TheChek News Flow

Germany’s Merz struggles to contain ‘chancellor swap’ talk

Younger, more popular conservative Hendrik Wüst emerges as dark horse for the chancellery as polls slide

Just over a year after taking office, Friedrich Merz faces what few German chancellors have encountered so early in their term: persistent talk of a younger and more popular party colleague replacing him.

Hendrik Wüst, the 50-year-old prime minister of North Rhine-Westphalia, shares many of Merz’s attributes: he is also tall, tie-wearing and steeped in the conservative heartlands of western Germany. But he has something the chancellor lacks: public appeal.

Wüst has not said he wants Merz’s job. But a statesmanlike visit to Poland accompanied by Berlin-based journalists last week, including a carefully choreographed stop at Auschwitz, was enough to prompt a flurry of commentary about a change at the top.

“Suddenly Hendrik Wüst is touted as the replacement chancellor,” the centre-left Stern magazine declared on Monday.

“Wüst against Merz: it seems inevitable,” followed a commentary in the conservative Frankfurter Allgemeine Zeitung. “Is a chancellor swap looming?” asked rightwing tabloid Bild on its front page on Wednesday.

“The question is: is Friedrich Merz still the right one?” an anchor of the country’s most viewed news show, the Tagesschau, wondered on Thursday.

The debate has grown prominent enough for senior figures in Merz’s Christian Democratic Union (CDU) to intervene. People close to the chancellor have dismissed the discussion as “absurd” and “dangerous”. One government insider accused titles owned by media group Axel Springer, which include Bild, of waging a “campaign”.

“It’s a very improbable scenario,” another insider said. “But [Merz] is under pressure from his own ranks.”

The debate reflects growing anxiety within Merz’s CDU over shrinking support ahead of difficult regional elections in eastern Germany in September.

Support for the CDU has slipped to around 23 per cent, while the far-right Alternative for Germany (AfD) has risen to 28 per cent despite Merz’s pledge to curb its advance. High energy prices driven by the war in Iran and deadlocked talks with his Social Democrat (SPD) coalition partners over welfare reforms have deepened voter discontent, pollsters say.

Never a popular figure, Merz appears to be suffering most. With fewer than a fifth of Germans satisfied with his performance, he is now less popular than his SPD predecessor, Olaf Scholz, at a much later point in his term. Merz, 70, ranked last in a Bild popularity ranking published this week. Wüst, meanwhile, ranked third — the highest of any CDU politician.

For Jana Puglierin, head of the European Council on Foreign Relations’ Berlin office, the episode underscores that Germany is no more immune to political volatility than France or the UK.

Merz has projected strength abroad, after loosening debt restrictions to inject €1tn into Germany’s derelict infrastructure and military, and emerging as the biggest donor of military aid to Ukraine. He criticised the US-Israeli war on Iran as ill-prepared and humiliating, triggering a massive row with Donald Trump.

But at home, he lacks a strong power base. It took him three attempts to become party chair and two attempts to be elected chancellor in the Bundestag.

“Europe thought that Germany was more stable than France and the UK, with its fiscal space and its coalition,” Puglierin said. “But as it turns out, Germany’s domestic politics are more shaken than people think.”

Panic is creeping through the CDU, once a big-tent party able to attract a wide array of voters but now feeling directionless, she added.

After Angela Merkel’s centrist rule, Merz promised to take the party back to its conservative roots and lure voters away from the AfD. This has involved tightening immigration rules and relaxing green regulation. The CDU won last year’s elections with 28 per cent, less than he had hoped for, while the AfD won a record 21 per cent, becoming the second largest party in parliament.

As the CDU’s poll ratings have fallen, attention has turned to “alternative models” such as Wüst, whose successful coalition with the Greens in North Rhine-Westphalia offers a different template, Puglierin said.

Andreas Rödder, a historian and former senior CDU official, says that while there are “no current plans to overthrow Merz”, the concerns stem from a “great deal of dissatisfaction with him, which could turn into panic”.

CDU insiders, commentators and political analysts agree that replacing Merz midterm is highly unlikely.

The constitution allows for a change of chancellor without fresh elections through a so-called constructive vote of no confidence, under which a parliamentary majority agrees on a successor. Unlike in the UK, a German chancellor need not be an MP.

In 1966, CDU Chancellor Ludwig Erhard resigned after his liberal coalition partner left his government. His successor, Kurt Kiesinger, avoided new elections by forming a new coalition with the SPD. In 1982, SPD Chancellor Helmut Schmidt was replaced by CDU leader Helmut Kohl after the liberal partner switched sides.

