Category: Stock Market

Do you have room for some new ASX dividend shares in your income portfolio?

If you do, then it could be worth looking at the three names in this article.

That’s because analysts think they are in the buy zone and destined to provide investors with some very attractive dividend yields.

Here’s what they are forecasting from them:

Aurizon Holdings Ltd (ASX: AZJ)

Analysts at Ord Minnett think that Aurizon could be an ASX dividend share to buy. It is a rail freight operator with a network spanning thousands of kilometres. With this network it transports a range of commodities, including mining, agricultural, industrial and retail products for a diverse range of customers across Australia.

The broker is positive on the company due partly to its belief that coal usage in China and India will continue to keep Aurizon busy for a long time to come. The broker expects this to underpin partially franked dividends of 18.6 cents per share in FY 2024 and then 24.4 cents per share in FY 2025. Based on the current Aurizon share price of $3.69, this will mean dividend yields of 5% and 6.6%, respectively.

Ord Minnett has an accumulate rating and $4.70 price target on its shares.

Charter Hall Retail REIT (ASX: CQR)

Another ASX dividend share that analysts are bullish on is the Charter Hall Retail REIT. It is a property company with a focus on supermarket anchored neighbourhood and sub-regional shopping centre markets.

Citi likes the company due partly to its inflation-linked rental increases. It is expecting this to underpin dividends of 28 cents per share in both FY 2024 and FY 2025. Based on the current Charter Hall Retail REIT share price of $3.38, this will mean very large yields of 8.3%.

Citi has a buy rating and $4.00 price target on its shares.

Eagers Automotive Ltd (ASX: APE)

A third ASX dividend share that analysts are tipping as a buy is Eagers Automotive. It is the leading automotive retail group in Australia and New Zealand.

Bell Potter believes that recent share price weakness has created a buying opportunity for income investors. Especially given its expectation for above-average dividend yields in the near term.

It is forecasting fully franked dividends of 64.5 cents per share in FY 2024 and then 73 cents per share in FY 2025. Based on its current share price of $10.89, this represents dividend yields of 5.9% and 6.7%, respectively.

The broker has a buy rating and $13.35 price target on its shares.

The post Buy these ASX dividend shares with ~5% to 8% yields appeared first on The Motley Fool Australia.

More reading

• 3 ASX dividend shares to buy with 6%+ yields
• Here are the top 10 ASX 200 shares today
• Buy these top ASX 300 dividend stocks today for an income boost
• This ASX 200 insider is buying up company shares for the first time in 8 years!
• How to invest for retirement in an inflationary environment

Aiming to beat the ASX with some cash-gushing dividend stocks?

You’re not alone!

Below we look at three high-yielding ASX dividend stocks that have been smashing the average yields delivered by ASX shares.

So, if it’s market-beating passive income you’re after, read on.

Three high-yielding ASX dividend stocks

Before we proceed, note that the yields you generally see quoted are trailing yields. Future yields can be higher or lower depending on a range of company-specific and macroeconomic factors.

And while we’re looking at three cash-gushing ASX dividend stocks here, the ideal passive income portfolio will contain more than ten companies. Ideally, these will operate in different sectors and geographic locations. That kind of diversity will lower the overall risk to your income portfolio.

With that said, the first dividend stock to buy to beat the ASX is Australia and New Zealand Banking Group Ltd (ASX: ANZ).

ANZ shares have been on fire over the year gone by, soaring more than 26% over 12 months.

As for that passive income, ANZ paid a final partly franked dividend of 94 cents a share on 22 December. The S&P/ASX 200 Index (ASX: XJO) bank will pay the interim dividend of 83 cents a share on Monday, 1 July.

That equates to a full-year payout of $1.77 a share, and it sees ANZ shares trading on a partly franked dividend yield of 6.14%.

Which brings us to the second ASX dividend stock to buy to beat the ASX, Yancoal Australia Ltd (ASX: YAL).

