Key Points

• Nvidia and Microsoft are knocking on the door of $4 trillion market caps.

• Nvidia deserves a lot of credit for being the backbone behind AI development.

• AI has added to Microsoft’s investment thesis rather than redefining it.

On Dec. 26, 2024, Apple crossed $3.9 trillion in market capitalization, putting it just 2% away from becoming the world's first $4 trillion company. But it didn't get there. Apple has recovered in recent weeks but remains down big year to date, whereas Nvidia (NASDAQ: NVDA) and Microsoft (NASDAQ: MSFT) just made new all-time highs.

Here's why Nvidia will likely become the first company to surpass $4 trillion in market value, what Nvidia and Microsoft must do to continue rising in price, and whether either growth stock is a buy now.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

A new frontrunner

In less than three years, Nvidia has gone from billions to trillions in market cap. And now, it is the closest company to $4 trillion -- a little over 3% away as of market close on July 3.

NVDA Market Cap data by YCharts.

Nvidia will likely reach $4 trillion before Microsoft simply because it is closer to the threshold, and its stock is more volatile. Nvidia is now up over 18% year to date (YTD), but it was down around 30% YTD in early April during the worst of the tariff-induced sell-off. So it's not unreasonable that the stock could move a few percentage points higher to pole-vault its market cap above $4 trillion.

The better question isn't whether Nvidia or Microsoft will hit $4 trillion in market cap but rather what each company must do to justify that valuation.

An earnings-driven rally

The two biggest drivers of stock-price appreciation are earnings growth and investor sentiment. If earnings are increasing, investors will likely pay a higher price for the company's shares. But if investors expect the pace of earnings growth to accelerate, then they may be willing to give a stock a premium valuation.

Nvidia and Microsoft have been such strong performers in recent years because they are growing earnings and investors are willing to pay a premium price for these companies relative to their earnings. Nvidia went from making under $10 billion in annual net income to a staggering $76.8 billion in just a few years. Microsoft has doubled its net income over the past five years, and its stock price has more than doubled as well.

NVDA data by YCharts.

For Nvidia and Microsoft to continue being good investments going forward, both companies must demonstrate that their earnings growth is sustainable and not temporary.

Nvidia's valuation is still reasonable

Nvidia has greatly benefited from the rapid rise of big tech spending on artificial intelligence (AI). Nvidia has a dominant market share in providing high-powered graphics processing units (GPUs) for data centers and associated AI solutions for enterprises.

Due to limited supply and high demand, Nvidia can charge top dollar for its AI offerings, which allows it to convert over half of its sales into pure profit. And because Nvidia's customers are some of the most financially secure, big-budget companies in the world (like Microsoft), then Nvidia knows its customers can afford to spend a ton on AI.

However, that wouldn't be the case if challenges arise for key Nvidia customers if there is an industrywide slowdown or if competition comes along and erodes Nvidia's margins. Buying Nvidia now is a bet that the company can continue growing its earnings even if its margins gradually decline over time.

The good news is that Nvidia doesn't have to double its earnings every year to be a great buy. Even if it grows earnings at, let's say, 25% per year, it could still reduce its valuation over time and be a market-beating stock. Here's a look at how Nvidia's price-to-earnings (P/E) ratio would go from over 50 to under 35 in five years if it grew earnings at 25% per year, and the stock price gained an average of 15% per year.

Metric	Current	Year 1	Year 2	Year 3	Year 4	Year 5
Stock Price (15% Annual Growth)	$159.20	$183.08	$210.54	$242.12	$278.44	$320.21
Earnings Per Share (25% Annual Growth)	$3.10	$3.88	$4.84	$6.05	$7.57	$9.46
P/E Ratio	51.4	47.2	43.5	40	36.2	33.8

Under these assumptions, Nvidia's stock price roughly doubles in five years, but its earnings triple, so the P/E ratio falls considerably.

The key takeaway is that Nvidia doesn't have to sustain its parabolic growth to be a good investment. However, the stock could sell off dramatically if investors believe an unforeseen risk will interrupt its growth trajectory. We got a taste of that in April when Nvidia estimated it would incur multibillion-dollar charges due to tariffs, and the stock price nose-dived in a short period.

In sum, investors should only consider Nvidia if they are confident in sustained AI spending and the company's ability to pivot as the market matures.

Far from a one-trick pony

Microsoft may be a better choice for investors seeking a more balanced tech stock to purchase. Microsoft has a lower P/E than Nvidia, and for good reason, because it isn't growing as quickly. However, Microsoft also doesn't need a lot to go right for it to continue growing steadily over time.

The vast majority of Nvidia's earnings are directly tied to AI. Microsoft has a diverse earnings profile, encompassing cloud computing, software, hardware, platforms such as GitHub, LinkedIn, and Xbox, as well as other areas. AI is accelerating Microsoft's earnings growth and expanding its earnings, but the company can still do extremely well even if AI investment slows and the industry matures.

It's also worth mentioning that Microsoft routinely buys back its stock and has raised its dividend for 15 consecutive years. So it has a more balanced capital-return program than Nvidia, which rewards shareholders by growing the core business rather than directly returning capital.

