In this podcast, Motley Fool host Anand Chokkavelu and contributors Jason Hall and Matt Frankel discuss:

• AI stocks in the data center space (including CoreWeave).
• Winners and losers in energy and solar from Trump's "big, beautiful bill."
• Ranking the intellectual property of Warner Bros. Discovery, Comcast, Disney, and Netflix.
• Prime Day and other made-up holidays.
• Stocks to watch.

And Dave Schaeffer, founder and CEO of Cogent Communications, talks with Motley Fool analysts Asit Sharma and Sanmeet Deo about how Cogent's deals with customers like Netflix and Meta Platforms work and what keeps him awake at night.

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A full transcript is below.

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This podcast was recorded on July 11, 2025.

Anand Chokkavelu: Yes, we're talking all kinds of stocks. This week's Motley Fool Money Radio Show starts now. It's the Motley Fool Money Radio Show. I'm Anand Chokkavelu. Joining me are two of my favorite fools, Jason Hall and Matt Frankel. Today, we'll talk about stock market winners and losers from the Big Beautiful Bill. We'll pit Superman versus the Hulk, and we'll of course debate stocks on our radar. But first, we'll discuss whether there's an AI opportunity in investing in data centers. Upstart data center company, CoreWeave, again made news this week this time for announcing the purchase of Core Scientific for $9 billion. This allows it to add infrastructure to consolidate vertically as it seeks to gain market share among AI and high performance computing customers. CoreWeave is just the tip of the data center iceberg. Matt, what categories of data center opportunities are out there?

Matt Frankel: First, you have hyper scalers. These are companies like AWS, Microsoft, Desha. They are companies that operate the large scale data centers. They offer computing and storage infrastructures to customers. As Anand put it, there's CoreWeave, which is one of the least understood recent IPOs that I know. [laughs] They rent out GPU data center infrastructures to customers. It's not always practical for companies to invest in all of NVIDIA's latest chips on their own, for example. That's really what they do. There's the REITs still, Digital Realty and Equinix are the two big ones. They own the data centers. CoreWeave is actually a big Digital Realty tenant. Then there's power generation. I know Jason's going to talk about this a little bit later in the show, but data centers consume a lot of power, and it's growing at an exponential pace. These chips that NVIDIA produces, they are power drains. Nuclear, especially, could be a big part of the solution, but solar and other renewables are also in there.

Jason Hall: We're definitely in the land grab phase of the infrastructure buildout for accelerated computing. I think accelerated computing is maybe a better description than just AI. We talk about the Cloud REIT large. As we see more of the companies involved start to monetize things like AI agents at scale. I think that's where these investments are going to pay off.

Anand Chokkavelu: Big question. Do any of these categories interest you all for investing?

Matt Frankel: Well, I'm well known as being the real estate guy at the Motley Fool, so it shouldn't be a big surprise, but Digital Realty is my second largest and my second longest running REIT investment in my portfolio. I'm an Amazon shareholder, and I know that's not their only business, but AWS is the primary reason I own it. I don't own CoreWeave yet, and I think the stock is a little bit pricey, to say the least. But the more I read about it, the more I'm intrigued by the company. As I mentioned, they're a big tenant of Digital Realty, so I have some exposure already.

Jason Hall: The things about CoreWeave that concern me is the stock is definitely expensive. But if the opportunity is even close to as large as we think, it could still work out, but they're going to need a lot of money to pay for what they're trying to do and depending on how much of that is from raising debt versus secondary offerings of shares, there's still a lot of questions there. But, Anand, you've given me a chance to talk about Brookfield here. [laughs] How do I not take that opportunity? But I do think that there's a couple of Brookfield entities that are positioned really well here. I want to talk about the providing the energy part of it. Brookfield Renewable is really in the driver seat here as a global provider of renewable energy on multi decade contracts. It is not just accelerated computing, it's the energy transition REIT large. We've already seen it strike big deals with Microsoft and others to provide renewable power on those multi decade contracts. The dividend is really attractive, too. BEP, that's the partnership, yields over 5%. The corporate shares BEPC, it yields about 4.5%. Since mid 2020, that's when Brookfield Renewable rolled the corporation part out and restructured its dividend. The payouts been increased almost 30%. There's a lot to like here. Beyond the yield, I think it's primed to be a total return dynamo over the next decade. If you don't want to own a company that's in the energy part, you want to own the infrastructure, just take a look at sister company Brookfield Infrastructure. The tickers there are BIP and BIPC.

Anand Chokkavelu: Of course, these aren't the only AI stocks out there. Hi, NVIDIA. Do any other areas of AI interest you guys?

Matt Frankel: I love that. You can't talk about AI and data centers without talking about the chipmakers. NVIDIA just hit $4 trillion today as the day we're recording this. NVIDIA is an amazing business, and it has more room to grow than people think just in the data center accelerator space, which is why they're getting so much attention for good reason. The market size is expected to roughly double over the next five years. That's not even to mention the opportunities they have in chips for autonomous vehicles, chips for gaming and more but I prefer AMD, which is often referred to as NVIDIA junior, but I don't think it should be. It's an incredibly well run company that's been a mistake to bet against in the past. As Intel found out the hard way, just having a dominant market share in an area of chip making is not always enough.

Jason Hall: An area of the market that I think could do really well some of the legacy enterprise software giants. I think there may be underappreciated winners from AI. I'll use Salesforce, ticker CRM as an example. It's really starting to get traction with things like it's data cloud and with AI agents. It's starting to sell. We're seeing really rapid uptake of those things and monetization. It has a benefit, an advantage over a lot of these AI start-ups that are just pure AI businesses. It's already a trusted integrated partner with hundreds of thousands of enterprises. It knows their business, it knows their challenges, regulations, opportunities and that credibility, I think, is an edge that we don't give enough credit to. We shouldn't underestimate switching costs, I guess, is what I'm really getting at. You look at Salesforce rates for about 21 times free cash flow and less than seven times sales. That's a really good opportunity. I think it equates to double digit returns if it can just grow revenue around 8-12% a year over the long term, which I think it can.

Anand Chokkavelu: We started to talk a bit about energy and the need for it with all this AI. Let's talk about the energy industry implications of the Big Beautiful Bill, which was signed into law last week. Jason, can you give us the summary of the energy portions?

Jason Hall: Summarizing anything's hard for me, but I'll try. I think the short version is the incentives for renewables, they're getting gutted, really. There's a 30% investment tax credit or ITC for short. The residential solar and battery systems portion of that had been in place to run through 2032 before gradually declining for a few years after that. That now expires. The systems have to be fully installed and commissioned by the end of this year. The commercial ITC for solar and wind projects was on a similar track, but now it expires at the end of 2027, but those projects must begin construction by July 4th of 2026 to qualify for that 30% tax credit. It also terminates the tax credit for new and used EVs, $7,500 for a new EV and up to 4,000 for a used EV. The purchase has to happen before September 30th of this year, so a couple of months. Lastly, it ends the US regulatory credits around vehicle emissions that automakers buy largely from Tesla. This is a significant and profitable revenue stream for EV makers that essentially is going away.

Matt Frankel: Jason, when you say renewables are being gutted, you're essentially referring to solar and wind, if I'm not mistaken. It's not gutting anything for nuclear power, correct?

Jason Hall: That's correct. These things you get are the pure renewables as we think of them.

Anand Chokkavelu: Let's put a fine point on this with specifics. Who are the relative winners and losers, Jason?

Jason Hall: This could be an hour long show, but I'll try to summarize it here. Thinking about the companies that are most directly affected, I think Canadian Solar, which is a large manufacturer of solar panels and energy storage, and they really largely target the utility market, but also residential is definitely a loser here. In the near term Sunrun, its business model is tied to these tax credits as an installer and to some degree, First Solar is also going to be affected. I don't think there's really any winners out of this when it comes to solar. But I think Enphase is probably still in a better position in the market may believe. Maybe First Solar as well. It's been through these battles before, and it has been a winner over the long term. If you look at wind, GE Vernova has been on a huge run. I love that business, but I don't love the stock right now. Tesla, I think maybe one of the bigger losers that investors haven't really considered. Last fiscal year, it earned 2.76 billion in revenue from regulatory credits. That's largely pure profit. Then there's also the loss of those EV tax credits for buyers. That might be offset from some incentives for US made autos that are part of the bill now that were part of the law, but I think this puts Tesla in a tougher spot. The tailwinds are not favorable for fossil fuels before this. This doesn't really change any of that. There's opportunities there, but not because of the law.

Matt Frankel: The reason I asked about nuclear a minute ago is because that's really what I see as the big winner here. I like some of the nuclear focused utility providers. Constellation Energy is one that comes to mind. One of their stated goals is to have the largest carbon free nuclear power fleet in the US by 2040. Jacob Solutions, they provide consulting and design services to the industry. Ticker symbol is J, so it's really easy to remember. They recently had some really big nuclear contract wins. I'm going to push back on Jason's Tesla as a big loser. One, they're American made cars. They qualify for that new auto loan interest deduction, so that could help offset what they're losing from the EV tax credits. They have a big energy storage business, and AI has not only giant power demands, but very variable power demands, and it's going to create a lot of need for large scale energy storage, and Tesla does that. I think they're worth watching.

Jason Hall: That's the one part of Tesla's business that's done extraordinarily well. Over the past few years, as the EV business has weakened, is that the battery business.

Anand Chokkavelu: Now quickly the big question, is solar still investable, Jason?

Jason Hall: I think so. We have a very US centric view, obviously, and the US is a massive important market for solar. But you look around the world and the regulatory environment is still largely favorable. I think if you're willing to write out plenty of volatility, that global opportunity is still really good. Businesses like Enphase, businesses like First Solar that have been through these battles before, and even a Canadian Solar, where it has a ton of projects that it's been funding to build on its books that the math just got changed for them in some big ways. The valuation is so cheap that I think that there's some opportunity there.

Matt Frankel: Taking a step back, the reason you have incentives for solar energy, for EVs, for all this, is because without them, they're not price competitive with the existing technologies. The gap has narrowed significantly, especially in solar over the past say 10 years as to the efficiency of the products themselves and just how much they cost. Eventually, solar is going to be able to stand on its own without incentives. But like Jason said, you have to be able to write out some volatility because that could be five years, that could be 10 years, that could be 20 years so eventually, it won't matter.

Anand Chokkavelu: After the break, we'll move from solar to something else that gets its power from the yellow sun. Stay right here. This is Motley Fool Money.

Welcome back to Motley Fool Money. I'm Anand Chokkavelu, here with Jason Hall and Matt Frankel. One of our Brothers Discovery's much anticipated latest reboot of Superman hits theaters on Friday. Hoping the Justice League can one day catch Disney's Marvel cinematic universe and hot on the heels of last week's Jurassic World Rebirth from Comcast. In honor of Summer movies, we're going to rank those three companies based on the value of their intellectual property. We'll throw in Netflix for good measure. Its headline this week was stating that half of its global audience now watches anime. Chokkavelu household certainly does with one piece. My kids have gotten me into it. For those unfamiliar, they have more episodes than the Simpsons. Matt, once again, your four choices are Warner Brothers Discovery. That includes the DC Universe, Superman, Wonder Woman, Green Lantern, Harry Potter, the Matrix, Looney Tunes, all our favorite HBO shows. You got Comcast with Shrek, Minions, Kung Fu Panda. You got Disney with Marvel, Star Wars, Pixar and Mickey Mouse. Finally, you got Netflix with things like Stranger Things, Bridgerton, Squid Game, newer Adam Sandler movies, and tons of niche content. Mentioned anime, you could argue whether that's niche content or not at this point. Whose intellectual property do you most value, Matt?

Matt Frankel: See, I said Disney. All four of these have excellent intellectual property, and I'll give you a more elaborate description there. In my household, you mentioned your household, how you have all these streaming things. We have a streaming service from all four of these. We have the Peacock service, which is a comcast product. We have HBO Max, which is a Warner Brothers discovery product. We have Disney Plus, and we have Netflix. Disney Plus also has Hulu attached to it. I ask myself, which is the least dispensable? I could cancel all the other ones before I'd be allowed to cancel Disney Plus for the other members of my household. Their film franchises are beyond compare. They have a much longer history of building intellectual property than all of these, especially in terms of valuables. Mickey Mouse is so old, it's not even intellectual property anymore. It's over 100-years-old, so I think it's actually in the public domain now. I have to say Disney, although it's a lot closer than I would have thought a few years ago.

Jason Hall: Yeah, if you had have asked me a few years ago, I absolutely would have said Disney, but I'm going to give the advantage to Netflix here. Let me contextualize that. I think the total value of Disney's IP is probably higher, but Netflix's ability to monetize it more effectively all over the world, I think, is even better than Disney's. I don't think any of these businesses in their studios have done a better job of making content that's relevant in more markets around the world than Netflix does. Let's be honest, I was able to watch Happy Gilmore with my eight year old son this weekend and I watched that on Netflix, that's bridging generations right there.

Anand Chokkavelu: Three things. One, Chokkavelu household is very excited for Happy Gilmore, too. Even my wife is in on it. Two, the Steamboat Willie era, Mickey Mouse is free to the world. The other ones aren't. I'm glad I'm not the only one with way too many streaming services, Matt. Let's talk about Last Place. Who are you cutting first, Matt?

Matt Frankel: Well, all those streaming services are still less than I was paying for direct TV a few years ago, so I think I'm doing all right. For me, the last place, it was between Comcast and Warner Brothers Discovery, both of which have amazing intellectual property, just to show you what a tight race this is. Comcast has universal. I was just in Orlando, and the universal theme parks are massive down there. But I have to put Comcast in last place. Just because Warner Brothers, I think the HBO Max acquisition was such a big advantage for them. They have some of the most valuable television assets of all time. More people watch the sopranos now than they did when it was originally on TV. It's a very valuable valuable asset, Game of Thrones. All these HBO shows that are among the highest rated shows of all time are part of their library. In addition to their film studio and all the other assets that we can't name because it's not that long of a show. I'd have to give Comcast last place, although, like I said, there's a good argument to be made for most of these to be in the top one or two.

Jason Hall: Yeah, I think that's fair. I agree with Matt that Comcast is the Number 4 here. But I don't think that's a flaw. It's just the nature of its business. About two thirds of its business comes from its cable subscriptions and high speed Internet. It's built differently than these other companies. I think it's fine that it's a little bit smaller.

Anand Chokkavelu: I will say, just to defend Comcast a little. I was thinking about my parents live in Florida, and it's high time we bring my two boys to Disney World or something like that. Honestly, the Universal theme park, the new one with Nintendo, Mario and the Harry Potter realm, it's close. We might we might prefer that one, but just to give a little love to Comcast and Universal. Jason Hall and Matt Frankel, we'll see you a little bit later in the show, but up next, we'll talk to the founder of one of the top five networks in the world, so stick around. This is Motley Fool Money. [MUSIC].

Welcome back to Motley Fool Money. I'm Anand Chokkavelu. Dave Schaeffer is the founder and CEO of Internet Service Provider Cogent Communications. Believe it or not, Cogent's the seventh successful company Dave Schaeffer has founded. Shaffer joined Fool analysts Asit Sharma and Sanmeet Deo to discuss how it deals with customers like Netflix and Meta platforms work and what keeps him up at night.