The Yancoal share price has also rocketed over the past year, up a whopping 42% over 12 months.

And that’s not including the two super-sized dividends the ASX coal miner paid out over the year.

Yancoal paid a fully franked interim dividend of 37 cents per share on 29 September. The coal stock paid the final dividend of 32.5 cents a share on 30 April. That works out to a full-year payout of 69.5 cents a share.

And it sees this top stock trading on a fully franked yield of 11.05%. Take that ASX!

Rounding off our list of high-yielding ASX dividend stocks is Woodside Energy Group Ltd (ASX: WDS).

Unlike our other two ASX smashing companies, the Woodside share price has lost ground over the past year, down 17%.

But the oil and gas company continued to please passive income investors. Woodside paid a fully franked interim dividend of $1.243 a share on 28 September and a final dividend of 91.7 cents a share on 4 April for a full-year payout of $2.16 a share.

That sees this ASX dividend stock trading on a fully franked trailing yield of 7.72%.

The post Beat the ASX with these cash-gushing dividend stocks appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Wednesday
• Here are the top 10 ASX 200 shares today
• Buying ASX 200 energy shares? Here’s what to expect in FY 2025
• Own ANZ shares? You need to know these important dates
• Buy Coles and these ASX 200 dividend stocks

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.

With the global uranium race heating up, investors may want to run their slide rule over ASX exchange-traded fund (ETF) Betashares Global Uranium ETF (ASX: URNM).

URNM is intended to track the performance of a basket of Australian and international uranium miners.

You can buy and sell shares in this top ASX ETF just like you would with individual stocks.

And it gives you instant diversification and exposure to 38 leading uranium producers across the globe.

Launched in June 2022, URNM’s top four holdings are internationally listed companies:

• Cameco Corp
• NAC Kazatomprom JSC
• Sprott Physical Uranium Trust
• CGN Mining Co LTD

Two leading ASX uranium stocks are also in the ETF’s top 10 holdings. Namely Paladin Energy Ltd (ASX: PDN) and Boss Energy Ltd (ASX: BOE).

Australia is second only to Canada in terms of URNM’s country allocation, with Kazakhstan at number three and the United States at number four.

The ASX ETF has been running hot amid the global uranium renaissance. According to Betashares, as at 31 May and including dividends, the fund had returned 89.4% over the prior 12 months (although returns will have partially retreated from this figure as at the time of writing).

ASX ETF making hay amid global nuclear revival

As you’re likely aware, nations around the world are fast reversing their opposition to nuclear energy as a means to provide reliable baseload power without carbon emissions.

And that change in sentiment has been a boon for this ASX ETF.

Today, at least 58 new nuclear power stations are under construction across 16 countries. Twenty-two of these are in China, with India also investing heavily in new nuclear plants.

But the world’s two most populous nations aren’t alone.

In December, 22 nations – including the United States, Japan and France – pledged to triple their nuclear power capacity by 2050.

And in good news for uranium producers and this ASX ETF, the US Government recently unveiled a major spending package to up its nuclear capacity.

According to US Energy Secretary Jennifer Granholm:

We are entering a new era of nuclear energy, our single largest source of carbon-free electricity. We plan to invest up to US$900 million to accelerate nuclear deployment, add more small modular reactors, and reach more Americans with clean energy.

With uranium supply growth trailing demand growth, uranium prices hit all-time highs of around US$107 per pound in late January, up from an average of US$67 per pound in 2023.

Prices have come down from there, recently trading for US$86 per pound. That’s also seen the URNM share price drop by around 12% over the past month.

But with uranium demand widely expected to outstrip new supplies for years yet, I believe that’s just a bump in the road for longer-term investors in the top ASX ETF and could present an excellent entry point.

What are the experts saying?

