We're nearly at the midway point of the year, and the S&P 500 is essentially flat through June 17, up just 1.7%.

The broad market index nearly entered a bear market in April, following the announcement of the "Liberation Day' tariffs, but has rallied back since then to recoup those losses.

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However, not every stock on the index has been a winner. In fact, one popular footwear stock is down nearly 50% for the year through June 17.

That's Deckers Outdoor (NYSE: DECK), the maker of Hoka running shoes and Ugg boots, which is down 49.5% year-to-date. Over a long time frame, Deckers is one of the best-performing stocks on the market -- it had returned more than 10,000% at one point.

After delivering strong growth in recent years, Deckers stock hit a wall in January when its guidance was worse than expected. When the company provided its following update in May, its growth was clearly slowing, and it faced a new challenge with President Donald Trump's tariffs putting pressure on the apparel and footwear industries.

Deckers' current challenges

In its fiscal fourth quarter, ended March 31, Deckers' revenue rose just 6.5%, which compared to nearly 20% growth in the first three quarters of the year.

Growth at Hoka slowed from nearly 30% in the first three quarters of the year to just 10% in the fourth quarter, potentially a sign that a resurgent Nike is grabbing back market share in running. Ugg, which remains Deckers' largest brand, grew just 3.6% in the quarter compared to 13% for the full year.

What really threw investors off was the company's guidance, as management did not give full-year guidance due to macroeconomic uncertainty related to tariffs. For the first quarter, the company expects revenue of $890 million to $910 million, representing 9% growth at the midpoint. However, it expects earnings per share to fall from $0.75 to between $0.62 and $0.67.

It sees its gross margin falling 250 basis points due to higher freight costs from tariffs, increased promotional activity, and channel mix headwinds with wholesale outgrowing DTC, and it faces difficult comparisons with a year ago.

For its two core brands, Deckers expects Hoka to grow by at least low double digits while Ugg sales should increase by at least mid-single digits.

Why this could be a great buying opportunity for Deckers

A 50% sell-off in less than six months often indicates a broken business, but that isn't the case with Deckers. The company seems to face a mostly temporary setback due to pressure related to tariffs and a cooling off in the growth rate at Hoka.

With its share price cut in half, Deckers now trades at an attractive price-to-earnings valuation of just 16, meaning it trades at a substantial discount to the S&P 500. Management is also taking advantage of that by buying back stock, increasing its share repurchase authorization to $2.5 billion, which represents 16% of its market cap.

In fiscal 2025, the company repurchased $567 million worth of its stock, and bought back $85 million in the first quarter through May 9.

Deckers is well-positioned to buy back its stock as it has no debt, $1.9 billion in cash, and a reasonable assets-to-liabilities ratio of 3.5.

Over the long term, Deckers looks well-positioned to recover as its two core brands, Hoka and Ugg, have differentiated themselves, and have long track records of growth. Ugg also overcame an earlier slowdown amid concerns that its brand was a fad.

At the current valuation, even modest profit growth will be enough to make the stock a winner. The tariff-related headwinds will eventually fade, and Deckers' growth should return at that point.

Should you invest $1,000 in Deckers Outdoor right now?

Before you buy stock in Deckers Outdoor, 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 Deckers Outdoor 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 $659,171!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $891,722!*

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Jeremy Bowman has positions in Nike. The Motley Fool has positions in and recommends Deckers Outdoor and Nike. The Motley Fool has a disclosure policy.

Stocks have rallied in the last month on signs that the economy has thus far been resilient to tariffs and on hopes that the U.S. and China can negotiate a trade agreement. However, not every stock has been a winner.

Let's take a look at two of the worst-performing stocks on the S&P 500 (SNPINDEX: ^GSPC) over the last month to see if either of them is worth buying.

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1. Enphase Energy

Enphase Energy (NASDAQ: ENPH), a leading maker of microinverters used with solar panels, took a dive on Tuesday, as the Senate kept cuts to wind and solar energy incentives that were in the House version of the tax and budget bill.

Enphase was one of several solar stocks that tumbled on the news, falling 24%, and as of June 17, it's down 30.7% over the last month.

That performance continues a weak run for the stock, which is down over the last five years, as solar stocks have struggled due to competition from China, a volatile regulatory environment, and falling prices.

Enphase reported first-quarter earnings in April, with solid top-line growth of 35% to $356.1 million and a profit of $29.3 million. Nonetheless, an end of regulatory credits could put significant pressure on its business.

2. Brown-Forman

Brown-Forman (NYSE: BF.B), maker of Jack Daniel's and other spirits, has also struggled due to regulatory challenges. In Brown-Forman's case, it's due to tariffs imposed on American whiskey exports, impacting its top brands, which also include Woodford Reserve. As of June 17, the stock was down 28.5% over the last month.

In its first-quarter earnings report, the company said that revenue fell 7%, or 3% on an organic basis.

Brown-Forman also said it named new distributors in 13 markets across the U.S., part of an effort to deliver a boost to domestic sales.

Still, with geopolitical pressure on American spirit brands, and broader weakness in the category, Brown-Forman seems likely to continue to struggle.

Should you invest $1,000 in Brown-Forman right now?

Before you buy stock in Brown-Forman, 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 Brown-Forman 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 $658,297!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $883,386!*

Now, it’s worth noting Stock Advisor’s total average return is 992% — a market-crushing outperformance compared to 172% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Enphase Energy. The Motley Fool has a disclosure policy.

Artificial intelligence (AI) stocks might be the big thing on Wall Street, with rising valuations and trending tickers. But that doesn't mean there aren't good values to be found. While there are some fears that a bubble will form in AI, many of the big tech stocks leading the charge look downright undervalued. In fact, some of them even fall into the classic Warren Buffett model of value investing.

Buffett is known for avoiding tech stocks for most of his career, but there are some AI-related tech stocks that even a value investor like him could get behind. Keep reading for details about two of them.

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1. Alphabet

OpenAI may be the most buzzworthy AI company, but there's no question that Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) is a leader in AI. The company has been at the forefront of artificial intelligence for at least a decade, acquiring the AI research lab DeepMind in 2014, and launching Google Brain, which merged with DeepMind in 2023, before that.

The company has made AI a stated priority for at least eight years, and it's kept pace with advances in generative AI with Google Gemini, its AI model, and its AI assistant that is readily available on Google Search.

In addition to the company's prowess in AI technology, the stock's valuation is also attractive at a price-to-earnings ratio of just 20, meaning it trades at more than a 20% discount to the S&P 500.