Asit Sharma: Well, hello, fools. I am Asit Sharma and I'm joined by fellow analyst Sanmeet Deo today, and our guest is Dave Schaeffer. Dave is CEO of Cogent Communications. He's also the founder of this company founded in 1999. Dave has grown Cogent Communications into a global tier one Internet service provider. It's ranked as one of the top five networks in the world. Dave is also a serial entrepreneur. He's founded six successful businesses prior to Cogent, and foolishly, he's also one of the longest serving founder CEOs in the public markets. We're delighted to have him with us today. Dave Schaeffer, welcome.

Dave Schaeffer: Hey, well, thanks for that great introduction.

Asit Sharma: To get started, let's jump in. Dave, for our members who might be unfamiliar with the ISP or Internet service provider industry, can you just explain what Cogent does and how it makes money?

Dave Schaeffer: Yeah, sure. Cogent provides Internet access to customers and to other service providers. I think virtually everyone uses the Internet, but rarely understands how it operates. Cogent has a network of approximately 99,000 route miles of intercity fiber that circumnavigates the globe and serves six continents. We then have an additional 34,000 route miles of fiber in 292 markets in 57 countries around the world. That network is solely built for the purpose of delivering Internet connectivity. When a customer buys Internet access, what they are really buying are interfaced routed bit miles connected to other networks. If you tried to sell a customer that they would have no idea what you're talking about. The average bit on the public Internet travels about 2,800 miles. It goes through eight and a half unique routers and 2.4 networks between origin and destination. Coaching carries approximately 25% of the world's Internet traffic on its network and has more other networks connected directly to it than any other network.

Asit Sharma: Yours is a primary network. Oftentimes, we hear of middlemen carriers in between ourselves sending that bit. Let's say I'm chatting with Sanmeet over Slack, sending him some bits as we have been exchanging through the day and him receiving that. But you are, I think we can think of Cogent as being the primary fiber that is the backbone of this information communication network, is that correct?

Dave Schaeffer: That is correct. We operate two very different customer segments, roughly 95% of our traffic, but only 37% of our revenue comes from selling to other service providers. We provide Internet connectivity to 8,200 access networks around the world and about 7,000 content generating businesses. Whether it be Bell Canada, British Telecom, China Telecom, Comcast or Cox. They could be customers of Cogent on the access side, where they aggregate literally billions of end users. Then on the other side, we sell connectivity to large content generating companies like Google, Amazon, Microsoft, and Meta, where they use us as their Internet provider. The second portion of Cogent's business is selling directly to end users. That represents about 63% of our revenues, but only approximately 5% of our total traffic. Cogent is an ISP, primarily in North America, where we connect to a billion square feet of office space, where we sell directly to end users. Then globally, we sell to multinational companies, oftentimes using last mile connections from third parties.

Asit Sharma: I always like to understand how exactly the companies I'm looking at make money. For example, for Netflix or Meta, or you pick a content provider, whoever it might be, when they work with you, explain that to me how they buy? Do they buy bandwidth in a package? Do they have a contract? How does that work? When they look to you to say, hey, we want to buy some bandwidth?

Dave Schaeffer: Yeah, so typically, we will provide them connections in multiple markets around the world. They will then have a minimum commitment level, and then above that, they pay on a metered basis. The way in which we bill is megabits per second at peak load over the course of the month. We bill at the 95th percentile, which means if you have a very spiky event that lasts less than 18 hours in a month, you don't pay for that incremental bandwidth but everything below that peak utilization, you pay a bill on a per megabit basis.

Dave Schaeffer: That is the way in which any service provider, whether it be an access network like Telkom South Africa, or a cable company like Rogers in Canada would buy from us. But for our corporate customers, the billing model is very different. For corporate customers, they typically buy in end user locations, not in data centers, and they are paying us a flat monthly fee for a fixed connection that is unmetered. I think of it as an all you can eat model.

Sanmeet Deo: There is a monthly recurring revenue that you get. It's just that with your network or your content customers, it could vary based on their usage. They could dial it up, dial it down, based on, like, this week, actually, they're dropping Squid Game, so they can anticipate they're going to need a lot of bandwidth versus maybe next month, their content late is a little lower, so they won't use up as much versus the corporate customers are paying more of a recurring, not based on volume. Is that accurate?

Dave Schaeffer: Is correct, Sanmeet. Virtually all of our revenue is predictable, even for those variable usage customers, there is oftentimes a very consistent pattern to their usage, and their bills do not vary by more than a couple percent month over month.

Sanmeet Deo: Dave, let's go on to looking at a review of recent performance. 2024 was a great year for Cogent. It crossed $1 billion in annual revenue. Can you just walk us through the highlights of your key business segments, wholesale, enterprise, net-centric? What drove the performance? Also did anything about the year surprise you as you went through it?

Dave Schaeffer: Two things. First of all our Internet based business represents 88% of our revenues across all three segments. We do derive about 12% of revenues from selling some adjacent services. Those being co location in our data center footprint. Optical transport or wavelength services and the leasing out of IPV4 addresses. We did generate about $1 billion in revenue in 2024 and 2024 was a year of significant transition for Cogent. Cogent had organically grown between 2005 and 2020 as a public company with no M&A at a compounded growth rate of 10.2% per year average over that period. We also were able to experience significant margin expansion during that period, where our EBITDA margins expanded at roughly 220 basis points per year over that same 15 year measurement period. When COVID hit, our corporate segment slowed materially because people were not going to offices, and as a result, Cogent's total growth rate had decreased to about 5% and our rate of margin expansion slowed to about 100 basis points. In May of '23, we acquired the former Sprint Long Distance Network, a Sprint Global Markets Group business from T-Mobile. That business was actually in decline and burning cash. In 2024, we significantly reduced that cash burn, and we were able to begin to repurpose some of the flow Sprint assets. In order to facilitate this transaction, T-Mobile paid us in cash over a 54 month period beginning in May of '23, $700 million. In 2024, a significant milestone for Cogent was our ability to take out much of that burn from that business and to actually accelerate the decline in that acquired business, as many of the products that were being sold or gross margin negative services.

Anand Chokkavelu: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against. Don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. See our full advertising disclosure. Please check out our show notes. Up next, we've got stocks on our radar. Stay right here. You're listening to Motley Fool Money.

I'm Anand Chokkavelu, joined again by Jason Hall and Matt Frankel. This week's been Prime Day week invented out of thin air in 2015 to boost sales. It's almost literally become Christmas in July for Amazon, and to a lesser extent, all the imitating retailers. Got me wondering. Is this the greatest feat of something from nothing marketing we've seen? If not, what's competing with it, Jason?

Jason Hall: I think it's not even something from nothing. I think they stole this idea. Christmas in July has been around literally since the 1900. I think they're getting maybe a little bit too much credit for just being a really big retailer, smart enough to say, hey, we're doing a sale when there was nothing else going on, and people were like, oh, it's a big sale. Well, people kept coming, so it just gets bigger every single year.

Matt Frankel: Before e-commerce, Jason's right, remember the Sunday paper that had all the flyers from all the stores. They'd have their semi annual sales. The President's Day weekend sales were the ones I remember that were the biggest deals ever that really were just meant to invigorate sales in a historically slow time of year. But really, this concept has been applied over and over. Think of how many tourist destinations create random festivals in the worst months to go, like, weather wise. I used to live in Key West, Florida, and the biggest party of the year is called Fantasy Fest. It was created to invigorate tourism during hurricane season. It's a concept that's worked over and over, and this is a big one.

Anand Chokkavelu: Dan.

Dan Boyd: I just wanted to jump in here and mention Father's Day and Mother's Day. Surprised that you guys didn't mention those. We're all fathers here on the podcast, so I know that we enjoy Father's Day, but, like, come on. They're nothing. They were just created to sell stuff.

Anand Chokkavelu: You're not going to mention Valentine's Day, Mr. Grinch.

Dan Boyd: Valentine's Day has somewhat historical significance with all the St. Valentine's stuff. I didn't want to go too far into it in my grumpiness Anand, but I guess we can throw that one on the fire.

Anand Chokkavelu: Speaking of Singles Day in China. The Alibaba took that cemented in the '90s. I think less commercy, but then it became more commercy. Two other things, Sears' catalog. Let's not forget. A lot of times Sears really is the Amazon before Amazon we forget about it because we see it at its late phases. It wasn't the first catalog, Tiffany, Montgomery Ward, they beat it to the punch. But when it was going, it was called the Consumer Bible. Then on a smaller scale, I'll give one more. Just shout out to Spotify rapped. They do a wonderful job inventing a thing to get us more engaged. Let's get to the stocks on our radar. Our man behind the glass, who we just recently, Dan Boyd, is going to hit you with a question. We're more likely, historically, an amusing comment. Jason, you're up first. What are you looking at this week?

Jason Hall: How about Church and Dwight? Ticker C-H-D. I don't know if we give some of these legacy consumer brands companies enough talk. What's Church and Dwight? You've probably heard of Arm & Hammer baking soda. But they also own a lot of other retail brands. You might be familiar with Orajel, if you've ever had a sore tooth or you have a baby that kind of thing comes up. They own Trojan, which is another brand that people might be familiar with. But here's my personal. Right now, I have a cold. I'm living and functioning off of Zicam. That's a Church and Dwight product that's really getting me through. Over the long term, it's been a great investment. Over the past 10 years, the stocks returned about 10.5% in total returns. That's underperformed the market, but it's better than the market's long term average. I think there might be something there.

Anand Chokkavelu: Dan, a question about Church and Dwight?

Dan Boyd: Not really a question, Anand, but more of a comment. Jason, you forgot to mention OxiClean in the Church and Dwight product catalog here as a parent of a three-year-old and a nine month old laundry is a very important thing on our house, and I don't think we could survive without that OxiClean.

Jason Hall: I will raise your three-year-old and nine month old with an eight and a half year old who plays soccer. My house runs on that stuff. I'm with you there.

Anand Chokkavelu: Matt, what's on your radar?

Matt Frankel: Well, now what's on my radar is the OxiClean that I have in the closet right there. But as far as the stock, I'd have to say SoFi. Ticker symbol S-O-F-I. Fantastic momentum. They've done a great job of creating capital white revenue streams in recent years. The growth is actually accelerating. They recently announced they're bringing crypto back to their platform now that the banks are allowed to do so. That's going to be a big driver. Not only crypto, they're going a step further. They're going to start bringing blockchain facilitated money transfers across border for free. They have lots of big plans. They recently started doing private equity investing for everybody. Guys like you and me can invest in companies like SpaceX and OpenAI that are pre IPO through SoFi's platform through venture funds. There's a lot going on in this business, and it's still a relatively small bank, and they aim to be a Top 10 bank within the next decade.

Anand Chokkavelu: Dan, question about SoFi.

Dan Boyd: Well, absolute F to name. SoFi, just terrible. I feel like smart people like them could have come up with something better, but private equity investing is very interesting, Matt, though a little scared to me without the reporting regulations that public companies have to do.

Matt Frankel: I do think it was a natural thing, though, now that all these companies are waiting longer than ever to go public. SpaceX is a massive business. OpenAI has a, $100 billion plus valuation. There's a lot to like there and a lot of potential.

Anand Chokkavelu: Dan, which company you're putting on your watch list, OxiClean or private equity stuff.

Dan Boyd: I'm going to go with Church and Dwight for some of that beautiful OxiClean.

Anand Chokkavelu: That's all for this week. See you next time.

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. Anand Chokkavelu, CFA has positions in Alphabet, Amazon, First Solar, Microsoft, Netflix, Salesforce, SoFi Technologies, Walt Disney, and Warner Bros. Discovery. Asit Sharma has positions in Amazon, Digital Realty Trust, Microsoft, Nvidia, Salesforce, Upstart, and Walt Disney. Dan Boyd has positions in Amazon and Walt Disney. Jason Hall has positions in Brookfield Asset Management, Brookfield Infrastructure, Brookfield Renewable, Enphase Energy, First Solar, Nvidia, SoFi Technologies, Upstart, and Walt Disney and has the following options: short January 2026 $27 calls on SoFi Technologies, short January 2027 $32.50 puts on Upstart, and short January 2027 $40 puts on Enphase Energy. Matt Frankel has positions in Amazon, Brookfield Asset Management, Digital Realty Trust, SoFi Technologies, Upstart, and Walt Disney and has the following options: short December 2025 $95 calls on Upstart. Sanmeet Deo has positions in Alphabet, Amazon, Netflix, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Brookfield Asset Management, Constellation Energy, Digital Realty Trust, Equinix, First Solar, Meta Platforms, Microsoft, Netflix, Nvidia, Salesforce, Tesla, Upstart, Walt Disney, and Warner Bros. Discovery. The Motley Fool recommends Alibaba Group, Brookfield Renewable, Comcast, Enphase Energy, Ge Vernova, and T-Mobile US 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.

Key Points

• Exchange-traded funds typically hold baskets of stocks, but trade like individual equities.

• The Invesco KBW Premium Yield Equity REIT ETF focuses on real estate investment trusts.

• REITs are required to distribute most of their profits via dividends.

• 10 stocks we like better than Invesco Exchange-Traded Fund Trust II - Invesco Kbw Premium Yield Equity REIT ETF ›

Exchange-traded funds (ETFs) have become quite popular in their three-plus decades of existence. There are now more publicly listed ETFs than there are individual stocks on the New York Stock Exchange. Similar to mutual funds, ETFs usually hold baskets of stocks or other assets, but they trade similarly to stocks. They are highly liquid, and owning them can be a more tax-efficient way to invest than holding mutual funds.

Each ETF is designed around a theme -- and that could be anything from tracking an index to focusing on one industry or type of stock. Many have portfolios that are intended to produce reliable dividends for income investors. But which ETF has the highest yield in 2025?

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This ETF holds stakes in many real estate investment trusts

At this point, investors can find ETFs to suit pretty much any investment strategy. Some track indexes, others are actively managed, and many deploy complex options strategies or leverage up on crypto bets. However, because many of those strategies result in funds that are not appropriate as long-term holdings, I'm excluding ETFs that use complex options strategies or make big crypto bets from my search.

Within the field of choices that remain, the highest-yielding ETF at the moment is the Invesco KBW Premium Yield Equity REIT ETF (NASDAQ: KBWY). It invests solely in real estate investment trusts (REITs) -- companies with special structures that enjoy tax advantages as long as they abide by the required policies. For instance, a REIT must distribute 90% of its taxable income to its shareholders each year through dividends. REITs also must invest at least 75% of their assets in real estate or cash, and receive at least 75% of their total income from real estate revenue, like rent, mortgage interest, real estate loans, or the sale of real estate assets.

Because of that payout requirement, REITs are viewed as strong dividend investments. However, their earnings and yields can fluctuate as the real estate market progresses through economic and interest rate cycles. KBWY's dividends have had their ups and downs, but it has had a strong average yield since launching in 2010. Currently, its yield is over 9.6%.

Data by YCharts.

As of July 7, the ETF's top 10 holdings by weight were:

KBWY ETF Top 10 Holdings	Portfolio Weight
1. Brandywine Realty Trust (NYSE: BDN)	6.27%
2. Innovative Industrial Properties (NYSE: IIPR)	6.20%
3. Community Healthcare Trust (NYSE: CHCT)	5.26%
4. Park Hotels & Resorts (NYSE: PK)	4.51%
5. Global Medical REIT (NYSE: GMRE)	4.43%
6. Global Net Lease (NYSE: GNL)	4.28%
7. Healthcare Realty Trust (NYSE: HR)	4.22%
8. Easterly Government Properties (NYSE: DEA)	3.94%
9. Apple Hospitality REIT (NYSE: APLE)	3.88%
10. RLJ Lodging Trust (NYSE: RLJ)	3.85%

Source: Invesco.