Two solid buys for long-term investors

Nvidia and Microsoft are exceptional companies. It wouldn't be surprising to see them both surpass $4 trillion market caps and continue building from there. However, investors should be mindful that both companies are seeing their stock prices rise faster than their earnings are growing, which puts pressure on them to bridge the gap between expectations and reality.

Should you invest $1,000 in Nvidia right now?

Before you buy stock in Nvidia, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $699,558!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $976,677!*

Now, it’s worth noting Stock Advisor’s total average return is 1,060% — a market-crushing outperformance compared to 180% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 30, 2025

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Foelber has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Key Points

• Alphabet would be the most valuable company in the world if it were valued similarly to its peers.

• It seems that earnings don't directly translate into higher share prices over the short term.

• However, at current levels, Alphabet's stock is too undervalued for investors to ignore.

The stock market cares more about future earnings potential than the past -- and that may be why Nvidia, Microsoft, Apple (NASDAQ: AAPL), and Amazon (NASDAQ: AMZN) are all worth more than Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) today even though Alphabet is the only S&P 500 stock with over $100 billion in trailing-12-month net income.

Here's why the market views Alphabet's earnings differently than other megacap growth stocks, and whether Alphabet is a buy now.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

More than just a number

Earnings are one of the most important metrics investors use to value a company. How much profit a company generates is an integral part of an investment thesis. But so are expectations for future profits.

GOOGL Net Income (TTM) data by YCharts

Although net income is just a number, there are nuances worth understanding. A leading company that operates in a growing industry with competitive advantages, high profit margins, and a great balance sheet will have far higher-quality earnings than a company operating in a declining or even failing industry that is cyclical and capital-intensive.

This concept is why even the best oil and gas companies, like ExxonMobil and Chevron, sport such inexpensive valuations. Their earnings aren't high-margin. Generating them takes a lot of capital. And oil and gas consumption may look much different decades from now than today. This doesn't mean ExxonMobil and Chevron are bad companies. In fact, both are excellent dividend stocks. It just means investors are unlikely to pay the same price for these companies relative to their earnings as, say, an ultra-fast-growing company with high margins like Nvidia.

Alphabet doesn't have a capital-intensive business model. It generates high margins and has diverse revenue streams from its services like Google Search, Google Network, YouTube, Android, Google Cloud, and more. It also has a phenomenal balance sheet with more cash, cash equivalents, and marketable securities than debt. Despite these advantages, Alphabet sports a price-to-earnings (P/E) ratio and forward P/E ratio that are far lower than Nvidia, Microsoft, Apple, and Amazon.

NVDA PE Ratio data by YCharts

Expectations drive valuations

This discounted valuation is why Alphabet is worth less than its peers despite making more profit. Alphabet's valuation is much cheaper than some of its peers because investors are less optimistic about its future earnings prospects.

Nvidia is powering the future of artificial intelligence (AI) with its graphics processing units for data centers. Big tech continues to spend on AI, so investors are optimistic that demand for Nvidia's products will continue growing.

Microsoft is integrating AI into its software and is the No. 2 player in cloud computing behind Amazon. In contrast, Alphabet's Google Cloud is a distant third in market share.

Apple isn't growing quickly, but the company has such a dominant, vertically integrated ecosystem of consumer products and services that investors are willing to pay a premium price for the stock relative to its earnings.

Alphabet makes the majority of its operating income from Google Search. Unlike Amazon (and arguably Microsoft), cloud is not the most valuable aspect of the company. Alphabet's AI plays mainly come from Google Cloud and its "Other Bets" category, which consists of projects like self-driving company Waymo and AI research lab DeepMind, which is behind the chatbot Gemini.

In sum, the market may be viewing Alphabet's business model as more vulnerable to technological advancements in AI than other megacap growth companies that are clearly benefiting from AI.

Alphabet is an impeccable value

There's a famous (and still relevant) quote by Warren Buffett that goes, "You pay a very high price in the stock market for a cheery consensus." Companies that are favorable to many investors tend to demand expensive valuations, whereas companies with an element of uncertainty can fetch a discount.

The simplest reason to buy Alphabet right now is if you believe the market's skepticism about the company's AI potential is unwarranted or overblown. In that case, investors can buy Alphabet at a steep discount to its peers. If Alphabet had a 30 P/E ratio instead of a sub-20 P/E, it would be worth well over $3 trillion. If it had Microsoft's P/E, it would be the most valuable company in the world.

In many ways, Alphabet deserves to trade at a discount to these other big tech names. But maybe only by a little bit -- not the drastic discrepancy we are seeing in the market today. All told, now is a great time for value investors interested in big tech to buy Alphabet stock.

Should you invest $1,000 in Alphabet right now?

Before you buy stock in Alphabet, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Alphabet wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $692,914!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $963,866!*

Now, it’s worth noting Stock Advisor’s total average return is 1,050% — a market-crushing outperformance compared to 179% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 30, 2025

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel Foelber has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Chevron, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Key Points

• Many top stocks aren't at bargain bin levels, but that doesn't mean investors should stop buying stocks altogether.

• Investors should focus less on timing the market and more on quality companies that could compound in value.

• Visa is a good example of a company whose valuation has increased, but could still be a sensible long-term buy.

