Social media giant Facebook, Inc. (NASDAQ:FB) has been an investor favorite for years due to its exponential growth and dominance within the industry. However, in recent weeks, investors have been spooked by the company’s changing strategy and worries about user numbers.

While its true that some big changes are on the horizon, big opportunities await as well, which make FB stock a buy for long-term investors.

User Number Decline?

A new study by eMarketer showed that Facebook is struggling to hold on to American users under the age of 25. The firm’s research concluded that the number of FB users between 12 and 17 years old declined by 9.9% last year — a far cry from the 3.4% that the firm had initially predicted. This year, eMarketer sees the company losing some 2.1 million users under 25.

On the surface, that looks very worrying. No one wants to be losing clout with the upcoming generation, especially not a social media company like Facebook. However, it’s important to note that these numbers don’t include Instagram, which is also owned by Facebook.

In fact, eMarketer predicted that Instagram’s U.S. user base will see a 13% rise this year, higher than rival Snapchat from Snap Inc (NYSE:SNAP), which is seen growing its U.S. user base by 9% this year. So, although it’s not great that FB’s flagship platform is losing touch with the younger generation, it’s losing users to itself which isn’t so bad.

Big Changes Ahead for FB

Another factor that has been weighing on FB stock is the company’s decision to pivot its strategy to focus on security and engagement over profits. In the tech space, it’s a reality that security spending will rise as new scams emerge.

That’s especially true for a social media company like Facebook, which has had to deal with complaints about fake news reports and extremist propaganda. CEO Mark Zuckerberg cautioned that security spending would take precedence over profits, and most agreed that was a wise move in order to keep the company at the top of the industry.

However, during the firm’s most recent earnings call, Zuckerberg dropped another bomb — engagement would also come before profits. Unfortunately, investors didn’t take quite so kindly to that sentiment.

Facebook has been reworking its platform to make sure that users are seeing more valuable content. That means fewer ads from businesses and viral videos and more posts from actual friends that they care about.

The problem for investors is that taking away ad space will likely cut in to profits. While that is definitely a concern, engagement is the only way FB works, so it’s important that the company change with the times and keep its users happy.

Big Opportunities

While Facebook’s shifting strategy does add some uncertainty, it’s important to note that the company also has quite a few opportunities ahead as well.

The firm has been working to develop a video content option on its site that could eventually rival YouTube from Alphabet Inc’s (NASDAQ:GOOGL, NASDAQ:GOOG).

Facebook’s Watch tab is still in the early stages, but the company is planning to build it out with user-created content through an ad revenue-sharing scheme. The benefit for Watch is the fact that Facebook already has so much data on its users and what they like to see that it will make it easy for the firm to create curated content geared toward individuals.

The firm is also planning to allow companies to select the kind of content their brand wants to be associated with in order to ensure that ad placement is relevant.

While it still has a long way to go before catching up to YouTube, Watch offers a ton of potential for Facebook once it gets rolling.

Facebook has the potential to monetize its grip on the messaging space in the coming year as well. FB currently owns the two most popular messaging services on the planet — WhatsApp and Facebook messenger. So far, the firm has done very little to monetize those assets, but once it does, we will likely see a huge boost to the Facebook’s profits.

The Bottom Line on FB Stock

FB stock could have a bumpy road ahead over the next few months as it works to pivot its business and address concerns. While it’s true that will add some uncertainty, I’d be more worried if the firm were to ignore it and continue with business as usual.

Facebook has 1.4 billion daily active users; with that kind of reach, it’s hard to imagine a scenario in which the company fails miserably. It’s smart to rework the site in order to keep users engaged, and the firm has plenty of other revenue opportunities to build out in order to keep shareholders of FB stock happy.

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Apple (Nasdaq: AAPL) just set a record for the most profitable quarter in the company’s history. Not surprising since Apple executives said in November that they were expecting its “biggest quarter ever” and a return to double-digit revenue growth for the first time in years.