Brandywine Realty Trust focuses on urban and municipal transit-oriented developments. Innovative Industry Properties leases properties to companies in the cannabis sector. Community Healthcare Trust leases properties to hospitals and other healthcare providers, primarily in markets outside of major cities.

Is KBWY a buy?

Few ETFs that don't make use of super-aggressive investment strategies can match KBWY's yield. But in the world of dividends, investors should always take a skeptical approach to an unusually high yield -- sometimes, they're too good to last. And sometimes, they signal that an investment has other problems.

For example, since its inception, KBWY's net asset value (NAV) is only up about 4%. Now, part of that weak result can be attributed to the pandemic, which changed the ways people live and work, likely forever. As a result, many real estate stocks and REITs got hit hard and haven't recovered. That's reflected in KBWY's five-year performance. A lower interest rate environment, which many expect to start to materialize later this year, could help KBWY by lowering REITs' borrowing costs and improving conditions for the businesses that are leasing space.

Lower benchmark interest rates also reduce the amount that investors can earn from low-risk assets, which makes dividend investments more appealing.

However, one thing that worries me about KBWY is its high exposure to the office space and healthcare segments, both of which have been shaky since the pandemic, and which are still very much trying to find their footing.

Although KBWY's yields have been attractive since its inception, the dividend is likely to remain volatile, and it likely won't be this high forever. KBWY will keep churning out passive income for its shareholders, but I think there are more stable options out there that might be more prudent for income-focused investors.

Should you invest $1,000 in Invesco Exchange-Traded Fund Trust II - Invesco Kbw Premium Yield Equity REIT ETF right now?

Before you buy stock in Invesco Exchange-Traded Fund Trust II - Invesco Kbw Premium Yield Equity REIT ETF, consider this:

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Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $671,477!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,010,880!*

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*Stock Advisor returns as of July 7, 2025

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool recommends Easterly Government Properties and Innovative Industrial Properties. The Motley Fool has a disclosure policy.

Key Points

• Johnson & Johnson has delivered excellent returns to its long-term shareholders.

• One key factor behind the company's success is its ability to innovate.

• Despite various challenges, the drugmaker's strong business and dividend program make it attractive.

• 10 stocks we like better than Johnson & Johnson ›

Time is one of investors' greatest allies. With enough patience, even a relatively small sum of money invested in an excellent company can yield substantial returns, especially when dividends are reinvested.

Case in point: Shares of Johnson & Johnson (NYSE: JNJ), one of the world's largest healthcare companies, have increased by 4,720% over the past few decades. The stock may have garnered more headlines due to various legal challenges over the past few years, but it remains an excellent long-term option, especially for income seekers. Here's the rundown.

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JNJ Total Return Level data by YCharts.

The secret to Johnson & Johnson's success

Medical care is always in high demand: So long as we get sick, this is one sector that will never disappear. However, specific companies in the industry can cease to exist. One reason they do is their failure to innovate. Even if healthcare never sleeps, it does evolve, and it's critical for companies aiming to be successful over the long run to keep pace with that evolution. Johnson & Johnson has done that admirably over the years.

Consider its pharmaceutical segment. Last year, the drugmaker had more than 10 medicines that each generated over $1 billion in sales. In 2014, Johnson & Johnson also had more than 10 drugs that were blockbusters. Some of them were the same as last year's, but some weren't -- because the company has developed and marketed newer therapies over the past decade that have replaced older ones.

In a decade, Johnson & Johnson's lineup of approved products will look different yet again. However, one thing won't change: It will still have many drugs that reach the $1 billion annual sales mark. J&J has more than 100 programs in its pipeline. True, many of those are for therapies seeking label expansions. But the company also has some brand-new clinical compounds, at least some of which will make it through the rigorous clinical-trial testing phases and go on to be massively successful.

And we haven't even mentioned Johnson & Johnson's medtech business, where it markets a range of medical devices across several major therapeutic areas. Its operations are well diversified in the healthcare sector. That, combined with the company's innovative qualities, makes it likely to remain a leader in healthcare for a long time.

Johnson & Johnson can overcome its challenges

Johnson & Johnson has encountered some headwinds in recent years. It's facing thousands of lawsuits from plaintiffs who allege that its talc-based products gave them cancer. The company has attempted to resolve these issues through various settlement proposals, but so far, to no avail. These legal battles are worth monitoring, but the stock is attractive despite them.

The company is not at serious risk of bankruptcy. That's why it still has an AAA credit rating, which is even higher than that of the U.S. government. Several judges have shot down its attempts to settle these lawsuits via a bankruptcy maneuver through a subsidiary, partly because of the company's underlying financial strength. While it's hard to know how this saga will end, my view is that Johnson & Johnson will continue performing well long after the dust settles.

Here's another potential challenge Johnson & Johnson faces: Some of its therapies will generate significantly less revenue in the next few years, due to either patent cliffs or Medicare price negotiations in the U.S. Here again, J&J can handle this threat. The company's innovative ability is the best way to overcome this problem.

The healthcare specialist can also count on its medtech unit to pick up some of the slack. One attractive opportunity in this segment is within the robotic-assisted surgery (RAS) niche. Johnson & Johnson is developing its Ottava RAS system, which should grant it plenty of long-term revenue opportunities and help it navigate patent cliffs.

Of course, we can't talk about J&J without mentioning its dividend. The company has increased its payouts for 62 consecutive years, which makes it a Dividend King. This streak highlights, once again, how strong Johnson & Johnson's business is -- most corporations don't even last six decades, let alone pay dividends for that long. The stock is an excellent pick for long-term, income-oriented investors.

Should you invest $1,000 in Johnson & Johnson right now?

Before you buy stock in Johnson & Johnson, 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 Johnson & Johnson 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 $671,477!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,010,880!*

Now, it’s worth noting Stock Advisor’s total average return is 1,047% — 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 July 7, 2025

Prosper Junior Bakiny has positions in Johnson & Johnson. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

Key Points

• The One, Big, Beautiful Bill supported the nuclear industry, not least because it essentially curbed certain forms of renewable energy.

• The company also benefited from a large deal announced by a peer, and the performance of a portfolio business.

June was a fine month to be invested in uranium miner and nuclear energy services specialist Cameco (NYSE: CCJ). Nuclear received a significant boost from the Trump administration's One, Big, Beautiful Bill, which curbed subsidies and other advantages for producers harnessing rival energy sources. Developments elsewhere in the nuclear space also helped lift its stock.

Big and beautiful for the nuclear industry

The saga of Trump's bill didn't end until the president signed it into law in early July. Before that, however, it engendered controversy in several drafts by effectively bringing forward the expiration dates of federal subsidies that supported producers in the renewables segment, mainly solar and wind. Such measures survived, albeit in more limited form, in the final, passed legislation.

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Notably, nuclear energy emerged largely unscathed, as its subsidy regime was mostly unchanged.

While lawmakers were in the early argument (whoops, discussion) and debate stages of the bill, the nuclear energy got a little power surge from a deal engineered between the industry's Constellation Energy and social media giant Meta Platforms, owner of Facebook, Instagram, and WhatsApp.

Under the terms of the arrangement, Constellation will supply Meta's server farms with over 1.1 gigawatts of energy from its Clinton Clean Energy Center nuclear plant in Illinois. The term of the deal, which is to kick in next June, is 20 years.

This should sound familiar to nuclear energy watchers and Constellation investors, as it has some of the dimensions of the deal struck between Constellation and another tech titan, Microsoft. The pair signed a contract for the former to provide the latter with power from the once-notorious Three Mile Island nuclear plant in Pennsylvania.

Cameco was not directly involved in the Constellation/Meta agreement, but of course, as with that monster piece of legislation, any win for one nuclear company represents a victory for the sector as a whole -- at least as far as Mr. Market was concerned.

A good direct investment

One development that did directly affect Cameco was early June's news about a company it partially owns, privately held nuclear power company Westinghouse Electric. Cameco said it expects an increase of roughly $170 million in additional non-GAAP adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) for both Westinghouse's second quarter and the full year 2025.

Cameco, which holds a 49% stake in Westinghouse, anticipates that the higher EBITDA will "be taken into consideration" when the latter determines the 2025 distribution it'll pay the former.

So in short, Cameco is benefiting from top-down legislative developments, the rising popularity of nuclear power, and the operations of an important investment. It's no wonder investors were so energized by its stock last month.

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

Before you buy stock in Cameco, 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 Cameco 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!*

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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. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Constellation Energy, Meta Platforms, and Microsoft. The Motley Fool recommends Cameco 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.

Cameco (NYSE: CCJ) has gone through some very trying times in the past, largely due to its reliance on the price of a commodity when it comes to revenue and earnings. But the uranium that Cameco mines could be in for a big step change in price. Here are three reasons to buy this nuclear power industry supplier like there's no tomorrow.

1. Cameco is a picks-and-shovels nuclear play

Cameco mines for uranium, which is the primary fuel for nuclear power plants. It is also a minority owner in Westinghouse, a service provider to the nuclear power industry. Basically, it is a way to invest in nuclear power without having to buy it directly. If demand for nuclear power grows, Cameco should benefit right along with that growth.

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There is a risk here, however, because nuclear power has a history of large and very public disasters. Nuclear meltdowns, perhaps not shockingly, have led to a pullback in demand for nuclear power.

Right now, however, nuclear power is experiencing a bit of a renaissance. Notably, it doesn't produce greenhouse gasses, making it a clean energy source. And since nuclear power provides always-on (or base load) electricity, it can be paired with intermittent power sources like solar and wind to create a more reliable power grid.

All in all, Cameco's role in supporting nuclear power plants with fuel and services makes it a great way to play the nuclear power renaissance that is taking place today. And that's buttressed by the fact that its operations are largely in developed and politically stable markets, which customers appreciate just as much as investors should.

2. Demand for energy is growing

But the shift toward clean energy isn't the whole story. Demand for electricity is set to see a step change over the next 20 years or so. Between 2000 and 2020, U.S. electricity demand increased by a total of 9%. Between 2020 and 2040, demand is expected to grow by 55%. There are multiple drivers of that surge, notably including artificial intelligence (AI), data centers, and electric vehicles (EVs). Electricity use is expected to increase from 21% of final energy use to 32% by 2050.

Meanwhile, there are new nuclear plant designs and options coming to market that should make nuclear power more attractive. Safety is likely to improve, costs are likely to drop, and speed to market is likely to increase. All these factors will help to make nuclear a key part of the electric transition that is happening, which will likely mean more demand for uranium to fuel nuclear power plants.

3. Supply doesn't look like it will meet demand

So, Cameco supplies an industry that appears to be seeing increased demand. Those are two good reasons to buy the stock. But there's one more reason to consider: the difference between supply and demand. Starting in 2030, Cameco expects demand to start outstripping supply, leading to a supply gap.

That will likely result in more investment in uranium mining, of course. But the gap grows rapidly due to the lull in mine development that happened following the Fukushima nuclear plant meltdown in 2011. Building mines is time consuming, expensive, and difficult, so it seems unlikely that the supply gap will have an easy solution. And that means uranium prices are likely to remain strong, if not rise, over time as demand for the nuclear fuel grows.

A lot of reasons to like Cameco, but there's one big risk to keep in mind

There are multiple reasons to like Cameco as an investment. But it is really appropriate only for more aggressive investors. That's because of the significant risk hinted at above: nuclear meltdowns. If there's another event of this nature, the view of nuclear power could quickly sour and send uranium prices -- and Cameco's stock -- crashing. If you can't stomach that risk, then the three reasons to buy Cameco outlined above probably won't be enough to entice you to buy this stock today, tomorrow, or any day.

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

Before you buy stock in Cameco, 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 Cameco 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 $713,547!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $966,931!*

Now, it’s worth noting Stock Advisor’s total average return is 1,062% — a market-crushing outperformance compared to 177% 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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*Stock Advisor returns as of June 23, 2025

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Cameco. The Motley Fool has a disclosure policy.

When companies deploy artificial intelligence (AI) to streamline operations, the results can be staggering. Microsoft (NASDAQ: MSFT) is using AI-powered code-completion tools to help developers write code 55% faster. Johnson & Johnson (NYSE: JNJ) is leveraging AI to accelerate drug-discovery timelines. IBM (NYSE: IBM) reported over $1 billion in generative AI revenue in a single quarter. These efficiency gains translate directly to the bottom line, creating sustainable cost savings that can flow to shareholders through dividends and buybacks.

Consider what happens when a company with $100 billion in revenue uses AI to improve efficiency by just 5%. That's $5 billion in cost savings flowing straight to the bottom line -- money that can fund dividend increases, share buybacks, and further AI investments. This virtuous cycle of AI deployment leading to margin expansion leading to shareholder rewards is already playing out across multiple industries. The five companies below have figured out how to turn AI from a buzzword into a profit-generating machine that benefits patient dividend investors.

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Microsoft leads from the front

Microsoft offers a modest 0.68% yield today, but don't let that fool you. With a rock-solid 24.4% payout ratio, the company has massive room to grow its dividend as AI supercharges its business. Microsoft isn't just selling AI through Azure and its OpenAI partnership -- it's using AI internally to optimize everything from coding to customer service. When a company generating $245 billion in annual revenue finds ways to boost efficiency by even 10%, that's $24.5 billion in potential savings flowing straight to the bottom line.

IBM's transformation pays off

IBM yields 2.38% and has raised its dividend for 30 consecutive years, though its 114.2% payout ratio demands attention. The company's aggressive pivot to AI and hybrid cloud is already bearing fruit, with generative AI revenue jumping over $1 billion in the third quarter of 2024 alone. While the high payout ratio suggests IBM is stretching to maintain its long dividend growth streak, the AI-driven revenue growth could quickly bring that ratio back to sustainable levels. Watson's evolution from a game show novelty to an enterprise AI powerhouse shows IBM still has innovation in its DNA.

Powering the AI revolution

ExxonMobil (NYSE: XOM) might seem like an odd AI play, but here's what everyone's missing: Every ChatGPT query, every AI model training session, every autonomous vehicle mile requires massive amounts of energy. Data centers are projected to consume 9% of U.S. electricity by 2030, and natural gas will power much of that demand. With a healthy 3.2% yield and a sustainable 51.4% payout ratio, Exxon is perfectly positioned to profit from AI's insatiable energy appetite while paying shareholders along the way.

A prescription for AI

Johnson & Johnson combines a juicy 3.47% yield with 63 years of consecutive dividend increases -- the definition of reliability. But this dividend titan isn't resting on its laurels. The company is deploying AI across drug discovery, clinical trials, and manufacturing, potentially shaving years off development timelines and billions off costs. With a 55.2% payout ratio, J&J has plenty of room to keep those dividend increases coming as AI-driven efficiencies boost profitability.

A hidden dividend story

Apple (NASDAQ: AAPL) sports the group's lowest yield at 0.52% but also the lowest payout ratio at just 15.6% -- meaning massive dividend growth potential. While everyone focuses on iPhone sales, Apple is quietly embedding AI into every corner of its ecosystem.

From on-device AI processing that protects privacy to machine learning that powers health features, Apple is building an AI moat that will drive customer loyalty and pricing power for years. That translates to growing cash flows and bigger dividend checks.