A similar scenario would probably require Merz to step aside, Wüst to enter the race and the SPD to back him as chancellor.

“Wherever you look, this scenario makes no sense. It’s only possible if Merz wants it. All other scenarios are out of the question,” Roland Koch, the former CDU premier of Hesse and a Merz ally, told the FT.

These “theoretical discussions” arise because “the situation is so critical for the coalition, which has done some things right but is in trouble because of the economic situation”, he said.

The SPD is to blame, Koch said, for failing to embrace bold reforms. “I am astonished at how little the two coalition parties can agree on economically.”

Regional elections in the former eastern communist state of Saxony-Anhalt, where polls suggest the AfD is within reach of winning an absolute majority, are looming large over the debate.

“There are no popular reforms, but best to see them through before these elections rather than having to admit that nothing can be done,” Koch said.

Merz this week addressed the debate indirectly, telling voters in his constituency that he was “personally determined” to revive Europe’s largest economy, and promising a big package of measures before the summer. Earlier that day, Wüst told reporters Merz had “his full support”.

A government spokesman on Friday said the chancellor was “focused on the reform process”, adding: “All other matters are irrelevant.”

If the AfD becomes the first far-right party to win a state election in postwar Germany, pressure on Merz would intensify sharply, said Andrea Römmele, a political scientist at Berlin’s Hertie School.

Still, replacing him would require the support of the very man at the centre of the speculation.

“It says more something about the CDU — how insecure they are,” Römmele said.

Active portfolios need to take into account factors such as risk management of giga-caps

In recent years, the US equity market has been reshaped dramatically by forces ranging from global trade shifts to the rise of AI. Investor strategies need to evolve accordingly.

Some investors might worry about changing their investment approach at the wrong time. But market dynamics have shifted, and ample evidence is in place to conclude that many changes are structural. While there are dozens of examples, here are five themes investors need to pay attention to:

Risk management of the giga-caps. One of the most obvious and striking shifts is the concentration of market power among a few massive companies, the giga-caps. These are companies valued at $1tn or more, and their performance has overshadowed other stocks, creating an extremely concentrated market — the most in the lifetime of any active US portfolio manager. There are 11 stocks today in the US that have a $1tn market capitalisation or larger. More may soon be coming with the initial public offerings of AI companies.

Risk management around the giga-caps has become paramount. Historically, active portfolio managers have thrived on sometimes contrarian bets to deliver alpha — the degree of market outperformance due to skill. However, the dominance of these companies creates an environment where a few investments can significantly impact portfolio performance.

This concentration demands a re-evaluation of traditional investment heuristics and requires portfolio managers benchmarked against the S&P 500 or another broad market index to own substantial positions for risk management.

The rise of junk stocks. While high-quality stocks have long been the go-to for conservative investors, the period since the Covid-19 pandemic has flipped this notion on its head. Lower-quality or “junk” stocks — assessed on factors such as free cash flow yield, dividend income and debt levels — have outperformed their more reputable counterparts. This shift reflects a market environment where risk-taking has been rewarded.

The median junk stock has seen its price-to-earnings valuation multiple expand since the pandemic. The median high-quality stock has had a series of cycles of multiple contraction. Why? It is partly the old market story that the maintenance of high quality isn’t rewarded, but improving from poor-to-average quality is. The trend has accelerated in recent years.

Earnings revisions are back in focus. The trend of tracking earnings revisions has seen a resurgence in importance. In the 1980s and 1990s, buying stocks that had just experienced an upwards earnings revision was a sound strategy. This practice subsequently waned in effectiveness and was sometimes considered backward-looking.

However, there has been an increased trend of companies that succeed in beating earnings expectations continuing to do so in subsequent quarters. And investors seem to be recognising that more in recent years with such stocks outperforming.

The power of buybacks. In the past, stock buybacks were sometimes criticised as a poor use of capital. And many companies faced scrutiny for timing their buybacks poorly. However, since 2021, investors have been rewarding buybacks more.

When companies engage in buybacks, they signal their belief in future growth, which can lead to a positive market reaction. The stock performance of companies engaging in buybacks has shown a marked improvement compared with those that do not.

Dividend increases matter more than ever. Another significant trend is the renewed focus on dividend-paying stocks. My firm looked at the performance of stocks relative to their industry group average following an announcement of a dividend increase. While this generally did not lead to outperformance from 1999 to 2010 and had a mixed impact from 2011-19, there has been a slow and steady outperformance in recent years for stocks increasing their dividends. This shift suggests investors may be valuing reliably improving income streams in uncertain times.