Investors seem to be wary of the stock because of pressure on the regulatory front and concerns that generative AI chatbots pose a threat to the dominance of Google Search.

The regulatory concerns might seem valid after the company was found in court to have a monopoly in both search and ad tech, and the company is now awaiting a decision on "remedies" for the search business, while its remedies trial for ad tech is set for September. Alphabet could receive a fine or be forced to divest part of its business, but at the current valuation, any risk looks sufficiently priced in.

It's true that AI chatbots like ChatGPT and Perplexity pose a threat to Google Search, but thus far, Google has held its own, continuing to grow.

In fact, growth in the business has been steady, and Google Cloud has also turned profitable. Overall, its competitive advantages remain intact, and its valuation is attractive. It looks like a classic Buffett stock set to deliver growth over the long term.

2. TSMC

Another wide-moat AI stock worth taking a look at is Taiwan Semiconductor Manufacturing (NYSE: TSM), or TSMC for short.

TSMC is the world's largest manufacturer of semiconductors. It's a contract chip maker and handles production for companies including Apple, Nvidia, AMD, and Broadcom. It handles more than half of the third-party chip production in the world and roughly 90% of advanced chip production, making it a key player in AI, as cutting-edge chip designers like Nvidia rely on TSMC's infrastructure and expertise to make its chips. Given the company's market share, there's no close second in third-party chip manufacturing, and leading integrated device manufacturers such as Samsung and Intel have struggled of late.

TSMC has also been a major beneficiary of the AI boom, as both revenue and profit have soared lately. In the first quarter, TSMC's revenue jumped 35.3% year over year to $25.5 billion, and net income rose 60% to $10.9 billion. TSMC's operating margin was 48.5% in the quarter, a clear sign of its pricing power and competitive advantage.

Even with that growth rate, its profitability, and its competitive advantages, TSMC stock trades at a price-to-earnings ratio of just 25.6, in line with the S&P 500.

Some consider TSMC risky because it's headquartered in Taiwan, a disputed territory, and some investors are wary of a Chinese invasion. While anything is possible in geopolitics, there are no imminent signs of an invasion, and TSMC has diversified away from Taiwan, opening plants in the U.S., Europe, and Japan, meaning those fears may be overblown.

Based on its technological strength, growth rate, attractive valuation, and the tailwinds from AI, TSMC looks well-positioned for long-term growth.

Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?

Before you buy stock in Taiwan Semiconductor Manufacturing, 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 Taiwan Semiconductor Manufacturing 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 $658,297!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $883,386!*

Now, it’s worth noting Stock Advisor’s total average return is 992% — a market-crushing outperformance compared to 172% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jeremy Bowman has positions in Advanced Micro Devices, Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: short August 2025 $24 calls on Intel. The Motley Fool has a disclosure policy.

Not too many Wall Street analysts have name recognition, but Wedbush's Dan Ives is one of the best-known commentators and AI cheerleaders.

Ives is a frequent guest on CNBC and other financial news outlets, as well as social media, typically wearing a bright-colored jacket and a loud shirt. He's known for his bullish commentary on stocks like Nvidia and Palantir. In fact, Ives recently said that Palantir would hit a market cap of $1 trillion within three years.

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Now, the Wedbush analyst has taken the next logical step, creating an exchange-traded fund (ETF). On Wednesday, Wedbush Fund Advisers launched the Dan Ives Wedbush AI Revolution (NYSEMKT: IVES), which trades on the New York Stock Exchange and is based on his picks and research in the artificial intelligence (AI) sector.

The ETF holds 30 stocks, ranging from semiconductors to hyperscalers to cybersecurity, robotics, and other industries. Ives says he is more focused on themes and disruptive impact, rather than valuation, and the ETF features many of the best-known names in AI.

What's in the IVES ETF?

The top 10 holdings in the IVES ETF are as follows:

Company	Percent of Fund
Microsoft	5.67%
Nvidia	5.37%
Broadcom	5.25%
Tesla	4.65%
Taiwan Semiconductor Manufacturing	4.63%
Meta Platforms	4.61%
Amazon	4.41%
Palantir	4.33%
Alphabet	4.31%
Apple	4.24%

That list shouldn't come as a big surprise. It includes the "Magnificent Seven" and three other well-known AI stocks, Broadcom, Taiwan Semiconductor, and Palantir. Combined, those stocks make up nearly half of the fund.

Of the remaining stocks, there are several cloud software and cybersecurity names like ServiceNow, Palo Alto Networks, Salesforce, Adobe, Snowflake, and Zscaler.

Among the lesser-followed stocks it owns are Innodata, Elastic, and Pegasystems, which are all relatively small positions in the fund. Each stock is at least 1% of the fund.

As of June 4, the fund had net assets of $26.4 million, and its expense ratio is 0.75%, meaning investors will pay $0.75 out of every $100 invested in the fund to Wedbush to manage it.

Why it matters for investors

The launch of the IVES ETF matters to investors for a few reasons. First, if the fund serves as a big draw, bringing billions into the fund, it will funnel that money to the stocks it holds, helping them rise further.

The fund is also contributing to a greater proliferation of AI ETFs, potentially making it easier to invest in AI stocks.

We're about 2.5 years into the AI boom, which kicked off with the launch of ChatGPT in 2022, and some AI ETFs have been created. However, the formation of AI ETFs has generally lagged in the sector, and many of the funds that purport to track AI stocks don't invest in the household names that investors might expect an AI ETF to hold.

For instance, the Global X Robotics & Artificial Intelligence ETF holds little-known stocks like ABB, Keyence, and Fanuc, which are focused on robotics and automation, among its top five holdings.

The IVES ETF gives investors exposure to the more traditional AI stocks that have become associated with the AI boom.

Is the IVES ETF a buy?

If you backtested the IVES ETF over the last year or two, it would have outperformed the S&P 500. The ETF doesn't get credit for that, but the top holdings are many of the stocks that Ives has been publicly bullish on during that time.

If the AI boom continues, the IVES ETF is likely to be a winner as it offers exposure to a range of stocks driving the "AI revolution."

With an expense ratio of 0.75%, the IVES ETF is more expensive than most ETFs, but on par with actively managed funds. For investors looking for easy exposure to a range of AI stocks, investing a bit of money into the IVES ETF is a good way to do it.

Should you invest $1,000 in Wedbush Series Trust - Dan Ives Wedbush Ai Revolution ETF right now?

