VIDEO: Patience Pays Off With Costco, China’s Pending Nvidia Chip Approval

In today’s Pro Portfolio video, Chris Versace discusses the mixed market we are seeing Thursday and how that could change next week. 

We review Costco’s  (COST)  wonderful thesis-confirming December sales report, as well as reports that China plans to approve imports of Nvidia’s  (NVDA)  H200 chips. 

Chris shares his thoughts on the defense sector following mixed back-to-back messages from President Trump Wednesday. 

We also provide our view on the move of Apple’s  (AAPL)  Apple Card from Goldman Sachs  (GS)  to JPMorgan  (JPM) , and touch on what’s moving Labcorp  (LH)  shares. 

At the time of publication, TheStreet Pro Portfolio was long COST, NVDA, AAPL and LH.

Transcript

CHRIS VERSACE: Hey, everyone, Chris Versace, here. It is Thursday, January 8 and market trading has already begun. A little bit of mixed but not really surprising. Remember, the S&P 500 put in some new highs very recently, as did the Dow. And we're going likely through a period of digestion ahead of the upcoming December quarter earnings season.

And I've spoken with you about this, and we continue to think that the next few weeks are really going to dictate where the market goes next, how much higher it can go, as companies deliver their first half guidance, their first half outlook, the first hard assessment on 2026. Remember, consensus EPS expectations have the S&P 500 basket growing earnings around 14% in 2026 compared to 2025. That will be the barometer that we watch, the yardstick that we gauge things by.

And as a result, we're going to start to see the pace of activity really pick up next week as the banks, they usually report first, and they are doing that once again. That does mean that we will have Bank of America, Morgan Stanley reporting next week, but there will also be a sea of others-- Citicorp, JP Morgan, and the like.

So we'll be really digging into those, not only curious as to what they say about their own earnings prospects and how that ties back to what they expect for the IPO market, the M&A activity and overall-- in other words, investment banking-- but also, what they see ahead for loan activity in the general tone of the economy.

But as I say that, please remember that we, at the portfolio, do not quote "buy the market." We are mindful of the market, its valuation, its relative strength readings and what that goes into it. But by and large, we buy well-positioned companies benefiting from multiyear tailwinds, preferably taking market share, poised to deliver superior earnings growth-- in short, benefiting from multiple tailwinds.

So with that as a setup, let's talk a little bit about Costco, which I know has been a very frustrating position for some. However, I would argue that our patience is paying off. Why do I say this? Well, you can see today that the shares are back over 900-- a sharp move over the last couple of days. And what's helping driving that is really two things.

One, I think folks are taking a fresh look at the shares. We talked about one upgrade earlier in the week. Today, we have another upgrade from Deutsche Bank-- they are back resuming coverage with a buy rating and a price target of $1,044. Now, that's one part of it. What is the other part? Last night the company delivered its December sales report and, boy, oh, boy. Not only were those figures robust, they beat expectations.

Well, so what were they? Headline Comp sales 7%. If we exclude gas foreign exchange, up 6.2%. In the US, adjusted-- 6.3%, e-commerce up 18%. As I said, very robust, very vibrant numbers. When we compare them against others, like, for example, yesterday, Albertsons reported with a paltry 2.4% identical sales number. Or we think back to some of the other ones we got recently from Target and others.

Clearly, Costco continues to take consumer wallet share. No surprise, given what we're seeing about the consumer-- whether it's some of the data points that we share with you, we're breaking down other companies results, headlines that folks are turning away from pizza because it's gotten too expensive, or some of the other signals that we share with you. And yes, we will have a fresh batch of signals out for you this weekend.

Moving on. Some news on NVIDIA. Now, we talked quite a bit about NVIDIA and some of the comments coming out of CES earlier this week. But here, one of the things we've been waiting to hear a little more about seems to be starting to materialize. I'm talking about China planning to improve-- that's very important-- planning to approve some imports of NVIDIA's H200 chips, potentially as soon as this quarter.

This has been a key market that folks are watching given demand there. There's been some obvious geopolitical tensions, and concerns about China's use of AI technology. Now, remember, this is plans to approve with other reports saying that, this one from Reuters, NVIDIA is seeking full upfront payment in the past when it comes to some of its customers, including those in China, NVIDIA has opted to do a deposit with make whole payment later.

Here's the context why folks have been paying attention to this and why we are too, and why it could be very big if those plans are approved. Last month, reports indicated that Chinese technology companies placed orders for more than two million H200 chips, and they're priced around $27,000 each. You can do the math-- that is a big number. And to be candid, it was bigger than the 700,000 units of chips for the H200 series that NVIDIA reportedly has in inventory.