The S&P 500 hit a new all-time high last Friday, surpassing its previous record from February. The index is now up 5% year to date -- a truly remarkable recovery given that the index was down over 17% year to date at its intraday low on April 7.

Here's why investors should continue buying stocks even though the major indexes are hitting new highs, but why investing in quality companies is especially important when valuations are elevated.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Get comfortable buying high

Buying a higher price goes against every instinct ingrained in us as consumers. Buyers benefit when clothing goes on sale, cars can be purchased below sticker price, or when housing prices or land values fall.

Most goods are stagnant assets. There's very little chance that a pair of jeans you buy today will be worth more a few years from now. And cars fall in value the second they are driven off the lot.

House prices and land values in growing urban areas have historically increased over time, but it's not because the land is magically better than it used to be. Rather, it's all about supply and demand.

Stocks are different. They represent partial ownership of a company. No matter how small, a slice of a big pie can be powerful if the company compounds in value. And yet, investors still often make the mistake of assuming a stock is a good buy because the price is lower, or that a stock is not a good buy or is worth selling because the price has gone up.

A good stock to buy near an all-time high

Visa (NYSE: V) is a good example of a well-known company that has continued to go up in value for all the right reasons. Its business model has remained essentially the same for decades. However, what has changed is a massive shift away from cash payments toward debit and credit cards and digital payments.

The company makes money when its cards are tapped, swiped, or entered digitally. It earns revenue based on the volume and frequency of transactions with its cards. And yet it doesn't bear the credit risk of its customers. Instead, it partners with financial institutions to bear that risk.

The larger and more secure Visa's network becomes, the more merchants may be willing to absorb Visa's fees so they don't hurt their sales. At the same time, consumers are incentivized to use their cards for as many purchases as possible, given the purchase protection offered by many financial institutions and credit card rewards programs.

It's a simple and relatively easy-to-understand business model that has made patient investors rich.

V data by YCharts

As you can see in the above chart, Visa has extremely high margins because it converts over half of its revenue into pure profit -- which has helped the stock price increase over 400% in the last decade. And because Visa's expenses are manageable, it can afford to pass along profits to shareholders by repurchasing stock and paying a growing dividend.

Just because Visa's stock price has compounded several-fold over the long term doesn't mean the stock is a bad buy now. Visa commands a premium valuation with a price-to-earnings (P/E) ratio of 35 compared to its 10-year median P/E of 33.2. But its forward P/E is 30.7, suggesting analysts believe that Visa has the qualities necessary to grow into that valuation over time.

Be selective

Visa is just one of many companies hovering within striking distance of all-time highs that could still be worth buying now. The stock isn't as good a deal as it was a couple of months ago, but it could still be a solid long-term investment.

When the broader market is undergoing a rapid sell-off, many phenomenal companies can fall to bargain-bin valuations. But when the major indexes are making new highs, it is even more important for investors to be selective and only put their hard-earned savings into companies they are highly committed to.

In sum, folks shouldn't stop investing just because stocks have gone up, but rather, understand the effect of valuation changes on their existing holdings and how price increases could impact the risk and potential reward of stocks on their watch lists.

Should you invest $1,000 in Visa right now?

Before you buy stock in Visa, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Visa wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $697,627!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $939,655!*

Now, it’s worth noting Stock Advisor’s total average return is 1,045% — a market-crushing outperformance compared to 178% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of June 30, 2025

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Visa. The Motley Fool has a disclosure policy.

On May 3, Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B) reported its first-quarter 2025 results and hosted its annual shareholder meeting in Omaha.

One of the standouts from the earnings release was Berkshire's position in cash, cash equivalents, and short-term Treasury bills, which increased by 84% over the past year from $188.99 billion as of March 31, 2024, to a whopping $347.68 billion as of March 31, 2025.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Yet even with all that cash, Berkshire elected not to repurchase its own stock. It marked the third consecutive quarter Berkshire didn't buy back its stock -- which is out of the ordinary considering Berkshire had been on a 24-quarter streak of buybacks prior to the recent dry spell.

Here's what the treasure trove of cash and lack of buybacks signal, and if Berkshire is still an excellent value stock to buy now.

Building up cash

Buffett has a track record for making occasional blockbuster moves and then doing very little for multiple years. The strategy involves deploying significant capital toward top ideas rather than acting on impulse.

Most of Berkshire's largest stock holdings were acquired fairly quickly and then held over time. Similarly, the success of controlled assets like Berkshire's insurance businesses is a testament to developing these businesses over the long term, not constant wheeling and dealing.

If there were ever a time for Berkshire to build up its cash position, it would be now.

The S&P 500 is coming off back-to-back years of over 20% gains in 2023 and 2024 -- which Berkshire benefited from through its holdings in public securities and the growth of its controlled assets.

Furthermore, interest rates are relatively high, which provides an added incentive to hold risk-free assets like Treasury bills.

Data by YCharts.

Given these factors, it makes sense why Berkshire would build up its cash position, but that still doesn't explain why it wouldn't repurchase stock.

Berkshire's valuation is more expensive

The price-to-book ratio, also known as book value, is a better financial metric for valuing Berkshire than price-to-earnings or price-to-free cash flow because Berkshire operates as a conglomerate where net income can swing wildly from year to year based on changes to operating earnings and the value of its businesses.

