A FTSE 250 company I own shares in has received a takeover offer. It’s 23% higher than the current share price and aiming to conclude this year – but I’m not happy about it. 

The stock is Dowlais (LSE:DWL), and American Axle & Manufacturing Holdings is the company that has put together a deal worth 85.2p per share for it. The current Dowlais share price is 69.45p, but there’s a lot more to it than this.

The deal

Ordinarily, I’d be pleased to receive this type of offer. Even if I didn’t think it reflected the full value of the company, I’d find something else to do with the cash. 

The trouble is, the way the deal is being financed makes things complicated. The 85.2p per share offer consists of the following:

• 42p in cash
• a final dividend of 2.8p
• 0.0863 shares in the new combined company

This amounts to 82p per share based on a couple of key assumptions. The first is American Axle being worth $5.82 per share. The second is an exchange rate from GBP to USD of 1.2434.

Neither of these is outrageous – both were true when the deal was agreed. But things have changed since then and the deal now looks a lot worse for Dowlais shareholders. 

What’s happened?

The biggest problem is that shares in American Axle have been falling since the deal was announced. The share price is currently $4.93 – 15% below the level assumed in the takeover.

Since around 40% of the proposed valuation comes from shares in the new company, this significantly reduces the value for Dowlais shareholders. And there’s also an issue of exchange rates to consider.

The value of the pound against the dollar is slightly higher than it was a week ago. And that’s weighing on the potential return for investors in the FTSE 250 company. 

As a result, the overall deal looks much less attractive for shareholders like me than it did when it was initially announced. And that gives me a bit of a dilemma. 

What next?

When I bought Dowlais shares, the firm was planning to divest its powder metallurgy unit. I expected the proceeds to strengthen the balance sheet and leave behind an attractive car parts business.

That now looks unlikely. However, while while the stock could climb sharply from its current levels if the deal goes through, I wouldn’t be surprised if it doesn’t — at least, not in its current format.

Management has recommended shareholders vote in favour of accepting the offer. But with over 90% of shares in the FTSE 250 company owned by institutions, it isn’t in a position to force the issue. 

Rejecting the offer is risky – Dowlais might not find a buyer interested in taking its powder metallurgy business by itself and the business has a lot of debt. So there’s a real dilemma here for investors.

What I’m doing

I nearly never view a stock as a Hold – I usually think stocks are either too cheap (and want to buy them) or too expensive (and want to sell them). But Dowlais might just be the exception. 

The stock could climb 23% if shares in American Axle pick up or exchange rates turn favourable, but that’s highly speculative. With so much uncertainty around the outlook, I’m going to sit and wait.

BAE Systems’ (LSE: BA) share price is down 15% from its 12 November one-year traded high of £14.15.

I think this drop partly reflects investors taking profits after a 101% rise in price from the day Russia invaded Ukraine.

In my view, the other part assumes a decline in the global security threat during Donald Trump’s second presidential term.

Looking ahead, most of the profit-taking now appears to be in the price. And the assumption that the world is set to become significantly more peaceful looks wrong to me.

A more peaceful world?

The Israel-Hamas ceasefire does not necessarily mean Iran will let Israeli attacks against its proxies go unanswered for long. And the removal of Syria’s longstanding leader may bring about another regional and global threat from Islamic extremism.

Trump promised to bring an end to the Russia-Ukraine War in 24 hours, but it is still rumbling on. Even if a ceasefire is reached there, the US and its NATO partners remain on heightened security alert.

In his first presidency, Trump told European NATO countries they must spend 2%+ of their gross domestic product on defence. It is estimated that €1.8trn (£1.5trn) is required to compensate for 30 years of underinvestment to reach that level.

Much as we may hate war, BAE Systems should benefit from this spending as the largest defence contractor in Europe and the seventh largest in the world.

That said, Trump has since told European officials he wants this to rise to 5%, according to a December Financial Times report.

