Club holdings Microsoft and Best Buy were the subject of upbeat Wall Street research, while TJX Companies hit an intraday high Friday on the same day it announced plans to enter a new international market. Here’s a closer look at the news and the implications for our investments. MSFT YTD mountain Microsoft (MSFT) year-to-date performance The news: Oppenheimer boosted Microsoft’s price target to $500 a share from $450, implying a nearly 18% rise from Thursday’s close. Analysts argued that Microsoft’s partnership with ChatGPT creator OpenAI “cannot be underestimated” and adoption of its artificial intelligence-related offerings will boost the stock’s price and company revenues. Oppenheimer predicted Microsoft will grab more share of the cloud-computing market and forecasted $50 billion in generative AI revenues in 2028, with around $36.2 billion tied to cloud-computing service Azure; AI-powered assistant tools Copilot and Github Copilot account for the remaining chunk of sales. In Microsoft’s fiscal third quarter ended in March, generative AI contributed $1 billion to Azure, according to Oppenheimer, which annualizes to $4 billion. The firm estimates Copilot revenue of $330 million this year. “Microsoft will regain a dominant platform role like its PC-era influence in a larger AI-driven market, and expand its multiple,” analysts wrote in a note dated Thursday. Also on Thursday, news hit that the Federal Trade Commission will start an antitrust investigation into Microsoft and OpenAI’s influence on the AI space, a source confirmed to CNBC. Microsoft shares are up slightly Friday, and have advanced 13.2% since the start of 2024. The Club take: We’ve long celebrated the Microsoft-OpenAI partnership because it’s given the Club holding a leading position in the heated AI arms race. Microsoft has introduced a number of promising offerings like Copilot, which the Club sees as a nice recurring revenue stream due to its monthly subscription cost. Meanwhile, the company’s recently announced AI-integrated Copilot+ PCs should be a boon for hardware sales as customers upgrade to the latest devices. Finally, we’re not concerned about the FTC’s regulatory inquiry. “What are they going to do, say ChatGPT shouldn’t have gone to them?” Jim said. “I’m not sure what their point is.” BBY YTD mountain Best Buy year-to-date performance The news: Loop Capital increased its Best Buy price target to $100 from $93 while maintaining its buy rating on the stock. A key reason for the hike is the retail analyst’s most-recent quarterly pricing survey found Best Buy’s price gap versus Amazon is narrowing. In fact, Loop said Best Buy was at “virtual price parity” with the e-commerce giant in three of five product categories in the survey: televisions, home theater and accessories. “Best Buy’s prices are 0.9% more expensive than Amazon’s on average, as compared to 1.5% more expensive in March,” according to Loop. The retail analyst also was encouraged by Loop’s tech hardware team raising its PC shipment forecast for 2024, which should bode well for Best Buy’s sales. On the stock, Loop sees Best Buy trading at a “significant discount” to the valuations of other retailers with relatively slow growth. Shares of Best Buy were slightly lower Friday, though they hit a new 52-week high Friday of $89 each earlier in the session. The stock is up more than 20% since the session before its upbeat earnings report May 30. On Monday, Citigroup’s longtime skeptical retail analyst double upgraded Best Buy’s stock in light of the release. The Club take: The results of Loop’s pricing survey are quite positive for Best Buy, as it fights to retain market share versus fellow Club holding Amazon. It’s no secret that some people go into stores to look at products then see how much the same item costs on Amazon or other online marketplaces. And if it’s cheaper online, especially on Amazon if they’re an Amazon Prime member, they just order it there. Even for purchases intended to be online from the get-go, plenty of people assume Amazon will have the best price to begin with. That reputation is key to the great business Amazon has built. We recognize this is just one data point, but it is nevertheless encouraging to see Best Buy closing the gap on Amazon. The crux of our thesis in Best Buy is the AI-fueled electronics upgrade cycle, but if the company continues to make up ground on pricing versus Amazon, that should help it stem market-share losses, which would have a host of favorable financial implications. TJX YTD mountain TJX Companies (TJX) year-to-date performance The news: TJX Companies is expanding into Mexico. On Friday, the off-price retailer announced plans for a joint venture in Mexico with Grupo Axo, which is no stranger to such arrangements. The company manages well-known brands like Tommy Hilfiger and Calvin Klein through joint ventures and exclusive partnerships in Mexico and some South American markets. Grupo Axo also operates off-price retail stores in Mexico, Chile and Peru. Under the agreement, TJX Companies will own 49% of the joint venture while Axo would own 51%, according to a press release. Axo’s more than 200 off-price stores in Mexico under the Promoda, Reduced, and Urban Store names will form the basis of the venture, the release said. The move offers “excellent potential to grow in another region and deliver our value proposition to a growing population of fashion,” TJX CEO Ernie Herrman said in the release. The proposed transaction is expected to close later this year and is not expected to have a material impact on the parent company of T.J. Maxx and Marshalls’ guidance for the current fiscal year. TJX stock added 0.48% to close at $107.44 per share Friday, having touched a record high of $108.58 on an intraday basis earlier in the session. TJX has advanced 15% year to date, ahead of the S & P 500’s 12.1% gain. Club take: TJX’s partnership with Axo is a chance for the company to expand its growth outside of the U.S., where it has seen favorable traffic trends during a period where consumers’ wallets are pressured. Since Axo is a leader in multi-channel retail in the similar categories that TJX operates in, it’s likely that TJX has found a strong partner that can help position it to thrive in new markets. This joint venture also reflects positive on TJX management’s ability to locate growth opportunities, which have been harder for other brick-and-mortar retail competitors to locate. (Jim Cramer’s Charitable Trust is long AMZN, TJX, MSFT and BBY. See here for a full list of the stocks.) 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An employee at Best Buy electronics store helps to move out a television after a shopper made a purchase during Black Friday deals in Westbury, New York, U.S., November 24, 2023.
Shannon Stapleton | Reuters
Club holdings Microsoft and Best Buy were the subject of upbeat Wall Street research, while TJX Companies hit an intraday high Friday on the same day it announced plans to enter a new international market.
Here’s a closer look at the news and the implications for our investments.
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