Commenting on the global nuclear renaissance Guy Keller, fund manager at Tribeca Investment Partners said (quoted by The Australian Financial Review):

I think the real change has been global … which has made it much more politically safe… There has been a massive, wholesale global adoption of nuclear technology and its ability to solve decarbonisation of the electricity grid, and also some very serious energy security concerns.

Regal Partner’s Phil King is among those forecasting tight uranium supplies are likely to persist for some time.

According to King:

We’re seeing a huge rollout of nuclear plants all around the world, and this is very much led by India and China. Because of the time it takes to get new mines into production, this … almost guarantees that we’re facing a very, very tight scenario for uranium.

With this “very tight scenario for uranium” in mind, I think this ASX ETF looks well placed for more outperformance in the year ahead.

The post 1 top ASX ETF to buy now as the global uranium race heats up appeared first on The Motley Fool Australia.

More reading

• Why these 5 ASX ETFs could be quality options for investors
• Here’s why ASX uranium shares like Deep Yellow are running hot today

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 recommended Cameco. The Motley Fool Australia has recommended Betashares Global Uranium Etf. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

On Tuesday, the S&P/ASX 200 Index (ASX: XJO) had a very strong session and raced higher. The benchmark index stormed 1.35% higher to 7,838.8 points.

Will the market be able to build on this on Wednesday? Here are five things to watch:

ASX 200 expected to fall

It looks set to be a red day for the Australian share market on Wednesday despite a relatively positive session in the United States. According to the latest SPI futures, the ASX 200 is expected to open the day 36 points or 0.45% lower. On Wall Street, the Dow Jones was down 0.75%, but the S&P 500 pushed 0.4% higher and the Nasdaq climbed 1.25%.

Oil prices fall

ASX 200 energy shares Beach Energy Ltd (ASX: BPT) and Woodside Energy Group Ltd (ASX: WDS) could have a tough day after oil prices pulled back overnight. According to Bloomberg, the WTI crude oil price is down 1.1% to US$80.77 a barrel and the Brent crude oil price is down 1.2% to US$84.94 a barrel. Easing tensions between Israel and Lebanon were behind the weakness.

Buy Bellevue Gold shares

The Bellevue Gold Ltd (ASX: BGL) share price is good value according to analysts at Goldman Sachs. This morning, the broker has initiated coverage on the gold miner with a buy rating and $2.20 price target. This implies potential upside of 24% for investors. It said: “With BGL largely through initial ramp up, we see the business well positioned amongst mid-cap peers at ~200-250kozpa gold production, with higher average grades and stronger margin generation, where low cost mill expansion/underground optionality support further upside.”

Gold price falls

ASX 200 gold shares such as Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could have a subdued session after the gold price eased overnight. According to CNBC, the spot gold price is down 0.6% to US$2,331.1 an ounce. A stronger US dollar and widening bond yields put pressure on the precious metal.

Perpetual rated as a buy

Analysts at Bell Potter think investors should be buying Perpetual Ltd (ASX: PPT) shares. According to a note, the broker has reaffirmed its buy rating and $27.60 price target on the fund manager’s shares. This implies potential upside of 30% for investors. Its analysts continue to believe that Perpetual’s shares are undervalued by the market. They said: “We continue to see considerable upside from the current share price.”

The post 5 things to watch on the ASX 200 on Wednesday appeared first on The Motley Fool Australia.

More reading

• Here are the top 10 ASX 200 shares today
• Buying ASX 200 energy shares? Here’s what to expect in FY 2025
• Want gold exposure? Goldman Sachs says this ASX 200 gold stock is a buy
• 5 things to watch on the ASX 200 on Tuesday
• Here are the top 10 ASX 200 shares today

Motley Fool contributor James Mickleboro has positions in Woodside Energy Group. 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.

Your compulsory Superannuation Guarantee payment will rise from 11% to 11.5% of earnings and Stage 3 tax cuts will kick in from next week.

Let’s take a look at the details.

Superannuation changes starting next Monday

The Superannuation Guarantee ascends again from 1 July from 11% of earnings to 11.5% of earnings.