So do the shares look a bargain?

Given this backdrop, I am amazed to see BAE Systems is currently trading at a price-to-earnings (P/E) ratio of just 19.6. This is bottom of its group of competitors, which average a P/E of 32.1.

These peers comprise Rolls-Royce at 21.8, L3Harris Technologies at 26.4, RTX at 36 and TransDigm at 44. So BAE Systems looks a huge bargain on this measure.

The same is true of its price-to-sales (P/S) ratio of only 1.5. This is again bottom of this group of peers, with a 4.1 P/S average.

I ran a discounted cash flow valuation to see what this all means for the share price. Using other analysts’ figures and my own, this shows BAE Systems’ shares are 29% undervalued at their present £12.08 price.

Of course, market fluctuations may push them lower or higher than this. But it reiterates to me how much of a bargain they now look.

Does the core business support this view?

Earnings growth ultimately powers a firm’s share price (and dividend) over time. A risk to this for BAE Systems is a global reduction in defence spending. Another is any major fault in one of its key products that could be costly to fix.

However, analysts forecast that its earnings will grow each year by 8.3% to the end of 2027.

In this context, 13 December saw it announce a new joint venture with Italy’s Leonardo and Japan’s JAIEC to deliver next-generation combat aircraft.

And on 27 January it was awarded a £285m contract to upgrade the Ministry of Defence’s Royal Navy combat systems.

Given all this, BAE Systems’ shares look an unmissable bargain to me, and I will be adding to my holding very soon.

Warren Buffett, the legendary investor and chairman of Berkshire Hathaway (NYSE:BRK.B), has built his fortune on a disciplined approach to value investing. His portfolio is packed with household names, from consumer staples to financial services, but what stock does he favour above all others?

AI’s take

Curious to get an artificial intelligence (AI) perspective, I turned to ChatGPT and asked: “What do you think is Warren Buffett’s favourite stock?”

The response was immediate: Apple.

According to ChatGPT, Apple has become Berkshire Hathaway’s largest holding, at times accounting for as much as 50% of its stock portfolio. Buffett himself has praised Apple’s brand loyalty, its ecosystem-driven business model, and its ability to generate massive amounts of cash. While historically hesitant about technology stocks, Buffett has repeatedly stated that Apple is more of a consumer goods company than a traditional tech firm, making it an ideal fit for his investment philosophy.

A second choice

Of course, Apple isn’t the only stock that could hold a special place in Buffett’s heart. ChatGPT was quick to point out another long-time Buffett favourite: Coca-Cola.

Buffett has held shares in the soft drink giant since the late 1980s and has often spoken about his love for the brand. With its strong pricing power, global reach, and consistent dividends, Coca-Cola epitomises the kind of stable, cash-generative business that Buffett admires. What’s more, given consistent dividend hikes, Buffett’s Berkshire Hathaway now receives 60% of its original investment back in dividend payments each year.

So, is Buffett’s favourite stock Apple or Coca-Cola? According to ChatGPT, if measured by portfolio weight and financial importance, Apple takes the crown. But if sentiment and longevity matter more, Coca-Cola might still be his most cherished holding.

There’s a third option

Personally, I’d suggest Buffett’s favourite stock could be Berkshire Hathaway — the conglomerate he runs. However, the company did not repurchase any of its own shares during the third quarter of 2024, which is notable as it’s the first time since the third quarter of 2018 that Berkshire hasn’t bought back its own stock.

This lack of share repurchases, combined with the record cash reserves, has led to speculation about why Berkshire is accumulating so much cash and whether it might be preparing for a major acquisition or anticipating a market correction.

Interestingly, this growing cash reserve of $325bn, coupled with Buffett’s outstanding track record, has raised my interest in the shares. However, I’ve been following closely for some time, and must admit, the conglomerate’s top holdings don’t interest me massively. What’s more, several of them are American stalwarts which currently have rather frothy valuations.

