Costco Wholesale Corporation (NASDAQ:COST) has an indicative forward P/E of 38x, against 46x trailing GAAP earnings. Consensus adjusted EPS approaches $25 for fiscal 2028, compared with fiscal 2026 reported EPS of $20.76. Growing warehouse sales and membership income support higher expected earnings. The forecast uses adjusted earnings; the historical result included a $0.15 tariff-refund benefit, illustrating why temporary earnings gains deserve separate treatment. The available valuation looks demanding.

Walmart Inc. (NASDAQ:WMT) carries a forward P/E of 34x and BJ’s Wholesale Club Holdings, Inc. (NYSE:BJ) 20x. Consensus adjusted EPS growth is approximately 12% and 7% for their years ending January 2028, versus 10% for the company’s August 2028 year, each against the preceding year. That seven-month gap limits direct comparison. The smaller warehouse-club operator is the closer business comparison; advertising and marketplace income diversify the larger retailer’s earnings. Strong renewals and funding support some premium over the smaller club operator, but new warehouses must earn satisfactory returns.

Also read: 10 Best Stocks to Buy for the Next 20 Years

Building a Local Shopping Habit

Costco Wholesale Corporation (NASDAQ:COST) concentrates purchases into fewer than 4,000 warehouse products, strengthening buying power and inventory turnover. Local assortment must deliver enough household savings to justify membership. Competition from convenient delivery raises the hurdle for attracting bulk-shopping trips.

Other International, excluding Canada, delivered comparable-sales growth of 6.5% in fiscal 2026 and 7.7% in September, excluding gasoline-price and currency changes. That supports the expansion thesis without relying on exchange-rate gains.

Costco Wholesale Corporation (NASDAQ:COST) ended fiscal 2026 with renewal rates of 92.3% in the United States and Canada and 89.8% worldwide. Management says Asian warehouses often have more members per location but fewer visits and lower spending per member than U.S. locations. Increasing frequency would spread warehouse costs across more purchases.

For Costco Wholesale Corporation (NASDAQ:COST), loyalty has a cost. Executive rewards encourage spending but reduce merchandise revenue. Fiscal 2026 membership fees reached $5.9 billion, yet investors must assess how much recurring revenue is returned to customers alongside operating profit. With Q4 ending, the growth contribution from the 2024 U.S. and Canadian fee increase, member additions, upgrades, and retention become more important.

More Warehouses Must Produce Adequate Returns

Costco Wholesale Corporation (NASDAQ:COST) increased Other International operating income approximately 17% to $1.93 billion in fiscal 2026. Established markets demonstrate the format’s potential, while new locations need time to build sales.

Across the global network, fiscal 2026 openings generated average annualized first-year sales of $187 million, versus $306 million for warehouses opened in 2017 or earlier. Younger locations need repeat shopping to spread labor and occupancy costs across a larger sales base.

Costco Wholesale Corporation (NASDAQ:COST) plans four European openings, five in Canada and one in Mexico in fiscal 2027. Total capital spending is planned to rise from $6.4 billion to $7.5 billion. Returns depend partly on whether a denser local network improves utilization: fuller depots and shorter routes can lower distribution costs, while underused capacity delays profits.

Funding supports Costco Wholesale Corporation (NASDAQ:COST). Fiscal 2026 operating cash flow of $15.8 billion left $9.4 billion after capital expenditure, by calculation. Faster inventory turnover and better supplier terms also helped cash generation, allowing cash to grow faster than earnings. Cash and short-term investments of $21.3 billion exceeded $6.2 billion of borrowings, excluding leases, limiting the need for additional debt.

Conclusion

Costco Wholesale Corporation (NASDAQ:COST) can extend its membership model overseas, but its forward valuation looks demanding on the available estimates. Strong retention and funding support expansion; roughly double-digit earnings growth needs rising spending per member and improving warehouse productivity. Weaker renewals or poor returns on higher investment would erode that support.

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While we acknowledge the potential of COST as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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The Walt Disney Company (NYSE:DIS) has a forward P/E of 14x versus 21x trailing. Impairments and acquisition amortization depressed reported earnings, while analysts expect further earnings growth. Comcast Corporation (NASDAQ:CMCSA), the closest diversified media-and-parks comparison, trades at 6x forward earnings. Its broadband customer losses and weaker growth outlook help explain the discount. The valuation looks provisionally fair, assuming mature ships improve cash generation.

The Walt Disney Company (NYSE:DIS) traded at 18x forward earnings in September 2025. Consensus adjusted EPS growth slows from approximately 17% in fiscal 2026 to 8% in fiscal 2027. Fiscal 2026 includes an extra week, making fiscal 2027’s growth comparison harder. That calendar effect explains part of the slowdown. Growth still exceeds the roughly 3% forecast for Comcast Corporation (NASDAQ:CMCSA) in 2027, but substantial reinvestment argues against treating the old multiple as an automatic target.

Read more: Trump’s Latest Stock Portfolio: 10 Stocks to Buy

Taking the Brand Beyond the Parks

The Walt Disney Company (NYSE:DIS) appeared in Insider Monkey’s leisure and recreation stock selections. Cruise expansion broadens that exposure. A survey of initial Disney Adventure bookings found that over 90% of guests were new to the cruise line and most were first-time cruisers. Singapore offers access to families who might otherwise face expensive travel to a park.

The Walt Disney Company (NYSE:DIS) increased cruise stateroom capacity approximately 50% year over year in fiscal Q3 2026. Management described occupancy and bookings positively, without publishing a ship-level occupancy rate or fare yield. Pricing must hold after the opening excitement fades, because higher advertised prices must survive customer choices. Discounts and onboard credits can fill cabins while reducing revenue retained per passenger.

Industry results show the pressure. Royal Caribbean Cruises Ltd. (NYSE:RCL) reported second-quarter net yield growth of 1.2% in constant currency, against 3.9% growth in unit costs excluding fuel. For The Walt Disney Company (NYSE:DIS), strong demand must translate into pricing that keeps ahead of crew, food and maintenance costs.

A Popular Ship Still Has to Earn Its Cost

The Walt Disney Company (NYSE:DIS) generated $5.74 billion of free cash flow in the first nine months of fiscal 2026, down 24%, after $6.78 billion of capital spending. This non-GAAP measure subtracts property investment from operating cash flow. Higher taxes and sports-content spending weighed on group operating cash flow. The tax payments included liabilities deferred from earlier years, while operating cash flow from Experiences increased. New park attractions drove higher capital spending; separate cruise returns remain undisclosed.

Experiences operating income rose 20% in Q3, with about four percentage points supplied by a tariff refund. That benefit should be removed when judging repeatable profitability.

The distinction between adding capacity and generating cash from it is crucial. Ship returns should include construction, launch spending, taxes, periodic refits and downtime. Customer deposits help finance operations but carry an obligation to deliver future vacations.

For The Walt Disney Company (NYSE:DIS), weighing expansion against other uses of cash means comparing ships with incremental park attractions and licensing. New rides can use existing hotels and infrastructure. The planned Abu Dhabi resort calls for partner-funded construction, with royalties and service fees for the company. Owning ships retains more operating upside but also construction and utilization risk.

Management targets double-digit returns from future capital projects. Ships must deliver cash after recurring investment against their full capital cost. Additional sailings should also attract incremental spending, rather than divert existing park customers to a different vacation.

Conclusion

The Walt Disney Company (NYSE:DIS) looks fairly valued at 14x forward earnings. New customers must support durable fares and attractive ship returns after maintenance and refits. Persistent discounting or investment without stronger cash generation would weaken the premium to its closest peer. Ships deserve priority only when expected returns exceed competing park projects after allowing for risk.

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While we acknowledge the potential of DIS as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Intuit Inc. (NASDAQ:INTU) has a 13x forward P/E and an 18x trailing P/E. Trailing P/E uses past earnings, while forward P/E uses forecast earnings. Management separately projects fiscal 2027 GAAP EPS growth of 22%–24%. The forward valuation looks provisionally reasonable if stronger earnings support cash generation after higher tax payments.

The forward P/E was 35x in July 2025. Intuit Inc. (NASDAQ:INTU) now expects revenue growth of 9%–10%, versus 14% last year, supporting a more moderate valuation. Management also now includes stock compensation in adjusted earnings. That makes the distinction between operating progress and accounting adjustments important when assessing its guidance.

H&R Block, Inc. (NYSE:HRB), a close tax-preparation comparison, has a 7x forward P/E. Intuit Inc. (NASDAQ:INTU) guides to non-GAAP EPS growth of 23%–24% under its revised definition for the fiscal year ending July 2027, versus approximately 14%–18% for its rival’s June 2027 year. Faster growth and recurring business-software revenue support a premium over a business more dependent on seasonal tax preparation.

Also read: 10 Best Undervalued Stocks to Buy in October

From Loan Referrals to a Broader Financial Marketplace

Intuit Inc. (NASDAQ:INTU) added $441 million of Credit Karma revenue last year: $235 million from personal loans, $101 million from credit cards and $85 million from insurance. Lending supplied roughly 76% of incremental revenue; insurance contributed 19%. Diversification is advancing, but borrowing remains the main growth engine.