But not all is well with the world’s largest company by market capitalization. One needs look no further than the stock’s relative performance to the S&P 500 index over the last three month period. Apple has been a definite laggard.

I expect that relative underperformance to continue. Here are two reasons why:

Reason #1 – Overpriced iPhoneX?

Apple may have made a classic mistake and priced the new iPhoneX too high, thinking its fans would pay any price for its phones.

This phone is the first from Apple with an organic light-emitting diode (OLED) display. It also features facial recognition and wireless charging. But many complain it lacks groundbreaking new technologies when compared to some of Apple’s previous models. In other words, the same old complaint under the leadership of Tim Cook – a lack of innovation.

The iPhoneX price starts at $999 here in the U.S. And in the very important China market, the cost starts at a whopping $1,334! This is crucial since, in December, the flagship Mate 10 Pro from China’s Huawei was launched at a starting price of just over half the cost of the iPhoneX. In the latest survey of Chinese consumers, Apple still lags Huawei in what brand their next smartphone purchase will be. As recently as 2015, Apple was named by twice as many consumers as Huawei was.

What really caught my eye though was the article last week in the Nikkei Asian Review that revealed Apple had told its Asian suppliers it was slashing its production target for the iPhoneX by half for the first three months of 2018. Production was slashed because sales had failed to meet Apple’s lofty expectations. If sales are faltering, that means the whole Wall Street tale about the iPhoneX supercycle was a myth.

And let’s not forget that there continues to be intensifying competition in the premium smartphone market. Alphabet (Nasdaq: GOOG) officially closed its $1.1 billion deal with HTC Corp., adding more than 2,000 smartphone specialists in Taiwan. This is expected to help Google chase Apple in the increasingly cut-throat premium handset market.

Reason #2 – Smart Speaker Delay

In relation to the entire innovation question, I do wonder what Apple’s next act will be after the iPhone? The iPhone is still responsible for about 70% of the company’s revenues.

One bright hope was the smart speaker market. After all, Apple’s Siri was the leader in the virtual assistant space. But it has now taken a back seat to smart speaker products from both Google (Home) and, of course, Amazon.com (Nasdaq: AMZN)and Alexa. Amazon’s Echo speaker was launched in 2014 while we still wait for Apple’s entry.

Apple’s HomePod smart speaker will finally be launched on February 9, after missing the Christmas selling season. But unlike the debut of the iPhoneX, Apple Watch Series3 or AirPods, pre-orders for the HomePod have not sold out ahead of the launch date.

That is likely due to the relatively high price tag (again). The HomePod will sell for $349 while you can get a speaker from Amazon for $50 to $150. This market will be extremely important long-term as the hub in many people’s homes. Canalys Research forecast that sales for smart speakers will soar by 70% in 2018 to 56.3 million. In other words, it is the biggest consumer electronics products since the smartphone.

Performance will matter when it comes to the virtual assistants in our homes.

Tests comparing Alexa to Siri to Google Home’s assistant have shown Google the winner in general knowledge with Siri performing the worst. And when it comes to shopping, Alexa was tops with the HomePod again bringing up the rear. The only areas where the HomePod came out on top was in regard to privacy and music.

Apple’s Future

Another growing negative for Apple is that sentiment toward the company has shifted, albeit slightly so far. The whole incident regarding the company intentionally slowing down its older devices was handled very poorly. So poorly in fact that now Apple faces a wave of class-action lawsuits as well as regulatory inquiries from both the Department of Justice and the Securities and Exchange Commission.

Money-wise, the investigations will be nothing Apple can’t handle. But the danger is there of a major sentiment shift against Apple from both the public at large and the investment community.

If sentiment further shifts, you may see Apple’s stock continuing to underperform the general market.

For me, that turns the race between the stocks of Apple and Amazon into a very real one. Already, Amazon is within $190 billion and closing very rapidly. . .the gap at the end of 2017 was $326 billion. And I expect to close further in 2018, unless Apple begins to innovate again, justifying the premium pricing on its products.