The efficiency dividend

These five stocks prove you don't need to gamble on speculative AI plays to profit from the AI revolution. By focusing on established companies using AI to drive efficiency and growth, you get the best of both worlds: steady dividend income today and accelerating earnings growth tomorrow. Microsoft and Apple offer lower yields but massive growth potential. IBM provides higher current income as its transformation gains steam. Exxon captures the infrastructure angle. And J&J brings healthcare innovation to the mix.

These five dividend payers are quietly compounding wealth through a combination of yield, dividend growth, and share-price appreciation. The combination of current income, margin-expansion potential, and reasonable valuations makes these stocks compelling holdings for any dividend-focused portfolio in the era of AI-powered efficiency gains.

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

Before you buy stock in Microsoft, 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 Microsoft 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 $664,089!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $881,731!*

Now, it’s worth noting Stock Advisor’s total average return is 994% — 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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George Budwell has positions in Apple and Microsoft. The Motley Fool has positions in and recommends Apple, International Business Machines, and Microsoft. The Motley Fool recommends Johnson & Johnson 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.

Shares in uranium fuel and nuclear energy services company Cameco (NYSE: CCJ) were up 11.7% by 11 a.m. ET today. The move comes as the market digests the news that Westinghouse Electric's adjusted earnings before interest, taxation, depreciation, and amortization (EBITDA) will be higher than previously expected in 2025.

That matters to Cameco investors because their company owns 49% of Westinghouse, with the rest owned by Brookfield Renewable Partners (NYSE: BEP), which also rose sharply today. Cameco expects its share of the increase in adjusted EBITDA expectations to be $170 million. "This expected increase will be taken into consideration in determining the 2025 distribution payable by Westinghouse to Cameco," according to the press release.

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The increase is related to two nuclear reactors at a power plant in Central Europe. The good news doesn't stop there, because Cameco expects Westinghouse to also benefit from providing fuel services to the plant.

A brighter outlook

The $170 million figure is notable for a company that reported approximately $1.1 billion in adjusted EBITDA for 2024.

It's also important because it further confirms the improving momentum behind investment in nuclear energy as a solution to the challenge of obtaining a reliable source of energy while meeting net-zero emissions targets. As Cameco notes, Westinghouse's expected EBITDA growth over the next five years is 6%-10%. Meanwhile, Cameco's core uranium fuel and nuclear power products and services businesses are set to grow sales at a similar rate.

All of this adds up to an exciting growth outlook for an industry that was written off far too easily in the past.

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

Before you buy stock in Cameco, 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 Cameco 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.

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*Stock Advisor returns as of June 9, 2025

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Renewable Partners and Cameco. The Motley Fool has a disclosure policy.

BJ's Wholesale Club (NYSE:BJ) reported its fiscal 2025 first-quarter results on May 22, with net sales up 4.7% to $5 billion, comparable sales (excluding gas) up 3.9%, and adjusted earnings per share (EPS) of $1.14. Operating income increased 27% and net income rose 35% year over year.

Premium Membership Expansion Reaches Historic Milestone

During the 13-week period ending May 3, the warehouse club's share of higher-tier memberships grew by more than 100 basis points sequentially to surpass 40% for the first time, boosted by recent product and benefit enhancements; a January fee increase did not dampen uptake. Investments in credit card rewards, gas discounts, and digital convenience played pivotal roles in broadening appeal to value-oriented consumers.

"In the first quarter, higher tier membership penetration grew by over 100 basis points sequentially from the fourth quarter, surpassing 40% for the first time in our history."
-- Bob Eddy, Chairman and Chief Executive Officer

This shift to premium membership tiers increases customers' lifetime value, improves renewal rates, and raises average spend, fundamentally strengthening the company's long-term recurring revenue streams and retention.

Digitally Enabled Sales Drive Structural Engagement Gains

Digitally enabled comparable sales soared 35%, contributing materially to total sales growth, and have maintained double-digit percentage growth for four consecutive years. Enhanced fulfillment technology that leverages AI and robotics for inventory and pick optimization cut order picking time by over 45%.

"In the first quarter, digitally enabled comp sales grew by 35% year over year and 56% on a two-year stack. ... This has enabled us to reduce the time required to pick an item by over 45%."
-- Bob Eddy, Chairman and Chief Executive Officer

Digital adoption engenders higher spending and satisfaction.

Fast-Tracked Expansion and Real Estate Optimization

Five new clubs and four gas stations opened during the quarter, including entry to Staten Island, with a robust pipeline targeting 25 to 30 new clubs over the next two years, and relocation projects in multiple states underway. Fiscal first-quarter volume gains included a 2% increase in comparable gas gallons while broader U.S. industry volumes declined year over year.

"In the past several years, we've updated our clubs with the latest sign packages, and invested to support our key growth initiatives, including digital and Fresh 2.0. We're also looking to identify relocation opportunities to better position our fleet for tomorrow."
-- Bob Eddy, Chairman and Chief Executive Officer

Aggressive club expansion and proactive relocations to better-positioned sites are associated with market share gains, and they leverage established new club success, intensifying the top-line opportunity within the BJ’s ecosystem.

Looking Ahead

Management reaffirmed its fiscal 2025 guidance for comparable sales growth (excluding gas) of 2% to 3.5% and adjusted EPS of $4.10 to $4.30, noting that it was exercising caution in its forecast due to the wide range of potential macroeconomic conditions. It expects the first half of fiscal 2025 to be the strongest for same-store sales comps, and will prioritize margin discipline amidst its ongoing investments in value and growth. The chain has 25 to 30 club openings and relocations planned over the next two years, and reported capital expenditures of about $140.5 million for fiscal Q1.

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DATE

Thursday, May 22, 2025 at 8:30 a.m. ET

CALL PARTICIPANTS

President and Chief Executive Officer — Bob Eddy

Chief Financial Officer — Laura Felice

Executive Vice President, Chief Operating Officer — Bill Werner

Executive Vice President, Chief Growth Officer — Cathy Park

Need a quote from one of our analysts? Email [email protected]

TAKEAWAYS

Net Sales: $5 billion net sales for Q1 FY2025, up 4.7% year over year, reflecting continued sales momentum.

Operating Income Growth: Increased operating income by 27% year over year in the first quarter.

Net Income Growth: Net income grew 35% in the first quarter.

Comparable Club Sales Excluding Gas: Up 3.9% (comparable club sales excluding gas sales), led by traffic and unit growth.

Traffic Growth: Traffic grew for the thirteenth consecutive quarter, contributing about 2.5 points to comparable performance in the first quarter.

Perishables, Grocery, and Sundries Comp Growth: Exceeded 4% comparable sales growth in perishables, grocery, and sundries division with higher unit volumes across all divisions.

General Merchandise and Services Comp: Decreased slightly, with positive comps in apparel, toys, and electronics offset by declines in highly discretionary categories.

Digitally Enabled Comp Sales: Digitally enabled comp sales grew 35% year over year in the first quarter, continuing a multi-year double-digit growth trend.

Fuel Volume Growth: First quarter comp gallons rose about 2% year over year, outpacing broader industry declines.

Membership Fee Income: Grew 8.1% to approximately $120.4 million due to strong acquisition, retention, and a recent fee increase.

Higher Tier Membership Penetration: Surpassed 40% for the first time, increasing by over 100 basis points sequentially.

Merchandise Gross Margin: Expanded by approximately 30 basis points year over year with “minimal tariff related impacts”

SG&A Expenses: Approximately $760.9 million, producing 10 basis points of deleverage as a percent of net sales, mainly due to higher depreciation from accelerated club openings.

Inventory Levels: Inventory levels were down 2% per club in the first quarter; in-stock position improved by 30 basis points year over year.

Capital Expenditures: Approximately $140.5 million in capital expenditures, fully funded by operating cash flow.

Net Leverage: Ended the first quarter with less than half a turn of net leverage.

Real Estate Expansion: Five new clubs and four gas stations opened in the quarter; on track to open 25–30 new clubs over the next two years.

Guidance Reiteration: Maintained full-year guidance of 2%–3.5% comp sales growth excluding gas and $4.10–$4.30 adjusted earnings per share.

Fresh 2.0 Initiative: meat and seafood rollout chainwide began in May 2025 following pilot success with comparable category size to produce.

Private Label Penetration: Reached an all-time record, benefiting from member value-seeking behavior and enhanced product assortment.

SUMMARY

BJ's Wholesale Club Holdings, Inc. (NYSE:BJ) reported a quarter marked by strong top-line and bottom-line growth, driven by increased member engagement across digital and physical channels. Management confirmed that higher-tier membership penetration crossed the 40% threshold for the first time, reflecting successful loyalty and upgrade initiatives. Operating and net income growth significantly outpaced sales due to margin expansion. Inventory was tightly controlled, with reductions per club and improved in-stock rates supporting efficiency. Capital expenditures were fully funded by operating cash flow, maintaining low leverage and flexible balance sheet capacity for ongoing investment. The company reiterated its full-year outlook, highlighting confidence in strategic initiatives and the ability to manage cost volatility, including tariffs and input inflation.

Felice said, “we expect our comps ex gas to be the high watermark for the year.” signaling anticipated moderation in same-store sales growth as the year progresses.

Bob Eddy stated, “higher tier membership penetration grew by over 100 basis points sequentially from the fourth quarter, surpassing 40% for the first time in our history.”

Management described private label as achieving a “record in private label penetration.” attributing growth to changing member preferences for value and ongoing improvements in proprietary assortment.

Unit volumes increased in perishables, grocery, and sundries, with the Fresh 2.0 programs cited as pivotal in trip frequency and member engagement.

Guidance continues to embed scenario planning for tariffs and input cost pressures, with Eddy emphasizing that the company will “invest for the long term as much as possible within the framework of our economic structure.”

INDUSTRY GLOSSARY

Fresh 2.0: BJ’s multi-phase initiative to enhance fresh produce, meat, and seafood assortments and merchandising standards, designed to drive member engagement and trip frequency.

Digitally Enabled Comp Sales: Comparable sales transactions initiated or fulfilled through digital channels, including BOPIC, curbside, and same-day delivery.

Membership Fee Income (MFI): Revenue generated from member subscription fees, a key recurring income stream for BJ’s club model.

Full Conference Call Transcript

Bob Eddy: Morning, everyone. Thank you for joining us. This morning, we reported a strong start to the year with our first quarter top and bottom line results exceeding expectations. We grew net sales by nearly 5% and we managed the business well resulting in operating income and net income growth of 27% and 35% respectively. Our team continues to execute on our long-term strategic priorities as we work hard to take care of the families who depend on us. Consumers are always looking for value, but it's paramount in challenging times like these. Due to this, BJ's remains a leading destination for our members to find what they need and want at a great value.

The drivers of our business remain strong. Membership continues to grow nicely, our continued improvements in merchandising and digital convenience are driving traffic, and we're gaining share in our clubs and gas stations. Finally, we are accelerating our club openings to serve more families. We are excited about our momentum. Our comparable club sales excluding gas sales grew by 3.9% in the first quarter and were led by traffic and units once again. Traffic grew for the thirteenth consecutive quarter contributing about 2.5 points to our comp in the quarter. Consumers across the country have digested meaningful inflation over the past few years and the uncertain economic environment drove members to prioritize value in their purchases during the quarter.

Members are consistently spending with us especially in household essentials. Our perishables, grocery, and sundries division delivered more than 4% comp growth in the first quarter with unit volumes increasing across all three divisions. Perishables remains the strongest driver of our growth as more and more members make us their weekly destination for produce, dairy, and meat. We also saw terrific growth in our own brands during the quarter. Our general merchandise and services division comps decreased slightly in the first quarter. We delivered positive comps in apparel and toys, where the combination of an elevated assortment, low price points, and compelling value have kept our members engaged.

We also grew comps in consumer electronics, led by computer equipment, such as laptops, desktops, and monitors. Unfavorable weather and pressures on consumer sentiment impacted big ticket highly discretionary categories such as patio sets, gazebos, and outdoor sheds in the quarter. That said, we are maintaining our momentum on our transformation strategy and it's clear that members are responding well to an improving treasure hunt. There are seven top of mind for companies and consumers alike in recent months. BJ's is less impacted by imports than many of our competitors, but tariffs aren't new to us. And we have a great team to help us find our way in an incredibly dynamic environment. That's been changing by the day.

We have strong capabilities in areas like analytics and input cost tracking tools we've used in past disruptions and are applying with discipline today. I'm so proud of our teams across merchandising, supply chain, finance, and analytics who have remained agile in navigating these challenges. This includes sourcing from alternative countries of origin, reassessing orders, and collaborating with our vendors all to drive the best outcomes for our members. We're always leaning into our model to deliver value, and while upward pressure on cost may drive prices higher, we are doing everything possible to minimize the impact to our members. Moreover, we will invest for the long term as we should gain share in a market disrupted by rising prices.

As we gain more clarity, our teams are ready to adapt and pivot. But our guiding principles will remain the same. Delivering great value is nonnegotiable for BJ's and we will always make the right decisions for our members. Our first quarter results underscore the progress we are making on our four strategic priorities. As a reminder, these priorities are improving member loyalty, giving our members an unbeatable shopping experience, delivering value conveniently, and growing our footprint. Our business starts and ends with our members. We are strengthening membership quarter after quarter. We are growing total member accounts in new and existing clubs, and upgrading more members into our premium tiers while keeping our renewal rate strong.

Higher tier members spend more and are more likely to renew driving greater lifetime value. Over the past couple of years, we enhanced our credit card program, invested in a gas discount for our Club Plus members, and in January, we added benefits for plus members by giving them two free same-day deliveries every year. These investments in our value proposition are paying off. In the first quarter, higher tier membership penetration grew by over 100 basis points sequentially from the fourth quarter, surpassing 40% for the first time in our history. Our momentum and membership is a direct reflection of the unbeatable shopping experience we provide at BJ's.

Our merchandising strategies span our entire box and aim to deliver exceptional value to our members. That means having the right products, at the right price presented in the right way. Great pricing is foundational to our model. Our advantage structure allows us to consistently offer up to 25% off grocery store prices and we are committed to maintaining this edge. Beyond pricing, we deliver value through our highly curated assortment which we have dramatically improved over the past few years. We renovated our general merchandise business to regain credibility in our treasure hunt. We launched Fresh 2.0 to win our member shop, and grow trip frequency. We continuously elevate our own brands to deepen loyalty.

The result is great member engagement and market share, as evidenced by our growth in traffic, comp sales, and of course in membership. I'd like to provide a little more color around our current work in Fresh. As you know, we launched our Fresh 2.0 initiative in produce last year based on the insight that perishables, especially produce, dictate our members' first weekly shop. We knew that if we won in produce, we would win trip frequency and wallet share. Since launching in the second quarter of last year, the program has driven quarterly produce comps of high single digit to low double digits.

We're not only introducing new members into our produce category, but they are regularly reengaging in produce as well. Success we've seen in produce has given us confidence to extend Fresh 2.0 to meat and seafood, which we piloted in Florida late last year and launched chain-wide this month. Similar to our early work in fresh produce, our meat and seafood initiatives are built on comprehensive market studies and competitive assessment. Our research determined that our biggest opportunity in our assortment and presentation. First, we optimized our assortment to better reflect localized member preferences, adding items that members wanted and removing less relevant ones.