Intuit Inc. (NASDAQ:INTU) has products designed to encourage visits without another loan application. My Cards helps members manage existing card rewards, while Karma Drive uses driving data to identify insurance discounts. These services could reduce the cost of attracting returning customers and create referral opportunities. The test is whether customer benefits also improve shareholder economics. Revenue from additional visits must exceed product, marketing, and servicing costs.

Consolidated finances give Intuit Inc. (NASDAQ:INTU) room to invest. Fiscal 2026 operating cash flow reached $8.84 billion against $221 million of capital expenditure. It included a $2.06 billion stock-compensation addback. Credit Karma represented roughly 12% of group revenue, leaving accounting and tax products as substantial buffers.

Fiscal 2026 cash generation also benefited from lower cash-tax payments, including deductions for previously capitalized research spending. Management expects approximately $2 billion of cash taxes in fiscal 2027, so stronger operating earnings must help offset that higher cash outflow.

Revenue Diversification Must Survive Tighter Credit

For Intuit Inc. (NASDAQ:INTU), engagement and monetization can move in opposite directions. The Federal Reserve’s July survey found tighter credit-card lending standards despite broadly unchanged demand. Credit Karma generally earns card and personal-loan referral fees when cards are issued or loans funded. Fewer approvals can therefore reduce revenue even with steady traffic. Compared with putting customer knowledge to work through direct lending, referrals make partners’ willingness to approve and acquire borrowers central to revenue.

Insurance leads provide another revenue source without requiring new borrowing, but insurers can also cut acquisition budgets. Management’s 11%–13% Credit Karma growth forecast for fiscal 2027 anticipates moderation. Investors need evidence that insurance revenue, repeat engagement, and conversion improve together. The combined Consumer segment’s margin cannot isolate Credit Karma’s profitability.

Conclusion

Intuit Inc. (NASDAQ:INTU) looks fairly valued at 13x forward P/E. Sustaining that judgment requires operating profit growth to absorb higher cash taxes while insurance and other services expand their contribution. Resilient referral conversion during tighter credit would strengthen the case for more dependable earnings. Continued dependence on loan growth would leave the diversification thesis unfinished.

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While we acknowledge the potential of INTU as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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READ NEXT: Roper (ROP): Are Buybacks a Better Use of Cash than More Acquisitions? and Synopsys (SNPS) Has a Strong Design Business. Is Its Growth Worth the Premium? 

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Oracle Corporation (NYSE:ORCL) trades at 18x forward P/E versus 23x trailing P/E. Trailing P/E uses historical earnings; forward P/E uses expected earnings. Cloud expansion supports profit growth: management’s $8.10 fiscal 2027 adjusted EPS guidance implies approximately 19% growth against $6.83 excluding prior-year investment gains. Adjustments for stock compensation and amortization also affect earnings comparisons, illustrating why unusual benefits must be separated from repeatable earnings progress.

Cloud partner Amazon.com, Inc. (NASDAQ:AMZN) trades at 24x forward P/E. Its third-quarter operating-profit guidance implies 29%-52% growth, supported by AWS and advertising. That quarterly measure differs from annual adjusted EPS growth. Retail changes its margin mix, while investment gains inflate reported earnings. Operating cash flow of $161.4 billion over twelve months supplies substantial funding, while $123 billion in cash and marketable securities cushions financing risk. AI investment still leaves free cash flow negative. Those operating prospects and funding capacity support some premium. The 18x valuation looks reasonable if database expansion improves cash returns.

Also read: 11 AI Stocks That Will Go to the Moon

Following Customers to Their Preferred Cloud

Oracle Corporation (NYSE:ORCL) operates database infrastructure inside competing cloud environments. On AWS, customers can keep applications near their databases, reducing network delays. Marketplace purchases count toward eligible spending commitments, removing a commercial hurdle alongside the technical one.

Oracle Corporation (NYSE:ORCL), included in Insider Monkey’s 14 Best Cloud Computing Stocks to Buy Right Now, lets customers retain familiar database capabilities while choosing another provider for surrounding workloads. Compatible migrations reduce the incentive to rewrite applications around competing databases.

Oracle Corporation (NYSE:ORCL) is developing Multicloud Universal Credits, still offered through early access. The proposed model simplifies contracting and consumption across partner clouds, subject to marketplace policies. Easier procurement could shorten deployment decisions and expand usage. Moving existing workloads, however, creates less incremental revenue than winning additional applications.

The attraction is how embedded software relationships can support lasting earnings. Preserving customer skills and application compatibility supports retention, while continued investment in reliability and security defends that relationship.

Sharing Distribution Without Losing the Economics

Oracle Corporation (NYSE:ORCL) retains customer involvement: dedicated deployments require private offers negotiated with its sales organization, and it manages the database infrastructure. Partners gain associated application and analytics spending but also sell competing databases. Retention must therefore produce profit after hosting costs, discounts, and partner arrangements.

Migration does not establish incremental demand. Software revenue fell 3% in the latest quarter as customers shifted toward cloud services. Investors need additional consumption and profitable renewals to outweigh displaced license and support revenue.

Oracle Corporation (NYSE:ORCL) also faces financing demands beyond this channel. First-quarter operating cash flow reached $23.1 billion, including $11.4 billion of customer prepayments with a significant financing component. Capital expenditure reached $28.5 billion, leaving negative $5.4 billion of free cash flow, defined as operating cash flow less capital expenditure. Notes payable totaled $125.3 billion against $37.1 billion in cash and marketable securities.

Those advances demonstrate why cash collected before delivery still carries obligations. A $20 billion common-stock issuance supplied funding while diluting ownership. Broader infrastructure expansion still requires substantial capital despite the database channel’s appeal.

Oracle Corporation (NYSE:ORCL) trades below its forward P/E of approximately 33x in August 2025 and 28x in May 2026. Faster cloud growth supports earnings potential, but heavier investment and financing needs justify a more restrained multiple. The historical discount reflects a tougher cash-generation test, rather than establishing an automatic bargain.

Conclusion

Oracle Corporation (NYSE:ORCL) looks reasonably valued at 18x forward P/E if rival clouds generate additional profitable database usage and protect renewals. Earnings growth must improve cash after investment and reduce dependence on external funding. Persistent funding deficits or growth dominated by relocated workloads would weaken the valuation case.

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While we acknowledge the potential of ORCL as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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READ NEXT: Roper (ROP): Are Buybacks a Better Use of Cash than More Acquisitions? and Forgent Power (FPS) Reports $3B Backlog. Can Manufacturing Keep Up? 

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Broadcom Inc. (NASDAQ:AVGO) carries a forward P/E of approximately 19x and a trailing P/E of 47x. Trailing P/E uses past earnings; forward P/E uses forecasts. Rapid AI-chip growth supports stronger earnings expectations. Fiscal 2026 third-quarter GAAP diluted EPS was $2.68, versus adjusted EPS of $3.32, excluding stock compensation, acquisition-related amortization, and other specified items. These exclusions affect earnings quality: stock compensation can dilute shareholders even when excluded from adjusted profits.

For Broadcom Inc. (NASDAQ:AVGO), 19x forward earnings looks provisionally reasonable if semiconductor expansion continues and software sustains cash generation. That judgment applies to the combined business. VMware’s customer relationships provide recurring revenue, while the larger semiconductor operation adds exposure to the AI investment cycle.

Also read: Top 10 Co-Packaged Optics (CPO) Stocks to Buy in 2026

Why Critical Workloads Stay Put

The long-term agreement between Broadcom Inc. (NASDAQ:AVGO) and Standard Chartered PLC (LSE:STAN) illustrates the attraction. Their announcement said 70% of the bank’s global infrastructure footprint already operated on the new architecture, with deployment times shortened from weeks to a day. Reliability, security, and integrated management matter when disruptions can interrupt essential banking services.

Migration requires application testing, retraining, and sometimes parallel systems. Those expenses help defend renewals, but switching costs must still translate into cash growth. Customers eventually reassess whether licensing costs outweigh the operating benefits.

In a survey sponsored by Broadcom Inc. (NASDAQ:AVGO), cost overtook security as the leading public-cloud concern among 1,800 enterprise technology decision-makers. Pooling computing resources and automating deployment can reduce hardware and administration spending, improving customers’ capacity to pay for software. Licensing customers’ infrastructure also requires less direct data-center investment than operating a hyperscale cloud, a useful distinction among cloud computing stocks.

Nutanix, Inc. (NASDAQ:NTNX), the closer private-cloud operating comparison, added more than 3,000 customers in fiscal 2026. Competition gives customers alternatives, while recurring growth must fund continued product investment. Better features and service can sustain renewals; persistent dissatisfaction can turn migration spending into a worthwhile investment.

Revenue Must Become Recurring Cash

Broadcom Inc. (NASDAQ:AVGO) reported third-quarter infrastructure-software revenue of $8.75 billion, up 29%, and segment operating profit of $7.33 billion, up 40%. Segment profit excludes stock compensation, acquisition-related amortization and other unallocated expenses. These results cover the wider software portfolio, so they do not isolate VMware’s profitability.

Contract changes helped Broadcom Inc. (NASDAQ:AVGO) recognize more license revenue upfront. Most new software agreements no longer permit termination for convenience, allowing the license portion to be recognized when control transfers. Upfront license revenue rose to $3.47 billion from $1.92 billion. Stronger commitments improve visibility, but contracted growth and recognized revenue follow different timelines.

