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Wall Street is rotating from AI infrastructure into defensive growth names, CNBC's Jim Cramer said, citing Costco, Walmart, ServiceNow, Salesforce and Johnson & Johnson. "Investors are moving away from some of the market's biggest AI infrastructure winners and into companies with growth drivers outside the data center buildout," Cramer said on CNBC's Squawk on the Street. The call comes as AI-related stocks face mounting pressure. The Nasdaq Composite fell more than 1% in premarket trading Tuesday, tracking an overnight 10.8% crash in South Korea's KOSPI index that hit memory and semiconductor names. The Cboe Volatility Index closed at 18.58 on July 24, up from about 14.50 two weeks earlier, reflecting growing unease in tech-heavy portfolios. The rotation marks a potential inflection point for a market dominated by AI-related capital spending since late 2024. With hyperscalers committing roughly $725 billion in combined AI infrastructure spending for 2026, investors are questioning whether those investments will generate returns fast enough to justify stretched valuations in semiconductor and data center stocks. The shift has been building for months. Goldman Sachs data showed hedge funds trimmed tech hardware exposure for four straight weeks heading into July. Chip stock volatility hit a 30-year high relative to the broader market, according to data cited by Cramer, making the trade increasingly difficult to hold for leveraged investors. Nvidia, the bellwether of the AI trade, posted Q1 fiscal 2027 revenue of $81.6 billion, up 85% year over year, yet its shares have been volatile. Advanced Micro Devices trades at a price-to-earnings ratio of 186 after Q1 revenue of $10.25 billion. Super Micro Computer missed consensus revenue by 18% in its most recent quarter and carries $8.8 billion in debt. Even strong earnings have failed to lift share prices: TSMC raised its 2026 capex outlook in mid-July and the stock fell anyway. The stocks Cramer highlighted span consumer staples, healthcare and enterprise software — sectors that offer earnings visibility without direct exposure to data center spending. Costco and Walmart benefit from steady consumer demand and pricing power in an environment where household spending remains resilient. ServiceNow and Salesforce provide recurring subscription revenue tied to enterprise digitization, a trend that predates the AI boom and continues regardless of data center investment cycles. Johnson & Johnson offers healthcare exposure with a diversified pharmaceutical and medical devices business that generates consistent cash flow across economic cycles. The rotation mirrors a pattern that emerged in late June, when the Dow Jones Industrial Average hit a record 52,615 on the same day Nvidia and Apple fell 2% to 5%. Nine of 11 S&P 500 sectors rose or held steady that session, even as tech names sold off. Cramer has been warning about leveraged AI exposure for weeks, telling investors on his July 27 Mad Money show to sell leveraged positions "no matter what" at the market open. For portfolio managers, the question is whether this rotation represents a tactical shift or the start of a longer-term trend. Banking earnings have been strong — JPMorgan posted a 33% earnings beat in Q2 with equity markets revenue surging 86% year over year — while industrial names like J.B. Hunt have gained 50% year to date. The data supporting a move into non-tech sectors is accumulating, even as AI infrastructure spending remains at record levels. Cramer's track record on sector calls is mixed, but the underlying earnings momentum in financials and industrials provides a fundamental basis for the rotation that extends beyond any single commentator's opinion. This article is for informational purposes only and does not constitute investment advice.