Before you buy stock in Wedbush Series Trust - Dan Ives Wedbush Ai Revolution 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 Wedbush Series Trust - Dan Ives Wedbush Ai Revolution 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 $669,517!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $868,615!*

Now, it’s worth noting Stock Advisor’s total average return is 792% — a market-crushing outperformance compared to 173% 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 9, 2025

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. Jeremy Bowman has positions in Amazon, Broadcom, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Abb, Adobe, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, Salesforce, ServiceNow, Snowflake, Taiwan Semiconductor Manufacturing, Tesla, and Zscaler. The Motley Fool recommends Broadcom, Elastic, Fanuc, Palo Alto Networks, and Pegasystems 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.

Lululemon athletica (NASDAQ: LULU) might not have the profile of a traditional market-crushing stock, but it's been one of the best-performing consumer-facing stocks of the last 20 years.

More than any other company, Lululemon is responsible for making athleisure a massive apparel category, and it's made it one of the most valuable apparel companies in the world.

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Going back to its 2006 IPO, the stock is up roughly 1,800%, and even over the last decade, the stock has gained more than 300% as it's continued to deliver strong growth.

However, more recently the stock has struggled. After peaking in late 2023, shares have fallen on concerns about its valuation, slowing growth, and now the trade war and the broader threat to the global economy. The stock is now down 48% from its peak.

Lululemon tumbled in its first-quarter earnings report as comparable sales growth slowed to just 1% with comps down 2% in the Americas. Revenue in the quarter rose 7% to $2.37 billion as the company continues to open new stores, which matched estimates.

Further down the income statement, gross margin improved from 57.7% to 58.3%, but operating income rose just 1% to $438.6 million as operating margin fell 110 basis points to 18.5% due to an increase in selling, general, and administrative expenses.

On the bottom line, earnings per share increased from $2.54 to $2.60, which edged out the consensus of $2.59.

What's ailing Lululemon

What really pressured the stock was the company's guidance, due in part to the impact of tariffs as management said price hikes to absorb tariffs would be targeted and limited.

For the full year, Lululemon maintained revenue guidance of $11.15 billion to $11.3 billion, or 6% revenue growth at the midpoint. However, it cut its full-year earnings-per-share guidance from $14.95-$15.15 to $14.58-$14.78.

Second-quarter guidance also missed the mark.

Lululemon's decision to maintain revenue guidance with a growth rate that's steady from the first quarter shows that it doesn't anticipate a significant impact on demand. Rather, the challenges the company is facing are on the cost side, primarily due to tariffs.

The company now expects operating margin to fall 160 basis points, weighing on earnings per share.

The China opportunity

While Lululemon's growth has slowed in its core North American market, the company continues to see a long runway in China, which represents its biggest market for new store growth.

In the first quarter, revenue in China increased 21% on 7% comparable sales growth, and China made up 13% of total revenue last year.

Like other American consumer brands that have done well in China like Apple, Starbucks, and Nike, Lululemon seems to be benefiting from the same upscale brand reputation that those companies have as well as a culture of conspicuous consumption. Additionally, Lululemon has managed to deliver solid growth in China even as the consumer economy has been weak there.

The retailer currently has 154 stores in China, 20% of its total, and it had an initial goal of opening 200 stores, though it now expects to top that. CFO Meghan Frank said, "We still feel we're early in our journey" in China on the earnings call.

Is Lululemon a buy?

Lululemon's challenges with tariffs seem to be similar to what we've heard from other retailers in apparel and related sectors, so it shouldn't be a cause for alarm from investors. Meanwhile, the tariff situation is fluid enough that rates could easily change, and it's unclear if the tariffs will still be relevant a few years from now.

After cutting its guidance for the year and Friday's sell-off, Lululemon now trades at a forward P/E of 18. For a company with its brand strength, historical growth rate, and a runway to expand in China, that looks like a great price.

While investors may have to be patient as the trade war plays out, at the current price, Lululemon looks like a clear buy.

Should you invest $1,000 in Lululemon Athletica Inc. right now?

Before you buy stock in Lululemon Athletica Inc., 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 Lululemon Athletica Inc. 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 $669,517!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $868,615!*

Now, it’s worth noting Stock Advisor’s total average return is 792% — a market-crushing outperformance compared to 173% 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 2, 2025

Jeremy Bowman has positions in Nike and Starbucks. The Motley Fool has positions in and recommends Apple, Lululemon Athletica Inc., Nike, and Starbucks. The Motley Fool has a disclosure policy.

Sweetgreen (NYSE: SG) is one of the more disruptive companies in the retail/restaurant industry today.

The company has brought a new concept to the fast-casual format as the largest fast-casual salad chain in the U.S. That menu seems to be resonating with customers. Sweetgreen is rapidly adding new locations, and its average restaurant brings in $2.9 million in revenue, a number on par with fast-casual leader Chipotle.

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However, an even greater point of disruption from Sweetgreen may be its Infinite Kitchen, a robotic system to help expedite orders, saving money on labor and improving throughput. Of the 40 restaurants it plans to open this year, 20 will have an Infinite Kitchen. The company has also teased the idea of licensing the new technology, which could open up a new revenue stream.

Despite that potential, Sweetgreen has had a forgettable year. Its stock is down 54% year to date through June 4. It has faced several challenges, including the wildfires in Los Angeles, one of its biggest markets and where the company is headquartered, and broader headwinds in the restaurant industry due to concerns about tariffs and other signs of a weakening economy.

In its first-quarter earnings report, the company reported a same-store sales decline of 3.1%. It said quarter-to-date comps were down mid-single digits in the second quarter as concerns around tariffs picked up in April, weighing on demand.

A fresh opportunity

A 54% sell-off is disappointing for existing shareholders of the stock, but it creates an opportunity to scoop up this promising growth stock on the cheap.

In fact, two billionaires did just that in the first quarter. Israel Englander's Millennium Management purchased 2.17 million shares of the restaurant stock, adding to a stake it started building in Q1 2023. Similarly, Ken Griffin's Citadel Advisors, which is often considered to be the best-performing hedge fund, added 1.27 million shares of Sweetgreen. Citadel first bought the stock when it went public in the fourth quarter of 2021.

Buying the dip on Sweetgreen is risky, especially with an uncertain economy, and declining comparable sales are never a good sign for a restaurant chain. However, management's guidance calls for an improvement in same-store sales over the rest of the year, forecasting flat growth for the year. More importantly, the company's long-term growth opportunities are still significant.