Contract assets, representing revenue recognized ahead of invoicing, increased to $11.90 billion from $8.92 billion at fiscal year-end. Future billing and collection therefore matter alongside reported growth. Larger commitments create durable value when customers keep paying and expanding after the initial agreement.

Broadcom Inc. (NASDAQ:AVGO) generated $13.67 billion of quarterly free cash flow, defined as operating cash flow less capital expenditure, against approximately $3.10 billion of dividends. That provides investment flexibility, although both chips and software contribute. Management expects fourth-quarter AI semiconductor revenue of $21.7 billion versus $16.7 billion in the third quarter. A slowdown would put greater weight on software’s recurring cash contribution.

Conclusion

Broadcom Inc. (NASDAQ:AVGO) looks provisionally reasonable at 19x forward earnings if AI expansion continues and software converts commitments into collections. VMware can remain a durable cash engine when customer savings support renewals and expansion. Persistent collection delays or customer losses would weaken that judgment, even if upfront license recognition keeps reported revenue growing.

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While we acknowledge the potential of AVGO as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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READ NEXT: Roper (ROP): Are Buybacks a Better Use of Cash than More Acquisitions? and Salesforce (CRM) Grew Agentforce and Data 360 ARR More Than 200%. Is AI Finally Becoming Material to Growth? 

This article is originally published at Insider Monkey.

Meta Platforms, Inc. (NASDAQ:META) trades at 21x forward P/E versus 27x trailing P/E. Trailing P/E uses earnings from the past 12 months; forward P/E uses forecast earnings. Historical profits include a $15.9 billion tax charge, partly offset by an $8 billion tax benefit, plus legal and severance costs. The lower forward multiple reflects higher expected earnings against that distorted base, rather than operating growth alone.

For Meta Platforms, Inc. (NASDAQ:META), the valuation looks reasonable if advertising keeps funding profitable expansion. Alphabet Inc. (NASDAQ:GOOGL) trades at 23x forward P/E and already earns substantial cloud profits beyond advertising, giving its premium some operating support. Among AI stocks in Ken Fisher’s portfolio, converting adoption into cash matters more than adding another popular product.

META is also included in Trump’s Latest Stock Portfolio: 10 Stocks to Buy

Turning Conversations Into Business Infrastructure

Meta Platforms, Inc. (NASDAQ:META) can sell merchants access to customers in an app they already use. Order notifications, authentication codes, and appointment updates create repeated needs. Connecting chats with catalogs and customer records could reduce manual work and improve retention. The value comes from turning conversations into completed purchases and saving merchants enough labor to justify the fees.

Meta Platforms, Inc. (NASDAQ:META) charges for delivered business messages by destination and category. Service replies within the customer-service window are free, as are qualifying utility responses. Volume discounts can reduce revenue per message. Consequently, converting free access into paid repeat usage matters more than conversation counts. Transaction notifications can recur, while promotional messaging depends on merchants’ marketing budgets.

Meta Platforms, Inc. (NASDAQ:META) is extending the offer through Business Agent, which answers questions, recommends products, and books appointments. September’s Meta One business bundles added paid access to more responses. Subscriptions could make revenue more predictable, provided businesses renew because the tools save labor or produce profitable sales.

Competition raises that hurdle. Rich Communication Services, or RCS, is expanding business messaging with interactive product cards delivered through phones’ native messaging apps. These alternatives could constrain paid-message growth or pricing and increase the need for AI services that solve merchants’ problems. Better automation could defend revenue per customer, but additional computing and development costs must earn their keep.

User Scale Must Become Earnings Scale

For Meta Platforms, Inc. (NASDAQ:META), materiality remains the challenge. Second-quarter Family of Apps other revenue added $424 million year over year, compared with $12.8 billion of additional advertising revenue. Ads that open WhatsApp conversations still generate advertising revenue. They do not establish a separate, recurring messaging profit stream.

Country mix and consumer experience also shape returns. Expansion in lower-priced markets can add users faster than revenue. Unreliable AI answers could increase support costs or lose merchants, while excessive promotional traffic could weaken engagement. Repeat paid usage needs to grow faster than the cost of serving it.

Meta Platforms, Inc. (NASDAQ:META) plans $130 billion–$145 billion of capital spending in 2026, including finance-lease principal. Second-quarter operating cash flow of $31.9 billion left $784 million of free cash flow after $31.1 billion of capital spending. This group investment raises the hurdle for cash returns after reinvestment. Management also expects a $10 billion third-quarter legal charge tied to a settlement with payments spread over a decade. WhatsApp needs to become a contributor to cash returns.

Conclusion

Meta Platforms, Inc. (NASDAQ:META) looks fairly valued at 21x forward P/E, supported by advertising and credible routes to recurring business revenue. A WhatsApp premium requires meaningful profit after service, AI, and infrastructure costs. Rising paid usage, subscription renewals and better cash conversion would strengthen the judgment. Persistent margin pressure or weak cash returns would undermine it.

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While we acknowledge the potential of META as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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READ NEXT: Salesforce (CRM) Grew Agentforce and Data 360 ARR More Than 200%. Is AI Finally Becoming Material to Growth? and How Serious Are Thousands of Addiction Lawsuits for Meta (META) and Snap (SNAP)? 

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Amazon.com, Inc. (NASDAQ:AMZN) carries a forward P/E of 24x and a trailing P/E of 20x. Trailing P/E uses the past twelve months’ earnings; forward P/E uses forecast earnings. Investment gains boosted historical earnings and help explain the gap: quarterly results included $53.4 billion of pretax nonoperating other income, primarily from AI investments. Separating temporary gains from recurring profitability keeps the valuation focused on sustainable earnings.

Among e-commerce stocks, Amazon.com, Inc. (NASDAQ:AMZN) combines seller fees with cloud profits. eBay Inc. (NASDAQ:EBAY) is a useful marketplace comparison but lacks equivalent cloud and fulfillment infrastructure. Analyst consensus projects calendar 2027 non-GAAP adjusted earnings per share growth of approximately 26% and 9%, respectively. The forward valuation looks reasonable if operating growth improves cash generation after investment.

Find AMZN among 10 Best Big Name Stocks to Buy According to Financial Media

A Marketplace Sellers Cannot Easily Replace

Amazon.com, Inc. (NASDAQ:AMZN) combines customer traffic with its Fulfillment by Amazon (FBA) service, covering storage, picking, packing, delivery, and returns. Sellers can outsource these functions instead of financing an equivalent network. Faster delivery can improve conversion and inventory turnover, spreading merchant overhead across more orders.

The company delivered over 40% more items same-day or overnight in the first half. That strengthens convenience, although faster delivery must produce profitable orders.

Amazon.com, Inc. (NASDAQ:AMZN) increased North American operating income to $9.1 billion from $7.5 billion. Calculated from segment disclosures, operating margin improved to 7.9% from 7.5%. Higher unit and advertising sales helped absorb rising operating costs. The segment includes first-party retail and subscriptions alongside marketplace activity.

Using rounded paid-unit growth and seller-mix disclosures, seller units grew approximately 15%, close to seller-services revenue growth. This suggests transaction volume remains an important revenue driver.

Tinuiti Inc.’s second-quarter advertiser benchmark showed Sponsored Products spending up 38%, clicks up 37%, and attributed sales up 44%. Sales outpacing expenditure suggests improved advertising efficiency among sampled advertisers.

For Amazon.com, Inc. (NASDAQ:AMZN), sustaining that efficiency matters. Prime Day moved from July into June, boosting quarterly comparisons. Attributed sales can also include purchases that would have occurred without advertising. Merchant returns depend on incremental profit after product costs, fees, and returns.

When Monetization Becomes a Merchant Constraint

Amazon.com, Inc. (NASDAQ:AMZN) raised average U.S. FBA fees by $0.08 per unit for 2026, then introduced a 3.5% fuel and logistics surcharge, averaging another $0.17 per U.S. FBA unit. The surcharge applies to fulfillment charges, not merchandise prices.

Higher logistics costs pressure the entire delivery chain. The ability to raise prices without driving customers away depends on service value. Sellers absorbing higher product, storage, and advertising costs may increase prices, reduce assortment, or invest in alternative channels. Those responses could weaken selection, conversion and future marketplace growth.

Advertising revenue also includes vendors and video advertisers. Seller-services revenue combines commissions with fulfillment and shipping. Neither revenue line directly establishes how much more individual merchants pay on each sale.

Amazon.com, Inc. (NASDAQ:AMZN) reported negative $7.6 billion of company-defined non-GAAP free cash flow over the twelve months through June: $161.4 billion of operating cash flow less $169.0 billion of property and equipment purchases, net of sales proceeds and incentives. AI investment drove much of the increase. Quarterly cloud operating income reached $16.6 billion, but the valuation requires that profitability eventually translate into cash after capital spending.

Conclusion

Amazon.com, Inc. (NASDAQ:AMZN) looks reasonably valued at 24x forward earnings if better merchant productivity supports recurring profit growth and investment delivers stronger cash returns. Improving retail margins support that view. Persistently weaker seller returns or cash generation would undermine it.