Costco Wholesale Corp. opened its first standalone fuel-only retail location in Mission Viejo, California, this summer, breaking from the warehouse-and-gas model that has defined the retailer for decades. The station has no warehouse, convenience store, or food court — just 16 pumps serving members at prices typically 20 cents to 30 cents below local competitors. "Wherever they go, it'll be a sizable revenue opportunity for whatever city it's in," Dennis Houghton, a commissioner on the Santa Barbara Airport Commission, said during a March meeting where the panel approved an exclusive negotiation agreement with Costco for a potential second standalone site. The Mission Viejo station is the first test of a format Costco is exploring for high-cost or dense markets where building a full warehouse is impractical. The company is also evaluating a site in Goleta, California, 2.5 miles from its existing warehouse there, after the Santa Barbara Airport Commission granted a 12-month exclusive negotiation period for a parcel at 6050 Hollister Ave. and 140 Frederick Lopez Road. Airport Director Christopher Hastert told commissioners that Costco "would much prefer to have it collocated with the warehouse, but they're looking at all options." The standalone format represents a strategic hedge for a company whose gas stations have long been a powerful member acquisition tool. Costco operates more than 850 warehouses globally, with roughly 600 offering fuel, and its gasoline business generates an estimated $20 billion in annual revenue — though margins are razor-thin by design, as the company uses low fuel prices to drive membership traffic into its warehouses. The risk of the new format is that without the adjacent store, the gas station loses its primary cross-sell function. The reward is access to real estate that is too expensive or too constrained for a 150,000-square-foot warehouse but viable for a half-acre fuel station. The experiment comes as Costco faces rising competition from warehouse rivals and traditional grocers expanding their fuel offerings. BJ's Wholesale Club and Sam's Club both operate gas stations at most locations, and Kroger Co. has been adding fuel centers at its supermarket chains. Costco's membership model — with annual fees of $60 for a Gold Star membership and $120 for an Executive membership — gives it a structural advantage in pricing fuel below market, since the membership revenue subsidizes the thin fuel margins. Costco has not disclosed plans for additional standalone stations beyond the Mission Viejo and potential Goleta sites. The company's next quarterly earnings report, expected in September, may provide more detail on the format's early performance and expansion plans. *This article is for informational purposes only and does not constitute investment advice.*
**Costco Wholesale Corp. has built the most unusual business model in American retail: a warehouse club that generates 29.1% return on equity while running on just 3.01% profit margins.** Costco reported fiscal Q3 net income of $2.19 billion, up 15.19% from a year earlier, on revenue of $70.53 billion that rose 11.58%. The numbers look ordinary for a retailer until you examine how they work together. Trailing operating margin sits at 3.67%, yet the company delivers returns that rival technology companies. The secret is an inverted working capital cycle. Costco sells inventory before its supplier invoices come due, meaning vendors effectively finance the shelves. Consumer advocate Clark Howard has long pointed out that few big-box retailers can match this cash flow dynamic. The company's reported gross margin of 11.04% in Q3 2026 is among the lowest in retail, but inventory turns fast enough to fund itself. "The goal is to be the first to lower prices and last to raise them," CEO Ron Vachris said on the fiscal Q3 2026 earnings call. He cited specific Kirkland Signature price cuts, including Crispy Wings reduced to $14.99 from $16.99 and king-size sheets to $79.99 from $89.99. CFO Gary Millerchip added that new Kirkland items offer "savings of at least 15% to 20% to the national brand equivalent with equal or better quality." **The membership engine is the other half of the equation.** Membership fee income hit $1.37 billion in Q3, up 10.7%, with 82.9 million paid members and a 92.2% U.S. and Canada renewal rate. Executive memberships grew 9.6% to 41.2 million and now drive roughly three-quarters of sales. That recurring high-margin revenue stream lets Costco operate its core retail business at near-zero margins while still compounding returns. June 2026 net sales came in at $29.24 billion, up 10.6%, with digitally enabled comparable sales up 20.9%. But adjusted comparable sales — stripping out gasoline prices and foreign exchange — eased to 7% for the total company, down from 8% in May and 7.8% in April. The stock fell about 4% on the news to roughly $913, landing 17% below its 52-week high. **Valuation remains the central tension for investors.** RBC Capital Markets initiated coverage with a Sector Perform rating and a $1,000 price target, praising the model but flagging the stock at roughly 37 times fiscal 2028 EPS. Shares trade at about 46 times trailing earnings, nearly double the S&P 500's multiple of 25. The bear case is valuation compression if growth continues to decelerate. The bull case is that Costco keeps cutting Kirkland prices while members keep renewing near 90% and suppliers keep floating the inventory. The pricing secret compounds as long as those three conditions hold. Costco's next catalyst will be its fiscal Q4 2026 earnings report, expected in late September, when investors will watch whether adjusted comparable sales stabilize or slip further. For shareholders, the 0.57% dividend yield and $1.47 quarterly payout offer modest income while the membership machine continues to generate cash. This article is for informational purposes only and does not constitute investment advice.
Costco Wholesale Corp. reported June net sales of $29.24 billion, up 10.6% from a year earlier, as comparable sales growth moderated. "Costco's in a funk," Jim Cramer said Thursday on CNBC, noting the retailer is navigating a tough consumer environment. Total comparable sales rose 8.8%, with U.S. comps up 10.6%. Excluding gasoline and currency effects, total comparable sales increased 7%, cooling from 8% in May and below Mizuho analysts' expectations of 8% to 9% for the U.S. Digitally enabled comparable sales jumped 21.5% on an adjusted basis. The stock fell more than 4% to around $913, trimming its year-to-date gain to about 5.5% — trailing the S&P 500's nearly 10% advance. Costco trades at 41 times forward earnings, a premium that leaves little room for disappointment, Mizuho said. U.S. traffic rose 3.2% in June, about 50 basis points slower than the prior month. Average ticket growth, excluding gasoline, foreign exchange and inflation, eased to 3.7% from 4% in May. Non-food comparable sales were positive in the mid- to high-single digits, with jewelry, home furnishings and major appliances among the better-performing categories. Food and sundries comps rose in the low- to mid-single digits. Costco's ancillary businesses, including gasoline and pharmacy, were sources of strength. E-commerce benefited from the company's online Membership Appreciation Days event held June 22-26. Membership renewal rates held steady at 89.7%, while paid memberships grew 4.1% year over year to 82.9 million. The company's board declared a quarterly dividend of $1.47 per share, payable Aug. 7. The deceleration reinforces the challenge facing even the strongest retail operators as consumers grow more cautious. Costco will report July sales on Aug. 5 and release fiscal fourth-quarter earnings on Sept. 24. This article is for informational purposes only and does not constitute investment advice.