This is the payment made by your employer directly into your superannuation fund.

Say your salary is $100,000 plus superannuation. In FY24, you will have received $11,000 via the Superannuation Guarantee. In FY25, you will receive an extra $500 with your payment rising to $11,500.

Another superannuation change coming into effect next week is an increase in the personal concessional contributions cap from $27,500 to $30,000 for FY25. More about this later.

What about those tax cuts?

Every taxpayer will receive a tax cut from 1 July under the amended Stage 3 tax cuts.

Here are a few examples of how the tax cuts will affect wage earners.

Example 1. A worker earning $55,000 per year will save $1,054 per year in tax.

Example 2. A worker earning $80,000 per year will save $1,679 per year in tax.

Example 3. A worker earning $140,000 per year will save $3,729 per year in tax.

Here are the individual tax rate tables for FY24 and FY25. Use the following details to work out the exact tax savings you will receive based on your specific salary.

Resident tax rates FY25

Taxable income	Tax on this income
$0 – $18,200	Nil
$18,201 – $45,000	16 cents for each $1 over $18,200
$45,001 – $135,000	$4,288 plus 30 cents for each $1 over $45,000
$135,001 – $190,000	$31,288 plus 37 cents for each $1 over $135,000
$190,001 and over	$51,638 plus 45 cents for each $1 over $190,000

Resident tax rates FY24

Taxable income	Tax on this income
$0 – $18,200	Nil
$18,201 – $45,000	19 cents for each $1 over $18,200
$45,001 – $120,000	$5,092 plus 32.5 cents for each $1 over $45,000
$120,001 – $180,000	$29,467 plus 37 cents for each $1 over $120,000
$180,001 and over	$51,667 plus 45 cents for each $1 over $180,000

One week left to add extra funds to superannuation

There is only one week left to make personal contributions to your superannuation (and pick up the substantial tax concession that comes with it) before FY24 ends.

Personal superannuation contributions (up to the cap of $27,500 for FY24) are taxed at just 15%. This is far lower than most workers’ marginal tax rates.

Personal contributions include the compulsory superannuation guarantee paid by your employer, any salary sacrificing you have arranged, and any extra money you choose to add yourself before 30 June.

Here’s how the tax concession works.

Say you contribute $8,000 of post-tax earnings into superannuation. Your super fund will pay the 15% tax on your behalf. That will leave $6,800 to be invested in accordance with your selected strategy.

When you fill in your tax return, you will claim an $8,000 tax deduction, effectively cancelling out the original tax you paid on the $8,000.

Findex tax advisory partner Alex Duonis explains the benefit:

A high earning taxpayer may obtain a tax deduction at a rate of up to 47.5% in respect of such super contributions but may only pay contributions tax at the fund level of 15%, thus generating a potential immediate tax arbitrage benefit of 32.5%.

Make sure you check out all the rules relating to personal concessional superannuation contributions before making any decisions.

After depositing your funds, you must fill in a Notice of Intent to Claim or Vary a Deduction for Personal Super Contributions form and send it to your superannuation fund.

The post Superannuation and tax changes starting next week appeared first on The Motley Fool Australia.

More reading

• Is the Pilbara Minerals share price on track for a strong recovery in FY25?
• For a shot at $1,320 a year in passive income, buy 2,000 shares of this ASX stock
• 2 ASX 200 retirement shares to buy in July
• Nvidia is no longer the most valuable company in the world. Here’s what investors need to know
• Here are the top 10 ASX 200 shares today

Motley Fool contributor Bronwyn Allen 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.

The Pilbara Minerals Ltd (ASX: PLS) share price has sunk 35% in the last 12 months, as shown on the chart below. With FY25 just around the corner, it’s worthwhile considering if the ASX lithium share can recharge investor returns.