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While we acknowledge the potential of AMZN as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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READ NEXT: Costco (COST) Collects More Membership Fees. How Much Does It Give Back? and Lands’ End (LE) Expanded Gross Margin 320bps as Adjusted EBITDA Fell 25%. Can E-Commerce Deliver? 

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Alphabet Inc. (NASDAQ:GOOGL) trades at approximately 23x forward earnings versus 18x trailing earnings. Exceptional investment gains flatter the trailing multiple: second-quarter equity-security gains added $6.26 to reported EPS. The higher forward multiple reflects an earnings base less dependent on these portfolio gains.

For Alphabet Inc. (NASDAQ:GOOGL), that valuation looks reasonable against 22x for Meta Platforms, Inc. (NASDAQ:META). Analysts expect approximately 26% adjusted EPS growth in 2027 for the former versus 13% for the latter. Faster expected growth supports the modest premium, provided operating profits translate into stronger cash returns.

Also read: 12 Tech Stocks Everyone Is Talking About

Turning Free Viewers Into Paying Households

Alphabet Inc. (NASDAQ:GOOGL) already has subscription momentum. Second-quarter subscriptions, platforms, and devices revenue rose 15% to $12.9 billion, with YouTube Music and Premium among the drivers. The category also includes Google One and other businesses. YouTube advertising revenue increased 13% to $11.1 billion.

The existing audience gives Alphabet Inc. (NASDAQ:GOOGL) a distribution advantage. However, converting viewers replaces some advertising income, while YouTube shares most Premium revenue with partners. What remains after content providers are paid must exceed the advertising profit displaced. Monthly payments reduce exposure to advertising-budget swings only when subscribers stay.

Deloitte’s March 2026 data show that 68% of U.S. households with paid streaming subscriptions had an ad-supported service, up from 54% a year earlier. Growing acceptance could help Peacock adoption, although retained profit depends on partner costs and advertising economics.

For Alphabet Inc. (NASDAQ:GOOGL), existing subscribers present another hurdle. Giving Peacock to households that would have stayed anyway adds costs without necessarily producing incremental revenue. Better retention must compensate, alongside conversions from free viewing.

A Broader Bundle Meets a Bigger Capital Bill

Alphabet Inc. (NASDAQ:GOOGL) gains programming that can keep households engaged between individual releases. Yet expensive sports can lift revenue without lifting profit. Wholesale charges, renewal terms and the allocation of advertising income determine whether broader entertainment improves margins.

Netflix, Inc. (NASDAQ:NFLX) trades at approximately 19x forward earnings, with analysts forecasting roughly 6% adjusted EPS growth in 2027. Its content-focused business differs from the diversified parent. Faster expected earnings growth supports the latter’s premium, but Search and Cloud must deliver much of it.

Alphabet Inc. (NASDAQ:GOOGL) also appears in Insider Monkey’s 10 Best AI Stocks to Buy According to Billionaire Stanley Druckenmiller. That opportunity carries substantial funding requirements. Second-quarter operating cash flow of $39.1 billion fell short of $44.9 billion in capital expenditure, producing negative free cash flow of $5.9 billion.

Trailing-year free cash flow was $53.3 billion. Separately, June’s common-equity and mandatory-convertible-preferred issuance raised $49.6 billion net, while second-quarter senior notes raised $20.3 billion net. These financing proceeds bolster liquidity, but dilution spreads future earnings across more shares. Preferred dividends and debt service reduce cash available to common shareholders, raising the returns required from investment.

The forward P/E is below approximately 28x in December 2025. That discount is understandable when AI investment absorbs more cash than operations generate. Operating income nevertheless increased 30% in the second quarter, with the operating margin reaching 34%. Management expects capital expenditure to rise significantly again in 2027. The lower multiple provides some cushion, but stronger cash conversion and profits that withstand rising depreciation are needed to justify a recovery in valuation.

Conclusion

Alphabet Inc. (NASDAQ:GOOGL) looks reasonably valued at 23x forward earnings. Operating growth supports that judgment; sustained cash deficits would weaken it. YouTube subscriptions strengthen the case when retention and conversion produce profit after partner costs, while group earnings and cash flow per share grow after financing obligations and dilution.

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While we acknowledge the potential of GOOGL as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Bank of America Corporation (NYSE:BAC) trades at approximately 11x forward P/E versus 13x trailing P/E. Higher lending and fee income, operating leverage, and share repurchases support the earnings improvement behind that gap. The forward valuation sits above Wells Fargo & Company (NYSE:WFC) at 10x and below JPMorgan Chase & Co. (NYSE:JPM) at 14x. It looks reasonable if inexpensive deposits sustain earnings growth after credit costs.

Also read: 10 Most Active Blue Chip Stocks to Buy Right Now

Checking Relationships Still Lower Funding Costs

Bank of America Corporation (NYSE:BAC) increased average Consumer Banking deposits to $957 billion from $950.8 billion in the first quarter, extending the recovery from $945 billion in late 2025. The rate paid on those deposits fell to 0.48%, from 0.58% a year earlier. Growing balances while paying less interest gives the lending business a practical advantage over financing that must continually compete on yield.

Bank of America Corporation (NYSE:BAC) estimates that 92% of consumer checking accounts are customers’ primary accounts. Direct deposits, payments and everyday banking create reasons to stay beyond the advertised interest rate. Those relationships become an earnings advantage when customer loyalty supports profitable lending, provided technology, service and credit costs remain controlled.

For Bank of America Corporation (NYSE:BAC), interest-rate changes affect both sides of the spread. Lower deposit rates reduce funding expense, while repricing older fixed-rate assets can raise income. Loan growth and market activity also contributed to net interest income of $16 billion. Tax-equivalent net interest yield, a non-GAAP measure adjusting for tax-exempt interest, increased to 2.08% from 1.94% a year earlier. The lesson from cheaper funding and better lending returns is that savings matter alongside asset yields and credit performance.

Faster Lending Must Preserve Returns

Bank of America Corporation (NYSE:BAC) paid 2.23% on Global Banking deposits, substantially more than on consumer balances. Corporate deposits can support lasting payments and cash-management relationships, but faster growth in this category can increase the funding mix’s sensitivity to rates. Sustained consumer deposit growth would strengthen the franchise by limiting the need to attract more expensive incremental balances.

The difference in loan and deposit growth does not indicate a funding shortage at Bank of America Corporation (NYSE:BAC). Average loans of approximately $1.22 trillion remained well below $2.02 trillion of average deposits, which also fund securities and liquidity. The relevant decision is how redeployment changes earnings after funding costs, rather than whether two growth rates match. Credit deterioration could still consume the benefit of higher loan income.

Bank of America Corporation (NYSE:BAC) reported a 0.47% net charge-off ratio, down from 0.55% a year earlier, while its common equity tier 1 capital ratio held at 11.2% sequentially. Buybacks help EPS, but lending also consumes regulatory capital; repurchases must leave capacity for loan expansion and losses. Its forward P/E has declined from approximately 13x at year-end 2025, making the valuation less demanding alongside better lending income and credit performance. The historical discount remains sensible because deposit competition and rate-sensitive revenues can interrupt that improvement.

Profitability also explains the peer discount. Second-quarter return on tangible common equity, a non-GAAP measure, was 17%, versus 23% for JPMorgan Chase & Co. (NYSE:JPM) excluding specified investment gains. Stronger returns on shareholder capital can justify a higher multiple; similar earnings growth alone would not eliminate that distinction.

Conclusion

Bank of America Corporation (NYSE:BAC) looks fairly valued at approximately 11x forward P/E. Lower consumer funding costs and improving credit metrics support that judgment, while its modest premium over Wells Fargo & Company (NYSE:WFC) requires durable earnings growth. Faster consumer deposit accumulation, resilient lending spreads, and controlled losses would strengthen the case. Greater dependence on expensive deposits would weaken it.

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While we acknowledge the potential of BAC as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you’re looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Quest Diagnostics Incorporated (NYSE:DGX) trades at approximately 20x forward P/E and 25x trailing P/E. Management’s 2026 reported EPS guidance of $9.97–$10.17 exceeds the $8.75 earned in 2025, supporting the earnings-growth direction behind the gap. Adjusted EPS guidance excludes costs including acquisition amortization and restructuring, so adjusted earnings growth should not be mistaken for an equivalent improvement in underlying operations.

Read the bull analysis here: Quest Diagnostics Incorporated (DGX): A Bull Case Theory

Quest Diagnostics Incorporated (NYSE:DGX) looks fairly valued at a premium to Labcorp Holdings Inc. (NYSE:LH), which trades at 16x forward P/E. Their 2026 adjusted EPS guidance midpoints imply approximately 13% and 11% growth, respectively. That modest growth lead needs stronger productivity to support the premium, while the peer’s biopharma business adds drug-development exposure. The network must keep turning broader patient access into profitable care without letting service costs consume additional revenue.

More Routine Work Changes the Economics

Quest Diagnostics Incorporated (NYSE:DGX) attributed roughly nine percentage points of second-quarter organic volume growth to new hospital and dialysis relationships. Those arrangements contain more routine testing, explaining much of the 2.8% decline in revenue per requisition. Excluding their mix effects, organic volume increased approximately 4%, and revenue per requisition rose about 3%, primarily because each requisition contained more tests. The aggregate decline therefore does not establish broad pricing erosion.