Buffett has long used buybacks as a way to return capital to shareholders. Berkshire famously doesn't pay a dividend because Buffett feels that buybacks are a better use of capital than the one-time benefits of dividends, and he's been absolutely correct, given the long-term appreciation of Berkshire's stock price.

In Berkshire's quarterly earnings reports, there's a note that "Berkshire's common stock repurchase program permits Berkshire to repurchase its shares any time that Warren Buffett, Berkshire's Chairman of the Board and Chief Executive Officer, believes that the repurchase price is below Berkshire's intrinsic value, conservatively determined." And that "repurchases will not be made if they would reduce the value of Berkshire's consolidated cash, cash equivalents and U.S. Treasury bill holdings below $30 billion."

Since Berkshire's cash equivalents and U.S. Treasury bill holdings are over 11 times the $30 billion threshold, the holdup must be due to Berkshire's intrinsic value being above what Buffett would like.

Historically, Buffett has given the green light for buybacks when Berkshire's book value falls below 1.1, which was later upped to 1.2 times book value. But the guidelines have been flexible in recent years because Berkshire was buying back stock before the recent pause at higher price-to-book levels.

Berkshire's book value has soared because its market cap has grown at a faster rate than the value of its assets. Or, put another way, the stock price has been going up not because of massive gains in public equities Berkshire holds, but because investors are putting a premium price on its controlled assets and cash position.

Data by YCharts.

Berkshire is viewed as a safe stock amid tariff turmoil and market uncertainty because of its operational excellence and industry-leading performance across key economic sectors. Many of Berkshire's controlled assets, like the insurance businesses, are U.S.-focused, insulating them from geopolitical and trade tensions.

It's also worth mentioning that, during the annual meeting, Buffett discussed the 1% excise tax imposed on stock buybacks by publicly traded companies as another reason why buybacks aren't as attractive right now.

Buying Berkshire for the right reasons

The simplest reason to own Berkshire Hathaway stock over the long term is a belief in its capital allocation strategy and risk management. Berkshire stock isn't as cheap as it used to be, but just because Berkshire isn't buying back its stock doesn't mean individual investors should run for the exits. Berkshire is simply doing what it feels is best to maximize operating earnings and protect savings that investors have entrusted it to manage.

All told, Berkshire isn't a screaming buy, but it's a perfectly fine stock to buy and hold for long-term investors looking for a company they can count on no matter what the economy is doing.

Should you invest $1,000 in Berkshire Hathaway right now?

Before you buy stock in Berkshire Hathaway, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Berkshire Hathaway wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $623,103!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $717,471!*

Now, it’s worth noting Stock Advisor’s total average return is 909% — a market-crushing outperformance compared to 162% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of May 5, 2025

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.

Meta Platforms (NASDAQ: META) rocketed 4.2% higher on Thursday in response to strong first-quarter earnings. The stock has erased almost all of its year-to-date losses in recent weeks, and, at the time of this writing, it is just a couple of percentage points off from being even on the year.

Here's why the company's latest results -- and management commentary on the earnings call -- reinforce its underlying investment thesis, and why Meta is a top growth stock to buy now.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Family of apps continues to drive high-margin growth

Meta delivered 16% higher revenue -- but operating income soared 27%, thanks to just a 9% increase in costs and expenses. Meta finished the quarter with a sky-high operating margin of 41% -- meaning it converted 41 cents of every dollar in revenue into operating income.

Manageable spending also led to a 35% increase in net income and a 37% jump in diluted earnings per share (EPS).

This profitability is a testament to the company's strong business model. It's driving user engagement, which attracts advertisers. Meta's engagement metric -- family daily active people (DAP) -- refers to daily active people across its "family of apps" segment, which includes Instagram, WhatsApp, Facebook, Messenger, and Threads. DAP rose 6% year over year, which supported a 5% increase in ad impressions and a 10% increase in price per ad.

The following chart shows how diluted EPS has more than tripled from pre-pandemic levels, thanks to consistent revenue growth and margin expansion:

META Revenue (TTM) data by YCharts.

Results were excellent, but the company's outlook and confidence in its long-term investments were arguably even more encouraging.

Accelerating AI spending

Meta is guiding for $42.5 billion to $45.5 billion in Q2 2025 revenue. At the midpoint of $44 billion, that would be a 12.6% jump from Q2 2024 -- which was a difficult comparable, considering Q2 2024 revenue was up 22% year over year.

The company is lowering its full-year guidance for total expenses from a range of $114 billion to $119 billion to a new range of $113 billion to $118 billion. But it's raising its full-year 2025 capital expenditures (capex) expectations to between $64 billion and $72 billion -- up from its prior outlook of $60 billion to $65 billion.

Most of capex is going toward generative artificial intelligence (AI) and core business needs. Meta is investing in infrastructure improvements (like building data centers) to scale up its AI services, while maintaining control and flexibility of its operations so it can react to changing customer preferences. Management said that it's generating strong returns from its AI initiatives by increasing the efficiency of its workloads. For example, AI-driven feed and video recommendations delivered a 7% increase in time spent on Facebook and a 6% increase in time spent on Instagram.