Second, we added signage and dividers in our coolers for cleaner presentation and easier navigation reminiscent of our efforts in produce. We also refloed our merchandise to reflect how our members shop meat. For example, we created a single destination for pre-seasoned and marinated proteins making these ready to cook products easier to find. While these products comprise a small percentage of our protein sales today, the example illustrates how we're leveraging our understanding of shopper behavior to rethink all aspects of our business. As part of these efforts, we've also armed our field team members with better tools and reporting to track performance and reduce salvage.

Our members love the improvements in fresh, and we will continue to invest to drive trips baskets, and member loyalty. Speaking of what members love, let's talk about our digital conveniences. Today, our members have multiple ways to save their time in addition to 25% lower grocery store prices through BOPIC, express pay, curbside pickup, and same-day delivery. These have helped fuel double-digit growth digital enabled comp sales each year for the past four years. In the first quarter, digitally enabled comp sales grew by 35% year over year and 56% on a two-year stack. We're using technology to achieve greater labor efficiencies and accommodate continued growth of our digital business. Consider our journey with digital order fulfillment.

Today, OPEC, curbside, and same-day delivery comprise the majority of our digitally enabled sales, and our team members are picking these orders in our clubs. Over the past eighteen months, with the product location data provided by our autonomous inventory robots, and the help of AI, we developed and rolled out tools that optimized order batches and pick routes. This has enabled us to reduce the time required to pick an item by over 45%. As more members adopt our digital convenience and reward us with their spending and loyalty, we will continue investing to drive operational efficiencies and member lifetime value. Finally, we're making meaningful progress on our real estate strategy.

We hit the ground running in the first quarter opening five new clubs, including our very first club on Staten Island, as well as four gas stations. Our new clubs are performing well against our expectations our future growth pipeline is strong. We remain on track to open 25 to 30 new clubs over the next two years. As we continue to demonstrate the success of our new club playbook, we've also asked ourselves how we can bring the same level of premium experience to the existing chain. In the past several years, we've updated our clubs with the latest sign packages, and invested to support our key growth initiatives, including digital and Fresh 2.0.

We're also looking to identify relocation opportunities to better position our fleet for tomorrow. As part of this strategy, we expect to open a relocated club in the coming months in Mechanicsburg, Pennsylvania. We'll have more relocations planned over the next several years including in Rotterdam, New York next year. Stepping back and assessing the current state of the consumer, broader uncertainty in the marketplace continues to drive consumers toward value. And our members are relying on BJ's to provide it. Spending behavior remained solid across our membership in the first quarter, as we drove healthy year over year growth in spend and trips across our high, mid, and low-income cohorts. Even in these uncertain times, some things remain constant.

And here's what you can expect from us. You can expect us to stay committed to delivering the value our members rely on every time they shop with us. You can also expect us to remain focused on our long-term growth priorities. Our business model is built to win in both good times and times when consumers feel pressured. This especially holds true today as the investments we're making in the business are driving results. This year is turning out to be more dynamic than we all thought, and I'd like to thank our team members who continue to rise to the occasion work tirelessly to take care of the families who depend on us.

I'm confident in our ability to execute through the near term together and more convinced than ever that we're set up for long-term sustainable growth. I'll now turn it over to Laura to provide more details on our results and outlook.

Laura Felice: Thanks, Bob. First, I'd like to echo Bob's gratitude for our team members across our clubs, supply chain, and club support center whose dedication to BJ's led to another strong quarter. Net sales in the first quarter were $5 billion increasing 4.7% year over year. Merchandise comp sales which exclude gas sales, increased by 3.9% year over year led by traffic, and units as our value prop continues to resonate with our members. Our performance was consistently strong in February and April with the later Easter shift impacting March. Total comparable club sales in the first quarter including gas sales, grew 1.6% year over year.

Lower year over year retail gas prices partially offset our market share gains at our pumps. First quarter comp gallons rose about 2% year over year with total volume growing even faster due to new stations coming online. This compares to continued year over year volume declines across the broader industry in the US. Digitally enabled comp sales in the quarter grew 35% year over year contributing significantly to our overall sales growth. Members who use our digital conveniences are better members with greater spend and higher NPS scores than members who only shop in club. As a result, we will continue to invest in enhancing our digital conveniences in the future.

Membership fee income or MFI grew 8.1% to approximately $120.4 million in the first quarter led by strong membership acquisition and retention across the chain. MSI also benefit from a fee increase that went into effect on January 1, 2025. The first quarter merchandise gross margins increased by approximately 30 basis points year over year with minimal tariff related impacts in the quarter. We continue to manage our margins prudently and our category management process is yielding profitable growth across the broader assortment. SG&A expenses in the first quarter were approximately $760.9 million resulting in approximately 10 basis points of year over year deleverage as a percentage of net sales.

This was primarily driven by our continued investments to drive our strategic priorities and more specifically in outsized growth in depreciation as we accelerate new club openings. In our fuel business, first quarter profit per gallon ran above last year's levels and slightly higher than our expectations, resulting in year over year growth in gas profits. All in, we reported first quarter earnings per share of $1.13 and adjusted earnings per share of $1.14. Our first quarter performance reflects our strong membership and traffic, merchandising improvements, digital conveniences, all reinforced by our investments in the business to drive long-term growth. Our effective tax rate of 22.2% was driven by higher than anticipated tax windfall. Let's move to our balance sheet.

We ended the first quarter with absolute inventory levels down 2% on a per club basis. In stocks also improved by 30 basis points year over year thanks to the team's great work in allocating the right amount of product to the right clubs at the right time. Our capital allocation strategy is consistent with our historical framework as we continue to take a disciplined approach to maximize shareholder value. We believe the best use of cash is applying it towards profitably growing the business. As such, investments to support membership, merchandising, digital, and real estate initiatives continue to be funded entirely by our cash flows in the first quarter and our capital expenditures were approximately $140.5 million.

Our strong balance sheet provides meaningful flexibility allowing us to look past the short-term noise and continue pursuing our long-term growth agenda. We ended the first quarter with less than half a turn of net leverage. In light of these priorities, our share repurchases were lower than our typical ranges in the first quarter. Our overall philosophy around buybacks has not changed. And we will continue to return excess cash to shareholders this year. Turning to our outlook for fiscal 2025. We are operating in uncertain times. Despite the greater level of unpredictability, we are confident in our team, our positioning in the marketplace, and the growth drivers that are within our control.

We will stay focused on our long-term priorities to drive continued traffic and market share gains. In terms of our financial outlook, the range of potential outcomes have become wider since we issued our annual guidance. We expect the current environment to increasingly influence costs, and consumer spending patterns, which may ultimately impact our financial performance. Based on what we know today, we are keeping our initial full year guidance unchanged. Which as a reminder was 2% to 3.5% comp sales growth excluding gas and $4.10 to $4.30 in adjusted earnings per share. We will continue to evaluate this guidance as the year progresses. With these caveats in mind, here's how we're broadly thinking about the year.

On the top line, remember from our last call that we expect our first half comps ex gas be a little bit better than the back half. In other words, we expect our first quarter comps ex gas to be the high watermark for the year. On the margin side, we will continue to exercise strong cost discipline while investing in our value proposition for the long term. This becomes especially important in a rising cost environment. We remain confident in the underlying strength of our company and we believe we're well positioned deliver sustainable growth to maximize shareholder value. So Bob, back over to you.

Bob Eddy: Thanks, Laura. We've made tremendous progress transforming our business, investing in the right talent, sharpening our strategic focus, and delivering more value and convenience to our members. Membership is at record levels, and we're launching exciting merchandising initiatives to drive even stronger performance. Our digital capabilities are playing a key role in our growth and we're scaling our new club playbook to expand our footprint profitably. Our long-term strategies remain crystal clear. We will continue to invest for the future and do the right thing for our members, team members, and communities in order to take care of the families that depend on us. Thanks again for joining us today and for your support of BJ's Wholesale Club.

We will now take your questions.

Operator: We will now start the Q&A session. As a reminder, we ask all participants limit themselves to one question and return to the queue for any follow-ups. Our first question comes from the line of Peter Benedict from Baird.

Peter Benedict: Oh, hey, guys. Good morning. Hi. Thank you for taking the question. Hey, guys. Can you hear me? Yep. We got you. Alright. Great. Yeah. Good morning. Yeah. Thanks for taking the question. I guess I'm just gonna ask about the real estate strategy. Can you just remind us kind of how you think about locations as you kind of accelerate the pace of club openings here? How you think about the target markets, the competitive considerations, the pool of potential members in a market, just kind of curious for an update on that as you can accelerate these club openings in the next couple of years. Thank you.

Bob Eddy: Yeah. Thanks for the question. Maybe I'll start off and hand it over to Bill. You've seen us in the last few years get pretty aggressive from our real estate perspective given the success of the effort and the new clubs that we've been able to open to serve members around our geography and into new geographies. The success of those clubs has given us the confidence to continue to do that and push into new markets well. Opportunistically expanding existing markets. And so you know, as that success is built in the last couple of years, we continue to put pressure on Bill and team to go even faster.

And know, I think we're at a place where discount retail in the club sector is winning, and so we're trying to go as fast as we can. And we're really excited about what we've seen so far in our real estate portfolio, and the pipeline is as big as it's ever been. So we're very pleased with the team's work and I'll hand it over to Bill. He can tackle some of your specific points.

Bill Werner: Yeah. Thanks, Bob. Yeah. Peter, I would say that we are more excited about our real estate progress than anytime in the company's history that I've been here, and I think certainly for people who've been here a long time, it's probably the most exciting point in time maybe since the company was founded. And it really starts with the share gains that we've seen across the portfolio as we gain share you know, that opens up the models for more and more opportunities for us to continue to build new clubs. And, you know, we talked about year end accelerating the transformation to 25 to 30 clubs over the next two years.

We continue to put our foot on the gas in terms of opportunities both in new and existing markets. We've seen broad-based success across both some of our core and fill clubs. We just opened up our first club here in Staten Island this quarter, which was a great win for the team. That club's off to an amazing start. As well as new markets. Like, we just opened up in Myrtle Beach in Southern Pines. Both clubs in the Carolinas. And the response of the community has been amazing so far to us coming to town. So you know, all the proof points we have are great.

We continue to be pretty aggressive in terms of getting to market and trying to get the clubs on the ground. And we'll continue to do that going forward.

Peter Benedict: Great. Thanks so much, guys. Good luck.

Operator: Next question is from Kate McShane from Goldman Sachs.

Kate McShane: Hi. Good morning. Thanks for taking our question. We wanted to ask a longer-term question with regards to the longer-term algorithm. Just as you see the continued strength in membership, is there anything we should be considering that could change in the longer-term algorithm? And should we still be thinking of a three-year maturity ramp for new customers, or has anything changed there as you enter new markets with new stores?

Bob Eddy: Well, Kate, thanks for the question. You know, we are very pleased with what's going on in membership for sure. We continue to build the size, and the quality of the membership is as we've talked about for many quarters now. Our ability to attract new members, our ability to renew them at all-time high rates, our ability to engage them and push them up into the premium tiers, we talked about a new all-time high there this morning as well. And, you know, our next opportunity really is to continue to figure out how to better activate and engage these members.

And to the degree that we're able to make progress doing that, then I think, you know, you might see your way forward to changing certain components of the algorithm. But as we sit here today, for the past few years, we've been working towards that economic algorithm that we put forward a couple of years ago on our address today. Quarter was nice progress towards that, and we don't necessarily see that changing all that much at this point in time. Particularly given the level of uncertainty out there in the market.

Laura Felice: No. I think you covered it all, Bob.

Cathy Park: I think, Kate, I'll just maybe pick up on your second point about the membership. The maturity of our members. And similar to Bob's commentary on acquisition of members and how they're shopping, I think that hasn't changed either from what we're seeing right now. You know, we will continue to watch that, but that plays into how we're thinking about the long-term algo and leaving it as is right now.

Kate McShane: Thank you.

Operator: Next question comes from the line of Robby Ohmes from Bank of America.

Robby Ohmes: Hey. Good morning, guys. I want to follow-up on Laura's commentary, you know, at the end there before Q&A. The high watermark of the comps, but also the margin investments that you mentioned. Is that like, on the margin investment side, is that the fresh impact? Is that the meat and seafood launch, you know, that you're thinking about or is it, you know, tariffs? Or is it competition, or signs of the consumer weakening?

Maybe, you know, more color on how you guys are thinking about margin investments for the rest of the year and, you know, and also a little more color on the, you know, why the comps, you know, could fade as you move through the year.

Laura Felice: Hey, Robby. Good morning. Thanks for the question. Maybe I'll start with your second point on margin investments. And so, you know, nothing has changed how we think about the business. And value continues to be our North Star. And so we're always looking at pricing and making sure we're delivering the best value to our members every day. And so that's how we'll continue to think about it as the year progresses. As you know, it's a dynamic environment. But I think value if we continue to stay with that, you know, that is what our members are rewarding us with as they continue to show up in our clubs. And shop and drive their baskets.

Your second question on comp cadence for the year, you know, it's a similar answer to when we set out our guidance in Q4. In looking at the year, we thought that the first half would be stronger than the second half from a cadence perspective. That is unchanged as we see the environment right now. Some of that is lapsed of last year. And some of it is how we're thinking about, you know, Fresh 2.0 and other points of our business. So I think nothing new to report there, but we will continue to watch it as we go through the year.

Robby Ohmes: And just to clarify, Fresh 2.0 and then the meat and seafood launch, are they, you know, kind of a significant headwind to margin or not so much?

Bob Eddy: Hey, Robby. Good morning. I think what we'd say is and you'll remember this because we've talked about it so much that the gross margin rates across our four divisions are about the same. The contribution margin rates might differ with perishables being lower given the increased labor. Associated with from a gross margin perspective, they're all within striking distance of one another. So mixing towards perishables doesn't necessarily help or hurt gross margin all that much provided. We don't mess up from a salvage perspective. What it does do is drive the engagement of our members. Right? That was the entire pieces behind Fresh 2.0. Right?

How can we get people we know our best members are involved in produce in particular and meat as well. How do we get more of our members to engage with us in those categories? And even though that takes some effort and it takes some investment, particularly in places below gross margin as I talk about, you know, the more people we can get into those categories, the better off we are.

So we certainly saw that from a previous perspective in the first innings of Fresh 2.0 and now in the middle innings versus taking those lessons that we learned and that same thesis towards meat and seafood and we'll ultimately take it to bakery and dairy and the other disciplines within the perishables complex. It's the same thesis that I arguably hopefully, will be the same result if we can continue to make our clubs a weekly shopping destination for our members. That augurs towards all sorts of good things, participation, in other categories, growth in general merchandise, more trips, more traffic, more renewal rate, all the things that we hope to prove out.

And we certainly seen great results in produce and we're hoping for the same type of a thing to be seen in meat. But it shouldn't be a margin story. If we do things right, it should be a sales story and a membership story.

Robby Ohmes: Sounds great. Thank you.

Operator: Next question comes from the line of Michael Baker from D.A. Davidson.

Michael Baker: Not Fresh 2.0 question with a couple of just digging in a little bit deeper. You said you're seeing high single digit to low double digit growth in produce from that initiative. Did you if you said it, I missed it, but can you tell us what kind of understanding these early innings, what kind of lift are you seeing in meat and seafood? And then can you sort of quantify the relative size of the opportunity in meat and seafood and that dairy and bakery to come, relative to the size of the produce business. Thanks.