For Quest Diagnostics Incorporated (NYSE:DGX), hospital outsourcing creates an opportunity to spread laboratory, collection and logistics costs across more specimens. Payer access helps channel patients into that network. However, routine testing must earn enough after staffing and supplies; additional throughput has little value if expenses rise just as quickly. Capacity expansion creates value when staffing investment pays for itself through higher utilization and lower unit costs.

The latest results show that hurdle at Quest Diagnostics Incorporated (NYSE:DGX). Second-quarter adjusted operating margin declined to 16.5% from 16.9%. Incremental adjusted operating profit represented approximately 13% of incremental revenue, calculated from the reported changes, below the previous group margin. Automation and faster-growing advanced diagnostics could improve that return, while higher compensation and supply spending are already absorbing part of the growth.

Also read: 7 Most Undervalued Pot Stocks To Buy According To Analysts

Cash Generation Must Catch Up

Quest Diagnostics Incorporated (NYSE:DGX) generated $875 million of first-half operating cash flow and spent $252 million on capital projects. Subtracting capital expenditure leaves $623 million, compared with $633 million a year earlier. Billing and collection efficiency also weakened: days sales outstanding increased to 50 from 47 a year earlier. More earnings tied up in receivables leave less cash for debt reduction or distributions, making cash growth after reinvestment a necessary test of scale.

Quest Diagnostics Incorporated (NYSE:DGX) still guides to $11.95 billion–$12.05 billion of annual revenue. Its forward P/E was also approximately 20x on September 11, offering little evidence of a valuation reset over the available September comparison. Sustained demand and specialty testing support earnings growth, but the multiple requires better cash conversion. A second-quarter tax benefit of roughly $0.10 per diluted share also helped earnings without improving laboratory productivity.

Conclusion

Quest Diagnostics Incorporated (NYSE:DGX) is fairly valued at approximately 20x forward P/E. The mix explanation supports the customer franchise, while current incremental margins and cash generation leave the scale advantage unfinished. Recovering operating margins, faster collections, and durable specialty-testing growth would justify the premium. Persistently weaker cash conversion would make the cheaper peer more compelling, even if test volumes remain strong.

While we acknowledge the risk and potential of DGX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DGX and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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Walmart Inc. (NASDAQ:WMT) has a forward P/E of approximately 38x versus a trailing P/E of 40x. Operating growth supports the lower forward multiple, while investment revaluations complicate comparisons with reported profit. Management’s $2.80–$2.87 adjusted EPS guidance implies 6–9% growth for the year ending January 2027. Target Corporation (NYSE:TGT) guides to 31–44% growth over the comparable fiscal period, but its outlook includes $1.65 per share of tariff refunds. Adjusted earnings can still contain exceptional benefits.

For Walmart Inc. (NASDAQ:WMT), Target Corporation (NYSE:TGT) is the closer general-merchandise comparison. Greater purchasing scale, grocery frequency, and growing advertising income support a quality premium. Costco Wholesale Corporation (NASDAQ:COST), at 40x forward earnings, uses a membership warehouse model, making the cost of rewarding customer loyalty part of the comparison. A modest discount to that business does not establish cheapness. The valuation looks demanding unless recurring free cash flow improves.

Read the full comparison here: Costco (COST) vs. Walmart (WMT): Which Retailing Giant Has a Wider Moat?

Supplier Funding Works Best When Shelves Turn Quickly

Walmart Inc. (NASDAQ:WMT) ended July with $64.3 billion of accounts payable against $61.6 billion of inventory. Purchasing scale and frequent grocery purchases help merchandise move before suppliers require payment. Reliable availability reinforces customer traffic, while a broad store network spreads distribution costs across substantial sales. These advantages can reduce the capital shareholders must supply for growth.

For Walmart Inc. (NASDAQ:WMT), however, a favorable balance-sheet position did not mean inventory funded growth during the half. Inventory changes consumed $2.660 billion of operating cash, while higher payables supplied $1.648 billion. Those cash-flow movements, rather than simply subtracting period-end balances, establish the $1.012 billion drag. As with customer funding that supports production before delivery, payment timing provides financing, not an additional profit margin.

Walmart Inc. (NASDAQ:WMT) reported inventory growth of 6.0% in constant currency, reflecting strategic initiatives and inflation, alongside quarterly constant-currency revenue growth of 5.1%. Management expects annual sales growth of 4–5% on that basis. Higher merchandise costs can absorb cash even without a matching increase in physical stock. If shoppers become more selective, slower turnover would tie up funding longer and increase markdown risk.

Advertising and membership growth offer a better route to additional profit without proportionately more owned merchandise. Global advertising grew 38%, and membership fees rose 17% in Q2. Those businesses strengthen the case for a premium, provided their gains survive spending on customer acquisition, service and infrastructure.

Find WMT among 10 Best Bear Market Stocks to Invest In Right Now

Investment and Refunds Complicate Cash Conversion

Walmart Inc. (NASDAQ:WMT) increased first-half operating cash flow to $19.7 billion from $18.4 billion. Capital expenditure rose faster, to $14.2 billion from $11.4 billion, reducing free cash flow to $5.5 billion from $6.9 billion. Here, free cash flow means operating cash after property and equipment spending. Inventory was a headwind within operating cash; the larger investment bill explains why stronger operating cash still left less for shareholders.

The company also raised planned annual capital expenditure from approximately 3.5% to 4.0% of sales. Better inventory turnover could release cash, but it cannot eliminate that additional spending. Investment must improve availability, throughput, or operating costs enough to increase future cash generation. First-half dividends and repurchases totaled approximately $9.0 billion, exceeding free cash flow and increasing the importance of funding discipline.

Walmart Inc. (NASDAQ:WMT) also benefited from tariff refunds in Q2. These remained within adjusted operating earnings, with management prioritizing remaining benefits for customer experience and lower prices in the second half. Industry competition makes that reinvestment understandable: attractive prices protect traffic. But temporary refunds can flatter an apparently stronger margin, and neither the receipt nor its earnings benefit should be projected as recurring.

The forward P/E was approximately 45x in April 2026, 39x in January and 34x in October 2025. The latest 38x sits below the recent peak but above the earlier valuation. Stronger advertising, membership, and operating-income guidance support the business outlook. Higher capital intensity and refund-supported profits weaken the argument that the lower multiple alone creates a bargain.

Conclusion

Walmart Inc. (NASDAQ:WMT) looks demanding at 38x forward earnings. Supplier credit remains valuable, but it has not prevented inventory from absorbing cash, and rising capital spending adds another claim on operating profits. Faster inventory turnover, durable margin gains excluding refunds, and improving free cash flow after investment are needed to justify the valuation.

While we acknowledge the risk and potential of WMT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than WMT and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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This article is originally published at Insider Monkey.

RTX Corporation (NYSE:RTX) trades at approximately 25x forward earnings versus 34x trailing earnings. Analysts expect approximately 15% growth in calendar-2026 non-GAAP adjusted EPS. Accounting differences also matter: second-quarter reported EPS was $1.57, compared with adjusted EPS of $1.89 after excluding acquisition-accounting adjustments, restructuring and other items. The valuation gap should not be read as a forecast of equivalent underlying profit growth. Read the full analysis here.

General Electric Company (NYSE:GE) trades at approximately 35x forward earnings. The lower valuation of RTX Corporation (NYSE:RTX) may partly reflect slower expected adjusted EPS growth, versus approximately 24% for General Electric Company (NYSE:GE) in calendar 2026, and less concentrated exposure to commercial-engine services. The discount looks reasonable, provided earnings growth produces lasting cash after investment.

Also read: RTX Keeps Winning Contracts, but Jim Cramer Sees a Complication

Receivable Sales Accelerate Cash Collection

RTX Corporation (NYSE:RTX) sells certain receivables to third parties, primarily through customer-facilitated programs linked to commercial aircraft production. These arrangements convert invoices into cash sooner. Higher delivery volumes can support greater activity, so increased factoring can accompany real operating growth.

Subtracting the $1.5 billion increase in factoring from the $3.64 billion cash-flow improvement leaves approximately $2.14 billion. That is a useful sensitivity calculation, but it still includes other working-capital movements. Payment timing and higher accounts payable also supported cash, while sales ahead of billing absorbed funds.

For RTX Corporation (NYSE:RTX), the distinction is between cash generated by stronger economics and cash arriving earlier. Across aerospace, customer advances can also support cash before delivery. The mechanisms differ, but both require investors to examine the obligations and collections remaining after the initial benefit.

A stable factoring program can continue alongside recurring sales. The incremental benefit becomes harder to repeat if delivery growth slows or the company stops increasing its use. Funding costs also reduce the value retained from an invoice. The economic test is whether financing generates enough value to cover its costs.

RTX Corporation (NYSE:RTX) should therefore be assessed on collections, program use, and financing costs together. A smaller factoring contribution alongside stable cash generation would strengthen the recovery. Another increase could support liquidity while leaving the durability of underlying collections less established.

