As part of the latest articles on Yahoo Finance good shopping or goodbye, Chris Versace, chief investment officer at Thematica Research, joins Julie Hyman to talk about chip stock Marvell Technology (MRVL) on the momentum of AI and retail giant Dillard’s (DDS) on consumer spending at department stores. I would like to express my opinion based on the fact that we are fighting against the slowdown in the economy.
Marvel belongs to Versace bargain Exposure to communications networks, where 5G networks will drive the introduction of artificial intelligence to accommodate increased user activity.
“So as this virtuous cycle of data explodes, not just because of the increasing adoption of 5G, not just because of other applications that are coming, but really in the short term, this explosion with AI. “Network spending will have to increase due to “catch up.”” Versace explains. “What will happen in the near future? Network capacity levels will continue to rise…”
Versace chooses Dillard’s as its brand Goodbye, He cited a decline in foot traffic at department stores as consumers become more selective about where they shop.
catch more good shopping or goodbye, Or watch the full episode of Yahoo Finance Live here.
Editor’s note: This article was written by luke carberry morgan.
video transcript
[MUSIC PLAYING]
Julie Hyman: It’s a big, noisy world of stocks out there. Welcome to “Good Buy or Goodbye”. Our goal is to cut through this noise and guide you to the best moves for your portfolio. Today, we’ll focus on which companies investors are currently betting big on with expected long runways for growth, and which ones they’re not. I’m here with Chris Versace, Chief Investment Officer of Theme Research. And first of all, nice to meet you. Thank you for being here.
Chris Versace: I’m happy to be here.
Julie Hyman: You see, I blame everything that goes wrong today on the change in time. Goodbye Let’s talk about stocks. It’s Marvel Technology. Now, the stock price fell after earnings last week, but let’s think about why we like this stock. The demand for AI and data centers, the first reason.
Chris Versace: Well, let’s start by saying that there are many different chip stocks out there. We tend to think about Intel. We tend to think of Qualcomm. But Marvel is a little different. Because Marvell’s chips are actually built into the infrastructure that supports all of our connections. So when you think about rampant spending on AI and hear about how Google, Meta, and Amazon are spending on data centers, it all involves chips. And we know this from his NVIDIA who gave excellent and excellent guidance.
But guess what? Marvel reported last week. And their data center business has increased significantly, like Donald Trump’s huge numbers. There were several other businesses that were not performing well. But I think that as a result of the continuing AI wave and what we’re going to see, embedded AI will be introduced into our devices, smartphones, PCs, and the amount of data we consume and create will increase significantly. Masu. Network and carrier spending will recover. That’s actually his second point.
Julie Hyman: interesting. Where she was late –
Chris Versace: correct.
Julie Hyman: –In last week’s financial report. Okay, talk about it.
Chris Versace: So if you think about how data moves, it’s not just simple, it actually exists, right? Whether it’s a wireless network or a fiber network that we have. It has to go through the network. There’s also all kinds of enterprise-related networking.
So as this virtuous cycle of data explodes, not just because of the increasing adoption of 5G, not just because of other applications that are coming, but in fact, in the short term, this explosion with AI. will require increased network spending. catch up.
What will happen in the near future? Network capacity levels will continue to rise as companies like AT&T, Comcast, and Verizon look to rein in spending. But at some point, there will be a breakthrough wave where you and I will have to upgrade our networks because neither you nor I will be satisfied with substandard service.
Julie Hyman: Yes, and it’s interesting because it presupposes not only an AI story, but also a larger data story. In the end, the stock price had a monster rally in the run-up to the earnings call, and then fell back.
Chris Versace: Yes, like many stocks involved in the AI space, the stock price has actually risen significantly since the end of October, not just so far in 2024. Perfect price, right? So not only did we have to deliver a great quarter, we had to provide great guidance across the board. And as we’ve seen, Marvel has subverted expectations. However, this is an opportunity for those who have missed out.
So we’re seeing such a backlash right now. We can say that they have implemented one of their profit strategies. So we’ve seen companies with weaker-than-expected outlooks either increase their dividends if possible or announce major share buybacks. They announced a $3 billion share buyback. And I think they’re going to use that to support the stock price.
Julie Hyman: Ah, that’s interesting. Now, we always talk about potential risks here. And he has two risks: time and market risks. What does that mean?
Chris Versace: Well, time means it might be a little early, right? I think this is what will happen in the end. I think the timing is that the first wave of these new AI-enabled devices will occur in the second half of the year ahead of the holiday season, facilitating this massive upgrade cycle.
I say this because look at what we saw at CES 24 and the 24th Mobile World Congress. And consider what Dell announced just a week or two ago about AI-powered laptops coming to market. It will happen. And market risk is just that: the market. If we see the market pull back in any meaningful way, Marvel will collapse.
Julie Hyman: Yeah, we’ve seen that especially in tech stocks. By the way, do you own Marvel?
Chris Versace: Marvell is one of the largest holdings in the AEP portfolio that I manage for the Street.
Julie Hyman: Okay, good to know. And if people are spending money on things like cell phones and networks, what they might not be spending as much money on is what department stores like Dillard’s stock.
Chris Versace: Or Macy’s.
Julie Hyman: –I’m telling you to avoid that. Macy’s I mentioned earlier. In fact, the stock price has rebounded a bit here. So why do you think Dillard’s won’t benefit?
Chris Versace: There are several reasons. One is, if you look at a lot of the data that we see, and I think others see as well, consumers are still very selective. They don’t just spend money haphazardly. I just got my consumer credit report for January, so I look at the consumer debt levels and I think, wow, they really do have more debt. Therefore, they will become more selective in the future.
Therefore, people no longer gather in department stores. The data shows that, right? So if you look at the next data point, department store retail sales for the last quarter, which is the holiday season, and then for the next three months were down 4.7%. people don’t go there. To make matters worse, when Dillard’s reported its quarter, the company was down his 5%. So they are losing market share.
Julie Hyman: Well, they are losing market share too. Now let’s move on to the next item, Amazon and other online retailers.
Chris Versace: 100%. According to the statistics I saw, Amazon accounts for 34 1/2% of all online retail sales in the US. Non-online retail sales account for approximately 15% to 16% of total apparel sales. It would hit the department store square in the belly. And Costco, believe it or not, this number is a little outdated. There’s about $9 billion, $10 billion in apparel. In other words, competitive forces circulate.
Julie Hyman: Interesting and probably more valuable compared to Dillard. But what are the upside risks here, or is it that the economy will eventually get better?
Chris Versace: Well, it’s just that consumers are much stronger than we expect. Job growth was surprisingly upbeat last week. Looking at ADP data, wage growth is still slightly better for job changers. So as long as real wage growth accelerates, people will have more money and be able to spend more. I still don’t think they’ll do that with Dillard’s.
Julie Hyman: By the way, do you hold any position at Dillard’s? Well, let’s summarize your case here. It really has to do with where people spend their money. We’re saying buy Marvell because their financials are strong and demand for AI is growing, but only for networking, broader applications. On the other hand, you say Dillard’s should be avoided because of increased competition in the retail industry and more choices for consumers. I think that’s what Walmart executives are saying.