Nonetheless, I’m intrigued as to how Buffett might put that $325bn to work. Berkshire Hathaway might be an option for my daughter’s pension.

Barclays (LSE:BARC) shares are up 42.1% over three years. As such, a £5,000 investment three years ago would now be worth around £7,100, plus dividends, which would have amounted to around £900. All in all, it’s a pretty strong investment.

However, this three-year growth figure belies the ups and downs of recent years. After several years of underperformance the stock took off in early 2024 as a strategic shift complemented an improving outlook for UK banks.

A brief overview

Barclays’ share price saw declines in 2022 and 2023 due to a combination of macroeconomic and sector-specific challenges. Higher interest rates initially boosted net interest margins and made banks more profitably but also raised concerns over loan defaults, weighing on sentiment. And in early 2023, the collapse of Silicon Valley Bank (SVB) triggered broader banking sector fears, exacerbating the sell-off.

The SVB fiasco was, in the end, something of a contained event. The tech-focused bank had very unique circumstances that led to its downfall. However, as fears of contagion took hold, Barclays’ stock plummeted and, according to my March 2023 article, was trading at just 4.5 times earnings. For me, it was a clear buying opportunity.

By 2024, Barclays began to recover as a strategic shift — focusing on cost-cutting, reallocating capital, and business streamlining — boosted investor confidence. Improving sentiment towards banks, driven by falling interest rates, further supported the stock’s rebound.

A renaissance for British banks

Barclays’ shares have surged to a decade high, reflecting what could be seen as a renaissance for UK banks. Moderating yet elevated interest rates present a supportive trend, boosting net interest income while reducing pressure on loan defaults — a dynamic unseen since the early 2010s.

The Bank of England’s pro-growth regulatory reforms and anticipated rate cuts below 4% in late 2025 further support profitability, with Barclays forecasting £30bn total income by 2026 through strategic hedging and fee-based revenue shifts.

Brexit-related uncertainties have eased, and while UK GDP growth remains modest at 1.2% for 2025, stable consumption and excess household savings provide a resilient backdrop. Barclays’ strategic pivot — divesting its German consumer arm and the acquisition of Tesco Bank — sharpens its domestic focus. This reallocates risk-weighted assets to capitalise on this ‘Goldilocks’ rate environment.

Meanwhile, potential Trump-era market volatility could buoy investment banking revenues — this arm has underperformed in recent years — leveraging Barclays’ diversified global operations.

It’s worthy of consideration

Investors can often dismiss stocks when they’re trading at decade highs. And I can see why they would do the same here. Over the last two decades, banks haven’t delivered the desired growth. After a rally, investors may be keen to take profits and I’d suggest that sentiment towards banks is still somewhat uncertain. An uptick in inflation, for example, may derail some of the recent progress.

However, with analysts pointing to a 26% discount to fair value — around £3.90 — and with a price-to-book ratio of 0.6, it’s certainly a stock for investors to ponder. I’d consider buying more myself if it wasn’t already well represented in my portfolio.

Searching for the best small-cap stocks to buy in early 2025? Here are two (including a penny stock) I feel savvy investors should consider today.

Glistening gains

Lifted by a resurgent gold price, mining stocks across the London Stock Exchange have soared since 1 January. Serabi Gold (LSE:SRB), which is listed on the Alternative Investment Market (AIM), has seen its share price leap 21.8% up to yesterday (5 February).

Can this small-cap gold stock continue to rise though? I think there’s a good chance it can.

At 135p, Serabi shares still look dirt cheap. City analysts think the miner’s earnings will soar 65% year on year in 2025. This results in a price-to-earnings (P/E) ratio of just 2.9 times, leaving (in my view) plenty of scope for further gains.

There’s no guarantee that bullion prices — which have hit new record highs around $2,885 per ounce this week — will continue rising. A resurgent US dollar, for instance, could curb additional gains, making it more expensive to buy the yellow metal.