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Source: Investors Alley 

Apple Inc.’s (NASDAQ:AAPL) earnings report was certainly awaited with trepidation from investors. And yes, it was justified. The fiscal first-quarter was fairly mixed. So far today, AAPL stock is off about 3.86%.

But keep in mind there had already been ample selling off. Over the past few weeks, AAPL stock has gone from $180 to $163. (And is now about $161).

So let’s take a look at the quarter. Earnings rose 16% to $3.89 a share, up from the Wall Street forecast of $3.86 per share. As for the top line, the revenues jumped by 13% to $88.3 billion, which beat the consensus of $87.28 billion.

But there were two big-time issues with the quarter for AAPL.

First there was the guidance. For the current quarter, the company expects revenues to range between $60 billion to $62 billion. However, analysts were looking for a more robust $65.73 billion. There was also disappointment with gross margins. AAPL predicts they will be 38% to 38.5%, below the Street’s 38.9%

Next, the company showed weakness with the iPhone. Note that units sales reached 77.3 million, down from 78 million in the year-ago quarter. Oh, and Wall Street was looking for 80 million.

But this should be no surprise. AAPL was late with the launch of the iPhone X. And besides, there weren’t as many must-have features to gin up demand, especially in light of the hefty $999 price tag.

AAPL Stock And The iPhone

AAPL has been working hard to expand its revenue base. The “Other Products” segment — which includes the Apple Watch, Apple TV and AirPods — posted an impressive 36% increase in revenues to $5.5 billion.

There was also strength in the services business — including the App store, Apple Pay and Apple Music — which saw revenues rise by 18% to $8.47 billion. So Apple is certainly having a lot of success monetizing its base of 1.3 billion phone users.

Yet the diversification efforts have not been without issues. Just look at the HomePod — Apple’s smart speaker. The company delayed its launch, which meant missing the all-important holiday season. The result was that rivals like Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc(NASDAQ:GOOGL) have been able to capitalize on this massive opportunity.

Now despite all the diversification efforts, the fact remains that more than two-thirds of revenues come from the iPhone. So the sluggishness with unit volumes is definitely worrisome.

For the most part, the anticipated “upgrade supercycle” just never materialized.

Bottom Line On Apple Stock

Already analysts are getting cautious on AAPL stock. For example, KeyBanc Capital Markets’ Andy Hargreaves has noted: “Soft iPhone sell-through suggests a saturated market and the lack of gross margin upside reduces our view of potential profit growth.” His price target on Apple stock is $178 and he has lowered his rating from overweight to sector weight.

Now it’s true that AAPL has a massive cash hoard, which will likely mean more share buybacks and dividends increases. There may even be some interesting acquisitions.

What’s more, AAPL stock is at a reasonable valuation. Consider that the forward price-to-earnings ratio is at 13X. By comparison, Facebook Inc (NASDAQ:FB) is at 22X and GOOGL trades at 23X.

But again, the iPhone is what matters for AAPL stock. And for the most part, it looks like there will not be much momentum — which means that the shares may wind up languishing for awhile.

It pays sometimes to listen what comes out of the annual meeting of the world’s elite at Davos, Switzerland. This year was a prime example.

Satya Nadella, the CEO of Microsoft (Nasdaq: MSFT), gave the stark warning that the world is rapidly “running out of computing capacity”. He added that Moore’s Law – the maxim that the power of computer chips doubles every two years – is “rapidly running out of steam.”

Nadella said the problems the world faces today need superfast quantum computers to solve them. As the head of the company’s quantum computing team, Todd Holmdahl, said to the Financial Times, “We have an opportunity to solve a set of problems that couldn’t be solved before. On a classical computer, they would take the life of the universe to solve.”

This is breakthrough technology that will change our world, making quantum computing (a subject I’ve touched on previously) a topic worth revisiting.

Related: Here’s Where to Invest in The Promise of Quantum Computers

Quantum Computers

Building a quantum computer has stumped scientists and engineers for about 35 years due to the complicated physics involved.