Will Sweetgreen be a ten-bagger?

After the reset in the stock price, Sweetgreen's market cap has fallen to just $1.8 billion. That means the stock could turn $10,000 to $100,000 if its market cap reached $18 billion, a reasonable goal for a restaurant chain.

Despite the weak same-store sales, Sweetgreen continues to aggressively open new stores. It plans to add 40 locations this year, growing the store base by 16%.

Over the longer term, CEO Jonathan Neman sees the company growing to at least 1,000 stores, if not several thousand. This should drive the stock higher over the longer term, assuming Sweetgreen can pull off that expansion.

In the meantime, the company is delivering strong average unit volumes of $2.9 billion, and its restaurant-level operating margin of 19% is good enough to drive profitability, especially as that margin is likely to increase over time. Investments in the Infinite Kitchen system seemed to have weighed on the bottom line but should spread out over time.

Finally, Infinite Kitchen should give the company a competitive advantage in areas like labor and throughput, and the effect of the technology should eventually show in the financial results.

Overall, Sweetgreen is the leader in a growing fast-casual category, its restaurants are generating strong traffic, and it has a potential technological advantage in Infinite Kitchen.

The stock is risky, but the upside potential is there, especially once the economy improves. The company should return to same-store sales growth when that happens.

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

Before you buy stock in Sweetgreen, 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 Sweetgreen 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 $669,517!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $868,615!*

Now, it’s worth noting Stock Advisor’s total average return is 792% — a market-crushing outperformance compared to 171% 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 2, 2025

Jeremy Bowman has positions in Chipotle Mexican Grill and Sweetgreen. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends Sweetgreen and recommends the following options: short June 2025 $55 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

Though Apple has been Berkshire Hathaway's (NYSE: BRK.A) (NYSE: BRK.B) top holding for several years, Warren Buffett has historically avoided tech stocks.

The renowned value investor has said that he can't forecast earnings for tech companies as they are less predictable, due in part to the changeable nature of technology, than other sectors. Buffett has historically preferred to invest in sectors like insurance, banking, utilities, energy, and consumer staples that have predictable cash flows, and whose industries don't change much over time.

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Based on that philosophy, it's not a surprise that Buffett has mostly avoided artificial intelligence (AI) stocks. However, there are some that fit in well with his approach to investing -- buying companies with sustainable competitive advantages at attractive valuations.

Keep reading to see two stocks that fit the bill.

1. Alphabet

Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) has one of the strongest economic moats in business history.

Google has had more than 90% market share in the web search industry for the last two decades. The brand is synonymous with search, and underpins Alphabet's larger, highly profitable tech empire that includes products like YouTube, Google Cloud, the Chrome web browser, and "moonshots" like the Waymo autonomous vehicle program.

Google Search has now reached a revenue run rate of $200 billion, and Google Services, of which search makes up most of its business, has an operating margin of more than 40%.

Alphabet is also still delivering steady growth with revenue up 12% in the first quarter.

You might think that a company like Alphabet with evident competitive advantages, solid growth, and massive profits would trade at a premium valuation, but that's not the case. Alphabet currently trades at a price-to-earnings ratio of just 18.6, a substantial discount to the S&P 500.

There are two primary reasons for the discount in valuation.

First, investors are fearful that the company could get broken up or face a substantial fine or a related punishment as it's been found to have a monopoly in both search and adtech. Separately, Alphabet also seems to be trading at a discount because of the risk that its search empire could be disrupted by an AI chatbot like ChatGPT or Perplexity.

While those are risks for Alphabet, shares have long traded at a modest valuation, meaning investors have historically underestimated the stock. Given that, investors may want to borrow from Buffett's mentality and buy Alphabet stock.

2. Taiwan Semiconductor Manufacturing

Berkshire Hathaway invested in Taiwan Semiconductor Manufacturing (NYSE: TSM) in 2022, buying $4.1 billion of the stock, but it sold out of that position completely just two quarters later. It wasn't clear why. It could have been because of the risk of an invasion by China into Taiwan.

Like Alphabet, Taiwan Semiconductor (also known as TSMC) has one of the strongest economic moats in the business world.

The company is the leading third-party semiconductor manufacturer with a market share of more than 50% in contract chips and more than 90% of advanced chips that are crucial for AI.

TSMC is the company that Apple, Nvidia, AMD, Broadcom, and other top semiconductor and tech companies turn to to manufacture their chips. In the first quarter, advanced chip technologies accounted for 73% of its total wafer revenue.

Its technological lead in a highly technical industry with high capital expenditures, and its customer relationships, give the company a significant competitive advantage. TSMC is also growing quickly, with revenue up 35% in the first quarter to $25.5 billion, and its operating margin improved to 48.5%, showing the company has significant pricing power.

Like Alphabet, TSMC is also cheaper than you'd expect for a company that's so dominant. The stock currently trades at a price-to-earnings ratio of 24, which is an excellent valuation for a business growing as fast as TSMC, and one that is a linchpin in the artificial intelligence boom.

It may never be clear why Berkshire Hathaway sold TSMC, but it's not surprising that Buffett's conglomerate bought it. In many ways, it looks like a classic Buffett stock.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jeremy Bowman has positions in Advanced Micro Devices, Broadcom, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Apple, Berkshire Hathaway, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

Shares of Five Below (NASDAQ: FIVE) were moving higher this week in response to a better-than-expected first-quarter earnings report. In addition, commentary from Dollar General, which is also reported earnings this week, led investors to believe that discount stores were well-positioned in the current economic environment.

As of 2:59 p.m. on Thursday, the retail stock was up 8.5%, according to data from S&P Global Market Intelligence.

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Five Below keeps growing

Five Below, which primarily sells items for $5 or less like toys, games, accessories, and snacks, said that comparable sales in the quarter rose 7.1%, driving overall revenue up 19.5% to $970.5 million, which edged out estimates at $966.5 million.

The growth in the quarter reflects new store openings, as the company added 55 locations in the period to bring its grand total to 1,826.

Comparable sales growth was also fueled by "trend-right product, extreme value, and a fun store experience," according to CEO Winnie Park. The tariff-related pressures in the macro environment may have helped too.

Adjusted operating income surged from $38.1 million to $59.6 million, and adjusted earnings per share jumped from $0.60 to $0.86, ahead of the consensus at $0.83.

The company also said CFO Kristy Chapman is stepping down, and it would begin a search for her replacement.