Installed Equipment Supports Earnings but Requires Investment

RTX Corporation (NYSE:RTX) has operating advantages that can sustain earnings beyond collection timing. Installed engines require parts, maintenance, and technical support over long service lives. Certification requirements and integration into aircraft create barriers to replacement. Defense programs provide additional demand, although contractual pricing can leave manufacturers absorbing labor and material inflation.

The engine business reported 25% growth in second-quarter commercial aftermarket sales, driven by volume. Its adjusted operating profit increased 22%, compared with 50% reported growth, which benefited from a prior-year customer-bankruptcy charge. The adjusted result offers clearer evidence that additional service activity is improving earnings.

Growth still needs funding. Aerospace capacity expands through equipment, qualified suppliers and trained employees, so factory investment must translate into better aerospace margins to create shareholder value. Producing more equipment or repair work ahead of customer billing can absorb cash even while reported profits rise.

RTX Corporation (NYSE:RTX) generated approximately $4.19 billion of first-half free cash flow, its non-GAAP measure of operating cash flow less capital expenditure. Management’s $8.50–$8.75 billion annual guidance requires another approximately $4.31–$4.56 billion in the second half. Those collections must arrive while the company funds capacity and engine-related customer obligations.

The forward valuation compares with approximately 24x in June 2025, 28x in March 2026 and 27x in June 2026. Stronger segment earnings and the raised outlook support a larger earnings denominator, but moderation from the recent multiples does not establish a bargain. The current rating still requires durable growth, and cash accelerated through financing provides less evidence of that durability than repeat operating collections.

Conclusion

RTX Corporation (NYSE:RTX) looks reasonably valued at 25x forward earnings. Installed equipment and service demand support its earnings base, but factoring explains a substantial part of the cash improvement. The valuation requires continued operating-profit growth and delivery of the cash outlook without progressively larger receivable sales. Weaker collections or higher financing costs would erode the support for that judgment.

While we acknowledge the risk and potential of RTX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than RTX and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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This article is originally published at Insider Monkey.

Why Oracle Stock Has Fallen

Investors worry about how much Oracle spends on AI data centers. Management guides to capital spending about equal to its expected revenue for fiscal 2027, and free cash flow was negative in the first quarter. Oracle also issued new stock during the quarter and has borrowed heavily to fund the build. A big share of its contracted backlog comes from OpenAI, which ties Oracle’s results to one customer. Analysts still rate the stock a buy on average, and we covered why most of them stay bullish after the drop.

Bull Case

Oracle has revenue lined up for years because customers have signed contracts for AI computing power that Oracle has not delivered yet. Management expects about half of that backlog to turn into sales over the next 36 months. Oracle said its latest AI contracts would not increase its planned capital-raising requirements, while customer prepayments and customer-supplied hardware have helped reduce its funding needs. Demand for AI computing power is running ahead of supply across the industry. Microsoft’s Azure cloud grew 43% in its latest quarter, and customers want more capacity than the company can supply, which we covered in our look at whether Microsoft’s AI spending is paying off. Alphabet’s Google Cloud backlog is up 385% from a year ago, and we covered why investors still like the stock despite the AI search threats.

Oracle also owns the database software that large companies already run, which gives its cloud a way into those customers. BNP Paribas’ latest software reseller survey showed demand for Oracle’s database on Amazon’s and Microsoft’s clouds rising into the top three products by demand, BNP Paribas analyst Stefan Slowinski said in a note. Zurich-based Emerald Wealth Partners also wrote about Oracle and the impact of AI on the software sector in its first-quarter 2026 investor letter, and we covered what the firm said. The number of hedge funds holding Oracle rose to 119 in the second quarter from 115 in the first, according to Insider Monkey’s database.

Bear Case

Oracle expects its capital spending to roughly match its annual revenue in fiscal 2027. If OpenAI’s growth slows or a data center opens behind schedule, Oracle keeps burning cash and has to borrow or sell more stock. Higher interest rates make that financing more expensive, and the whole industry leans on credit. Nvidia, for example, lined up large lenders to finance its customers’ data centers, which we covered in our look at whether the stock has room to run. Cloud infrastructure also earns lower margins than software, so profit can grow slower than revenue.

Valuation

Oracle looks cheap on earnings. It trades at a forward P/E of about 15.9 on normalized earnings, below its five-year average of about 22.1 and the technology sector median of about 21.5. Its forward PEG ratio, which divides the P/E by earnings growth, is about 0.53 against a sector median of about 1.14. The stock looks cheap because the price fell about 33% this year while analysts’ full-year earnings estimates held up. The fiscal 2027 estimate is $8.14 per share, up from $8.05 three months ago, and the fiscal 2028 estimate is $10.99, up from $10.92.

Near-term growth looks slow. Analyst consensus has earnings per share down 16% in the November quarter, up 13% in the February quarter, and up about 7% for fiscal 2027.

A value trap usually has a low P/E because earnings are about to fall. Analysts expect Oracle’s earnings to rise. The risk is the cash. Free cash flow is negative, and Oracle is borrowing and issuing stock to pay for the build, so the 35% jump in fiscal 2028 has to absorb higher interest and depreciation costs. If fiscal 2028 earnings grew only half as fast as analysts expect, the forward P/E would still be about 13.5. On sales, the stock looks expensive, at a forward enterprise value to sales of about 5.9 against a sector median of about 3.4, because profit lags revenue.

While we acknowledge the risk and potential of ORCL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ORCL and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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Bull Case

Bulls see AI paying off first in Meta’s ad business. AI recommendations keep people in Meta’s apps longer and help advertisers reach the right buyers, so Meta shows more ads and charges more for each one. In the second quarter, ad impressions rose 14% and the average price per ad rose 12%, which helped revenue grow 28%. Big investors back this view. Ken Fisher’s Fisher Asset Management raised its Meta stake by 2% in the second quarter, and Meta ranks fifth in our list of his 10 best AI stocks. Click to see the other nine picks. Meta is also building new businesses on the same spending. Its Muse AI agent topped the App Store ahead of ChatGPT, and the new Meta Enterprise Platform sells Meta’s AI tools to businesses, which Mark Zuckerberg called the next major pillar of the company. Dan Niles of Niles Investment Management thinks Meta could build a public cloud as its next big business. Click to read why he still sees momentum in the stock.

Bear Case and Concerns Around Muse

Bears point to the cost. Meta raised its 2026 capital spending forecast again in July, and free cash flow has almost disappeared. It is expected to fall sharply and not recover until at least fiscal 2028. Profit is also under pressure. Meta missed second quarter earnings estimates by about 14% because of legal charges and severance costs, and analysts expect third quarter earnings per share to remain under pressure.

Muse brings in little revenue so far, and long-term monetization remains a question mark, BNP Paribas said in a note. Hedge funds are also cutting back. The number of hedge funds holding Meta fell from 262 to 254 in the second quarter, according to Insider Monkey’s database. Click to see which hedge funds own Meta. The stock also fell after each of its last two earnings reports.

Pixabay/Public Domain

Should You Buy Ahead of Earnings?

Buying before earnings is a bet on one report, and the setup could be risky. Meta reports on Oct 21 after the market closes. Analysts expect third quarter revenue growth of about 24% but earnings per share below last year’s. The stock has rallied sharply from its March low, and it fell after each of its last two reports. Meta has beaten revenue estimates in each of the last four quarters, so the main questions are capital spending and free cash flow. Long-term investors who like the AI story can buy a small starter position now and add after the report, when the spending plans are clear. Investors who want less risk can wait for the report. Rowan Street Capital highlighted Meta in its Q2 investor letter and said the company’s fundamentals outpace its stock rally. Check the full letter here. Starting small is one way to manage the risk in Meta Platforms (NASDAQ:META).

While we acknowledge the risk and potential of META as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than META and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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But Nvidia’s own numbers show no sign of that stress. It sold $96.2 billion of chips and systems in the quarter that ended in July, up 106% from a year earlier. The question is whether customers can keep paying for chips at this pace, and why the stock is priced as if they might not.

Nvidia designs the chips and server racks that cloud companies and AI labs use to train and run AI models. That data center business made up most of last quarter’s sales and grew faster than the company as a whole. Its newest Vera Rubin racks are already running at Google Cloud, Microsoft Azure, and CoreWeave. If you’re interested in AI investing, we recently compiled a report on 10 Undervalued AI Stocks to Buy Now. The business looks stronger than its price suggests, but only while customers can keep finding money to spend.

Growth Is Beating Its Five-Year Pace

Sales have grown about 66.9% a year, on average, over the past five years. The 106% jump last quarter shows growth speeding up from that pace rather than settling down.

Very little of that revenue gets eaten by costs. Nvidia kept 63.66% of its sales as net profit over the past 12 months, which points to strong pricing power. Investors who want more profitable growth can see our ranking of 10 Most Profitable Growth Stocks to Buy. Management also expects $108.0 billion in revenue next quarter, and that forecast assumes no data center sales to China.

Customers Rely on Borrowed Money

The risk sits with the buyers’ ability to pay for those chips. Yahoo Finance reported that hot inflation data, with wholesale prices rising at their fastest pace since 2022, raised fears that interest rates stay high. A customer that borrows at higher rates can afford fewer chips, and that is how a debt scare could turn into lower sales.