The ASX mining share has been struggling with the commodity price sinking. In the quarterly update for the three months to 31 March 2024, it revealed that its realised price for its production dropped 28% to US$804 per tonne, down from US$1,113 per tonne for the three months to December 2023.

Commodity businesses’ profits are closely linked to the strength of the commodity price. Production costs don’t cost much month to month, so a decrease in revenue significantly harms net profit as well, which can then flow onto the share price. That’s what has happened to Pilbara Minerals shares.

Lithium price stabilising

Pilbara Minerals reported in the quarterly update that, compared to the December 2023 quarter, the lithium price stabilised and then increased towards the end of the March 2024 quarter. A pre-auction sale in March of 5,000 dry metric tonnes (dmt) at a price of US$1,106 per dmt reflects the “ongoing demand and positive pricing for unallocated production volume”.

UBS said last week in a note that it thinks a spot price of US$1,050 to US$1,075 per tonne is a “fair reflection of a well-supplied market.”

The broker thinks the market is still pricing in a lithium rebound to US$1,440 per tonne based on the Pilbara Minerals share price. UBS suggests it could take a couple of years for the lithium price to return to UBS’ long-term target of US$1,400 per tonne.

UBS notes the recent announcement of a pre-feasibility study by Pilbara Minerals that shows the Pilgagoora project could expect to be 2mt per annum in the future.

However, in the short term:

We continue to see the market well supplied and now longer-term we see plans from the likes of P2000 and Zijin Mining’s Manono as quickly solving any potential 2030 deficit.

FY25 forecast for Pilbara Minerals shares

UBS now predicts the ASX lithium share can generate $1.27 billion of revenue in FY24 and FY25, while net profit after tax (NPAT) could increase to $398 million in FY24, up from a projected $359 million in FY24.

The UBS price target on Pilbara Minerals shares is $2.70, which currently suggests a 14% decline over the next 12 months from where the valuation sits today.

The post Is the Pilbara Minerals share price on track for a strong recovery in FY25? appeared first on The Motley Fool Australia.

More reading

• Pilbara Minerals shares: Buy or Sell?
• These are the 10 most shorted ASX shares
• 5 things to watch on the ASX 200 on Monday
• Why Guzman y Gomez, KMD, Mineral Resources, and Pilbara Minerals shares are sinking
• Top 10 most traded ASX shares and US stocks in May

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 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.

Almost all ASX investors who buy ASX dividend shares do so in order to receive a reliable stream of passive income.

After all, dividends can give us a source of secondary income, which we can use to reinvest into even more ASX shares, or else just use to pay bills.

If I were after a reliable ASX dividend share in June 2024, one option springs to mind: Coles Group Ltd (ASX: COL) shares.

Coles is a company we’d all be fairly familiar with. The company owns the second-largest grocery and supermarket chain in the country, as well as several other bottleshop businesses, including Liquorland and Vintage Cellars.

Why is Coles a solid ASX dividend share?

Coles has most of the characteristics I look for in a solid, long-term passive income investment.

For one, it is a stable, mature business. This means that Coles has to spend very little, relatively speaking, on expanding its business, instead relying on past investments to collect its cash flows. Because of this, Coles can afford to allocate a significant chunk of its annual profits towards funding dividend payments rather than new stores, new employees or back-of-house infrastructure.

But Coles is also a consumer staples stock, meaning it can usually afford to pay out its dividends with remarkable consistency, regardless of the economic weather.

Many ASX dividend shares have to continually adjust their payouts depending on the health of the overall economy.

When there’s a period of high inflation or a recession in the works, cyclical shares tend to have to deal with customers who are no longer willing to open their wallets as widely as they might have done when times were good.

Coles doesn’t really have this problem. This company supplies life essentials like food, drinks and household goods. As such, its customers tend to keep walking through the door in good times and bad.

This means that Coles’ earnings are relatively defensive and stable. That in turn makes the Coles dividend reliable.

