world’s largest pure-play uranium companies. He adds:

Both sets of shareholders are expected to benefit from the increased scale of the enlarged company, with a combined Mineral Resource representing one of the largest amongst pure-play uranium companies globally and a substantially increased international capital markets exposure. The Transaction also de-risks the development of PLS for Fission shareholders, underpinned by LHM production and Paladin’s leading offtake contract book. Paladin will bring the required investment to PLS in order to advance it towards production.

The transaction is targeted to close in the September 2024 quarter. This is subject to satisfaction of all conditions under the agreement.

The post Paladin Energy shares sink on $1.25b uranium acquisition news appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Collins Foods Ltd (ASX: CKF) shares are soaring on Tuesday morning.

At the time of writing, the ASX 200 stock is up 10% to $10.30.

This follows the release of the KFC restaurant operator’s FY 2024 results.

ASX 200 stock jumps on FY 2024 results

• Revenue from continuing operations up 10.4% to $1,488.9 million
• Underlying EBITDA from continuing operations up 12% to $229.8 million
• Underlying net profit after tax from continuing operations up 15.6% to $60 million
• Fully franked final dividend of 15.5 cents per share

What happened in FY 2024?

For the 12 months ended 28 April, Collins Foods reported a 10.4% increase in revenue from continuing operations to $1,488.9 million. Continuing operations exclude Sizzler Asia.

Management advised that this was driven by growth across all business units. KFC Europe was the star of the show, reporting a 26.1% increase in revenue to $313.5 million. This was supported by an 11.7% lift in Taco Bell revenue to $54.4 million and a solid 6.6% increase in KFC Australia revenue to $1,121 million.

The ASX 200 stock’s underlying EBITDA from continuing operations grew at a slightly quicker rate of 12% to $229.8 million. This reflects its strong sales growth, operational efficiencies, and cost control.

Once again, it was the KFC Europe business that was the standout. It reported a 29.6% increase in underlying EBITDA to $42.5 million. Whereas KFC Australia’s underlying EBITDA rose 9.8% to $221.4 million and Taco Bell posted an underwhelming $0.7 million loss.

Though, the latter was an improvement from a $1.5 million loss a year earlier. Management notes that Taco Bell developments remain temporarily paused while it optimises its current network of 27 restaurants in suburban metro geographies.

In light of the above, a fully franked final dividend of 15.5 cents per share was declared. This brings its total FY 2024 dividends to 28 cents per share, which is up 3.7% year on year.

Management commentary

Collins Foods’ interim CEO and managing director, Kevin Perkins, was pleased with the results. He said:

Collins Foods maintained its growth momentum, delivering record revenue and positive same store sales across all business units. Growth was driven by our growing footprint with 17 net new restaurants added across the Group, increased adoption of digital channels, new product innovation, and value-led initiatives. Profitability also improved over the year, benefiting from sales growth, greater operational efficiency and cost control.

Our solid FY24 performance is even more impressive given the challenging macro environment. While the QSR sector is one of the most resilient, it is not immune to the ongoing cost-of-living pressures facing consumers. As expected, trading conditions were softer in the second half given the dual impacts of inflation across all input lines and weaker consumer sentiment. We continue to manage our business for the long-term, prioritising brand health by ensuring value across the menu to retain consumer trust.

Outlook

The ASX 200 stock’s growth has moderated since the end of FY 2024.

Management notes that this reflects “the continuation of a weaker consumer environment in Australia and Europe, as well as the lapping of strong growth in the prior year.”

During the first seven weeks of FY 2025, KFC Australia’s total sales increased 1.5%, KFC Europe sales are down 0.1%, and Taco Bell sales are up 0.6%.

Perkins commented:

Significant cost-of-living and inflationary pressures are expected to remain for much of the year ahead, impacting sales growth and we expect margin pressure across the Group.

Current conditions remain challenging, however, they have not dampened our enthusiasm for growth. We’re continuing to grow our KFC network with Australian expansion in FY25 expected to be a little ahead of our development agreement commitment, and a number of new restaurants are planned for the Netherlands. We’re also exploring and evaluating M&A opportunities for KFC in existing markets as well as complementary new geographies.