But on balance, I think gold could continue its bull run that began in October 2023, pulling gold stocks still higher. Fears over global ‘stagflation’ keep rising, driven by recent inflation readings and fresh trade wars. At the same time, worries over the geopolitical landscape and the possibility of fresh conflict are also ascending.

Serabi’s share price could also take off if production ramp-ups hit their target too. The company plans to raise annual output to 60,000 ounces by next year.

A penny stock pick

At 66.1p per share, the Schroder European Real Estate Investment Trust (LSE:SERE) has risen 5% in value in 2025.

It’s been a busy start to the year for the property stock. It announced plans to sell a food retail asset in Frankfurt, Germany, along with its 50% stake in a shopping centre venture in Seville, Spain.

Following the Frankfurt announcement in January, the trust also announced plans to repurchase 20,046,829 of its shares. It said that this reflects the trust’s “robust financial standing,” and the “attractive opportunity” that recent share price weakness provides.

Even after early 2025’s strong gains, Schroder European Real Estate Investment Trust’s share price still sits at a healthy 33.4% discount to its net asset value (NAV) per share. So it’s still an attractive asset for value investors to consider, in my view.

Unlike most penny stocks, the trust is (like similar financial vehicles) designed to provide a solid stream of passive income to its investors.

As a real estate investment trust (REIT) rules, it’s pays 90% of rental profits or more out in dividends. As a result, its dividend yield sits at 7.4%. To put that into context, the FTSE 100 index’s forward yield sits way back at 3.5%.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Given persistent inflationary pressures, there’s considerable interest rate risk facing the business. If the European Central Bank (ECB) fails to cut interest rates any further, NAVs will continue to face pressure.

Still, I think the size of the discount on the trust’s shares more than reflects future rate uncertainty. It could also lead to further share price gains if interest from bargain hunters heats up.

We’d all like a nice second income to help keep us going as we get older, right? I believe the best chance I have is to invest in UK shares and hold them for the long term.

Protecting it inside an ISA adds a nice bonus in that all gains are tax free when we take money out. And the £20,000 annual limit is more than enough for me. But for investors in different situations, a mix of an ISA and SIPP might be beneficial.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Dividend shares

So, I’m using an ISA. Next, if I want to build up income, I should go for dividend shares, shouldn’t I? After all, my investment in City of London Investment Trust (LSE: CTY) looks set for a 4.9% dividend yield this year. And the annual payment has risen for 58 years in a row.

When I want to actually start taking my annual income, I expect I’ll have just about all my savings in income-based investment trusts like this. Until then, I’ll keep reinvesting my dividend cash in new shares each year. But that costs me money in broker charges and stamp duty every time. And trading costs can add up over the years of my long-term plan.

Growth shares

So what about buying growth stocks that don’t pay dividends instead?

Artifical intelligence (AI) chip maker Nvidia (NASDAQ:NVDA) is probably the one on most people’s lips at the moment. Shocks from Chinese AI competition and the threat of trade wars have knocked half a trillion dollars off its market capitalisation. But Nvidia is still up 1,875% in the past five years.

I tried including these two stocks on the same price chart above. But when I set it to show a percentage growth comparison, the spectacular Nvidia climb means we just see at a flat line for City of London.

Growth vs dividends

There’s another way to think about comparing these two. I’ve just done a quick calculation. And I work out that to equal the five-year growth of Nvidia from City of London dividends, it would take more than 60 years at 4.9% per year.

Putting £10,000, or half an ISA allowance, in City of London five years ago and reinvesting the dividends, would result in around £12,700 now. That, in turn, would result in income of about £620 per year.

The same money in Nvidia five years ago would have soared to £197,500 today. That money, transferred to City of London, could result in £9,600 in annual dividends. That’s how we could try to use a growth stock to build up to regular dividend income. But it clearly comes with a lot more risk.