Investors should consider integrating dividend growth, not just level, into their portfolio choices. Stocks with such growth offer not only stability but diversification given their low correlation to the AI theme dominating US equities.

Investing landscapes are always changing and past performance, of course, is no guarantee of future performance. But these themes should have staying power. Investors seeking equity investments beyond index-tracking should consider how they affect their portfolios.

Critics say John Elkann has detached the family empire from its home country

Ferrari’s first fully electric vehicle has sparked Italian angst about the luxury carmaker and intensified debate in the country about the reign of John Elkann, scion of the Agnelli family dynasty and executive chair of the carmaker.

The Luce’s futuristic design, unusual proportions and symbolic departure from Ferrari’s combustion-engine heritage have provoked outrage among enthusiasts, former executives and politicians across Italy.

Transport minister Matteo Salvini claimed Ferrari’s founder Enzo Ferrari would be “turning in his grave”. The daily bouts of criticism about the Luce come amid questions over Elkann’s stewardship of Italian assets, in his roles as boss of the Agnelli family holding company Exor and chair at Ferrari.

The €550,000 Luce was designed in collaboration with former Apple design chief Jony Ive and Marc Newson. The EV project, which began about five years ago, grew out of Elkann’s longstanding personal relationship with Ive and Newson.

Publicly describing the collaboration as part of a broader effort to rethink how Ferrari approached its first EV, Elkann at the Luce’s launch event said the company “took the deliberate decision to lead what comes next”.

The Agnelli family has long controlled many of Italy’s most important industrial assets through Exor. For decades they occupied a quasi-royal status in Italy where their ownership of Fiat — the country’s largest postwar private-sector employer — placed them at the centre of the country’s economic and public life.

But Elkann, the grandson of industrialist Gianni Agnelli, has restructured the group through a series of sales and mergers which critics say have detached the empire from its home country.

In an interview on Mediaset, Carlo Calenda, Italy’s former industry minister and a former Ferrari executive, slammed the Luce EV as “an aesthetic and technological insult”. He also accused Elkann of wanting to destroy Ferrari and other companies formerly under the Agnelli umbrella.

Exor, on behalf of Elkann, declined to comment on the reaction.

Since Elkann took charge of the Agnelli empire 20 years ago, he has disposed of companies once regarded as national symbols. Asset sales have included van maker Iveco, high-tech components maker Magneti Marelli. Fiat was absorbed into Stellantis in a merger with France’s PSA, with Italians concerned about the future of the country’s car plants. This year he sold media group GEDI, publisher of La Repubblica and La Stampa, to a Greek billionaire.

Calenda added: “I don’t understand why nobody does anything while [he] destroys Stellantis’ Italian factories and sells Comau, Magneti Marelli, Iveco, La Stampa, La Repubblica.”

However, Ferrari alone accounts for about one-third of Exor’s total assets. Earlier this year Elkann turned down a €1bn offer from crypto group Tether for football club Juventus. Stellantis, which also owns luxury carmaker Maserati, still employs more than 30,000 people in Italy.

Online commenters have accused Elkann of having “destroyed everything he has touched” before turning to Ferrari. Some suggested Turin-based Elkann should leave Italy and relocate to the Netherlands, where Exor’s legal headquarters are based.

Others called the move “genius”. One Italian brand expert with a large social media following said the Luce could help Ferrari avoid the fate of Nokia, BlackBerry, Kodak or Blockbuster — once dominant brands undone by technological change.

“Ferrari has taken a risky bet, but it is looking beyond today’s customers,” the influencer said. “Its future clients are 14 years old now, grew up with Teslas and may not care for a noisy combustion engine.”

The intensity of the reaction reflects Ferrari’s unique place in Italian culture. The company has long represented a blend of national pride, engineering excellence and sporting mythology. Its prancing horse, or cavallino rampante in Italian, is one of the country’s most recognisable symbols. 

Rival Lamborghini on Wednesday posted an image of its hybrid V12 Revuelto supercar on social media with the caption: “Proud to keep you dreaming.” Thousands of comments including those praising the company for “staying true to its soul” and that it was “our only hope” appeared below the post.

While the company made no reference to Ferrari, car enthusiasts saw the post as Lamborghini’s way of contrasting Ferrari’s more radical approach to electrification.