Can Five Below keep gaining?

Looking ahead, Five Below expects its momentum to continue into the second quarter, calling for comparable-sales growth of 7%-9% and revenue of $975 million-$995 million, with 30 new stores. On the bottom line, it sees adjusted earnings per share of $0.50-$0.62. That forecast compares to estimates of $958.3 million in revenue and EPS of $0.58.

Five Below expects slower top-line growth in the second half of the year. Still, the comparable-sales results are impressive in the current environment. The stock trades at a premium, but it's easy to see why after the latest report.

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Shares of Costco Wholesale (NASDAQ: COST) fell after the warehouse retailer posted comparable sales for May that were slightly below estimates.

For a stock that's priced to perfection like Costco, that was enough to send the stock down 3.9% as of 2:01 p.m. ET.

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Costco's growth slows

Costco is one of the few retailers left that reports monthly comparable sales, as others have backed away from the practice, in part because they think it adds volatility to the stock. Investors sometimes overreact to the numbers. That may be what's happening here.

In May, Costco's comparable sales rose 4.3%, or 6% after adjustment for fuel prices and foreign exchange. That was below its growth rate of 5.8%, or 7.9% after adjustments for the first 39 weeks of the fiscal year. Costco also said that overall revenue rose 6.8% for the four-week period ending June 1.

Those are hardly concerning numbers, but Wells Fargo said in a note this morning that those results were just below expectations of 6.2% adjusted comparable-sales growth.

Though the bank said the retailer continued to perform well, it noted its high valuation and reiterated an equal weight, or neutral rating, with a price target of $1,000.

What's next for Costco?

Investors shouldn't change their thesis on Costco stock based on one month of comparable sales, but today's pullback is a good reminder of why valuation matters.

Costco now trades at a price-to-earnings ratio of 57, meaning high expectations are baked into the stock. While the business is strong, the valuation assumes that its superior growth rate will continue. However, even a moderation to mid-single-digit comps is enough to send jitters through investors, as we saw today. If Costco's numbers disappoint again, the stock could fall further.

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Shares of PVH (NYSE: PVH), the diversified apparel company and parent of brands like Calvin Klein and Tommy Hilfiger, were falling today after it reported solid results in its first-quarter earnings report, but cut its outlook for the full year.

As of 12:37 p.m., the stock was down 17.7%.

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What's ailing PVH?

With uncertainty around tariffs and the broader economy, apparel companies have faced a challenging environment, and PVH is no different.

Revenue rose 2% to $1.98 billion, ahead of its guidance calling for sales to be flat to down 2%, which topped estimates at $1.93 billion.

Revenue grew 5% in the EMEA (Europe, Middle East, and Africa) region and 7% in the Americas, but fell 13% in Asia-Pacific due to a challenging consumer environment in China.

Gross margin declined from 61.4% to 58.6% due to a shift from direct-to-consumer to wholesale and an increased promotional environment.

On the bottom line, adjusted earnings per share fell from $2.45 to $2.30, which beat the company's guidance at $2.10-$2.25 and the consensus at $2.25.

In the quarter, PVH took a $480 million goodwill impairment charge, which it said was due to a significant increase in discount rates. Additionally, its inventory rose 19%, which the company said was due to investment in core product inventory to improve overall availability, to support projected sales growth in the second quarter, and to get summer product in earlier.

CEO Stefan Larsson said, "In Q1, we continued to tap into the global consumer love for Calvin Klein and Tommy Hilfiger, delivering revenue growth versus last year and ahead of guidance."

What's next for PVH?

Despite the solid first-quarter results, management acknowledged that macro uncertainty is creating headwinds, and its second-quarter guidance missed the mark.

For the current period, management expects revenue up in the low single digits, but adjusted EPS down to $1.85-$2.00 from $3.01 in the quarter a year ago.

Management said that it currently estimated tariffs would have a $65 million negative impact on operating profit, or $1.05 per share.

While PVH still offers attractive value at a price-to-earnings ratio of less than 7, it's understandable why the stock is down on the news.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

When investors think of AI stocks, Upstart (NASDAQ: UPST) may not be the first that comes to mind. However, the company has a strong claim to the title. It's harnessed the power of machine learning and data science for a new credit platform that has been more accurate at assessing creditworthiness than conventional FICO scores, according to Upstart.

As a stock, Upstart has been one of the more volatile names in the market as the business has considerable potential, but it has also struggled to turn a profit in recent years. Plus, any credit business is inherently risky, since loans could go bad if the economy sours, or Upstart's credit partners could stop buying its loans, eliminating the funding it needs to operate.

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Upstart's latest earnings report offered more reasons to be optimistic. Its transaction volume jumped 102% in the first quarter to 240,706 with originations up 89% to $2.1 billion. Meanwhile, its conversion rate improved from 14% to 19.1% because of an update in its AI model that makes as many as 1 million predictions per applicant to determine whether to lend to the applicant and what interest rate to charge.

Overall, revenue jumped 67% to $213 million, and its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improved from a loss of $20.3 million to a profit of $42.6 million.

Now, several Wall Street analysts have turned bullish on Wall Street, and some see considerable upside to the stock.

What Wall Street thinks about Upstart

According to Tipranks, of the 11 analysts that have rated Upstart in the last three months, four analysts rate it a buy and seven call it a hold. However, the average price target for the stock is $65.33, or a 39% upside on average.

Among the analysts that are most bullish on Upstart are Peter Christiansen of Citi, who rates the stock a buy and gives it a price target of $83; Dan Dolev of Mizuho, who gives it a buy rating and a price target of $83; and Kyle Peterson of Needham, who gives it a buy rating and a price target of $70.

Christiansen has noted Upstart's increasing interest from private credit managers and improving partner network. Dan Dolev recently reiterated a buy rating after double upgrading the stock last year in response to the company's improved profitability, and it's capturing the benefits from AI in its updated model. Kyle Peterson of Needham also sees an improving funding backdrop and balance sheet at Upstart driving the stock higher.

Is Upstart a buy?

Wall Street forecasts on their own aren't a good reason to buy the stock, but they can alert you to good buys. Upstart has its share of naysayers as well. Nearly 25% of the stock is sold short, and Goldman Sachs gave it a sell rating in February with a price target of $15.