To widen the pool of money, the company announced partnerships with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs, and KKR. They are meant to bring more than $500 billion of outside capital into AI infrastructure. The company says those deals still need definitive agreements, so the money isn’t committed yet. For investors looking to follow the AI build-out, our list of 15 Best Data Center Stocks to Buy and Hold for the Next Decade is worth a look.

That makes customer financing a bigger risk to the stock than demand is. Nothing in the latest results shows the funding worry hurting sales, but last week showed how quickly the shares react when one customer’s credit comes into question.

What the Stock Price Already Assumes

Nvidia trades at about 23 times adjusted earnings estimated for the fiscal year ending in January. That is only about 9% above the sector median and about 45% below its own five-year average. Consensus estimates call for earnings per share to grow about 95% in that fiscal year. If you’re looking for cheaper AI names, check out 10 Undervalued AI Stocks to Buy Now.

A multiple that close to the sector’s, next to growth that fast, means the price already assumes the funding worries are at least partly right. For anyone who owns the shares, the price reflects the funding worry more than the growth the business is reporting.

For now, customers can keep paying, since they are still buying and the price allows for some doubt. What would change that is a customer like CoreWeave losing access to affordable credit. Nvidia’s next report will show whether revenue lands near the $108.0 billion forecast while the funding scare plays out.

While we acknowledge the risk and potential of NVDA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NVDA and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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This article is originally published at Insider Monkey.

Photo by Christian Wiediger on Unsplash

The starting multiple matters

At October 16 prices, AMD’s $863.17 billion equity value compared with $8.40 billion of trailing operating cash after capital expenditure: roughly 103 times. TSMC’s comparable cash figure was $45.53 billion. Applying its $412.61 depositary-share price to 25.93 billion ordinary shares, with five ordinary shares per depositary share, gives a U.S.-price-implied equity value near $2.14 trillion and a multiple near 47.

That depositary-share adjustment matters. Mixing ordinary shares with the U.S. trading price would inflate capitalization fivefold. Even correctly calculated multiples are historical snapshots: investment spending, working capital and currency translation can change the denominator.

AMD’s growth opportunity is substantial. Second-quarter data-center revenue reached $6.72 billion, more than double a year earlier. Its challenge is turning broader adoption into cash after engineering and investment costs. Our Nvidia-AMD margin analysis tests how much room AMD currently has for pricing disappointment.

A common ending multiple exposes the hurdle

Suppose TSMC’s cash flow grows 10% annually for ten years. At unchanged share prices and share counts, AMD would need about 19% annual growth to reach the same ending cash-flow multiple. The calculation compounds the starting multiple gap over ten years; it does not assume either stock actually delivers those returns.

If TSMC’s cash growth is zero, AMD’s catch-up hurdle is about 8% annually. If TSMC grows 15%, AMD needs about 24%. These are scenarios, not company guidance or justified growth forecasts. AMD could deserve a different ending multiple, and dilution would make the required company-wide growth higher for a given per-share result.

TSMC also has to earn its cash. New fabrication capacity can consume funds long before it produces revenue, while utilization and geographic disruption can undermine returns.

The investment test

Geography also changes the return investors may require.

Q2 2026 hedge-fund holders rose to 164 from 134 for AMD and to 249 from 234 for TSMC. Marshall Wace increased AMD shares 3%, while Fisher increased TSMC shares 2%. The aggregate increases do not imply every manager agreed. AMD’s September 30 short interest was 2.42% of float.

AMD’s case requires sustained improvement in cash generation per share, not just faster sales. TSMC starts with a lower cash multiple, but its factory economics and geopolitical exposure deserve a different risk assessment. The roughly 19% versus 10% scenario makes the price gap tangible; it does not establish an unconditional winner. Investors should revisit the comparison as cash conversion, capital commitments and share counts change.

While we acknowledge the risk and potential of AMD and TSM as investments, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AMD and TSM and that has 10,000% upside potential, check out our report about this cheapest AI stock.

READ NEXT: Nvidia vs. Broadcom: Which AI Chip Stock Is the Better Buy Now? and How Much Protection Does Micron’s Cash Provide in the Next Downturn?

Disclosure: None. Follow Insider Monkey on Google News.

A Delay, Not a Demand Problem

GF Securities says one part of Google’s TPU v9 design has slipped by about three weeks, likely due to a redesign. That small delay pushes the timeline back by about a quarter. Tape-out is now scheduled for January 2027, mass production for the second quarter of 2027, and shipments for the first quarter of 2028. Packaging substrate yields are a key obstacle, at just 45% to 50%. However, GF Securities believes it has identified the underlying causes of the problem.

The firm does not see demand as a concern. GF analyst Jeff Pu highlights strong demand for Google’s TPUs from both Google itself and external customers, including Anthropic. GF suggests that this external demand may be one reason Gemini 4 is arriving later than expected, as a significant share of Google’s TPU v7 went to outside customers in the first half of 2026. The firm identifies MediaTek, rather than Marvell, as facing short-term headwinds. Because the note offers no specific details about Marvell’s role in the supply chain, any benefit from the situation appears indirect. However, Jeff Pu’s own posts associate v9 with MediaTek, whereas Marvell’s potential Google opportunity involves later-generation chips and remains uncertain. As a result, the delay is unlikely to have much direct impact on Marvell. The delay may not change MRVL’s short-term outlook, but its AI potential keeps it on investors’ radar. Explore our list of 10 AI stocks that could skyrocket, featuring Marvell. 

Does Google’s Delay Move Marvell’s Stock?

At 63x forward earnings, Marvell trades at a 66% premium to its five-year average P/E of 38.02x. So the stock does not look undervalued. Using estimates for the next fiscal year, the multiple comes down to approximately 37x to 40x, near the average, although the two measures use different bases.  Investors are paying up for strong earnings growth. EPS is projected to increase 48.59% this fiscal year and 72.58% the next year, with growth accelerating rather than easing.

But that valuation leaves little room for delays. Investors are paying upfront for growth that must arrive on schedule. At its recent investor day, management set long-term targets of roughly $80 billion in revenue and $30 in non-GAAP EPS by calendar year 2030, according to Morningstar. The current premium reflects expectations for that growth. However, Marvell does not seem to generate meaningful revenue from TPU v9, which GF’s analyst attributes to MediaTek. As a result, the delay has only a limited, indirect impact on the stock and is not, by itself, a reason to buy.

In my view, the premium is justified only if Marvell delivers the expected growth on time. If that still doesn’t impress you, you can compare it with 9 other stocks in our list of Top 10 Co-Packaged Optics (CPO) Stocks to Buy in 2026.

Hedge fund ownership of Marvell grew from 79 funds at the end of Q1 2026 to 96 at the end of Q2 2026. Short interest accounted for 3.21% of float as of September 30, 2026.

GF’s comments indicate that Marvell’s longer-term position in Google’s chip supply chain remains intact. But the note does not specify Marvell’s role, while rising hedge fund ownership signals broader institutional participation. Still, a 63x multiple on this year’s earnings leaves little room for delays. The company needs to deliver on the expected timeline to support its valuation.

While we acknowledge the risk and potential of MRVL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MRVL and that has 10,000% upside potential, check out our report about this cheapest AI stock.

READ NEXT: Applied Digital Wants to Add 600 Megawatts in a Year. Can It Pay for It? And Nvidia (NVDA) vs. Broadcom (AVGO): Which AI Stock Is a Better Buy After the OpenAI Scare?

Disclosure: None. Follow Insider Monkey on Google News.

According to its most recently available statistics, Yahoo Finance lists Apple at 35.21 times forward earnings, compared with 25.71 in June 2025. At that valuation, the sustainability of growth and the quality of earnings deserve particular attention, so let’s take a deeper look.

But before that, we meticulously compiled a list of the best big-name stocks to buy according to financial media, and there are nine stocks other than AAPL that rank on that list. Access the complete list for free here.

Bull Case

Apple’s June-quarter results offer a compelling answer to doubts about its maturity. Revenue rose 16% to $109.4 billion, and diluted EPS climbed 29% to $2.02. iPhone revenue increased from $44.6 billion to $54.3 billion, accounting for much of the company’s year-over-year sales increase. This is not merely a business collecting fees from devices sold years ago, as the results show that the company’s core hardware franchise is still capable of generating substantial additional revenue. Apple is facing a deeper iPhone probe in India. Read more about whether its software warranty could become a bigger issue.

Services provide a different source of strength for the company, generating $30.7 billion in the quarter, up from $27.4 billion a year earlier. Services can contribute disproportionately to overall profitability, even without growing as quickly as iPhone sales.

The cash-flow figures make the valuation argument more tangible. During the first nine months of fiscal 2026, Apple generated $117 billion in cash from operating activities, up from 81.75 billion in the prior year period, and spent $6.8 billion on the acquisition of property, plant, and equipment. Apple also repurchased $62.1 billion of shares during the period. These are substantial financial resources, although buybacks should not be confused with growth in the underlying business. Which other big name stocks does the financial media favor? Access our complete list here for free. 