Total return

As individual investors, we need to consider how many years we expect to be investing. How well do we understand different kinds of stocks? How comfortable are we with risk? There’s a host of personal factors. But ultimately, one thing determines the size of the pot we can build over a specific timescale. It’s our total return, however we get it.

Supported by rapid expansion, profits at Greggs (LSE:GRG) have rocketed over the past decade, which in turn has driven its shares through the roof.

At £21.20 per share, Greggs’ shares are 154% more expensive than they were 10 years ago.

But is the FTSE 250 baker still one of the best growth shares to consider buying today?

Growth forecasts

From a short-term perspective, perhaps not. Analysts expect annual profits growth to halve this year before picking up to improved single-digit percentages in 2026:

Year	Earnings per share	Earnings growth	Price-to-earnings (P/E) ratio
2024	134.74p	8%	15.9 times
2025	139.49p	4%	15.3 times
2026	150.96p	8%	14.2 times

There are plenty of other mid-cap UK shares tipped to provide better earnings growth over the next two years.

The predicted growth drop for 2025 isn’t that surprising given recent trading. Brokers have been downgrading forecasts following news on 9 January that revenues rose ‘just’ 7.7% in the final quarter.

This was down from 10.6% in quarter three, and 13.8% in the first half.

Like-for-like sales, meanwhile, slowed to a crawl in quarter four. They rose just 2.5%, down sharply from 5% in the prior three months.

Fears growing

Trading clearly hasn’t been catastrophic, though. Last year, sales moved through the £2bn landmark for the first time, with revenues growing even as the cost-of-living crisis dragged on. This isn’t the first time Greggs has delivered growth despite tough economic conditions.

Yet it’s also possible to understand why the market’s been underwhelmed by recent numbers. The company’s focus on low-cost food retail means such resilience is already baked (no pun intended) into investors’ expectations.

Instead, Greggs’ recent sales numbers have ignited concerns over whether the firm’s growth strategies — like greater evening trading, menu refreshments, and more Click and Collect — could be running out of steam.

What next?

Given the tough economic outlook, I wouldn’t be surprised if Greggs sales disappoint a bit longer, putting fresh stress on its share price.

But my view is that the baker’s growth outlook remains robust over the longer term. It’s why I’ve taken advantage of recent price weakness to buy more of its shares for my own portfolio.

New store openings have been the bedrock of Greggs’ soaring earnings in recent years. And encouragingly, it sees further scope for more significant expansion.

The firm’s added around 1,000 stores to its nationwide network since the mid-2010s. It plans to cut the ribbon on another 800, taking the total to 3,500. What’s more, the baker plans to ramp up store openings in lucrative travel destinations such as airports and rail stations.

Further expansion will be supported by investment in new distribution and manufacturing sites. Last year, it announced new facilities in Derby and Kettering, scheduled to open in 2026 and 2027, respectively. There is execution risk here, but Greggs’ strong record on this front should help soothe investors’ fears.

I’m also confident that Greggs’ enhanced delivery and digital services and longer store opening hours will help light a fire under long-term earnings growth.

As a result, I still think Greggs remains a top growth share for investors to consider buying, despite the company’s current troubles.

Generating a sizeable passive income is a popular dream. Many investors dream of taking a chunk of cash, investing it in some high-yield stocks, and building a sustainable financial future.

With that in mind, here are a couple of big dividend payers that could turn a £20,000 lump sum into a £1,000 annual income stream.

High-yield asset manager

M&G (LSE: MNG) is one stock that’s worth considering for the dividend income. The well-known savings and investment firm provides pensions, insurance, and asset management services to customers.

The company has a strong track record of paying out earnings to shareholders and currently boasts a 9.6% dividend yield. That’s almost triple the 3.5% average across the FTSE 100 index.

It does come at a cost, with a price-to-earnings (P/E) ratio of 29 that is nearly double that of the Footsie. Recent net outflows from clients raise the risk of a lower asset base and competition in the asset management business is cut-throat.