AI is favorably impacting user engagement and helping advertisers customize campaigns based on their objectives and budgets. On April 29, the day before Meta reported earnings, it released the Meta AI app, which leverages the latest version of its large language model -- Llama 4. The Meta AI app is a stand-alone tool, which is different from embedded AI functionality in Instagram, Facebook, and WhatsApp. The app can solve problems, answer questions, provide deep dives on topics, and more -- which makes it a competitor to ChatGPT and Alphabet-owned Google Search.

Meta's sustained growth and higher capex, despite difficult comps and an uncertain macro environment, speak volumes about its business model's effectiveness and its belief in long-term investments in AI and other research and development.

The company continues to pour money into its Reality Labs division, which is building devices and experiences in virtual reality, augmented reality, the metaverse, and other efforts. And while the core family of apps segment continues to deliver high-margin growth, Reality Labs is a money pit -- posting an operating loss of $4.2 billion in the quarter. In 2024, Reality Labs lost a staggering $17.73 billion. As high as that figure is, Meta can afford it because of the impeccable performance of its family of apps.

Reality Labs has shown some bright spots. For example, Ray-Ban Meta AI glasses had four times as many monthly active users as a year ago. Despite the upside potential, Reality Labs is simply too unproven to factor into Meta's investment thesis.

Returning capital to shareholders

Even with its aggressive capex spending and ongoing support of the unprofitable Reality Labs division, Meta can still afford to return a significant amount of capital to shareholders. In its latest quarter, it spent $13.4 billion on buybacks and $1.33 billion on dividends. (Meta began paying dividends last year.)

If it were to sustain the same pace of buybacks and dividends for the whole year, it would return roughly 4% of its market cap to shareholders. Put another way, if Meta only paid dividends and didn't repurchase stock, it would have a dividend yield of 4% -- illustrating just how massive its capital return program is.

Over time, buybacks have helped the company grow earnings far faster than net income. Despite its high stock-based compensation, Meta has achieved one of the most aggressive share-count reductions of the megacap tech-focused companies. In just five years, Meta has reduced its share count by 11.4%, which is slightly more than Alphabet's 10.9% reduction and a bit shy of Apple's 12.8%.

Steady buybacks and earnings growth have helped keep the stock's valuation reasonable despite its strong share price. Meta's stock price has soared 152% in the last five years, but diluted EPS has grown even faster, so the price-to-earnings (P/E) ratio has actually fallen. In fact, Meta sports a P/E of just 22.4 -- which is dirt cheap for an industry-leading company with high margins.

What's even more impressive is that earnings would be even higher if the company weren't losing billions each quarter on Reality Labs. So from that perspective, Meta is beyond cheap.

Meta Platforms is a high-conviction buy

Meta checks all the boxes of a top growth stock to buy now.

The core business continues to fire on all cylinders and generate plenty of cash flow to use for higher capex. Meta has done a good job managing operating expenses to support its long-term investments and help cushion the blow from Reality Labs losses.

The company continues to repurchase stock at a breakneck pace, keeping a tight lid on its valuation. Its ultrastrong balance sheet allows it to navigate an economic slowdown or pounce on acquisition opportunities.

Add all that up, and Meta Platforms is one of the best buys today: It can play a foundational role in a diversified portfolio for growth and value investors alike.

Should you invest $1,000 in Meta Platforms right now?

Before you buy stock in Meta Platforms, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Meta Platforms wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $623,685!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $701,781!*

Now, it’s worth noting Stock Advisor’s total average return is 906% — a market-crushing outperformance compared to 164% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of May 5, 2025

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, and Meta Platforms. The Motley Fool has a disclosure policy.

Investors have been on such a turbulent roller coaster that it's easy to forget that the S&P 500 (SNPINDEX: ^GSPC) was up slightly through the first two months of the year.

With April coming to a close and the major indexes firmly in the red, investors may be wondering how long volatility will last, and if now is a good time to buy stocks or run for the exits.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Here are five lessons I've learned from major sell-offs over the last seven years, and how these lessons can help you navigate market uncertainty.

1. Each sell-off is different

No one knows when the market will go down or why. But we do know that the circumstances that lead to a sell-off are never truly the same.

Through the first three quarters of 2018, the S&P 500 was pretty much flat. But in the fourth quarter, it began selling off due to U.S. President Donald Trump's trade war with China in his first term. The sell-off intensified, and the index was down around 20% year to date on Christmas Eve before staging an epic recovery, ending the year down just 6.2%.

The index then shot up a staggering 7.9% in January 2019 to make up for all the Q4 losses. If you hadn't checked your portfolio for four months, it would've looked like nothing had happened.

The March 2020 pandemic-induced sell-off was a true flash crash -- amplified by the instantaneous spread of news, sophistication of modern markets, and fear. As mandates took effect and vaccines progressed, sentiment shifted from panic to viewing the pandemic as a temporary phenomenon.