Qubits – the basic units of quantum information – are highly susceptible to ‘noise’ and therefore error. For qubits to be useful, they must achieve both quantum superposition (a property something like being in two physical states [0 and 1 in computing] simultaneously) and entanglement (a phenomenon where pairs of qubits are linked so that what happens to one can instantly affect the other, even when they’re physically separated). These delicate conditions are easily upset by the slightest disturbance, like a slight vibration or a fluctuating electric field.

Quantum computers will be particularly suited to factoring large numbers (making it easy to crack many of today’s encryption techniques and probably providing uncrackable replacements), solving complex optimization problems, and executing machine-learning algorithms. And there will be other applications no one has yet even thought about.

The cracking of encryption techniques may even push current blockchain technologies to the dustbin of history quickly. More on that later.

Until now, scientists have only been able to build fully programmable five-qubit computers and more fragile 10- to 20-qubit test systems. Neither kind of machine is capable of much. But the head of the quantum computing effort at Alphabet (Nasdaq: GOOG), Harmut Neven, says his team is on target to build a 49-qubit system perhaps within a year.

That would be close to the minimum target set by scientists of around 50 qubits. This 50 qubit target isn’t an arbitrary one. It’s a threshold, known as quantum supremacy, beyond which no current supercomputer would be capable of handling the exponential growth in memory and communications bandwidth needed to simulate its quantum counterpart. In other words, the top supercomputer systems can currently do all the same things that five- to 20-qubit quantum computers can do, but at around 50 qubits this becomes physically impossible.

The Threat to Blockchain

Before I tell you about some of the breakthroughs in quantum computing coming from the likes of Microsoft, let me first fill you in on the greatest threat to blockchain out there. It’s not regulations, it’s quantum computers. Let me explain…

Much of the allure of blockchain comes from its security benefits. The technology allows a ledger of transactions to be distributed between a large network of computers. No single user can break into and change the ledger, making it both public and secure.

Public key cryptography uses a pair of keys to encrypt information: a public key which can be shared widely and a private key known only to the key’s owner. Anyone can encrypt a message using the intended receiver’s public key, but only the receiver can decrypt the message using their private key. The more difficult it is to determine a private key from its corresponding public key, the more secure the system is.

Even if today’s supercomputers tried to figure out what the private key is, it would take it an estimated 785 million times longer than the age of the universe. In other words, it’s impossible. But with quantum computers possibly 100 million times faster than classical computers, they could possibly break today’s public key cryptography, rendering the blockchain technology that relies open to hacking and obsolete.

So naturally research into quantum-resistant cryptographic systems has already begun at places like the National Security Agency (NSA). But I doubt these systems will be available before the advent of quantum computers.

Breakthroughs Around the Corner

That is thanks to efforts from companies like International Business Machines (NYSE: IBM), Google and Microsoft, which make quantum computers likely and commercially viable within several years. Previous estimates were that quantum computing was still decades away.

But two impending milestones – from Microsoft and Google – will show that the frontiers of theoretical physics are quickly being turned into practical reality. Google’s revelation involves that aforementioned machine that will be the first demonstration of quantum computer solving a problem that is at the very limit of what is possible for a classical computer.

IBM has been a pioneer in the field and actually achieved a working qubit in 1998. It announced in December a long list of partners to help it develop practical applications for the technology. The partners include a number of universities, government research institutions and major companies, such as JPMorgan.

I would say that IBM is ahead of Google in that it has already programmed a supercomputer to simulate a quantum machine with more than 50 qubits. A feat, I might add, most did not think was possible.

Both Microsoft and IBM are offering simulations of quantum computers that run on today’s “classical” machines, while IBM is also giving its partners access to a rudimentary quantum system.

Microsoft’s Different Approach

Now let’s focus on Microsoft, which began working on producing a working qubit (quantum bit) 12 years ago. And now finally, it is “imminently close” to announcing that it has reached that goal.