If M&G sees further outflows, that could seriously diminish its asset base and potential future profitability (and dividends!).

A £10,000 investment at the 5 February yield could potentially generate £960 in annual dividends. That’s a significant chunk of money and one that yield-hungry investors should consider, given the above-average dividends on offer.

Progressive dividend payer

Phoenix Group (LSE: PHNX) is another consistent dividend payer. The life insurer and asset manager has established a reputation for giving cash back to shareholders through significant distributions. That continues today with the stock currently boasting a 10.3% dividend yield as I write on 5 February.

The impressive figure is underpinned by Phoenix’s ability to generate significant cash from policy premiums and management fees. With around £290bn in assets under administration, that represents a serious amount of premiums.

One thing I like about the company is its strong cash flow forecasts. In fact, management expects to generate £4.4bn in cash for the three years to 2026. Throw in a healthy Solvency II capital ratio of 168% to boot and it has the foundations of a solid dividend stock.

This does give me some confidence in the near-term distributions. However, there are also longer-term risks. Regulatory changes, industry consolidation, and unexpected liability changes are just a few.

Life insurers are also subject to longevity risk. This is the risk that people are living longer than anticipated and the insurer must pay out more money, impacting profitability.

This, combined with a strong track record of dividends, means Phoenix is one for investors building a passive income to consider. That said, a higher for longer interest rate environment could hurt Phoenix. This is because the level of insurance plan funding can change as interest rates change, meaning unexpected interest rate changes are a risk.

Key takeaway

These are just a couple of high-yield dividend stocks that have a history of paying out handsomely to shareholders. While there are risks, including the high interest rate environment and possible outflows, M&G and Phoenix are two of the highest yielding in the Footsie.

That to me says they’re worth considering for investors wanting to build a sustainable passive income as part of a balanced portfolio. Diversification is an important part of long-term investing to mitigate risk and ride out the ups and downs of the stock market.

While holders of some FTSE 100 stocks have enjoyed wonderful returns over the last five years, the same can’t be said for those invested in telecommunications giant Vodafone (LSE: VOD).

Even a one-time-owner like me is staggered to see how far it’s fallen.

Woeful performance

Let’s cut to the chase: a £10,000 stake made five years ago would now be down 57% in value. Put another way, it would be worth around £4,300. In sharp contrast, the index is up 15% as a whole.

Since loyal investors have received dividends over this period, this isn’t quite the end of the matter. In fact, the company’s dividend yield has long been far higher than the average across the FTSE 100. This means the return hasn’t been quite as bad as that headline percentage.

It’s still pretty awful, though. Moreover, the £17bn cap’s aforementioned yield is mostly the result of its share price continuing to fall rather than a sign of it being a passive income powerhouse. More on dividends in a bit.

Bargain stock?

Of course, this terrible run of form does lead to another question: when might Vodafone be considered a bargain for risk-tolerant Fools? Well, this is where things get interesting.

It’s clear that CEO Margherita Della Valle has made progress in her attempts to streamline the business. Operations in Spain and Italy have been sold. A merger with Three in the UK also received the green light from the Competition and Markets Authority (CMA) in December 2024.

Yesterday’s (4 February) trading update was hardly a disaster either. Group total revenue rose 5% to €9.8bn. Organic service revenue also improved in every one of the company’s main markets with the exception of Germany (down 6.4%). Full-year guidance was maintained too.

Looking ahead, Vodafone’s growing presence in Africa could prove a boon to investors. Should this be the case, the current valuation of 10 times FY25 earnings might prove cheap in time.

But there are still reasons to be wary, at least in my view.

Heavy burden

Vodafone’s debt pile has long been one of the biggest thorns in its side. And while this burden has fallen in the post-pandemic years, it remains substantial. It’s hard to see a quick solution, especially given the high ongoing costs of keeping infrastructure maintained. And this is before we’ve even considered the impact of external economic headwinds. The FTSE 100 might be setting record highs but Vodafone stills looks very fragile.