The post ASX 200 stock jumps 10% on strong FY24 results appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has positions in Collins Foods. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Collins Foods. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Vanguard Australian Shares Index ETF (ASX: VAS) is a very popular exchange-traded fund (ETF) on the ASX, with $15 billion in funds under management (FUM). But being large is one thing, how it has performed is a completely different matter.

Vanguard aims to provide investors with access to share markets at a very low cost. The investors are the owners of Vanguard itself, and the provider shares its profit with investors by keeping the fees as low as possible.

ETFs can be an effective way to invest and help diversify against risks. On Vanguard’s website, it says:

Rather than trying to pick the winning investment each year, spreading your investments across a wide variety of assets will help reduce the risk of loss. Investors who are well diversified tend to enjoy a smoother investment ride over the long term.

Let’s look at how good the VAS ETF returns have been.

Adequate long-term returns

Every month, Vanguard informs investors how the Vanguard Australian Shares Index ETF has performed over time.

As of 31 May 2024, the VAS ETF has delivered an average net return of:

• 8.98% per annum since its inception in May 2009
• 7.72% per annum over the prior decade
• 7.81% per annum over the last five years
• 6.54% per annum over the last three years

These are not bad returns, but not Earth-shattering either.

It’s interesting to note that in each time period I mentioned, the distribution element of the return from the ASX ETF made up most of the net return, highlighting that dividends are an important part of ASX returns.

In the last 12 months, the VAS ETF has delivered a net return of 12.81% thanks to the rise in the S&P/ASX 300 Index (ASX: XKO).

What is the VAS ETF invested in?

The performance of the underlying holdings decides the returns of an ETF.

Unsurprisingly, ASX financial shares (29.7%) and ASX mining shares (22.7%) still make up more than half of the ASX ETF’s total portfolio.

The top ten positions in the portfolio are some of Australia’s strongest businesses:

• BHP Group Ltd (ASX: BHP)
• Commonwealth Bank of Australia (ASX: CBA)
• CSL Ltd (ASX: CSL)
• National Australia Bank Ltd (ASX: NAB)
• Westpac Banking Corp (ASX: WBC)
• ANZ Group Holdings Ltd (ASX: ANZ)
• Wesfarmers Ltd (ASX: WES)
• Macquarie Group Ltd (ASX: MQG)
• Goodman Group (ASX: GMG)
• Woodside Energy Group Ltd (ASX: WDS)

Consider other ASX ETFs for additional diversification

The ASX only makes up a very small percentage of the global share market, so it could be wise to diversify with other ETFs that provide exposure to international stocks.  

For example, the Vanguard MSCI International Shares Index ETF (ASX: VGS) invests in more than 1,300 businesses in ‘developed’ countries worldwide. Since its inception in November 2014, the VGS ETF has delivered an average annual return of 12.8% thanks to its exposure to numerous growing businesses. This sort of investment could work well if mixed with the VAS ETF.

The post What is the average return of the Vanguard Australian Shares Index ETF (VAS)? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Goodman Group, Macquarie Group, and Wesfarmers. The Motley Fool Australia has positions in and has recommended Macquarie Group and Wesfarmers. The Motley Fool Australia has recommended CSL, Goodman Group, and Vanguard Msci Index International Shares ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Goodman Group (ASX: GMG) shares are a popular option for investors.

The ASX 200 stock features in countless portfolios across the country and it isn’t hard to see why.

What is Goodman?

Goodman Group is an integrated property group with operations and investments throughout Australia, New Zealand, Asia, Europe, the United Kingdom and the Americas.

It is one of the largest listed specialist investment managers of industrial property and business space globally.

Management notes that Goodman’s global property expertise, integrated own+develop+manage customer service offering and significant investment management platform ensures it creates innovative property solutions that meet the individual requirements of its customers, while seeking to deliver long-term returns for investors.