Bob Eddy: Hi, Mike. Good morning. Thanks for the question. I guess what I would say is individually, produce and meat are about the same size from a category perspective. They're not exactly the same, but they're somewhat comparable. So, you know, obviously, produce helps drive our business all last year. We did talk about high single digits to low double digit unit movement in produce. That's certainly something we just tended to see in the first quarter. We would anticipate a similar result in meat, and the thing that we don't yet understand and hopefully occurs is sort of a building reaction to that. Right? Meaning one plus one equals three.

If people are shopping heavily in produce and in meat, it should really change their member profile. And their number of trips and their renewal rates. And, you know, so we've seen good results in meat so far. That was certainly a category that we like the results of in the first quarter. It's way too early to see how it might drive trips in total, how it might be, you know, that multiplier effect with produce given it's only been out in the wild for a few weeks now. We are excited about what we're seeing. We're excited about the member engagement and we'll continue to invest in these categories.

We haven't quite flushed out really anything yet from bakery and dairy and other categories yet. We've been focused on meat this year, but I think what you should take away from this conversation is a big opportunity for us if we do it right. It could materially change our business for the long term. And so we'll continue to really invest heavily in getting this stuff right and hopefully, it works out for our members first and foremost because if it works out for them, it will work out for us.

Michael Baker: Excellent. Great. Thank you. I'll pass it on.

Bob Eddy: Thanks, Mike.

Operator: Next question comes from Chuck Grom from Golden Husky.

Chuck Grom: Hey. Good morning. Congrats on a great quarter. Laura, on the guide and the expectation for a wider range of outcomes, I think we can all appreciate that given where we are. But is there a way to think about how much you exceeded your internal first quarter plan by to assess some of that conservatism? And then one near-term question, just curious, how May sales are running relative to the April strength?

Laura Felice: Hey. Good morning, Chuck. Thanks for the question. Look, I think as you can appreciate and you alluded to it, a dynamic environment. And very fluid right now. And so that is kind of a piece of what we took into consideration as we maintained our guidance. For the full year. You know, the teams are working diligently to make sure that we continue deliver value to our members, and we're doing it in the right places across the business. And so that's kind of how we're thinking about the year as we go forward. Your question on May sales, you know, we don't really comment on current trends.

So maybe I'll leave that for now, but we were really happy with the first quarter. I think that 3.9% comp was fantastic and proves the strength of our membership. And continued momentum. Of the business.

Operator: Next question is from Edward Kelly from Wells Fargo.

Edward Kelly: Hi. Good morning, everyone. I wanted to follow-up on the subject of tariffs. Curious, just to start, you know, if you think about the guidance that you provided and reiterated today, I'm assuming that the guidance includes your best estimate of, you know, the current tariff rates and the impact that might have on you. If you could just confirm what's in guidance related to that. And then second part of the question is just related to how you're thinking about pricing and elasticities on the items that you have that are impacted.

And then how you're planning inventory, you know, against that uncertainty just to ensure that you don't have, you know, markdown issues, you know, as it relates to the consumer response. Thank you.

Bob Eddy: Alright. Good morning. That's why I appreciate the nature of the question. It's certainly an uncertain market out there. It's something we're all really trying to figure out. You know, while it's hard to quantify the impacts given that uncertainty, what I would tell you is first, we import less than many of our competitors, so we will likely be a bit less affected than others. With that said, even for us, this is a large complex problem to figure out. You know, we have significant muscle around dealing with inflation across changes.

We've been employing all sorts of tactics, you know, none of which will surprise you to blunt the impact, including resourcing items from different trees, changing items, even eliminating items from our assortment where the elasticity might not make any sense for our members. Certainly, we're spending a ton of time with our supplier partners working the problem collaboratively. And, you know, I guess, finally, what I would say, we will act according to our purpose and taking care of the families that depend on us with these actions might differ day to day, but our performance in the past quarters and years has all been centered around that powerful idea of doing the right thing for our members.

Would expect to invest for the long term as much as possible within the framework of our economic structure. For example, during the first quarter, we invested heavily in eggs and gas prices have come down meaningfully as well. We would expect to, and we're looking to gain market share in these times of disruption. So consumers are challenged, they come towards value, and we're a great place to come for them to achieve that goal. And have to be agile because the answer seems to change by the hour or by the day. But you can expect steadfast support of our members as we go through whatever's coming in the next few weeks.

We've tried to run a range of scenarios. You know, obviously, today's fair situation and maybe whatever could happen tomorrow, all of that is sort of embedded in our guidance ranges. I could obviously change. We don't know what's coming tomorrow. So we try to make our best guesses. And we've as we've talked about in the prepared remarks, our inventory is in pretty good shape. Our team has done pretty remarkable work over the past couple of quarters, both increasing in stock, which is obviously incredibly important to running a great business for our members, and reducing inventory levels overall down 2% on a per club basis. So we're trying to be very judicious from a buying perspective.

We're trying to do the right thing for our members and hopefully, that gets us through this period of disruption.

Edward Kelly: Great. Thank you.

Operator: Next question comes from Simeon Gutman from Morgan Stanley.

Simeon Gutman: Good morning, everyone. Good quarter. I wanted to ask and make it two parts. First, share gains of food retail clearly continues and it's going well. It seems like you kind of bent the curve on other categories discretionary, which you're taking share. We can't see, given the markets, you know, how granular that share gain looks like. Curious how you feel or you would assess your share gain in nonfood categories. And then is there visibility on where that higher tier penetration can get to? Are there the leading indicators in how a member is spending such that penetration rate can keep going north of 40%? Thanks.

Bob Eddy: Yeah. Thanks. Good questions. Yeah. We're pretty happy with our share gains in the past quarter, in the past few quarters. We continue to grow it in both food and non-food. You know, the general merchandise share is a bit harder to measure. But as we look across, Circana data and other sources of data that we have, certainly, we're building the grocery business quarter after quarter after quarter after quarter. The GM business, even though those comps were, you know, slightly negative during the quarter, we still took share in the categories. So you know, we're doing the same things we've been doing in the past few quarters to make it work. Right?

Cleaning the right stuff on the shelf, being sensitive to what the right value is, what the right price is, how we're displaying it. As we transform to our merchandise. And that's, you know, that's helping us gain share. Electronics is a great example. This quarter, we gained share in electronics. We built share in a number of GM categories. And even as we look back longer term, you know, Circana data all the way back through the pandemic has just gone up in all four of our big businesses. One important thing outside the club, obviously, from a share perspective is fuel.

We continue to gain tremendous amounts of share with positive gallon growth quarter in quarter out while the market continues to go backwards from a gallon perspective. And so we're gaining tremendous amounts of share, and that dovetails nicely into the higher tier penetration question that you put forward. We're gaining share in fuel not just because of our fantastic everyday pricing, we're, on average, we're about 20 cents lower than what the average market price would be. We've as you know, we've done a tremendous job trying to integrate gas into our membership offerings. Where every tier of our members, our hierarchy members now has a guest discount whether you have a credit card or not.

So all the way up to 15 cents a gallon for our highest tier members. And that's on top of that great opening price point gas 20 cents lower than the market. We're also having some fun with our team members. We're running 25 cents off a gallon on top of all the other things that they can get too. So trying to get those team members even more involved in the field game so that they can tell our members about it. I think the overriding goal for higher tier membership is somewhere over 50%. That's where our club competitors are. We did the quarter right around 41.

And so we still have tremendous amounts of headroom to do that. We need to make sure that we were putting the right offer out there for people or making sure that they're engaged in the business and getting the rewards associated with doing that. And that will, you know, sort of build momentum by itself. I thought this is a cool quarter to look at because with a fee increase out there, you know, there could have been there probably was some pressure to not grow higher tier penetration. So to grow it at the fastest rate that we've grown it, in a while, we were up well over 100 basis points sequentially.

Was impressive to me and to us. The team did a nice job figuring out the right offers to put out there. The team in the field at the desk the membership desk did a nice job converting people. Our digital team did a great job getting in front of people. When they're on the website or playing on the app. And so we're excited about it. We think it's a great road to grow the franchise, to grow the lifetime value of our membership, and we'll continue to invest to do that in the future.

Simeon Gutman: Okay. Thanks. Good luck.

Operator: Next question comes from Oliver Chen from TD Kone.

Tom: On for Oliver. I wanted to ask on digital convenience. Seems to be trending quite impressively. Is there any color you could give on the impact that may or may not have on margins for the business overall? And then as a follow-up, it'd be great to hear your outlook for the year on the general merchandise category. And then related to that, how private label fits into the equation with any opportunities or developments planned there? Thanks.

Bob Eddy: Yeah. Tom, thanks for the question. Digital has been more and more important over the past several years. We're trying to save our members' time in addition to 25% off their groceries. And you know, what they're telling us is they love what we're doing. It grows across week in week out, quarter in quarter out. You know, to your stock and digital sales well over 50% again this quarter. So what we're doing is clearly resonating. The predominance of that business you'll remember, is in full pick and curbside and same-day delivery. And as we fulfill those orders, obviously, they cost a little bit more.

They can cost a little bit more because our members are our team members are doing the picking for our members. And even in with the case of curbside, putting it in putting in their basket. But, oh, their car, but member shopping behavior tends to increase the more engaged people get in these digital conveniences. And so that incrementality tends to pay the bill for the increased cost. Those costs are largely below gross margin, so just specifically to your margin question, it's not really a gross margin story. Again, you know, from a contribution margin perspective, these sales will be slightly less accretive. But certainly, the incrementality is what we're looking for. We're trying to grow lifetime value.

We're trying to grow engagement in the business. And our members are telling us every day that these conveniences are incredibly helpful. We also made nice gains inside the club. But another element of our digital sales, which is Express Pay, the ability to check out using your phone, once upon a time, that was an incredibly small part of our business. And it's growing every day there too. General merchandise, you know, a little bit softer in the first quarter. You know, all of that was in discretionary high ticket goods. And I think what you're seeing is the consumer confidence playing out in there and some weather quite honestly.

I mean, it's poor day today in front of Memorial Day weekend. So not a great incentive to go buy a patio set or lawn fertilizer at this point. But you know, I think as we go forward, I think the consumer will have and flow with whatever happens from an economic standpoint. Certainly, in other less discretionary or smaller ticket businesses within GM, we saw some strength. We did well in apparel. We did well in electronics. But I think what you're seeing is people hearing more towards need categories than want categories until there's greater certainty about what's gonna happen in the economy. And I would expect that situation to persist for as long as that uncertainty persists.

And then your final question on private label. Another all-time record in private label penetration. That's, I think, going to two things. One, the continuing search for value for members. You're definitely seeing members be a little bit more promotionally since they're you're definitely seeing them look at own brands a little bit more. But our team is doing a phenomenal job creating own brands products, that are great. Of great quality, of great value, and now we're even in some cases, displaying them more prominently in the clubs. And we're changing packaging and doing all sorts of other things to really put those a more robust way.

So I would anticipate the consumer continuing to search for value as we talked about, which would highlight some old brands, and then we will try and exercise some help some self-help as well and continue to improve our own brands business. Incredibly important as you know. From a margin story perspective as well as from a loyalty perspective. Even if it comes with a little bit of top line degradation, we will take the margin of the loyalty all day long.

Operator: Next question comes from Steven Acone from Citi.

Steven Acone: Great. Good morning. Thanks very much for taking my question. I was gonna ask two in one. So the first is just really strong merchandise margin, strength in the first quarter. Maybe how should we think about that over the course of the year because the compares get a little bit tougher, but just help understand your outlook there. And then follow-up on Chuck's question earlier. I guess, what I was curious on is the commentary around the wider range of outcomes while still maintaining the guidance. Is that just, you know, acknowledging the macro's gotten much more uncertain? It doesn't sound like anything you're seeing in the business is changed. Right?

Like, seems like still pretty good momentum from your specific business.

Bob Eddy: Yes. Look, good morning. We're quite pleased with the margin strength during the quarter. It was a little bit of probably our easiest compare during the year. We had some stuff going on last year we launched Fresh 2.0. That we were able to sort of clean up this quarter. But, you know, look, we have a bunch of different irons in the fire to grow margins over time that we've talked about. Probably just tied up on the last question. That's a good one. CMPs, it's category management process as we continue to figure out how to put the right brands and products on the shelves at the right value.

We're also trying to figure out what the right margin mix is in each category as well. That should hopefully let us auger margin rates north. And there are a few other ones around the business, working better with salvage, changing what we do from a transportation perspective, doing retail media advertising. Those things are all not transformationally large, but they're all individually important. We'll continue to work on all those things. I would hope that margins continue to perform well during the year.

The big question mark obviously is what happens from a cost-based perspective, and as I said, in the response to Ed's question about tariffs, we will go forward and invest to gain market share and do the right thing for our members. Almost no matter what happens for them. Within the economic structure of what we can afford. And so while we do see some daylight from a margin perspective, we also anticipate investing more as we go through the year. So that's really why we left the guidance unchanged for the year. It's certainly a dynamic environment. Nobody really knows what's going to happen.

But we will control we can control on the operation the merchandising side and we will invest for the future of the business even if that means margins suffer a bit. And I think that answers your question on the wider range as well.

Steven Acone: It does. Yeah. Thank you very much.

Operator: Next question comes from Rupesh Parikh from Oppenheimer.

Rupesh Parikh: Good morning, and thanks for taking my question. So I guess just going back to your relocation commentary, I guess as you look at your store base, do you see a number of opportunities there? And then as you think of relocation opportunities, would this be incremental to what you typically would open in a typical year for stores?

Bob Eddy: Hi Rupesh, let me pass it over to Bill.

Bill Werner: Yeah. Hey, Rupesh. Can we talk a little bit about the relocations in the script and we have a couple right now in the pipeline. I think what you can expect of us is to continue to look at the markets and the communities that we serve and look for opportunities within our existing store base where we have opportunities to serve more members. The instance where either the retail landscape in the market has changed or the population in the market has changed. And so as we think about the real estate program broadly, we like I said, in my first response, the models are changing pretty quickly, probably quicker than they've ever had.

In terms of population changes as well as our share growth. And, yeah, I think our investor base should expect us to play offense and look for these very opportunistic opportunities that become available to us to reposition for the future. And, you know, we should absolutely go take advantage of them when it makes sense for our members and the company.

Rupesh Parikh: Great. Thank you.

Operator: Next question comes from Mark Carden from UBS.

Mark Carden: Good morning. Thanks so much for taking the question. So another one on real estate. Just as you think about store growth, how are you thinking about the potential impact from higher materials costs just related to tariffs? Do you see it providing much of a risk impacting the timing of your new store in DC grows? Does it impact how you think about prioritizing new market entry? Versus, say, boosting store counts in your existing markets? Is there an opportunity to play offense? Just any color there.

Bill Werner: Yeah. Hey, Mark. And thanks for bringing up the point about the DC. We haven't talked about that much, but the construction on new DC is going great. We're making tremendous progress with that. And we'll be very excited for us to get that online here in the coming year or so. You know, in terms of the cost, you know, obviously, we've seen some impact of cost within, you know, within the construction portfolio. And as we think about that over the long term, right, these are twenty, forty-year investments that we're making in new buildings.