However, Upstart's business is improving in multiple ways. In addition to the preceding numbers, the company is increasingly tapping into the auto and home loan markets, which represent the biggest addressable markets in front of it. In the first quarter, auto originations grew five times over the last year to $61 million, while home loans grew six times to $41 million. That still represents a small fraction of the company's business, but there is potential for it to get much larger.

Upstart's business model is also scalable. The tech platform fully automates more than 90% of loan applications and can therefore scale up to make more loans at a relatively low marginal cost. Operating expenses grew by just 11% in the first quarter even as fee-based revenue was up 34%.

Overall, Upstart's technology appears to give it a competitive advantage, and it's seeing momentum in customer demand and funding partnerships. If its momentum continues, its profit should rapidly improve.

With a long runway of growth, Upstart looks like a good buy.

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Shares of Reddit (NYSE: RDDT) were sliding this week in response to an analyst downgrade on the social media stock. It fell sharply in the broader sell-off on Wednesday in response to a weak Treasury auction and rising Treasury yields, perhaps reflecting a lack of confidence in the U.S. economy and recessionary fears.

According to S&P Global Market Intelligence, the stock was down 11.6% through Thursday at 2:10 p.m. ET.

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Reddit faces a new threat

The stock fell 5% on Monday in response to Wells Fargo's downgrade of Reddit stock from overweight to equal weight, with analyst Ken Gawrelski lowering its price target from $168 to $115.

The firm called out Alphabet's Google's artificial intelligence (AI) advances and new AI search capabilities, believing that will likely sap Reddit's user growth, especially from logged-out users, which Gawrelski believes Reddit will need to maintain its strong growth rate. Additionally, the analyst said its data licensing business is incompatible with the long-term growth of the business, as it will leverage Reddit's knowledge base elsewhere.

On Wednesday, the stock tumbled again in line with the broader sell-off, losing 9.3% as growth stocks like Reddit are especially sensitive to rising interest rates and broader threats to the economy.

What's next for Reddit?

The social media stock has delivered strong results in a little over a year since it went public, driving strong user growth and ad revenue growth, and its AI-based data licensing business still appears to have a bright future.

Reddit has a unique and massive "corpus" of content on a wide range of topics, and it's more than a search hub, as users go there to get advice or feedback from other people, which is different from using an AI chatbot.

The company will have to continue delivering strong growth and improve its profitability, but one downgrade shouldn't shake investor confidence in the business.

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Shares of Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) were moving higher again today as investors continue to react to the company's product announcements from yesterday's I/O developer conference. The gathering seemed to convince investors that Alphabet's artificial intelligence (AI) strategy was capable of driving growth and protecting its market share.

At a time when the stock has fallen over antitrust concerns and signs that its close relationship with Apple could be vulnerable, these product announcements were enough to send the stock up 2.4% as of 1:23 p.m. after gaining as much as 4.9% earlier in the session. That comes following yesterday's gain of 2.8%, even as the broader market fell sharply on rising Treasury yields.

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What Alphabet shared at I/O

Alphabet shared a number of newsworthy items in the conference. It's rolling out AI Mode in Google Search to all of its U.S. users, giving them the ability to interact with an AI chatbot in the search portal. It also said it would offer a $249/month subscription for AI power users, showing a way of monetizing its AI investments.

Additionally, it said it was partnering with Warby Parker to develop smart glasses, much like Meta Platforms has partnered with Ray-Ban. Analysts responded to the news favorably, and some expected that AI Mode would be monetized as well.

Can Alphabet keep gaining?

Alphabet has become a controversial stock following a court ruling that it has a monopoly in both search and adtech. Additionally, the stock tumbled when an Apple executive said that the company was considering making AI-based search engines like Perplexity available on Safari.

Even after the two-day gains, Alphabet continues to look undervalued at a price-to-earnings ratio of just 19. The future of the business appears to look stronger as its AI strategy comes into shape. At the current valuation, the stock could easily keep gaining despite the antitrust risk.

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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. Jeremy Bowman has positions in Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Apple, and Meta Platforms. The Motley Fool recommends Warby Parker. The Motley Fool has a disclosure policy.

For years, Airbnb (NASDAQ: ABNB) CEO Brian Chesky has been promising to take the brand "beyond the core."

In his eyes, Airbnb has the potential to be much more than a home-sharing platform, and the company took its first steps in that direction on Tuesday as it launched a set of new marketplaces.

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In its release, Airbnb announced:

• Airbnb Services, with local services like meals by chefs, photography, massage, and nails.
• A revamped Airbnb Experiences that includes tours and activities that are vetted for quality, and Airbnb Original experiences, which are limited-edition opportunities for an experience hosted by a celebrity like Megan Thee Stallion, Sabrina Carpenter, or Patrick Mahomes.
• A redesigned Airbnb app that allows users to book homes, services, and experiences in the same place.

Of the three of these, Airbnb Services has the most potential. This is a largely new offering for the company, and there is not an existing local marketplace for these services, which also include personal training, catering, and makeup, according to Airbnb's post.

What's potentially game changing about the services marketplace is that it is available to locals just as much as travelers since there is nothing about the services that is particular to tourism.

It's clear from Airbnb's post that these services are intended for travelers, and they will likely be marketed that way, but encouraging people to use the Airbnb app for local needs could expand the market significantly, though the company seems to want to keep the brand focused on travel.

An adjacent marketplace, which Airbnb did not launch but could come in the future, is services intended for hosts, such as cleaning, landscaping and lawn care, hiring a handyman, and the like, which would expand the addressable market even further.

The revamped experiences platform could be meaningful, but Airbnb has offered experiences for nearly a decade, so it will take more work to convince travelers to consider its experiences again.

Is Airbnb Services a game changer?

Homestays will always be the biggest business on Airbnb, but adding services expands the company's addressable market significantly.

For instance, the global market for hair salon services is $247 billion. Airbnb will only get a sliver of that at best, but that is just one of several categories the company is competing in. Scaling up in services could take years, but it certainly has the potential to be a game changer.

Chesky has referred to Amazon on previous earnings calls, noting that company's evolution from a bookseller to a seller of everything, and the services expansion gives Airbnb the opportunity to do something similar, with a market that is essentially uncontested in the way that Airbnb is imagining it.

Investors seemed to like the move -- the stock rose nearly 1% after the announcement, closing the day up 2.9%.

Is Airbnb a buy?

The core home-sharing marketplace will remain the key to the business for the foreseeable future, but the services launch and the revamped experiences page is refreshing. It demonstrates the company's optionality and its ability to harness new ideas and launch new platforms.

