VIDEO: Explaining Our Broadcom, Costco Moves

Chris Versace sat down with TipRanks’ Julie Gillespie to unpack the Pro Portfolio’s latest moves, the Flash August PMI report and what’s on tap next week.

Chris explained why the Portfolio bought the dip on Broadcom (AVGO), used an overreaction to Marvell’s (MRVL) Google (GOOGL) warrant deal to its advantage and added to its Costco (COST) position. He broke down the data points that led to that Costco decision, including that comp sales figure reported by Ross Stores (ROST).

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Transcript

Julie G: Everyone, it’s Julie here with TipRanks, and once again I have the pleasure of being joined by Chris Versace from TheStreet Pro, where we are diving into some hot topics from the week. The Pro Portfolio bought the dip on a couple of very different stocks — we have Walmart stumbling while Ross Stores jumped. And then next week we have NVIDIA and Marvell, which could set the tone for the rest of the year. Chris, thank you so much for joining me today.

Chris Versace: Well, happy Friday, Julie. What a week to close out, huh?

Julie G: I know — hey, it’s been a lot going on, a lot of earnings wrapping up here. So I want to start off with the Pro Portfolio’s most recent purchases, scooping up some shares of Broadcom and Costco. Could you walk us through

Chris Versace: Yeah, uh-huh.

Julie G: the thinking behind those two?

Chris Versace: Yeah, so let’s deal with Broadcom first. The play here with Broadcom is a combination of the ramping custom silicon business — we’ve heard about that from Marvell and others. And what I’ve noticed is that there almost seems to be this mentality across most of Wall Street that only one company can win. So if one of these companies makes a very nice announcement that bodes well for their business, it can’t be good elsewhere.

That’s simply not the case, and what we’ve done a couple of different times now is use some of these ill-timed reactions, let’s call them, to our advantage. As it relates to Broadcom, they are going to continue to benefit not only from rising networking demand, as will Marvell, but folks seem to have forgotten, Julie, that earlier this year the Broadcom CEO said he sees the 2027 custom silicon business at over $100 billion. That compares to the $10 billion they shipped just in the most recent quarter — a huge ramp. They’ve also inked a $30 billion multi-year deal with Apple, so the outlook is very robust there, in my opinion. So we used the culmination of several days of falling Broadcom stock to say, you know what, the risk-reward here is favorable — we’re going to pick up some more shares.

Julie G: Well, and as you mentioned, it has been a wild few days for them — they had a big debt raise, we had the Apple deal, and then the sell-off on the Marvell-Google news. What headline caught your eye the most this week with Broadcom?

Chris Versace: You know, probably — some people are probably going to say that big deal, right? And I would say not really, because if you think of the ramp that’s happening and the customer base that they have, they really do need to bring on incremental capacity. So I’m not as fazed by that. I think it was more the sharp reaction to the positive news on Marvell, which we also own in the Pro Portfolio, where Marvell issued a warrant to Google in exchange for, you know, a really nice competitive stance inside Google’s custom AI silicon business.

The way it works here, Julie, is that tranches of that warrant will invest in Marvell’s shares, benefiting Google. But for that to happen, certain revenue thresholds have to be triggered. So when you think about it, some folks are saying, wow, if this really works, Marvell has the potential — keyword “potential” — for $120 billion in incremental revenue. That’s a big number, but we need to see Google ship those chips or consume them internally. So it’s a nice positive for Marvell — don’t get me wrong here — but there are some things we need to see happen. So I think, against that backdrop and the prospect that maybe Marvell did not replace Broadcom inside of Google the way some folks are thinking, that overreaction is another factor that led us to swoop in with Broadcom shares.

Julie G: And then we have Costco — their comps

Chris Versace: Whoa.

Julie G: are outpacing Walmart’s and BJ’s. So what’s Costco doing right now that others aren’t? What are we seeing there?

Chris Versace: Well, I think it kind of speaks to the nature of Costco, where you go, you buy in bulk, and you stretch your spending dollars, and they deliver time and time again great value for their members — whether it’s on the grocery front, the clothing front, sundries, you know, what have you, pharmacy too. And yes, they are starting to wade into Medicare healthcare plans, which should be an interesting development for them. We’ll have to see how it goes when it moves past the pilot stage — three states, I believe.

But you’re right to focus on the numbers, Julie, because the numbers don’t lie. If people are thinking Walmart’s going to benefit from cash-strapped consumers trading down and stretching their dollars, and their US comp sales are like 2.6%, and you’ve got Costco doing somewhere between six and eight percent based on their adjusted monthly numbers, which exclude gas and FX, we know where people are going to shop — it’s at Costco. We can make the same argument against some other retailers that have reported. And I think you called out BJ’s, which is a wholesale competitor, at 3.1%, something like that — no question where they’re going. That is what prompted us to pick up some more shares of Costco. And let me just add, too, real quick — to the extent that oil prices continue to move higher, gas prices above $4, remember it was Walmart who called out on their earnings call that gas above $4 tends to trigger more cautious behavior with consumers. Again, another positive for Costco.