After rallying a staggering 47.5% between the start of 2020 and the end of 2021, the S&P 500 fell 19.4% in 2022. The sell-off was driven by valuation concerns, rampant inflation, and supply chain challenges. 2022 was a fairly reasonable sell-off in hindsight. Cooling inflation and resilient earnings growth set the stage for another epic two-year rally in 2023 and 2024, in which the S&P 500 gained 53.2%, driven by excitement for growth trends like artificial intelligence.

As in 2018, the 2025 sell-off has been a rapid pullback in response to geopolitical tensions and tariffs. Only this time, the Federal Reserve is in a completely different position. The Federal Reserve was raising interest rates into the fall of 2018, which fueled the subsequent sell-off. Then, Fed Chair Jerome Powell reversed course and cut rates in the summer of 2019, marking the Fed's first rate reduction since 2008.

Still concerned about inflation, the Fed is hesitant to cut rates at this time, despite pressure from Trump and threats that Powell should be fired. The composition of a sell-off is always different, so it's best to view our present-day pullback with context in mind. History can provide some insight, but it's a mistake to assume a swift or straightforward road to recovery.

2. You won't know it's the bottom till it's over

It's easy to analyze the causes of past stock market sell-offs and identify their starting and ending points. But when you're living through one, as we are now, it's impossible to know when the bottom will arrive, if it has already happened, or if there's a long way to go.

It felt like the damage from the fall 2018 and March 2020 sell-offs was so intense that it could take years to recover, when in fact it ended up being a matter of months. However, the 2022 bear market lasted nearly a year.

We're still in a period of high uncertainty in the present-day sell-off. There could be lasting economic effects from tariffs and a recession, a resolution could be reached tomorrow, or anything in between could happen. We simply don't know how long it will last, and admitting that we don't know is an important step in avoiding speculation.

3. Top companies will go on sale for reasons that have nothing to do with the underlying investment thesis

One common thread among most sell-offs, regardless of their cause, is that investors tend to overweight near-term risks. When investors are pessimistic, they may be less willing to pay for potential earnings growth or gravitate toward stable companies like blue chip dividend stocks. This can lead to drastic sell-offs in excellent companies, even though the investment thesis hasn't changed.

One of my favorite examples from recent years is Meta Platforms (NASDAQ: META). It's hard to imagine, but in 2022, Meta Platforms fell below $90 a share. It was a perfect storm for the company, as TikTok was gaining popularity and challenging Instagram. Meta was pouring money into the metaverse and other virtual reality endeavors at a time when investors had little patience for spending on projects that didn't contribute to the bottom line. To top it all off, there was a widespread sell-off in growth stocks.

Meta ended 2022 down a staggering 64%. During the worst of the sell-off in early November, Meta Platforms' price-to-earnings ratio fell below 9. Meta could have done a better job managing expenses and addressing investor concerns. But the sell-off's extent was magnitudes beyond what was reasonable, especially since Instagram Reels had been out since August 2020 and was gaining popularity as an alternative to TikTok.

The lesson is that sell-offs can present incredible opportunities to scoop up shares of excellent companies when they're out of favor. The trick is to stick to high-conviction companies you understand in case the sell-off lasts longer than expected or stock prices continue to decline.

4. Invest with a long-term time horizon

Buying shares in top companies doesn't work if it's for the wrong reasons or time frame. Trying to time the market and play a quick bounce by speculating on companies you don't understand is a great way to lose your shirt.

Maintaining a long-term time horizon alleviates the pressure caused by volatility and fluctuations in asset prices. This is especially important because emotions can flare up during sell-offs.

Again, it's easy to look at past sell-offs and the reward of subsequent market highs as obvious times to buy in hindsight. However, in real time, sell-offs can be emotionally taxing. No one likes losing money. Seeing months or even years of gains evaporate in a flash can strain even the most seasoned investors.

By focusing on the big picture, you can let investment theses be your guide, rather than allowing stock prices to dictate true value.

5. Don't take on more risk than you're comfortable with

Perhaps the most important lesson of all during sell-offs is risk management. The stock market is merely a tool for reaching your financial goals. Letting the stock market work for you can be a path to wealth and financial success. But letting the stock market bully you around can lead to financial mistakes.

One of the easiest ways to feel adrift is to get caught in a riptide of market volatility. If you're taking on more risk than you're comfortable with, either through allocation or by using margin, you can amplify gains on the upside but also magnify losses on the downside.

It's best to be true to yourself and invest in a way that complements your personal preferences and financial goals.

Benefiting from market sell-offs

All the lessons I've learned over the last seven years center around one common theme: pressure. The more you can limit pressure and anxiety during a sell-off, the better equipped you'll be to make smart investment decisions.

The good news is that there are straightforward ways to reduce pressure. They include properly managing risk, focusing on the long term, investing in businesses with strong fundamentals, accepting that things could worsen before they improve, and being prepared for a prolonged downturn, even if it doesn't happen.

If you can reduce pressure and control your emotions, stock market sell-offs can be tremendous, sometimes life-changing buying opportunities.

Should you invest $1,000 in S&P 500 Index right now?

Before you buy stock in S&P 500 Index, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and S&P 500 Index wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $594,046!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $680,390!*

Now, it’s worth noting Stock Advisor’s total average return is 872% — a market-crushing outperformance compared to 160% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of April 21, 2025

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.