Chesky is right: There is potential for Airbnb to expand its marketplace beyond homestays, but the company will have to execute at a high level both in home-sharing and its newer businesses.

The launch comes as the company's growth has slowed to its slowest rate since the pandemic, coming in at just 6% in the first quarter. Other travel companies have reported headwinds due to the weakening economy, so Airbnb could be facing a sluggish 2025.

However, the services launch shows that management is squarely focused on the long term, and its execution in home- sharing and other businesses will matter much more than the cycles of the travel market.

While the stock has been a disappointment since its initial public offering, the business is strong enough that it should outperform the S&P 500 over the long term, especially since its valuation is now looking more reasonable. The launch of the services marketplace is certainly a step in the right direction.

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Shares of Match Group (NASDAQ: MTCH) were falling today after the leader in the online dating market posted disappointing results in its first-quarter earnings report.

The stock closed down 9.6% on the news.

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Match Group wants a do-over

The Tinder parent posted another underwhelming round of results with revenue falling 3% to $831.2 million, though that was ahead of the consensus at $827.4 million.

Paying users declined 5% to 14.2 million even as the company rolled out several new features on Tinder, including artificial intelligence (AI)-enabled Discovery and Double Date with an aim at creating more social, low-pressure experiences for Gen Z users.

It also said Hinge's new AI-powered recommendation algorithm increased matches and contact exchanges by 15%.

Still, profits were moving downward with revenue as operating income declined 7% to $173 million. Adjusted operating income was also down from $279 million to $275 million. Thanks in part to share buybacks, earnings per share was flat at $0.44.

New CEO Spencer Rascoff said: "In my first full quarter as CEO, we've moved quickly to reinvigorate the business and this quarter's results show early traction. In just a few months, we've unlocked significant cross-company synergies, reorganized our largest business unit, accelerated product development, and brought greater focus and discipline to how we work."

Rascoff also said he was cutting 13% of staff as part of his turnaround plan.

Can Match bounce back?

Reviving Match Group won't be an easy task; there seems to broad-based fatigue with dating apps, as its declining user base and efforts to adjust to Gen Z tastes show.

Looking ahead to the second quarter, the company expects revenue to be between flat and down 2% at $850 million to $860 million, and for adjusted operating income to come in at $295 million to $300 million, down 2% to 4%.

Match is clearly profitable and the stock is cheap, but investors will need to see an earnest return to growth in order for the stock to recover.

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Shares of Carvana (NYSE: CVNA) were moving higher today after the online used car retailer delivered strong results in its first-quarter earnings report, easily beating estimates and tamping down concerns about an impact from tariffs.

As of 2:41 p.m. ET, the stock was up 12.4% on the news.

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Carvana keeps climbing

Carvana reported a 46% increase in unit growth in the quarter to 133,898 vehicles, leading to revenue of $4.23 billion, up 38% from the quarter a year ago and ahead of estimates at $4 billion.

Profitability remained strong as adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) more than doubled to $488 million, and the company reported net income of $373 million, or $1.51 per share, up from $0.23 in the quarter a year ago and beating the consensus at $0.75.

Carvana outgrew industry peers in the quarter, and CEO Ernie Garcia touted the company's growth prospects, saying, "We are incredibly well positioned for the path ahead and have very clear visibility to even stronger financial performance, much larger scales, and even better customer experiences." He also said that tariffs would have a greater impact on new car prices than used car prices.

What's next for Carvana

Carvana said it expected units sold and adjusted EBITDA to increase sequentially, though it didn't give specific figures. It also said it's on track to deliver significant growth in units sold and adjusted EBITDA for the full year.

Finally, it gave new long-term guidance calling for 3 million retail units per year at an adjusted EBITDA margin of 13.5% in the next five to 10 years.

With a target like that, Carvana has its sights squarely on growth. The used car market is massive, and Carvana is executing well just a little more than two years after nearly falling into bankruptcy. Based on that guidance, there's still plenty of upside potential for the stock, though it is pricey.

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Jeremy Bowman has positions in Carvana. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Shares of Jumia Technologies (NYSE: JMIA) were surging today after the African e-commerce company reported solid growth in orders, despite a decline in revenue, and guided to full-year profitability in 2027.

The stock's gains seemed to come not because the overall results were strong, but because after years of challenges, Jumia appears to be at an inflection point, especially as the company had never before given profitability guidance.

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As of 2:07 p.m. ET, the stock was up 24% on the report.

Jumia clears the deck

Jumia's revenue declined 26%, or 18% in constant currency, to $36.3 million, though that includes the impact of exiting Tunisia and South Africa. Gross merchandise volume (GMV) was down 11%, or 2% in constant currency, to $161.7 million.

However, orders for physical goods were up 21% in the quarter, its fastest growth rate in two years, and active customers ordering physical goods rose 15%. In Nigeria, the company delivered strong results, with orders up 22% and GMV up 20%.

On the bottom line, Jumia's losses continued, with an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) loss of $15.7 million.

Can Jumia's business turn it around?

For 2025, Jumia expects physical goods orders to grow 20%-25%, up from a prior range of 15%-20%, and it sees GMV up 10%-15% to $795 million-$830 million in the year. Management also reaffirmed its commitment to delivering profitable growth for the year.

After experimenting with different businesses such as fintech and food delivery, Jumia seems to be settling into a conventional e-commerce business: shipping physical goods.

Having given its 2027 profit guidance, Jumia now needs to hit it, or the stock could crumble. If it can get there, however, and do it with solid growth, there is a lot of upside potential for the company, as Africa is a huge market. Nonetheless, the company's struggles thus far should give investors some caution.

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Shares of Sezzle (NASDAQ: SEZL) were on fire today as the buy-now, pay-later (BNPL) platform delivered strong results in its first quarter and raised its guidance.

The quarter is the latest evidence of strong momentum in the business, and the stock was up 51% as of 1:24 p.m. ET.

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Sezzle soars

The fintech company said that gross merchandise volume (GMV), or spend on the platform, jumped 64.1% to $808.7 million, with customer purchase frequency up to 6.1 times in the quarter from 4.5 in the quarter a year ago.

That drove revenue up a whopping 123.3% to $104.9 million, which crushed estimates at $64.8 million.

The company had 658,000 users in the quarter, and delivered strong results on the bottom line as well. Operating income jumped 260.6% to $49.9 million, giving it an operating margin of 47.6%. Generally accepted accounting principles (GAAP) earnings per share jumped from $0.22 to $1.00, which was miles ahead of the consensus at $0.32.