We can see this in action if we look back at this company’s past payouts. Since Coles was listed on the ASX in its own right back in 2018, it has always either maintained or increased its fully franked annual dividend.

Guaranteed passive income?

To illustrate, the company forked out an annual total of 35.5 cents per share in dividends back in 2019. The following year, investors were treated to 57.5 cents per share, rising to 61 cents per share in 2021. Bear in mind that this is over the worst years of the pandemic.

2022 saw Coles up its game again, forking out 63 cents per share in passive income. 2023 had the company increase this yet again to 66 cents per share.

Coles’ last two dividend payments, worth 30 cents and 36 cents respectively, give the company a trailing dividend yield of 3.84% today. No ASX share can ever be relied upon for guaranteed dividend income. But I think Coles’ track record makes it more reliable than most.

As such, I am confident that if one buys 2,000 Coles shares today, one could reasonably expect to receive at least $1,350 (a 3.84% yield) in annual passive income from this investment.

The post For a shot at $1,320 a year in passive income, buy 2,000 shares of this ASX stock appeared first on The Motley Fool Australia.

More reading

• Can Coles shares outperform the ASX 200 Index from here?
• 4 ASX income stocks for Aussie investors to buy now
• Buy Coles and these ASX 200 dividend stocks
• Mining, supermarkets, and property: 3 ASX 200 dividend stocks to buy
• Coles shares flat as Choice report says competitor Aldi cheapest

Motley Fool contributor Sebastian Bowen 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.

If you’re in the process building a retirement portfolio, then you may be on the lookout for some ASX 200 shares to buy for it.

But you shouldn’t just buy any old share. Rather than investing in risky growth shares, retirees ought to look for shares with strong business models, positive long term outlooks, and reliable dividends.

With that in mind, which shares could be in the buy zone in July? Let’s take a look at what analysts are saying about these ASX 200 retirement shares:

Telstra Group Ltd (ASX: TLS)

The first ASX 200 retirement share that could be worth considering is Telstra. It is of course Australia’s largest telecommunications company.

As well as offering defensive qualities, which are important for a retirement portfolio, it offers low risk earnings and dividend growth thanks largely to its mobile business.

It is for this reason that Goldman Sachs is positive on the company. It said:

We believe the low risk earnings (and dividend) growth that Telstra is delivering across FY22-25, underpinned through its mobile business, is attractive. We also believe that Telstra has a meaningful medium term opportunity to crystallise value through commencing the process to monetize its InfraCo Fixed assets – which we estimate could be worth between A$22-33bn.

Speaking of dividend growth, Goldman Sachs is expecting fully franked dividend yields of 5% in FY 2024 and 5.1% in FY 2025.

Goldman has a buy rating and $4.25 price target on its shares.

Woolworths Limited (ASX: WOW)

Another ASX 200 retirement share that could be a good option for investors is Woolworths. It is Australia’s largest Woolworths supermarket chain. In addition, it the owner of Big W and a growing pet care business.

Goldman Sachs is also feeling very positive about the company. So much so, it has Woolies on its conviction list. This is due to its dominant market position and belief that more market share gains are coming thanks to its loyalty program. The broker said:

We are Buy rated (on Conviction List) on the stock as we believe the business has among the highest consumer stickiness and loyalty among peers, and hence has strong ability to drive market share gains via its omni-channel advantage, as well as pass through any cost inflation to protect its margins, beyond market expectations.

Goldman currently has a conviction buy rating and $39.40 price target on the company’s shares. Its analysts are also forecasting fully franked dividend yields in the region of ~3% through to FY 2026.

The post 2 ASX 200 retirement shares to buy in July appeared first on The Motley Fool Australia.

More reading

• Buy Telstra shares due to its ‘excessive’ discount
• 5 things to watch on the ASX 200 on Tuesday
• Would Warren Buffett buy Telstra shares?
• Top brokers name 3 ASX shares to buy next week
• The Woolworths share price is down 16%: Time to buy the stock?