The "Magnificent Seven" -- Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta Platforms, and Tesla -- took the market by storm in 2023 and 2024 by contributing a sizable portion of gains in major indexes like the S&P 500 and Nasdaq Composite.

But that momentum has ground to a halt this year. As of the time of this writing, all seven stocks are underperforming the S&P 500 in 2025. The best of the bunch, Microsoft, is down 8.1% year-to-date, while Tesla has tumbled over 35% even when factoring in its post-earnings rebound on Wednesday and Thursday.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Here's why investors looking for low-cost exchange-traded funds (ETFs) that don't include the Magnificent Seven may want to take a closer look at the Vanguard High Dividend Yield ETF (NYSEMKT: VYM).

In defense of the Magnificent Seven

Before diving into the attractive qualities of the Vanguard High Dividend Yield ETF, it's worth mentioning that it's a mistake to bail on the Magnificent Seven just because their stock prices are lower this year.

The group boasts numerous competitive advantages and robust balance sheets. And the sell-off has only made their valuations more attractive for long-term investors. Risk-tolerant investors may want to consider top names in the Magnificent Seven, such as Meta Platforms, which has strong free cash flow, an inexpensive valuation, and a clear runway for future growth.

However, there are also compelling reasons not to buy Magnificent Seven stocks. The simplest is that you already have your desired exposure to the group, either by directly investing in individual names or through Magnificent Seven-heavy ETFs.

The Magnificent Seven are so large that they comprise a massive amount of the major indexes. The Vanguard S&P 500 ETF has 29.9% in the Magnificent Seven, and the Invesco QQQ Trust -- which mirrors the performance of the Nasdaq-100 -- has a staggering 40.5% in the group.

Investors seeking to deploy new capital in a diversified ETF while avoiding the Magnificent Seven may want to consider income and value funds. One fund that is especially appealing right now is the Vanguard High Dividend Yield ETF.

Industry leadership across value-focused sectors

Many of the top holdings in the Vanguard High Dividend Yield ETF are industry-leading companies from non-tech-focused sectors -- like JPMorgan Chase and Bank of America for financials; ExxonMobil and Chevron for energy; UnitedHealth Group, Johnson & Johnson, and AbbVie for healthcare; and Procter & Gamble, Coca-Cola, and Walmart for consumer staples. The tech stocks the ETF holds -- like Broadcom, Cisco Systems, and International Business Machines -- pay growing dividends.

This ETF has an expense ratio of just 0.06%, which is slightly higher than the Vanguard S&P 500 ETF's 0.03%. However, the subtle difference won't significantly impact most investors, as it amounts to only 30 cents more in annual fees per $1,000 invested.

The Vanguard High Dividend Yield ETF targets companies with strong track records of dividend growth. The lack of exposure to the Magnificent Seven makes the fund much more balanced across sectors than the S&P 500.

Sector	Vanguard High Dividend Yield ETF	Vanguard S&P 500 ETF
Financials	20.4%	14.6%
Healthcare	14.3%	11.2%
Technology and Communications	13.3%	38.9%
Industrials	13.2%	8.5%
Consumer Staples	10.6%	6%
Consumer Discretionary	10.2%	10.3%
Energy	9.4%	3.7%
Utilities	6.6%	2.5%
Basic Materials	2%	2%
Real Estate	0%	2.3%

Data source: Vanguard.

By overweighting sectors such as financials, healthcare, industrials, consumer staples, energy, and utilities relative to the S&P 500, the Vanguard High Dividend Yield ETF achieves a 2.9% dividend yield, roughly double the 1.4% yield of the Vanguard S&P 500 ETF. The High Dividend Yield ETF fund also has a lower price-to-earnings ratio at 18.1 compared to 23.9 for the S&P 500 ETF.

A plug-and-play option for all kinds of investors

The Vanguard High Dividend Yield ETF is a straightforward and effective way to gain exposure to several top dividend-paying value stocks without incurring high fees. The fund could be a good fit for risk-averse investors, income investors, or even balanced investors who don't want to increase their exposure to companies they already own.

During times of heightened market volatility, it can be useful to have a list of stocks and ETFs to turn to when you're trying to filter out noise and make a calculated decision not based on emotion. The Vanguard High Dividend Yield ETF certainly checks the "value" and "income" boxes, making it a useful tool for folks targeting those objectives.

Should you invest $1,000 in Vanguard Whitehall Funds - Vanguard High Dividend Yield ETF right now?

Before you buy stock in Vanguard Whitehall Funds - Vanguard High Dividend Yield ETF, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard Whitehall Funds - Vanguard High Dividend Yield ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $594,046!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $680,390!*

Now, it’s worth noting Stock Advisor’s total average return is 872% — a market-crushing outperformance compared to 160% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of April 21, 2025

Bank of America is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Daniel Foelber has positions in Nvidia. The Motley Fool has positions in and recommends AbbVie, Alphabet, Amazon, Apple, Bank of America, Chevron, Cisco Systems, International Business Machines, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, Tesla, Vanguard S&P 500 ETF, Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF, and Walmart. The Motley Fool recommends Broadcom, Johnson & Johnson, and UnitedHealth Group and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The price of gold is hitting new all-time highs -- surpassing $3,500 per ounce. Meanwhile, the S&P 500 (SNPINDEX: ^GSPC) is in a correction. Some investors may be wondering if it is better at the moment to buy the dip in the S&P 500 or ride the gold wave higher.