And so, we're certainly working as we would with any other, you know, product that we buy, whether it's our, you know, products for, you know, merchandise reselling our clubs, or our construction costs to leverage our scale. Given the number of projects that we have in the pipeline right now to deliver the savings where we can. And get these things built as efficiently as possible. But, you know, as we step back, we feel really great about the overall investment envelope of a new club and the returns that we've generated. So you know, we're gonna keep going.

Mark Carden: Great. Thanks so much, and good luck, guys.

Bob Eddy: Thanks, Mark.

Operator: Thank you. That's all the time we have left for questions. I will now turn it back over to Bob Eddy for closing remarks.

Bob Eddy: Well, thanks everybody for your attention this morning. Thank you for your support of our company. We've got a lot going for us. We have had great results over the past couple of quarters. Certainly a more dynamic environment that we face today than maybe we've ever faced but we will continue to do the right things to take care of the family that depend on us. And that will power our growth going forward. So we will wish you a great summer. We will talk to you at the end of the next quarter.

Operator: This concludes today's conference call. You may now disconnect.

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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

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

Make money without even trying: That's what passive income is all about. But good investment alternatives are required to make this "easy" money.

Three Motley Fool contributors believe they have found some great dividend stocks that fit the bill. Here's why they think Abbott Laboratories (NYSE: ABT), AbbVie (NYSE: ABBV), and Johnson & Johnson (NYSE: JNJ) are magnificent stocks that are passive income machines.

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A dividend stock you can buy and (almost) forget about

David Jagielski (Abbott Laboratories): When picking a top dividend stock to hold in your portfolio, you want to consider a company that not only has a solid track record for making payouts but that also has solid fundamentals. The former helps demonstrate its commitment to rewarding shareholders, while the latter ensures that it has the capacity to continue doing so.

Abbott Laboratories has been paying a dividend going back more than 100 years, to 1924. And it has also been increasing its dividend annually for more than 50 consecutive years. Investors have become accustomed to not only receiving a dividend from this stock every quarter, but also seeing their dividend income rise over the years.

The diversified healthcare company currently pays its shareholders a quarterly dividend of $0.59, and that has risen by 146% over the past 10 years. That averages out to a compound annual growth rate of 9.4%. The stock's 1.8% dividend yield may look modest, but the likelihood of further rate hikes is why it can make for a great long-term buy.

What's also attractive about Abbott's business is that it has diverse operations, which makes it less dependent on any one particular business unit. It has segments related to nutrition, diagnostics, pharmaceuticals, and medical devices.

The company has generated stable and solid results, with its top line coming in at more than $40 billion in each of the past four years. And with strong free cash flow of $6.7 billion over the trailing 12 months (more than the $3.9 billion it paid out in dividends during that time frame), it's in an excellent position to continue growing its dividend for the foreseeable future.

A drugmaker that's proved its resilience

Keith Speights (AbbVie): Abbott Labs spun off AbbVie as a separate entity in 2013. It inherited its parent company's outstanding track record of dividend increases and has kept the streak going. The big drugmaker has increased its dividend for an impressive 53 consecutive years.

Even better, AbbVie's dividend program is quite generous. The company's forward dividend yield stands at 3.64%.

What I like most about AbbVie, though, is its resilience. After the spinoff, management knew that it was only a matter of time before key patents for its autoimmune disease drug Humira would expire. The company was heavily dependent on Humira's sales.

However, AbbVie invested heavily in research and development. It made strategic acquisitions, notably including the 2020 purchase of Allergan. Those efforts paid off.

Today, the company's lineup features multiple growth drivers that more than offset Humira's sales decline that began after the drug lost U.S. patent exclusivity in 2023.

AbbVie's greatest new success stories are its two successors to Humira, Rinvoq and Skyrizi. These two autoimmune disease drugs should rake in combined sales of $31 billion by 2027, more than Humira achieved at its peak.

A seasoned dividend payer for all seasons

Prosper Junior Bakiny (Johnson & Johnson): In the past few years, Johnson & Johnson's solid performance has been somewhat overshadowed by its legal and regulatory issues. More recently, the threat of tariffs has created new challenges to overcome. Despite these problems, Johnson & Johnson remains an excellent passive income stock. Here are three reasons:

First, it's a leading healthcare company that makes most of its money thanks to its pharmaceutical business, although its medical device unit also contributes significantly. Healthcare is a defensive industry that performs relatively well even during challenging economic times. So, even if a recession eventually hits, as some investors fear, well-established and consistently profitable healthcare players like Johnson & Johnson will be much more resilient than those in most other industries.

Second, it has a rock-solid financial foundation. As evidence of the strength of its balance sheet, the drugmaker has an AAA rating from S&P Global. That's the highest available -- even higher than the U.S. government's.

Third, Johnson & Johnson has an impeccable dividend track record. The company has increased its payouts for 62 consecutive years, making it part of the elite clique of Dividend Kings. It might be facing some headwinds, but its solid business and expertise in the healthcare sector, coupled with significant financial flexibility, make it likely to overcome these obstacles. Meanwhile, the company should continue growing its dividends for many more years. That's why the stock is an excellent pick-up for income-seeking investors.

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David Jagielski has no position in any of the stocks mentioned. Keith Speights has positions in AbbVie. Prosper Junior Bakiny has positions in Johnson & Johnson. The Motley Fool has positions in and recommends AbbVie, Abbott Laboratories, and S&P Global. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

President Donald Trump's macroeconomic policies are taking center stage on Wall Street. The 47th U.S. president has decided to implement aggressive tariffs on imported goods from most countries, although he recently paused these plans for 90 days. Regardless, corporations are looking for ways to avoid paying these tariffs.

That includes two pharmaceutical leaders: Johnson & Johnson (NYSE: JNJ) and Novartis (NYSE: NVS). The industry has so far escaped Trump's tariffs, but that might not last for much longer, which makes these drugmakers' plans critical to monitor. Should investors still consider purchasing shares of Johnson & Johnson and Novartis in this environment?

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1. Johnson & Johnson

One way to avoid tariffs is to manufacture locally. That's what Johnson & Johnson plans on doing more of. The healthcare giant had already been shoring up its manufacturing capacity in the United States, but in March, it announced it would increase these investments. It plans to spend over $55 billion in the U.S. over the next four years, which is 25% more than it spent in the previous four years. J&J will build new facilities and expand some existing ones.

But it will take time for the company to move more of its manufacturing back into the U.S., and in the meantime, it could feel the impact of the tariffs. That's besides other issues the drugmaker faces in the medium term. It's still dealing with thousands of talc-related lawsuits. Furthermore, with the Inflation Reduction Act (IRA), a law passed in the U.S. in 2022 that granted Medicare the power to negotiate the prices of certain drugs, Johnson & Johnson will generate lower revenue from some products.

That said, there are plenty of things to like about J&J's business. Its significant investment in the U.S. to avoid tariffs demonstrates its ability to adapt to changing economic conditions. And that adaptability is precisely what makes this corporation massively successful. No pharmaceutical company generates more in annual revenue. Considering that, it's unsurprising the pharmaceutical company has existed for more than a century. Whether it's dealing with the IRA or some other legal challenge, the smart money is on Johnson & Johnson overcoming it.

It has done so plenty of times throughout its history. The pharmaceutical leader also boasts an AAA rating from Standard & Poor's -- that's a higher credit rating than the U.S. government's. The current legal challenges won't be its undoing.

Meanwhile, it continues to generate strong financial results. Growth in revenue and earnings isn't spectacular, but is steady and reliable. J&J has a deep pipeline of investigational drugs and a diversified medical device business.

Lastly, as more evidence of a robust business, it has now increased its payouts for 63 consecutive years, making it a Dividend King. Rather than avoiding Johnson & Johnson, investors seeking reliable income payers in these volatile times should seriously consider buying its shares.

2. Novartis

Novartis is also shoring up its U.S. manufacturing footprint. The company will invest $23 billion over five years to build seven new facilities and expand three more. In the end, it expects to locally manufacture 100% of the medicines it sells in the U.S. That's all good news for shareholders, as it shows that even if Trump's tariffs outlast his administration, Novartis is well-positioned to mitigate their impact.

The drugmaker expects to grow its revenue at a compound annual growth rate (CAGR) of 5% through 2029, a decent performance for a pharmaceutical giant. Novartis will lose U.S. patent exclusivity for some major products, including heart failure medicine Entresto, this year. Entresto generated $7.8 billion in sales last year, up 30% year over year, so this will be a significant loss.

However, Novartis will eventually fill the gap thanks to newer products. Fabhalta, first approved in the U.S. in 2023 to treat a rare blood disease called paroxysmal nocturnal hemoglobinuria, could generate peak sales of $3.6 billion according to some estimates. There will be others that will allow Novartis to clock that CAGR of 5% through 2029, despite its best-selling drug going off-patent in the U.S. this year. Beyond the next four years, the company's ability to generate consistent earnings, its existing lineup, and its deep pipeline should allow the stock to perform well.

Additionally, Novartis has increased its payouts for 28 consecutive years, a strong streak that makes it attractive to income-oriented investors. Despite the threat of tariffs, I think this dividend stock is a buy.

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Prosper Junior Bakiny has positions in Johnson & Johnson. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.

The U.S. Department of Justice is probing Disney’s deal to take a controlling stake in FuboTV, Bloomberg reports. Fubo is a live TV streaming service known for its extensive sports coverage. Officials are examining whether the deal would create a concentration of power in the sports streaming market. In January, Disney announced that it was going […]

In this podcast recorded April 2 before President Donald Trump's big tariff announcement, Motley Fool analyst David Meier and host Mary Long discuss:

• How different companies were bracing for the tariff impact.
• Tesla's sales slump.

Motley Fool contributor Jason Hall joins host Ricky Mulvey for a look at Texas Instruments and Taiwan Semiconductor.

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To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy.

A full transcript is below.

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This video was recorded on April 02, 2025

Mary Long: Welcome to Liberation Day. You're Listening to Motley Fool Money.

I'm Mary Long. Join on this Wednesday morning, the Liberation Day of all Liberation Days by Mr. David Meier. David, great to see. Happy to have. How you doing?

David Meier: I'm doing well. It's great to see you, too.

Mary Long: Today is April 2, the day after April Fool's Day. As I've mentioned a few times already in this show, it's also Liberation Day. What the heck does that even mean? It's a great question. It's a fair question. We don't actually fully know.

David Meier: No, we don't.

Mary Long: But we are set, allegedly, to find out later today at 4:00 PM Eastern Time when President Donald Trump is scheduled to make an announcement from the White House Rose Garden. This event is being dubbed Make America Wealthy Again. We're recording this at 11:30 AM Eastern. The show won't come out until right during right after the Make America Wealthy Again event. We're not going to talk too much or make too many predictions about what exactly is going to unfold during that event. David, I will ask you to kick us off. Anything you're keeping an ear out for that you're especially going to be paying attention to or any bets you're making on what exactly might unfold?

David Meier: We literally have no idea. It could be anything. We can't make any bets right now, and that's actually that's actually an issue that's facing the business community at large. It's actually an important event where we're going to get some information. One, what's the magnitude. We keep hearing 20% across the board, but it could just be reciprocal when other countries don't have big tariffs on us. There could be carve outs. There could be exemptions. There could be anything. We can tariff certain parts of the world and not tariff certain other parts of the world. We really don't know. It's going to be the thing that we have to do is just listen and digest the information that we get this afternoon from 4:00-5:00.

Mary Long: You hit on this point. Many other people have hit on this point. It's worth hitting on this point again that so much of the anxiety wrapped up in this event is that there is so much we don't know. We have no idea what's going to happen. That uncertainty is what's largely been tied to the freak-out that's been happening in the markets. We know markets love certainty. It sounds like we're going to get some details from 4:00-5:00 Eastern Time today. The result of those details might not be something that everyone is rooting for, but still, we'll have a bit more certainty then than we do now. Do you think that that certainty, however great or small it might be, will be enough to calm investors?

David Meier: I don't know. [LAUGHTER] I know that's a horrible answer, but here's the thing. This is the way markets tend to work. There's a set of expectations. What we have seen for a few weeks now, some days the markets are getting a little bit worried and the trend has been down. Investors are definitely thinking that there's perhaps some bad things coming forward when they look out into the future. There's a little bit of worry about recession. There's a little bit of worry about inflation coming up. If we get information where tariffs are higher than the market expects, that means that, oh, no, I need to change my expectations as investors. Something like that could put pressure on the market and cause it to go down. We've been hearing 20% across the board as the one thing that's been coming out pretty steadily. If it's 5% across the board, if that's not priced in, that could actually cause markets to jump. As far as calming investors, we don't know, but there's a little bit of level set right now where there's an expectation of something around 20% across a wide swath of the globe. Markets haven't really liked it for the most part, if you look at the general trend. It's also interesting that the White House moved this from 3:00-4:00 to wait until markets closed.

Mary Long: The Trump administration argues that tariffs are just one part of Trump's large economic agenda. The point behind them is that they will work to boost US manufacturing and American jobs. Short-term pain is expected to be a part of that process. Perhaps, why? We've seen this event move from 3:00-4:00. It explains the downward moves that the market's been making recently in the past quarter. Let's zoom out, and let's run a little bit with this longer term trajectory. When will we know if those intended long-term effects, more American manufacturing, more American jobs is actually starting to come true, even in spite of some continued short-term pain?

David Meier: It's a great question. It's actually a very Foolish question because ultimately, we don't want to necessarily be responding to the ultra short term. We want to figure out, longer term, what is this going to mean? I love what you've asked here. Unfortunately, increasing manufacturing, both from a plant standpoint as well as a job standpoint, that just takes a while. You can't just build a plant overnight. That's not how that works. When will we start seeing results? First of all, we got to figure out what's being said. Business leaders need to start figuring out, what does that mean? Some people have made some commitments already about, "Hey, we want to be a part of this. We want to bring manufacturing back."

But others like the CEO of Ford in an investor conference the other day, basically said, "Right now, it's all chaos and costs." Once you get enough information to remove the chaos and then actually figure out what the costs are, then we'll start to see businesses making plans. Then we'll start to hear, "This is what we're going to do in response to the tariff. We're going to go after this market. We're going to start making this many widgets. We're going to make them in this state by opening up a plant." Unfortunately, it's not going to be probably 3-6 months before we start seeing those business plans and serious business plans. Not just, "Hey we want to be a part of this," but here's actually what we're going to do. Here's how many dollars we're going to spend. Here's where we're going to build those plants. That's just unfortunately going to take a while, so we're going to have to be patient.

Mary Long: As you allude to, we're already starting to see some companies respond to these tariffs, and they're doing so in a number of different ways. You've got some like Johnson & Johnson, which just announced it's making commitments to boost its own US production. It's going to commit $55 billion in US investments over the next four years. That includes the development of three new manufacturing sites. You've got other companies like Walmart that are turning to their suppliers in Walmart's case, many Chinese manufacturers and are asking those suppliers to cut prices and essentially shoulder Trump's tariffs for the company. You've got other companies, Target and Best Buy, being two in particular that have warned customers about higher prices as they strive to preserve their own profit margins.

The opposite of that is Nike, which adjusted its margin guidance, suggesting, "Hey, it'll attempt to absorb the tariffs for the time being." There's still a lot of uncertainty, but we're already starting to see these different defensive moves come into play. If you are the CEO of David Meier Enterprises, and I intentionally kept that unspecific because it doesn't matter what industry these companies are in, but if you're a CEO of David Meier Enterprises, how would you be bracing your company for whatever tariffs might be coming down the pike later today?