**Costco's bet on high wages and generous benefits has created a wave of millionaire hourly workers — and kept turnover near 7 percent.** Tony Barzar, a 60-year-old Costco cashier in Tucson, Arizona, has accumulated over $1 million in his 401(k) after four decades with the retailer. "Many thousands" of Costco's US hourly workers have over $1 million in their 401(k) accounts, Chief Financial Officer Gary Millerchip said. Barzar earns $32.90 an hour, the maximum wage Costco recently boosted from $31.90. His Costco-sponsored health plan charges a $15 co-pay for regular visits and $25 for specialty care, well below national averages. The company's turnover after one year stands at about 7 percent, a fraction of the retail industry average, Costco executives said. Costco's strategy of paying above-market wages and benefits aims to reduce training costs and improve customer service. McKinsey estimated in a 2023 study that losing a front-line retail employee costs an average of $10,000 per worker. Retailers with the top quartile of employee-satisfaction scores were more than twice as likely to rank in the top quartile for customer satisfaction, the consulting firm found. **A Career Built on Retention** Barzar started at the Tucson warehouse in 1986, gathering carts in the parking lot for $5.85 an hour — nearly double the $3.00 he earned at a local grocery store. After stints as a morning stocker and door greeter, he became a cashier at about $10 an hour. He has declined offers to become a supervisor, preferring direct contact with shoppers. In 2009, Barzar and his family bought a three-bedroom, two-bath house with a pool. They have traveled to Europe twice over the past decade. When his wife was diagnosed with stage 3 brain cancer, his Costco insurance covered the full cost of three brain surgeries, and he took paid leave for nearly a year. Costco has created "culture coach" roles for long-tenured hourly workers like Barzar to mentor newer employees without being their supervisor. The retailer also added an extra week of vacation for workers with at least 30 years of service. **The Trade-Off of Generosity** The strategy has a downside: some experienced employees retire earlier than Costco would like, leaning on their significant savings. When a long-term worker leaves, the average wage at a warehouse declines, which helps profits "but it comes at the expense of experience," said Travis Maze, general manager of the Tucson warehouse. Costco's annual sales have grown for nearly two decades. Its stock has risen more than 2,000 percent from a low of about $40 a share in 2008 to around $953. The company's investment in workers means employees stay for a long time, then retire, but "you have a pipeline of employees coming behind that group that also are building that level of experience," Millerchip said. It is also cheaper long term, he added. This article is for informational purposes only and does not constitute investment advice.
Costco Wholesale Corp. reported June sales of $29.24 billion, a 10.6% increase from a year earlier, boosted by higher gasoline prices. The company's comparable-store sales rose 8.8% for the five weeks ended July 5, including a 10.6% gain in the U.S. and a 3.7% increase in Canada, Costco said in a statement. Digitally-enabled comparable sales surged 20.9% during the period. Gasoline prices had a roughly 2.5 percentage point positive impact on overall comparable sales, with average worldwide selling prices per gallon up 22% from a year earlier, according to the company. Excluding the effects of gasoline price changes and foreign exchange, total comparable sales rose 7%, with U.S. comparable sales up 7.6%. Costco's board declared a quarterly cash dividend of $1.47 per share, payable Aug. 7 to shareholders of record as of July 24. The company operates 933 warehouses globally, including 641 in the U.S. and Puerto Rico. Shares fell 1.5% to $939.34 in after-hours trading Wednesday after closing at $953.13, up 11% for the year. The stock's decline despite the sales growth suggests investors had priced in even stronger results or are focused on margin pressure from elevated fuel costs. For the first 44 weeks of the fiscal year, Costco reported net sales of $250.43 billion, up 10.1% from $227.46 billion a year earlier. The company's next quarterly earnings report, which will include full profit and margin data, is expected in the coming weeks and will provide a clearer picture of how inflation and input costs are affecting the bottom line. This article is for informational purposes only and does not constitute investment advice.