Well, the company has certainly delivered on the latter. Goodman shares have been incredible performers over the last decade.

During this time, the ASX 200 stock has delivered an average total return of 22% per annum.

To put that into context, a $10,000 investment in Goodman’s shares back in 2014 would now be worth almost $75,000.

Is it too late to buy this ASX 200 stock?

One analyst that remains very positive on Goodman is Niv Dagan from Peak Asset Management.

Peak Asset Management is a boutique investment management firm that is headquartered in Melbourne. It aims to provide private and institutional investors with access to Australia’s most attractive corporate opportunities. The company notes that each opportunity must pass its strict investment process.

According to The Bull, Peak Asset Management’s executive director, Niv Dagan, thinks the ASX 200 stock is a great long term option for investors. This is due to its stability and growth potential. He said:

Goodman is an integrated industrial property group. It reported $12.9 billion of development work in progress across 82 projects on March 31. The company’s solid earnings growth and robust financial health underpin its appeal. Given its global presence and consistent performance, Goodman is a promising candidate for a long-term investment, as it offers stability and growth potential.

Is anyone else bullish?

Analysts at Citi would likely agree with Peak’s positive view on Goodman.

That’s because earlier this month the broker put a buy rating and $40.00 price target on the ASX 200 stock.

Based on its current share price of $35.18, this implies potential upside of almost 14% for investors over the next 12 months. The broker believes Goodman is well-placed for growth thanks to its data centre and warehouse developments.

The post Buy this ASX 200 stock for ‘stability and growth potential’ appeared first on The Motley Fool Australia.

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Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goodman Group. The Motley Fool Australia has recommended Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Over the past year, Coles Group Ltd (ASX: COL) shares haven’t done so well, dropping 6.5%. While this is better than its rival Woolworths Group (ASX: WOW), which is down 15%, Coles shares have underperformed the S&P/ASX 200 Index (ASX: XJO), which is up 9.3% during the same period.

However, Coles shares have performed better over the longer term. The stock has risen 28.9% over the past five years, outperforming the ASX 200 index by 12%.

Could Coles shares continue to outperform from here on?

Breaking down share price returns

Share returns are influenced by two main factors: earnings growth and valuation multiple growth.

When a company earns more money (earnings), it becomes more attractive to investors, which usually pushes its share price up. Additionally, if investors become more optimistic about the company’s future, they may be willing to pay more for its shares, increasing the price further. In simple terms, higher earnings and positive investor sentiment lead to better share returns.

For example, the current share price of Coles at $17.1 can be split into:

• FY24 earnings per share (EPS) estimate of 81 cents multiplied by a price-to-earnings (P/E) ratio of 21x
• FY25 EPS estimate of 84 cents multiplied by a P/E ratio of 20x

These two factors are based on market expectations, which are constantly updated depending on actual business results from Coles.

How fast can Coles earnings grow?

The earnings estimates by S&P Capital IQ appear to assume Coles’ EPS will increase at a compound annual growth rate (CAGR) of 6.7% over the next three years, as follows:

• 81 cents in FY24, implying a 3.4% growth over the previous year
• 84 cents in FY25, implying a 4.9% growth over the previous year
• 95 cents in FY26, implying a 12.5% growth over the previous year

The FY26 growth estimate of 12.5% is doubtful to me, but the economy may improve by then.

Considering Coles has consistently grown its same store growth between 2.5% and 5.8% over the past three years, the market consensus of high single-digit growth seems reasonable.

This means if the market is willing to keep applying 20x PE, then the Coles share price may increase by 6% to 7% as its earnings grow.

Valuation multiples

The next question is whether the current valuation multiple is fair. While there could be many different ways to look at it, I would use a simple approach here.

A P/E ratio of 20x means investors are paying $100 for an expected annual profit of $5. In other words, this means an earnings yield of 5%. This is different from a dividend yield because not 100% of the company’s earnings will be paid to shareholders.

Then, we can compare this to other alternatives. For example, would investors want a 5% earnings yield from Coles shares rather than putting their money in the bank earning lower interest rates? The answer may be yes, given the cash rate by the RBA is 4.25%.