Bear Case

We also shortlisted the best healthcare stocks to buy according to hedge funds. Check out the complete list here to make an informed decision. The strongest caution comes from Apple’s own results. Its reported third-quarter gross margin of 50.1% included approximately two percentage points of benefit from tariff refunds. Those refunds also contributed $0.11 to diluted EPS. The headline 29% EPS increase therefore includes a favorable item that investors should distinguish from recurring operating performance. Read more extensively about AAPL’s bull and bear case in our insightful article on how Apple Is Speeding Up. Siri Isn’t.

The balance of growth also matters, as while iPhone generated almost half of total quarterly revenue, iPad sales declined from $6.58 billion to $6.19 billion. Apple’s product categories are not all expanding at the same pace, making consolidated growth especially sensitive to its largest businesses.

Research and development expenses also rose from $8.86 billion to $11.72 billion, faster than revenue. That spending may support future products and software, but it represents an expense today, and the return on those investments cannot be determined from the latest earnings alone.

Conclusion

Apple Inc.’s (NASDAQ:AAPL) valuation is supported by substantial cash generation, growing iPhone revenue, and a highly profitable Services business. What remains less certain is how much of its recent earnings acceleration can persist, in part without temporary tariff benefits.

At 35.21 times forward earnings in Yahoo Finance’s dated snapshot, the central question is not whether Apple is a successful company but rather how consistently that success can translate into the future earnings investors are paying for today.

While we acknowledge the risk and potential of AAPL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AAPL and that has 10,000% upside potential, check out our report about this cheapest AI stock.

READ NEXT: Can Eli Lilly Catch Novo Nordisk in the Oral GLP-1 Race? AND Abbott vs. Intuitive Surgical: Is Consistent Growth Better Than Premium Growth? 

This article is originally published at Insider Monkey.

But some of the money buying those chips is borrowed, and Broadcom is helping lend it. Reuters reported, based on Anthropic’s IPO filing, that Broadcom will lend Anthropic up to $42 billion, and Yahoo Finance estimates Anthropic will become Broadcom’s largest compute customer by 2027. If you’re interested in AI investing, check out our report on 10 Undervalued AI Stocks to Buy Now.

The company designs custom AI chips with its biggest customers, who run them in their data centers, and it sells the networking gear that links them. Its infrastructure software unit is a second, smaller business that is also growing. The business looks strong, and what the stock now depends on is whether customers that borrow to pay for chips can keep borrowing.

AI Chips Are Driving a Sharp Speed-Up

Revenue grew about 22% a year over the past five years, but it rose 86% in the latest quarter alone, with AI chips leading the way. The software unit also kept growing, which adds a second source of sales outside the chip business.

CEO Hock Tan said demand for the company’s custom AI accelerators and networking remains very strong. Broadcom’s operating margin was about 48.6% over the past 12 months. A supplier that wins orders by cutting prices rarely earns margins like that, so the sales look like real demand rather than discounted volume.

Broadcom Is Now Lending to a Customer

A loan that size changes how the sales look. Anthropic also relies on Broadcom for equipment leasing and financing, Yahoo Finance said, so the supplier and the lender are the same company. In that setup, strong orders and weak finances can exist at the same time, which makes the sales figures a less complete guide than usual. If you’re interested in chipmakers more broadly, we recently compiled a report on 12 Best Performing Semiconductor Stocks to Invest In.

The report said the deal adds to worries about circular financing, where a company funds a customer that then buys its products. If one link in that chain breaks, the damage could spread across AI stocks.

Broadcom has room to lend, since it produced $13.7 billion in free cash flow last quarter, 46% of revenue. But if a borrower struggles, Broadcom would take the loss and could also see orders slow. The report did not give the loan’s interest rate, repayment schedule or collateral, so the true exposure is hard to judge.

For now, the guidance points the other way. Broadcom still expects AI chip sales to speed up this quarter, which would be odd if customers were running short of money.

What Investors Pay for That Growth

At 28.2 times estimated fiscal 2026 earnings, based on adjusted figures, Broadcom trades at a premium to a sector median of 21.01. It is only 2.9% above its own five-year average, though, which shows what investors have usually been willing to pay for the company. Adjusted figures leave out some costs, so the same price looks higher against reported earnings. Consensus estimates call for earnings per share to grow about 71% this fiscal year.

Put together, investors pay a clear premium to similar companies and little extra over what they have paid for Broadcom before. That price assumes customer funding continues, so for a shareholder it means owning a premium-priced supplier whose fastest growth leans on loans. If you’re looking for undervalued AI stocks, check out 10 Undervalued AI Stocks to Buy Now.

Who is paying for the AI chips? Customers’ own money, borrowed money, and in at least one case Broadcom itself. The next report will show whether AI chip sales reach the $21.7 billion the company guided to, and that figure is one of the first places funding trouble would appear.

While we acknowledge the risk and potential of AVGO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AVGO and that has 10,000% upside potential, check out our report about this cheapest AI stock.

READ NEXT: Nvidia (NVDA): Can Paid Software Make Its Earnings Less Dependent on Hardware Sales? and Cisco (CSCO): Can Software Renewals Outlast the Networking Upgrade Cycle?

This article is originally published at Insider Monkey.

The tempting conclusion is that Bristol Myers is cheap and Lilly expensive. However, their earnings suggest a more useful question to keep in mind, which focuses on how much confidence investors should place in profits that already exist, compared with profits dependent on continued extraordinary growth. Let’s get into it.

But before that, we meticulously compiled a list of the best big-name stocks to buy according to financial media, and there are eight stocks other than BMY and LLY that rank in that list. Access the complete list for free here.

Bull Case

Eli Lilly and Company (NYSE:LLY) has earned much attention in the GLP-1 market. Second-quarter revenue rose 48% to almost $23 billion, while non-GAAP EPS increased 33%. Mounjaro brought in $9.9 billion in fiscal Q2 2026, and Zepbound $4.9 billion. Those two medicines alone produced nearly two-thirds of quarterly sales, which makes Lilly a company that is already collecting considerable revenue from its two popular medicines and not asking shareholders to wait for a promising performance in the obesity market. One of the most watched competitions in the obesity market is between Lilly and Novo Nordisk. Read more about how their investment cases compare to each other in our insightful article on Can Eli Lilly Catch Novo Nordisk in the Oral GLP-1 Race?.

Lilly also raised annual revenue guidance to $85 billion–$87 billion. A broader pipeline could extend the runway, with the company stating that management plans to seek US approval for investigational retatrutide in early 2027. Neither a future approval nor its commercial value is assured, but Lilly’s current earnings already demonstrate the scale against which those possibilities must be judged.

We also shortlisted the best healthcare stocks to buy according to hedge funds. Check out the complete list here to make an informed decision.

Bristol Myers has a less celebrated achievement. Its Growth Portfolio increased 15% to approximately $7.6 billion in the second quarter, accounting for around 58% of total revenue. That means the portfolio intended to support its future is already larger than the collection of older products it must eventually replace. The company also raised full-year revenue guidance to $49 billion–$50 billion, and also raised its non-GAAP EPS range to $6.75 to $7.00.

At a much lower forward multiple, the market is not demanding Lilly-like growth from Bristol Myers. Its valuation makes the effectiveness of the revenue transition, rather than the possibility of explosive new demand, the more relevant question. Which other big-name stocks does the financial media favor? Access our complete list here for free. 

Bear Case

But before we dive further into BMY’s investment story, take a look at our recently published article on AbbVie (ABBV) vs Bristol Myers (BMY): Which is a Better Stock to Buy? for better comparative insight.

BMY’s discount has a basis in its results. Its Legacy Portfolio declined 4%, with Revlimid revenue falling 49%. A growing newer portfolio is encouraging, but declining older products absorb some of that progress before it reaches consolidated sales. Overall revenue increased only 6%, far below Lilly’s pace.

There is an earnings-quality complication, too. Bristol Myers reported a 40% increase in non-GAAP EPS, but its prior-year quarter included a net acquisition-related research and development charge of $0.57 per share, compared with a $0.01 positive impact in the latest period. The change in those items accounts for a notable chunk of the entire reported EPS increase, and treating 40% as underlying earnings acceleration would overstate what the comparison proves.

Lilly’s own rapid growth is not costless. Second-quarter volume increased 60%, partially offset by a 13% decline in realized prices. Strong unit demand is more than compensating for lower prices today, but revenue growth cannot be extrapolated indefinitely without considering that trade-off. And with Mounjaro and Zepbound contributing nearly 65% of sales, Lilly’s performance is concentrated in a pair of closely related medicines.

Conclusion

The valuation gap is not a simple choice between growth and value. Eli Lilly and Company (NYSE:LLY) has extraordinary commercial momentum but a multiple that requires continued strong earnings delivery. Bristol-Myers Squibb Company (NYSE:BMY) has a lower hurdle embedded in its P/E, alongside clear evidence that its replacement portfolio still has work to do. The revealing comparison is how much of each company’s future earnings growth must materialize to justify what shareholders are paying today.

While we acknowledge the risk and potential of LLY and BMY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than LLY and BMY and that has 10,000% upside potential, check out our report about this cheapest AI stock.

READ NEXT: Can Eli Lilly Catch Novo Nordisk in the Oral GLP-1 Race? AND Abbott vs. Intuitive Surgical: Is Consistent Growth Better Than Premium Growth? 

This article is originally published at Insider Monkey.