The company’s higher-than-average dividends also needs to be put in context. Back in 2019, the total payout was 9.24 euro cents per share. The distribution for FY25 (ending 31 March) is estimated to be just 5.3 euro cents per share. So, not only have holders seen the value of their stakes fall by more than half, they’ve been receiving less income to boot.

Perhaps the forthcoming merger with Three UK will mark a line in the sand. Perhaps we may see an incredible recovery in the stock, not dissimilar to those of other top-tier winners like Rolls-Royce and British Airways-owner International Consolidated Airlines.

But a lot surely needs to go right before the market is willing to change its opinion on the company.

With this in mind, I think there are far better value stocks to consider than this one.

Giant tech stocks with $1trn+ market caps have become synonymous with the S&P 500. However, there are other firms in the index that look set for years of AI-fuelled business growth. Here are two.

Palantir

First up, we have Palantir Technologies (NASDAQ: PLTR), which was added to the S&P 500 in September. The stock rocketed 340% last year and is already up another 37% in 2025!

Palantir is a software company that helps customers aggregate their data to make better decisions. Historically, it has worked mainly with government organisations, including the CIA, US military, and the NHS.

However, it has more recently branched out to support enterprises. In Q4, US commercial revenue jumped 64% year on year!

A true game-changer came in 2023 when it launched Artificial Intelligence Platform (AIP). This isn’t just a chatbot — it’s a powerful decision-making AI system that helps organisations analyse, predict, and act on data.

For example, intelligence and defence agencies use it to detect threats and plan military operations. Banks use AIP to detect fraud, while it can help pharma firms speed up drug discovery. 

Our business results continue to astound, demonstrating our deepening position at the centre of the AI revolution. Our early insights surrounding the commoditisation of large language models have evolved from theory to fact.

Palantir CEO Alex Karp, Q4 2024

While big growth is being delivered at both ends of the income statement, the valuation more than reflects this. Right now, the price-to-sales (P/S) ratio is 71. I can’t justify investing at this price. It basically leaves zero room for error (demand for AI solutions could cool off in 2026, for example).

That said, I’d like to add Palantir to my portfolio, once the valuation is more palatable.

Market cap	$236bn
Forecast revenue for 2025	$3.8bn (32% growth)
Forward price-to-earnings (P/E) ratio	172

Axon

Another stock that looks set for many years of AI-powered growth is Axon Enterprise (NASDAQ: AXON). The company is famous for inventing the Taser stun gun (which is actually a brand that Axon owns). Nowadays though, it also makes money from body cameras, dash cameras, drones, VR-based training, and software services.

Axon has demolished Wall Street’s earnings estimates by more than 20% for four straight quarters! No wonder the stock is up 157% in a year.

All the recorded footage gathered from body and dash cams, drones, police interviews, and other sources gets stored in its cloud-based platform (Evidence.com). From this massive data set, the company is conjuring up some powerful AI solutions for its law enforcement customers.

Indeed, it has so many ideas that it has launched a subscription service that bundles in all existing and future AI products.

We are positioning ourselves as the indisputable leader in delivering the power of AI in practical, usable applications.

Axon CEO Rick Smith.

One potentially game-changing new AI product is Draft One. This transcribes body camera audio into draft police reports, reducing an officer’s time spent writing reports by as much as 70%.

Market cap	$50bn
Forecast revenue for 2025	$2.6bn (23% growth)
Forward P/E ratio	105

The stock isn’t as pricey as Palantir, but it’s certainly not cheap. The P/S multiple is around 26. Consequently, a deceleration in growth is a risk, while Draft One might not live up to the early hype.

Still, I’m very bullish here. Axon is my top holding, yet I wouldn’t think twice about adding to it if the stock dropped 20%-30% during a market meltdown.