So that would be a very sizable revenue stream. Question then, Chris, why are the shares trading off? I think it goes back to my wording that I pointed out there-- plans to approve. They did not approve it. I think that what we're seeing is kind of a wait-and-see attitude with this because we do have some renewed geopolitical tensions. And we talked all about that yesterday on the podcast with Peter Scheer.

If you did not listen to that podcast, I would urge you to do so. Peter brings a very differentiated perspective and I find it extremely useful, insightful, and helpful, and I think you will too. So please, go back, listen to the podcast. Or if you don't have the time, read the transcript. I think you're going to find it very, very informative.

Getting back to NVIDIA. I do think that when we get the formal approval for China, allowing the import of these chips, that will serve as the catalyst for NVIDIA shares. But candidly, I don't expect the market to give NVIDIA full credit, just given the fact that, let's be honest, there's going to be a lot of uncertainty on the geopolitical front with China at least until we get a little further along on Tariffs and trade negotiations with them. Candidly, maybe not even that.

I suspect that the market is going to wait until there's full confirmation the shipments have happened for NVIDIA, that potentially means that it's a reason to think NVIDIA could surprise to the upside, relative to expectations that folks are willing to make about the revenue stream. Either way, we continue to like NVIDIA. We continue to see rising demand for their chips.

Remember, we will continue to watch the margin line, given what they said earlier this week about the introduction of their next gen chip. Rubin, it will start to hit next year. But by and large, we continue to see improving volumes in the key AI and data center business. But the notion of not giving full credit until things are formally approved, let's use that to talk about the defense sector.

Quite a bit happened there yesterday. First, President Trump ordered US Defense companies to stop paying dividends and stop using their buybacks until they address his complaints about taking too long to produce military equipment. That hit the defense sector pretty hard. But then Trump turned around and he called for a simply massive increase in the US Defense budget for 2027-- he's asking for $1.5 trillion.

Folks had been expecting around a trillion and that's up from around $900 billion for 2026. A massive increase. I mean, more than 50%. And the question is, how likely is this? I would say, questionable at best, just given concerns about overall spending levels, the debt level, and remember, we just had a government shutdown. So I would say, it's questionable at best.

Let's remember, too, that this is going to require congressional approval in the midterms. Again, another topic that we talked about with Peter Scheer, the 2026 midterms-- Trump has quite a bit to deliver, especially, as I pointed out, with consumers. So I think that this is a little hopium in action, as I like to say. I would not be surprised if this bump in the defense stocks is a little short-lived as more sobering thoughts emerge on the topic.

But we'll pay attention to it. And if we do see a sizable increase in the cards, we will, of course, revisit some of the defense contractors. Moving on, Apple-- quick news, here. Apple is moving the Apple card from Goldman Sachs to JP Morgan. Kind of a yawner in my opinion. I do have the Apple card. I do love it. It's so simple to use. I like the Apple savings account that is tied to it. But candidly, moving from Goldman Sachs to JP Morgan, not a big deal, especially since this has been in the news about a potential move for a year, if not longer. So yawn is kind my response to that.

And then finally, let's close out with Labcorp. This is probably one of the more sleepy stocks that we have in the portfolio. However, however, when we think about the criteria that we have, clearly multiple tailwinds, here, aging of the population, company also continues to expand its battery of testing, it continues to win outsourced testing from medical groups, from hospitals, and it continues to do nice nip and tuck acquisitions.

So I'm bringing it up today because there wasn't an acquisition. There was actually a divestiture. That's right. Labcorp has completed the divestiture of its early development medical device testing business. How big is this? I'm going to tell you, it's pretty small potatoes measured against the $13 billion in revenue the company did in 2024, and the $14 billion or so it's expected to do in 2025.

Now, we are seeing, I think, the stock trade up a little bit on this news. It's always nice when a company kind of spins off a business that is not core, allowing them to double down and refocus on their core business. And I think that's exactly what we're going to see from Labcorp. I do suspect that will be the message that we get when management participates at the 44th annual JP Morgan Healthcare Conference next Tuesday, January 13.

We will have our ears open for that. We expect them to pretty much repeat that the business continues to execute. The key that we'll be looking for is what they say about the number of acquisitions. If you remember, when they reported their September quarter results, they said some timing on the acquisition front had slipped some out of the September quarter into the December quarter and some into 2026.

So that'll be the nice update we'll be looking for. But by and large, folks, we're going to have a lot more content coming your way today. So please, continue to check your emails, your alerts. And if we make any moves with the portfolio, we want to make sure that you are right there with us. Thanks for watching.