David Meier: I'm going to work on the assumption that I make something that I'm a manufacturer because I think this will help illustrate some stuff. First of all, we knew this was coming. This was something that the new administration campaigned on. They've talked about ever since. We've seen companies do this, too. Hopefully, I've already made some advanced purchases of things that I think I'm going to need from other countries before the import tax, which is what a tariff is, gets put on the stuff I'm trying to buy. That's the first thing. The second thing is, I need to run some different scenarios. Again, if it's 5%, if it's 10%, if it's something ridiculous, like 50%, what does that mean for demand for my products? Hopefully, I've also done some scenario analysis.

Then I'm going to actually talk about something real quick as it relates to Walmart and then assume that my company has this as well. Walmart can be considered what is known as a monopsony, and that is essentially where one company is powerful enough to really control prices by their buying power. Think about Walmart. Huge company. Lots of stuff goes through there. Of course, they can go to their suppliers and say, "Look you don't have that many other options. We buy most of your stuff. We can go and find other suppliers and work with them.

We have plenty of people who want to work with us. You're going to have to take the pain here because we're not willing to bring that on the American consumer as Walmart." If I was fortunate enough to be in that position, as CEO of an enterprise that could do that, I would be telegraphing that to my suppliers as well, because what we want to do is try to make as many plans as possible before it comes. Then once we get the information, more information, better information to figure out this is the direction we want to go from this point forward. That's how, hopefully, I would have been preparing for, digest, and then say, "We now have the information to say, 'This is the direction our business needs to go' and then go."

Mary Long: We'll move on to related, but also unrelated story. Tesla dropped their first quarter delivery and production numbers this morning. Vehicle sales fell to an almost three-year low. Analysts had expected the company to sell more than 390,000 vehicles in the first quarter. The real number was shy of 340,000. Is this sales slump attributable to Musk backlash, or is there more to the story? How do you parse this out when you look at these numbers?

David Meier: A good question. There's actually a little more to this story. For a little additional context, I will also say that prediction markets were expecting about 356. Not only do you have experts say they were expecting 390, but you have wisdom of crowds saying 356, so this number is really was lower than a lot of people expected. Recently, Tesla has been having some struggles. It's not just for Musk backlash around the world based on what he has decided to do injecting himself into the global political scene. There was already a little bit of waning demand. Unfortunately, I think that people have said, "Hey this is not something that we agree with," and they were able to vote with their wallets and say, "Hey, we're not going to buy your car under these set of circumstances." It doesn't mean it won't change in the future, but right now. I think some of it is that this is a continuing trend that Tesla's experienced, but I believe that there's been a little bit of catalyst in terms of the backlash for how Musk has interjected himself into the global political scene.

Mary Long: This Tesla piece does tie to the tariff conversation that we were having earlier. Many Tesla vehicles are produced in the United States. The Model Y scores as number 1 on Cars.com's American-Made Index. Still, though, they do import an estimated 20-25 percent of goods from international sources. We don't have an exact number on that. That estimate comes from the National Highway Traffic Safety Administration, doesn't specify which countries Tesla imports from, but we know that it does get a number of its goods from international sources. A 25% tariff on all imported cars and car parts starts tomorrow, April 3. Tesla is one of the car makers that stands to be less affected by those tariffs because so much of its products are produced in the United States, but that tariff change that's rolling out to all automakers, might Tesla expect to see an uptick in vehicle sales in the nearest future because of that and changing dynamics in car prices?

David Meier: I certainly think it's possible, and you are right. One of the advantages of having less content produced outside the United States is that they have better visibility into the cost structure in a world where there are more tariffs. The other thing is Tesla's in an advantaged position. Who's to say they can't get an exemption on all those parts that they bring in from other countries? It's a very real possibility given the relationship that Musk has with the current administration. It is absolutely very possible. One of the things that Tesla has been doing is bringing down the prices for their cars in order to make them more affordable. In a situation where other substitutes, the competitors have to figure out what to do with the tariff and the amount that's been levied on them. How much are they going to pass along in terms of prices? How much are they going to deal with in terms of their margins?

This very well could give Tesla an advantage in the short term. What's interesting is the initial market reaction today on April 2 was the stock fell on the production and deliveries news, but last I checked at almost approaching noon, the stock was up, so investors taking a longer term view may be seeing that very same thing that you're talking about.

Mary Long: David Meier, always a pleasure to talk with you. Thanks so much for coming on the show this morning and helping us sort through and make sense of all of the uncertainty that we're seeing unfold today.

David Meier: Thanks, Mary. I really appreciate it.

Mary Long: How do you know if a company is walking the walk or just whispering some sweet nothings to shareholders? Up next, full contributor Jason Hall joins Ricky Mulvey for a look at two semiconductor companies, Texas Instruments and Taiwan Semi.

Ricky Mulvey: Jason, we are recording this approximately 48 hours before Tariff Liberation Day as we talk about two semiconductor manufacturers, we shall see what happens on that day. But we're taking some time to check in on Texas Instruments and Taiwan Semiconductor, primarily because I was watching Scoreboard on Fool Live and saw your take that you think that Texas Instruments will outperform Taiwan Semi over the next five years. I own both companies, so what an excuse to talk about them?

Jason Hall: Absolutely.

Ricky Mulvey: It's a little bit of an intro for people less familiar with this space, what is different about the chips that these companies make from each other?

Jason Hall: Basically everything, I think, is a summary of it. But Taiwan semiconductor, it's called TSMC in the industry parlance. TSMC is the manufacturer of basically 100% of the leading edge logic chips out there. You think about the chip in your smartphone that powers your smartphone. Obviously, NVIDIA's GPUs, anybody that follows that industry closely knows that TSMC is the company that makes the chips for their GPUs. The CPUs and GPUs, that's logic chips. Then you have memory chips that companies like Micron and others manufacture. Semiconductors, the leading edge stuff, that's TSMC. They also make the bulk of all of the used to be leading edge stuff because they've built out the capacity, and they're such an incredible operator. They do the contract manufacturing for the big fabulous semiconductor design companies. Basically, everybody that designs their own chips but doesn't make them.

If it's Apple, we mentioned NVIDIA, AMD is a big TSMC customer. Those companies go to TSMC to actually do the manufacturing. Texas Instruments is a fully vertically integrated semiconductor manufacturing. They do their own design. They work with some clients to design special needs chips, but a lot of it is just stuff that they've designed over the past 50 years. Some of the chips that they designed back in the 80s are still being sold to go in industrial machinery and that kind of stuff. They have a big direct sales channel on their website. Over 100,000 customers, and a lot of them just go on their website and find a part off the shelf and order directly from Texas Instruments. Now, here's the biggest separator is its chips are analog chips and integrated chips. The best way to think about what they make is the logic chips that TSMC makes and the memory and all that kind of stuff, all that stuff operates in the virtual world in the electrical electronic world. Those chips have to interface with the real world. They need to get power in. They need to send signal out. That's what Texas Instruments chips do. Is there how electronic devices actually interact and interface with the real world?

Ricky Mulvey: Both of these businesses, semiconductor stocks have historically been cyclical businesses, Taiwan Semi, definitely at a high point right now or highish point, I should say. Do you still see semiconductor stocks as cyclical businesses, and does that affect the way that you invest in them?

Jason Hall: Yeah, absolutely. Businesses are cyclical when their customers and end markets are cyclical. The end market for chips are still cyclical because of that reality. What has changed, Ricky, is the size of some of those end markets. We think about logic, that's TSMC and memory. Those industries have benefited from this explosion in demand for accelerated computing infrastructure. It's bigger than just AI. It goes before AI, is the Cloud, this accelerated computing infrastructure. Now more recently, of course, AI has been like the nuclear explosion in demand, and that's led to this super cycle for TSMC and some other companies that are reaping those gains, and the demand is so big. This new market is so big for those companies that they're more than making up for loss volume and revenue from other sectors that have been weaker, like PCs, consumer electronics, industrial and automotive.

Ricky Mulvey: Now let's separate these companies a little bit, both cyclicals, but both have different stories right now. Texas Instruments has come off a bit of a weak period, 2024, a bit of a down year from a revenue and operating profit perspective, and that has a lot to do with their embedded processing business. Can you explain what's going on there?

Jason Hall: Yeah, so there's definitely some kind of asynchronous cyclicality between its analog business and its integrated business. But the big thing that we're seeing broadly is that it's in the late stages of a transformation in its manufacturing. It's shifting to a larger form factor for its chip making that's going to give it some structural benefits. But there's a protracted downturn in demand across multiple end markets. We actually just saw the last quarter that it reported was the first quarter in about two years where its analog business actually showed just a little tiny bit of demand growth. We can go back to 2023 when demand was really down for its analog business. This is the larger business too. There were some periods where demand was actually up for the integrated business. It's a little bit of a difference in how different parts of the cycle can affect those key businesses. But again, the big key right now for Texas Instruments, is that not only is the business weak, but it's kind of exacerbating its bottom line because it's about three quarters of the way through this big capital project to spend to make some structural changes to its cost structure and its manufacturing that are going to eventually help the business do better, but the timing is just really tough.

Ricky Mulvey: In the past few years, extraordinarily strong for Taiwan semiconductor, its shareholders have been rewarded quite a bit. Why are you seeing an opposite story for that chip manufacturer?

Jason Hall: The easy answer here is AI, and it's largely the correct one. We've also seen some recovering demand in other areas like smartphones. But being essentially the only contract manufacturer that has both the capability and the capacity to make the most advanced chips, it's been a massive boon for TSMC. In one sentence, if you're NVIDIA's foundry, you're doing really well right now.

Ricky Mulvey: With TSMC, there's a different political component because it is sort of this national security infrastructure for Taiwan. China has had its eyes on Taiwan. It's an extraordinarily complicated story between the Taiwan and Greater China relationship. All of that is to say, if you are sitting in the United States, this is a company that carries some political risk that you probably don't fully understand. I don't fully understand it. How do you think about this if you're owning shares of TSMC, which I own a few shares of.

Jason Hall: I do, too. I think it's definitely kind of in the too hard pile for most people, and even the people that are true experts in this area of geopolitics and military threat and risk, would say the same thing. It's a bit of an unknowable but it is a legitimate threat. There's significant national security implications across every Western country if those chips were made unavailable. TSMC, of course, is taking steps to address this expansion in the US. We know that's been ongoing for a while. There's also expansion in Europe, multiple facilities are looking to bring online by around 2027. Now, here's the thing. Those moves might be great for getting diversification of chips to the market if there were a military event actually on Taiwan. But that's not really going to protect shareholders very much. I think it's important to decouple those kind of things down from one another. But what it really comes down to me for is thinking about individual risk tolerance. How much do you have? If you have some tolerance to be able to be exposed to that too hard pile sort of answer, then position sizing comes into play. I'm sure there are a lot of investors, Ricky, that have done incredibly well with TSMC over the past five, 10 years, that might find it prudent to reduce their exposure, take some of those profits now off the risk table, despite there still being a lot of growth potential still for TSMC.

Ricky Mulvey: I own Texas Instruments as well. When I bought the stock a few years ago, I found this was a leadership team that was saying all the right things. We measure our performance on free cash flow per share. This is something that activist investors Elliott Management has more recently sort of held management's feet to the fire. They point out on their investor relations page. Look at us. We've reduced share count by almost 50% over the past 20 years. But during this time, I'll say, over the past five years, this total return has underperformed the S&P 500, and for me, more importantly, it's underperformed the Schwab US Dividend Equity ETF SCHD, which is probably the more appropriate comparison, big strong companies that pay dividends. Management's saying the right things, but there's a little bit of a long term underperformance problem here. Jason, what's going on?

Jason Hall: We look at Rich Templeton, who the company has basically built in his image over the past quarter century. Over the past five years, we've gone from a transition to his second retirement to Haviv Ilan, who's a long term insider, who's now running the company, and some people might say, well, what's going on? What's the shift here? I want to push back a little bit here, Ricky. Yeah, it's underperform those indices, but over the past five years, it's earned an average of 14.7% annualized total returns. It's not like it's been a bad investment. It's just a period that the market's CAGR has been over 18%. Let's contextualize that a little bit. Also, again, think about the cycle. Shares are down some 20% from the high back in late 2024. All this is happening during a period where its end markets are weaker. Now, one more thing. If we've had this conversation just about any other time over the past few years, Texas Instruments total return would be a little bit better than the benchmark, even again, during that persistent downturn in demand. It's not like it's been a bad investment. It's just not doing as well as some of its peers, and again, it's trailed an incredibly good market.

Ricky Mulvey: Hey, I own the stock. Don't blame me. I'm just looking at the numbers here, Jason.

Jason Hall: [LAUGHTER] As a shareholder, I'm right along with you on this.

Ricky Mulvey: Let's get back to the original premise of this conversation. TXN greater than TSM over the next five years. So investors have been more excited about Taiwan Semiconductor. Texas instruments, it's doing boring stuff. It's checking the temperature on things. It's doing analog processes. This isn't the big explosive, exciting AI chip making stuff. why are you more bullish for the long term future of Texas Instruments than Taiwan Semiconductor right now?

Jason Hall: It gets back to the story of the cycle, and I think it's so important with these chip makers to remember that. High fixed costs. You leverage those fixed costs when demand is strong to make more money, take that money and reinvest in your business when the opportunity is there. Texas Instruments has been steadily spending money through the downturn, and I think that's made its stock maybe look a little more expensive on both earnings and cash flows. On the other side of the coin, TSMC's CapEx spending is actually down from the peak in 2023, and it's monetizing much of that spend already. Now, its CapEx is about to start ramping back up. We talk about all of the capital commitments it's made in the US and Europe. As it deploys that capital, it's going to be going for a couple of years before it really starts to get a return on that capital. So its shares might look a little cheaper than maybe they really are. I also think that we need to acknowledge that we always overinvest in these big buildouts. History has shown us that that is the reality. All of these businesses are in a land grab mode, and we're going to get to a point where there's going to be too much supply, and that will lead to the cycle turning for TSMC.

Now, there's going to be a shift from the buildout to the upgrade cycle, and I think we might be maybe closer to that shift from buildout to upgrade cycle than others do. The flip side of the coin here is that TSMC is going to continue to spend capital. TXN, on the other hand, is about three quarters of the way through its current CapEx cycle, which means that its CapEx is actually about to fall just as it starts to leverage the 300 millimeter wafer size for its chip manufacturing. This is going to give it some real structural cost advantages versus its competitors. In other words, its cash flows could really begin to soar in the years ahead making today's stock price that might look a little bit more expensive, really compelling for long term outperformance.

Ricky Mulvey: Jason Hall, I'm going to end it there. Appreciate your time and insight. Thanks for joining us for Motley Fool Money.

Jason Hall: Cheers, this was fun, Ricky.

Mary Long: As always, people on the program may have interest in the stocks they talk about, and Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards and are not approved by advertisers. With Motley Fool Money team, I'm Mary Long. We'll see you tomorrow.

David Meier has no position in any of the stocks mentioned. Jason Hall has positions in Nvidia, Taiwan Semiconductor Manufacturing, and Texas Instruments. Mary Long has no position in any of the stocks mentioned. Ricky Mulvey has positions in Texas Instruments. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Best Buy, Nike, Nvidia, Taiwan Semiconductor Manufacturing, Target, Tesla, Texas Instruments, and Walmart. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.