Below I'll discuss why gold is doing so well, different ways to invest in gold -- including through an exchange-traded fund (ETF) -- and if gold is a better buy than an S&P 500 index fund.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Learn More »

Gold is piling on the gains

Gold prices are up over 30% year to date at the time of this writing, compared to a 12.3% sell-off in the S&P 500. Its price performance also slightly beat the S&P 500 in 2024.

Gold has been so hot that it's up more than the S&P 500 over the last three-year, five-year, and 10-year periods -- although the S&P 500 is beating it over the last five-year and 10-year periods when you account for dividends reinvested.

Still, gold's torrid run-up may come as a surprise, especially given the strong gains in the S&P 500 led by megacap growth stocks. It wasn't long ago that investors questioned when the first U.S. company would surpass $1 trillion in market cap. Apple, Microsoft, and Nvidia all closed out 2024 with market caps over $3 trillion.

Gold has made most of its gains over the S&P 500 during the last three years (there were two major sell-offs in the S&P 500 -- in 2022 and now in 2025) thanks to its steady rise in that time. Even with dividends included, the Vanguard S&P 500 ETF (NYSEMKT: VOO) is massively underperforming the SPDR Gold Shares ETF (NYSEMKT: GLD) fund over the last three years.

Data by YCharts.

The S&P 500 generally is driven higher by earnings and investor sentiment, and higher earnings justify higher stock prices. When sentiment is positive, investors may be willing to pay more for stocks, based on future earnings expectations.

Gold is based on supply and demand. It's a commodity, not a company.

Lower interest rates can reduce borrowing costs and drive gold prices higher. However, geopolitical uncertainty is an even greater catalyst for higher gold prices.

Tariff tensions, the threat of trade wars, and President Donald Trump's attacks on Federal Reserve Chairman Jerome Powell can weaken confidence in U.S. markets and potentially jeopardize their credibility. As a result, fearful investors around the world may turn away from U.S. stocks toward gold.

Another driving factor is the People's Bank of China -- the largest official sector buyer of gold in 2023 and 2024. Reports indicate that the central bank boosted its gold reserves for the fifth consecutive month in March.

In sum, there are valid near-term factors driving gold prices higher. However, that doesn't mean investors should dump stocks in favor of gold.

Buying gold versus equity ETFs

Buying gold through jewelry, coins, or bullion comes with storage and security risks. The most straightforward and liquid way to buy and sell gold is through an ETF, such as the SPDR Gold Shares.

The fund uses a custodian that holds physical gold on its behalf, with the fund passing along a 0.4% expense ratio as a fee for its services. By comparison, the Vanguard S&P 500 ETF charges a mere 0.03% expense ratio.

The better buy now depends on your investment objectives and existing holdings. If you're looking to add a new asset class to your portfolio that can perform well, even if geopolitical tensions persist, then gold could be worth a closer look. However, if you're looking to invest in a variety of companies under the simplicity of one tradable ticker, then an S&P 500 index fund may be a better fit.

Another factor worth considering is what makes up the S&P 500. A whopping 35% of the Vanguard S&P 500 ETF is invested in just 10 companies -- Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta Platforms, Berkshire Hathaway, Broadcom, Tesla, and JPMorgan Chase. If you already own sizable positions in these companies, then buying an S&P 500 index fund may not achieve the level of diversification you're looking for. There are plenty of low-cost ETFs out there that don't include these megacap names or are less top-heavy.

However, if you're looking for broad-based exposure to the market, then an S&P 500 index fund is a good starting point.

Integrating gold into a diversified portfolio

Gold has been on a tear in recent years, which has bridged the gap between gold's gains and the S&P 500 over the last decade. However, for most investors, it's probably best that gold serve more as a role player in a diversified portfolio, rather than the focal point.

Gold could fall or underperform the S&P 500 if the supply/demand imbalance changes. It's also more difficult to analyze because it isn't based on business fundamentals.

Another factor worth considering is that there aren't dividends on gold ETFs, whereas S&P 500 index funds and plenty of other equity-based ETFs have dividends, which provide passive income no matter what the market is doing.

Ultimately, the amount of gold to include in a portfolio depends on your risk tolerance and what you already own. Investors with ultra-long-term time horizons may be better off keeping gold exposure to a minimum, especially given the long-term opportunity cost of investing in gold instead of the stock market. However, the near-term catalysts for gold are undeniable, so it makes sense that gold is crushing the S&P 500 year to date.

Should you invest $1,000 in SPDR Gold Trust right now?

Before you buy stock in SPDR Gold Trust, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and SPDR Gold Trust wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $591,533!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $652,319!*

Now, it’s worth noting Stock Advisor’s total average return is 859% — a market-crushing outperformance compared to 158% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of April 21, 2025

JPMorgan Chase is an advertising partner of Motley Fool Money. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Daniel Foelber has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, JPMorgan Chase, Meta Platforms, Microsoft, Nvidia, Tesla, and Vanguard S&P 500 ETF. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.