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 positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Competition for the title of most valuable company in the world is heating up. Earlier this week Nvidia (NASDAQ: NVDA), after its monster run over the last few years, leapfrogged Microsoft and Apple to become the largest company in the world by market capitalization (market cap), the total value of all publicly traded shares of a company.

After topping its rivals, Nvidia slid back to third place, but this isn’t any reason to fret. It’s a tight race and the three are likely to be trading places for some time. The next round of earnings later this summer will be a major catalyst that could move the needle to a more stable place if any of the companies beat their own guidance and Wall Street’s expectations — or fall short.

 No investing theme is more popular right now than artificial intelligence (AI) and Nvidia is its poster child. Investors are salivating at the incredible returns the company is delivering consistently quarter after quarter — its revenue last quarter was up 260% year over year — with the promise of continued growth into the future. Its rapid ascent since AI captured the public’s attention is one for the record books. But what should investors pay attention to long term?

Understand what makes Nvidia special

Nvidia holds a unique position in the market. The company was so ahead of the curve that it was able to capture roughly 80% of the AI chipmaking business.

Of course, like most wildly successful companies, it was a matter of a little bit of luck and a lot of foresight. CEO Jensen Huang made a bet. Nvidia made chips called graphics processing units (GPUs) that were, for a large chunk of the company’s history, accessories to the all-powerful central processing unit (CPU) that made Intel what it was. He saw that the industry was reaching the limits of scaling CPU technology and that his company’s GPUs could step into the spotlight.

Turns out he was right. Without getting into too much technical detail, if you shift the focus to chips that are very like GPUs — such as the company’s Grace Blackwell “Superchip” — with CPUs running a supporting role, you can run power-hungry applications and continue to scale them up. And AI is undoubtedly power-hungry.

Nvidia doubled down on this tech before it was fashionable, so when AI exploded onto the scene, the company was already there, supplying the entire industry with its tech. Now AI servers run by the likes of Alphabet, Amazon, and Microsoft are powered by Nvidia chips.

Whether AI pans out — and when — is critical

Nvidia went from a relatively niche computing company, mostly servicing the video game industry, to one of the largest companies in the world. Just look at this reversal of fortunes from the once-dominant CPU maker, Intel. The chart shows revenue for both companies over the last 10 years on a trailing-12-month (TTM) basis.

NVDA Revenue (TTM) data by YCharts

That is a twist of fate. But fate can be fickle. Nvidia’s future largely depends on AI delivering on its promise. Much has been made of its revolutionary power, but there is still a lot to prove. It wouldn’t be the first time a technology failed to deliver on the hype surrounding it. Still, I think there’s more reason to believe AI isn’t a fluke than some past hype cycles, so then it’s a matter of when it can deliver.

If the AI value chain is a river, Nvidia is somewhere in the middle, upstream from the companies that actually deliver AI products to the end market. If those companies have overpromised on their products’ value or can’t deliver in time, the river gets dammed up downstream, potentially leading to a glut of unwanted chips. For Nvidia to continue the incredible growth it has been experiencing, enough to justify the premium value investors have placed on it, end-user demand has to keep the river flowing freely.

Keep an eye on how well the end-user AI applications are doing. Try some out. Do you see the value? The more useful these tools are, the higher the river’s watermark and the more likely Nvidia is to deliver on its sky-high expectations.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Nvidia is no longer the most valuable company in the world. Here’s what investors need to know appeared first on The Motley Fool Australia.

More reading

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• The AI money flow: Why you can’t afford to miss stocks like Nvidia and this rising ASX 200 tech stock
• Nvidia stock drops 6.5%, dragging artificial intelligence stocks lower
• Brainchip share price tumbles 40% in the past year. What’s next?

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Apple, Microsoft, and Nvidia. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Intel and has recommended the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Here are the top 10 ASX 200 shares today appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen 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 recommended Collins Foods and Elders. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.