In a recent episode of Mad Money, Jim Cramer offers a perspective on Nvidia and its recent market behavior on Wednesday’s episode of Mad Money, presenting a straightforward analysis of the company’s stock performance and the broader implications for investors. Cramer notes that owning the company’s stock was easier when the company was less well-known. As the company has become a major market focus, it’s attracted significant attention and criticism, which is evident after its recent financial report.
“Once you get this big, to the point where you become the focal point of the entire stock market, you’re going to have a target on your back. And that’s exactly what I think happened tonight to the stock after the firm reported a fine and dandy set of numbers. But fine and dandy is no longer enough for this incredible company.”
Despite reporting impressive numbers—122% revenue growth, a 152% increase in adjusted earnings per share, and a $50 billion buyback— the firm’s stock fell after hours. This reaction reflects high expectations that may have become unrealistic. The stock market as a whole suffered due to pre-quarter jitters surrounding the company, with declines in major indices like the Dow, S&P 500, and Nasdaq Composite. The drop in the firm’s stock price after the earnings report, coupled with concerns about its influence on the broader market, has led some to call this period the GPU maker’s “buzzkill quarter.”
“The Dow declining 59 points was bad, the S&P losing 0.6%, and the Nasdaq Composite 1.12%. And now, with the stock sinking after hours, we could be in for a hangover from what they’re already calling the company’s buzzkill quarter. But the people saying this might as well be having a watch party—yes, there was one—but there’s nothing to celebrate here. Move on.”
Cramer emphasizes that the company’s role in artificial intelligence is significant, but its overemphasis has become a burden on the market. The company’s market capitalization has skyrocketed from around $500 billion to over $3 trillion in just 18 months. Cramer suggests that the company’s immense importance might be overblown and that a recalibration might benefit the market.
“We know that artificial intelligence is the way of the future, and it’s the best bet on AI. But the company has become an albatross around the market’s neck because no one stock should be a proxy for the future of the S&P 500. Yet, that’s exactly what’s happened as the company has grown from around $500 billion in market cap just 18 months ago to more than $3 trillion now. Maybe after tonight, it will shed that millstone—like Apple did. You know what? That would be a godsend for all of us.”
Cramer expresses frustration with how quickly concerns about the company have spread to the broader tech sector, although he acknowledges that companies like Salesforce reported positive numbers. Cramer concludes by advising investors to diversify their portfolios beyond just tech stocks. He suggests that while diversification might seem less exciting, it is a crucial strategy to mitigate risks associated with over-reliance on a single sector or stock.
“It felt like insult added to injury when there was no injury to the company. It will muddle through and recharge at its next iteration. Blackwell goes boring, and we see renewed expectations. I hope they don’t get excessive like they were tonight.”
Our Methodology
This article reviews a recent episode of Jim Cramer’s Mad Money, where he discussed ten stocks he believes have significant growth potential. It also looks at how hedge funds view these stocks and ranks them based on their level of hedge fund ownership, starting with the least owned and moving to the most owned.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A shopper browsing the wide selection of trendy footwear in a franchised store.
Foot Locker Inc. (NYSE:FL)
Number of Hedge Fund Investors: 23
Foot Locker Inc. (NYSE:FL) remains a major player in the athletic footwear and apparel market, thanks to its strong partnerships with top brands like Nike Inc. (NYSE:NKE), Adidas (OTC:ADDYY), and Puma. Although the retail industry faces challenges, Foot Locker Inc. (NYSE:FL)’s strong market position and loyal customer base give it a significant edge over competitors. Foot Locker Inc. (NYSE:FL)’s efforts to remodel stores, improve digital systems, and enhance its supply chain are aimed at better serving customers and running operations more efficiently.
By focusing on expanding its online presence and omnichannel capabilities, Foot Locker Inc. (NYSE:FL) is well-positioned to benefit from the growing trend of online shopping. Foot Locker Inc. (NYSE:FL)’s efforts to control costs and streamline its store operations suggest that it could see better profit margins in the future. With its stock trading below historical averages, there is a potential buying opportunity for investors.
Furthermore, Foot Locker Inc. (NYSE:FL)’s attractive dividend yield provides steady income while waiting for the stock’s value to rise. As the economy recovers and consumer spending increases, Foot Locker Inc. (NYSE:FL) is set to gain from a rise in demand for athletic wear. The growing popularity of athleisure and interest in sports and fitness are likely to drive sales growth.
Here’s what Foot Locker Inc. (NYSE:FL)’s CFO, Mike Baughn, has to say in their latest earnings call:
“In the second quarter, starting with revenue, total sales increased 1.9% led by comps up 2.6%, which was slightly ahead of our prior guidance of flat to up slightly. Total revenues included an $11 million non-recurring charge associated with the rollout of the company’s enhanced FLX program, which impacted our total sales line and not comps within the quarter. In terms of monthly cadence, comps improved as we moved through the quarter, with May comps down low single digits, June comps up mid-single digits, and July the strongest month of the quarter with comps up mid-single digits and slightly ahead of June. Moving to margins, we were pleased to return to gross margin rate expansion in the quarter and accomplishing that while also improving our comp trajectory.
On a reported basis, gross margin for the quarter expanded 50 basis points to 27.6%. Merchandise margins were down 20 basis points. Occupancy as a percent of sales levered 70 basis points on the positive comp. To note, the quarter included an approximate 40 basis point impact related to the non-recurring FLX charge taken in the quarter. Excluding the FLX charge, gross margin increased approximately 90 basis points, including 20 basis points of merchandise margin expansion due to the reduced promotional levels year-over-year. Approximately $10 million of gross margin savings from our cost optimization programs also flowed through our cost of goods line. For the second quarter, our SG&A rate came in at 25.1%, representing deleverage of 130 basis points.
Investments in technology and brand building, as well as ongoing inflationary pressures, were partially offset by savings from the cost optimization program of approximately $10 million. Collectively, our cost optimization program generated total savings of approximately $20 million in the second quarter. Finally, our earnings loss per share was $0.13, and non-GAAP earnings per share landed at a loss of $0.05 per share. Included in both our GAAP and non-GAAP earnings per share results was an approximate $0.09 impact from our non-recurring FLX charge. Turning to the balance sheet, we ended the quarter with $291 million of cash and total debt of $445 million. At quarter end, inventories were down 10% versus last year, as we remained committed to keeping our inventories controlled, slowing product to better match demand, and improving our inventory turns in 2024.
Turning to cash flows. Cash flow from operations was $68 million in the quarter, while capital expenditures were $56 million, yielding a positive free cash flow of $12 million in the second quarter, a significant improvement as compared to the prior year. We are pleased to see positive free cash flow in the quarter and remain on track to generate positive free cash flow for the year, moving on to the changes towards international operations, as well as our corporate footprint, that were announced this morning. The further streamlining and optimization of our international footprint will impact approximately 30 stores and is expected to be completed by mid-2025. In 2023, these regions represented approximately 1% of global revenue and over $10 million in operating losses.” (Click here to continue reading…)
Overall FL ranks 10th on our list of Jim Cramer’s go-to stocks for success. While we acknowledge the potential of FL as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the ones on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.