Julie G: And when we talk about consumer spending, we also had Walmart and Ross — Walmart missing, but Ross having a big beat, all within the same week here. What does that split tell us about the US consumer?

Chris Versace: Well, I think it tells us a couple of things. And just — the point on Ross Stores, I think, really builds on what I just said about Costco. So just to frame it: when Ross Stores reported their quarter, their comp sales were 10%. That is huge. And they guided the current quarter to six to seven percent. So again, when you take a look at some of the other retailers that are reporting these low single-digit numbers — something like that, just like Walmart did — you have to sit back and say consumers are feeling pressured. Where are they going? Follow the money. Follow

Julie G: Please, dear. Yeah.

Chris Versace: the money. Where are they opening up their wallets? Where are they spending? Ross Stores, Costco. Even at TJX, the overall comp sales were around 4% — there are some issues in the core Marmaxx business, but it looks like that’s been rectified. If you look at HomeGoods and their other businesses, up six, seven percent.

So clearly consumers are looking to stretch their disposable spending dollars, and as investors, we want to be right there with them. So that explains why we added to Costco. That explains why even earlier this week we picked up a couple more shares of TJX for the Portfolio. And of course we’re long Amazon. So we like that positioning heading into the holiday shopping season.

Julie G: Absolutely. And it feels like we’ve gotten through the bulk of earnings for the big tech names, but next week we actually have two big hitters to keep an eye on — of course, NVIDIA and then Marvell as well, reporting back to back. What are you watching for most in those two prints?

Chris Versace: Well, first off, you’re right. I think people tend to forget that NVIDIA is the largest position in the S&P 500 — and I’ll make it clear, the market-cap-weighted, garden-variety S&P 500. So whatever NVIDIA does, good, bad, or indifferent, it’s going to have an impact on the market. That’s the first thing. But what do I think?

Look, we’ve seen hyperscaler capital spending go higher, neocloud spending go higher. SpaceX is saying they’ll buy everything that can possibly be shipped by NVIDIA. So I think the expectations for the quarter are good, and the guidance for the back half of the year should also be very good. The one concern I have — and this is pretty much every time NVIDIA reports — is that expectations for what they could say get so elevated. And to the extent that the stock runs into the earnings report, that’s going to make those expectations even higher. The odds that NVIDIA can deliver to that extent — that’s the concern that I have. We will be long-term holders of NVIDIA, so to the extent that we see a pullback afterward, we might assess picking up some more shares — it really depends. But we like the long-term positioning with NVIDIA, and we’ll see what they say.

Julie G: So it seems like there could be a bit of risk where the earnings could be great, but not great enough given all the anticipation.

Chris Versace: You know, I like the way you summarized all that gibber-jabber I just had into a very succinct point. Thank you, Julie.

Julie G: That’s what I’m here for. And then the broader market as well — we just had PMI coming in strong and inflation cooling. Of course, there’s always the geopolitical wild card with Iran in the

Chris Versace: Mm-hmm.

Julie G: next week or so, whatever ends up happening there. But bottom line, are you more constructive or cautious heading into September?

Chris Versace: So I was a little concerned, given the run-up in oil prices, gas prices, and diesel prices, that I was kind of bracing for some reinflation commentary out of that flash August PMI report. So I was pleasantly surprised by what we saw — not just on the inflation front, though; employment accelerated, order books accelerated. I mean, this is really a very positive report all the way around.

Now, two things. One, it’s a flash report, so the survey period is shorter — we’re going to have to see what the final data says. We’ll also want to see what ISM has to say, for a couple of reasons: one, that’s the report most in the market tend to watch; two, its findings are baked into some of the GDP calculations, so it carries a lot more weight with the market, and therefore we’ll weight it a lot more as well. But if we see similar findings, that would be a very nice thing as we move into September, and I think that can help the market overcome some of the rough spots it’s had.

But the second thing, Julie, and you mentioned this — we will need to see what happens on the geopolitical front. Monday could potentially be a big day. U.S. Treasury Secretary Scott Bessent said we’ll get a lot more details about these economic sanctions, not only on Iran but on its allies. The question becomes: what is it, does it work, and what is Iran’s response, and how do some of its allies respond as well? Remember, China’s President Xi is supposed to come here in September — that could be contentious.

Julie G: It’s a lot to keep an eye on. And as always, I appreciate your insights — I look forward to chatting with you in a couple of weeks. We’ll see how things play out next week with those earnings and the geopolitical wild card. So Chris, thank you so much for your time today.

Chris Versace: Happy to do it, Julie. Have a great weekend.

Julie G: Same to you. And for all of our viewers, if you want to learn more and read Chris’s articles on the factors that are moving the markets, you can head on over to TheStreet Pro — we have links in the description down below. And let us know what you’re watching most in the market in the comments; we always appreciate hearing from you guys. Thanks for watching.

At the time of publication, TheStreet Pro Portfolio was long AVGO, GOOGL, MRVL and COST.