Also, Coles is one of the two leading grocery chains in the country, providing investors with stable and predictable earnings outlook.

For these reasons, Coles’ PE ratios have rarely traded below 20x over the past 5 years.

So I would say the current PE levels are reasonable.

Can Coles shares outperform the index?

The ASX 200 index generated a total return of 7.6% over the last ten years, including a dividend yield of 4.7%.

As we reviewed earlier, we can estimate Coles shares could generate a total return of approximately 11% based on roughly 6% to 7% return from its earnings growth and by adding its dividend yield of 3.9%.

Based on this simple exercise, I would think there’s reasonably high chance that Coles shares could do better than the ASX 200 index.

The post Can Coles shares outperform the ASX 200 Index from here? appeared first on The Motley Fool Australia.

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Motley Fool contributor Kate Lee has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Coles Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The artificial intelligence (AI) revolution has already helped spur big gains for the S&P/ASX 200 Index (ASX: XJO) tech stock we’ll look at below.

Indeed, if I were going to invest in just one ASX company and one United States-listed company to ride the surging global interest in generative AI and machine learning, they would be Nvidia Corporation (NASDAQ: NVDA) and ASX 200 tech stock Megaport Ltd (ASX: MP1).

Nvidia has tapped deep into the AI money flow with its generative AI chips. That’s helped spur a 212% rally in the Nvidia share price over the past 12 months. Atop the past few years of stellar performance, it gives the US-based company an eye-watering market cap of US$3.11 trillion (AU$4.69 trillion).

The Megaport share price has also been on a tear. Over the past year, shares in the ASX 200 tech stock have soared 71%. This gives Megaport a market cap of AU$1.88 billion.

Both stocks are major beneficiaries of the AI revolution, which really got underway with the introduction of OpenAI’s ChatGPT towards the end of 2022.

Less than two years later we see companies the world over racing to incorporate generative AI to streamline their operations.

While the long-term impacts on the labour market remain an unknown concern, AI appears poised to spur innovations in healthcare, manufacturing, finance and retail, to name a few.

But for businesses to make the most of it, they need to be able to connect easily.

Which brings us back to ASX 200 tech stock Megaport.

What’s happening with the ASX 200 tech stock?

Megaport is a network as a Service (NaaS) solutions provider offering “elastic interconnection services”.

In a nutshell, the company’s software layer provides users with an easy way to create and manage network connections. Through its network of more than 113 unique data centre operators, businesses can deploy private point-to-point connectivity between any of the locations on Megaport’s global network infrastructure.

Its customer connections to major cloud service providers include powerhouse companies like Microsoft Corp (NASDAQ: MSFT) and Google Cloud Platform, the domain of Alphabet Inc (NASDAQ: GOOG).

Among the ASX 200 tech stock’s strengths is its dedicated, founder-led management team.

As legendary investor Warren Buffett says, “A great manager is as important as a great business.”

Now Megaport’s founder, Bevan Slattery will exit his role as chairman of the board at the end of this week. Director Melinda Snowden will take the top spot.

But Slattery will continue to offer advice going forward.

“As founder, I am passionate about Megaport and its success, and I will always be available to the team to provide strategic advice and guidance,” he said last week (quoted by The Australian).

On the financial front

As for Megaport’s recent financial metrics, the AI revolution looks to be already helping drive growth.

At its last quarterly update, the ASX 200 tech stock reported a 30% year on year boost in revenue to $49.5 million.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) soared by 92% to $14 million.

And Megaport had a net cash position of $59.2 million, up from $45.8 million at the end of December.

The ASX 200 tech stock also upgraded its earnings guidance for the full financial year.

Megaport lifted its FY 2024 EBITDA to between $56 million and $58 million, up from the company’s prior guidance of $51 million to $57 million.

The post The AI money flow: Why you can’t afford to miss stocks like Nvidia and this rising ASX 200 tech stock appeared first on The Motley Fool Australia.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Megaport, Microsoft, and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Megaport, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.