I find Microsoft the most interesting of the three leaders in quantum computing because of the unique approach it is taking. It apparently has developed a type of qubit that effectively fragments electrons. That means the same piece of information is held in multiple places at the same time. If one part of the qubit goes through quantum decoherence, the information it contained is not lost.

This will likely lead to a more stable system than its competitors’ systems. Microsoft will likely need only one qubit compared to 1,000 or 10,000 (mainly unstable) qubits.

For me, if Microsoft does indeed reveal that working qubit, it will place them ahead in the race for quantum computing supremacy. It would be my choice as a major future beneficiary of quantum computing.

But don’t forget about Google and IBM, as well as Intel and the Canadian private firm, D-Wave Systems. All are working on developing the leading computing technology.

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Source: Investors Alley 

So much for Spectre and Meltdown, the two security vulnerabilities found in Intel Corporation(NASDAQ:INTC) chips that were supposed to catalyze customer churn and sent INTC stock spiraling downward earlier this month.

After reporting a robust double-beat quarter with a strong full-year guide that didn’t show any signs of customer churn, Intel stock is bouncing. Big. Its up nearly 10% on the day.

And its up more than 15% since the Spectre and Meltdown concerns dragged INTC stock down to the $42 level in early January. How much higher can this stock go?

Quite a bit. INTC stock deserves to trade above $50. And there is a strong argument for it to trade above $60. Here’s a deeper look.

Strong Quarter Supports Further Upside for the Stock

Intel is a company in transition. While the company’s core PC business is stable and not going anywhere anytime soon, its also not growing. The PC market is saturated. Everyone who wants a computer already has one. There won’t be any growth there in the foreseeable future.

But Intel is managing to grow revenues at a healthy rate because the company is innovating in new growth spaces, like the data center market.

Data is exploding in popularity right now (think about all the smart devices, like smartphones, smartwatches, and smart home gadgets). All this data has to be stored somewhere. So big tech players like Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc(NASDAQ:GOOG,NASDAQ:GOOGL) have created hyper-scale data centers that store and secure all that data in the cloud.

So long as data continues to explode, these data-centers will continue to grow.

And so will Intel. Intel supplies critical components to those cloud data-centers so that they actually work, making the company an indispensable part of the process.

This business for INTC is doing very well. Data center revenues jumped 21% higher in the fourth quarter, up from 15% growth the prior quarter. This led to total revenue growth acceleration from 6% to 8%. Moreover, its signals that Intel’s big cloud customers view the aforementioned security vulnerabilities as a minor hiccup in an otherwise quality offering from Intel.

Intel also delivered a strong guide, yet another sign that demand will remain robust into the near future and that investor concerns related to Spectre and Metldown were overdone.

All in all, Intel is one part stable PC business, one part surging data-center business. As it has in the past, this combination should lead to top-line growth in the 3-5% range.

INTC also has some solid margin drivers. Long-term gross margins should trend up as chip complexity and demand grows. Long-term operating margins should also trend up thanks to major cost savings initiatives from management.

Mid-single-digit revenue growth plus healthy margin drivers and buybacks should drive somewhere around 7-10% earnings growth from 2018’s $3.55 expected base (8.5% at the midpoint).

The S&P 500 is currently trading at 18.6-times 2018 earnings for roughly 10.5% earnings growth prospects after 2018 (a 77% premium).

If you carry that same premium over to INTC stock, you get to a fair earnings multiple of 15 for 8.5% growth. A 15-times multiple on 2018 earnings of $3.55 implies a price target of $53.

If growth can get to 10% after 2018, then INTC stock is looking at a fair multiple of nearly 18, which would get you to a price north of $60.

Bottom Line on INTC Stock

This rally in INTC stock will continue. This is still the lowest multiple player with exposure to secular growth markets like data centers. As the Spectre and Meltdown security vulnerabilities move into the rear-view window, investor demand for INTC stock will only grow.

And INTC stock will head higher. I think we could see INTC at $60 in the not-too-distant future.

As of this writing, Luke Lango was long INTC, AMZN and GOOG.