CEO Charlie Youakim said, "Our investments in innovation and consumer experience drove new highs in engagement and performance in the first quarter. Stronger consumer activity and better-than-expected repayment trends propelled quarterly earnings above our expectations. These positive developments give us the confidence to raise our 2025 net income guidance by nearly 50% to $120 million."

What's next for Sezzle?

Sezzle is clearly gaining market share rapidly in the fragmented BNPL space, and has some key differences from other BNPLs, including that it gives users the option to choose whether their data is reported to credit bureaus, meaning it appeals to users who don't want to risk hurting their credit scores.

The model appears to be resonating, given the skyrocketing growth, and management raised its guidance as well, calling for total revenue growth for the year of 60%-65%, up from 25%-30%. It expects earnings per share to reach $3.25, up from a previous level of $2.21.

Based on that forecast, Sezzle still looks very reasonably valued at a price-to-earnings ratio of just 25. The stock could easily move higher from here if its rapid growth continues.

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Shares of Remitly Global (NASDAQ: RELY) were moving higher today after the remittance specialist beat estimates in the first-quarter report and raised its revenue forecast for the year.

As of 12:36 p.m. ET, the stock was up 11% on the news.

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Remitly keeps growing

Remitly, which provides a platform for cross-border payments, continued to deliver solid growth. Its active customer base rose 29% to 8 million, driving send volume up 41% to $16.2 billion. As a result, revenue rose 34% to $361.6 million, which was well ahead of the consensus at $347.5 million.

Remitly also reported impressive margin expansion, as adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped 157% to $58.4 million, while net income reached $11.4 million, up from a loss of $21.1 million.

On a per-share basis, the company reported a profit of $0.05 on a generally accepted accounting principles (GAAP) basis.

CEO Matt Oppenheimer said: "We delivered an outstanding start to the year, significantly exceeding our expectations for the first quarter. This performance was driven by the deep and growing trust our customers place in us to deliver a fast, reliable, and secure experience."

What's next for Remitly?

Looking ahead, Remitly issued strong guidance, calling for revenue growth of 25%-26% to $1.574 billion-$1.587 billion, up from a previous range of $1.565 billion-$1.58 billion. It also said it would have positive net income on a GAAP basis, and sees adjusted EBITDA of $195 million-$200 million, up from an earlier range of $180 million-$200 million.

Remitly continues to grab market share from legacy operators like Western Union and MoneyGram, and the future looks bright. The GAAP profitability is also a promising sign for a stock that has a lot of upsides, with its market cap at less than $5 billion currently.

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Investors came in to Upstart's (NASDAQ: UPST) first-quarter earnings report hoping the company would maintain its momentum from the end of last year.

Its growth has accelerated thanks to a new artificial intelligence (AI) model, Model 18 or M18, that has significantly improved its conversion rate thanks to an even broader prediction set that includes approximately 1 million predictions per applicant, or six times its prior model.

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With those tailwinds behind it, Upstart's results in Q1 did not disappoint. Revenue jumped 67% to $213.4 million, which topped estimates at $201.3 million. Those results included 34% growth in revenue from fees to $185.5 million, and Upstart benefited from a decline in fair value adjustments on its loans, indicating better credit performance.

Underlying growth in its business was especially impressive as loan originations rose 102% to 240,706 loans, and total originations jumped 89% to more than $2.1 billion. The conversion rate continued to improve, rising from 14% to 19.1%, all signs that adoption is growing rapidly.

Its metrics on the bottom line also improved. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) improved from a loss of $20.3 million to a profit of $42.6 million. It nearly reported a generally accepted accounting principles (GAAP) profit, finishing the quarter with a loss of $2.4 million, up from a loss of $64.6 million in the quarter a year ago.

It reported an adjusted per-share profit of $0.30, ahead of the consensus at $0.17, and up from an adjusted per-share loss of $0.31 in the quarter a year ago.

Why was Upstart down?

Despite the strong Q1 earnings report, Upstart essentially reiterated its full-year guidance untouched as it guided to revenue of $225 million for Q2, below the consensus at $226.3 million.

Wall Street tends to see a beat without a raise as a sign that the current momentum won't last, and investors sometimes punish growth stocks for that pattern. As a result, the stock was down 16% in after-hours trading on Tuesday.

While management did acknowledge the uncertainty in the economy, there wasn't anything in the guidance to indicate weakness. Meanwhile, a number of indicators in the business showed it continuing to strengthen.

Upstart is moving in the right direction

Upstart has diversified its business away from unsecured consumer loans in recent years as auto loans grew by five times to $61 million in the quarter and up 42% from Q4. Home loan origination jumped six times to $41 million, and management noted on the earnings call that its lending partners greatly prefer secured loans to unsecured loans, which bodes well for continued growth in the business.

Prior to the earnings release, the company announced a one-year strategic partnership with OnePay, a fintech majority owned by Walmart. Upstart said the partnership would help it market lending product to Walmart's customer base, a massive opportunity for the company. It also plans to offer co-branded products without OnePay, though it said it didn't expect the partnership to have a material impact on financial results this year.

Additionally, Upstart announced a forward-flow commitment from Fortress Investment Group, which agreed to purchase up to $1.2 billion in loans originated on Upstart, which will further diversify the company's base of lending partners and help ensure adequate funding for its loans.

Why Upstart's a buy

If the after-hours sell-off holds, Upstart now trades at a forward price-to-earnings (P/E) ratio of just 31 based on adjusted earnings, and that number is likely to fall as analysts up their forecasts following the strong quarter.

Meanwhile, Upstart's revenue growth and the tailwinds in the large auto and home loan markets show it still has a significant growth runway in front of it.

Upstart's own proprietary data even shows the macroenvironment improving modestly, and the business is less at risk of turmoil in the credit market than it was in 2022 when interest rates surged, freezing borrower demand. With interest rates already high and Upstart's business now resilient, the company seems to be in good shape no matter what happens on the macrofront.

A recession could even be a positive for the company as it could lower interest rates.

Overall, Upstart's business is getting stronger, its technology is improving, and the valuation looks attractive. The company also has scheduled an "AI day" when it will present technology updates and discuss its business model and strategy.

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

Before you buy stock in Upstart, 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 Upstart 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.

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Jeremy Bowman has positions in Upstart. The Motley Fool has positions in and recommends Upstart and Walmart. The Motley Fool has a disclosure policy.