Even the decision to present the Luce to both Pope Leo XIV and President Sergio Mattarella seemed to backfire, as photographs of the pontiff and the head of state seated inside the vehicle fuelled further criticism online from detractors who accused Ferrari of seeking official endorsement for a deeply divisive project.

Ferrari executives remain defiant. Speaking at a public event in Modena on Thursday, chief executive Benedetto Vigna said he was confident demand would be strong.

“Look at the people writing to us, the people placing orders,” Vigna said. “Some are existing clients and others are new.” 

Piero Ferrari, son of the founder who owns a 10 per cent stake in the eponymous group, also rallied in support, telling detractors to “try it, drive it, and you might change your minds”.

SLB—an “AI factory for energy”—will also benefit from post–Iran war infrastructure spending.

Key Points

It took conflict in the Middle East for the market to start paying attention to the energy sector again. It’s an opportune time to drill down on SLB stock.

The Houston-based company, formerly known as Schlumberger, has an $87 billion market capitalization and is the world’s largest oilfield-services provider, with operations in 120 countries. It has been a banner year for the stock, up 47% thus far in 2026, outperforming the 28% gain in the Energy Sector Select SPDR exchange-traded fund. We think there’s more upside on the horizon.

The rise in oil prices, from about $55 a barrel in early January to a recent price above $90, certainly helps SLB’s case. What many investors might be missing is that the stock’s surge comes largely despite the ongoing Iran war and the energy supply disruptions in the region—not because of them. Multiple structural tailwinds position SLB as a long-term winner.

The bullish case for SLB looks ahead to a postconflict scenario in which stability in the region will lead its energy customers to rapidly rebuild production capacity and invest in its next-generation energy technologies. We see the stock climbing to a fair value of $80 over the next 12 months, representing a 30 times earnings multiple and a 38% upside from the recent price of $58.

Tyler Hardt, chief portfolio manager at Pelican Bay Capital Management, shares that optimism. “SLB is very strong,” he says. “Recall that the stock was already up 30% at the start of the year, propelled by its underlying operating and financial momentum, before shares sold off sharply in early March as the Iran war broke out.” The move by investors to dump the stock was misguided, Hardt says.

The initial market reaction seemed justified, given that Middle East operations contributed roughly a third of SLB’s total revenue and approximately half of its profits in 2025. Key customers in the region such as Saudi Aramco and QatarEnergy suspended rig operations and announced security-related shutdowns, providing additional support for the argument to dump shares. In the first quarter, total revenue of $8.7 billion was up 3% year over year but down 11% sequentially from the fourth quarter.

Management took a constructive tone on the first-quarter earnings conference call on April 24. “We expect many countries to accelerate efforts to diversify supply, strengthen domestic resource development, and rebuild strategic and commercial inventories that have been drawn down during the conflict,” said CEO Olivier Le Peuch, who added that operators are accelerating commitments to high-return offshore and digital projects that align with SLB’s strengths.

The latest 22% rally in the stock since March 12 to a near three-year high shows the market is beginning to recognize that an end to the war will be a net positive for SLB. “Shares could move rather quickly toward $90 when earnings pick up,” says Hardt.

Le Peuch has transformed the company since taking over in 2019 with an asset-light operating model and emphasis on energy technology. Even as production systems and well construction constitute the bulk of the business, SLB doesn’t own traditional drilling rigs. Instead, it sells the premium hardware components, such as directional drilling assemblies used to precisely carve out the wellbore for hydrocarbon deposits, as well as submersible pumps, wellheads, and safety valves that allow operators to maintain flow and optimize extraction.

Together, the SLB portfolio of products allows oil and gas producers to target technically complex ultra deep water and offshore reserves as efficiently as possible. That includes advanced chemical treatments and specialty fluids, bolstered by the company’s $8.2 billion acquisition of ChampionX in 2025, unlocking exposure to the production phase of a well that can stabilize cash flow across the asset life cycle.

Perhaps the most underappreciated aspect of SLB is its digital strategy as a high-margin growth engine. Decades of geological records, subsurface physics, and mechanical telemetry are proving invaluable for asset management and monitoring, along with enabling advanced autonomous drilling capabilities. The company’s flagship Delfi cloud operating system acts as a collaborative space where remote teams at an energy company leverage machine learning to eliminate workflow bottlenecks and significantly speed up drilling cycles.

In March, SLB announced an expansion of a multiyear partnership with Nvidia to run its Lumi data and AI platform using Nvidia computing infrastructure. The plan envisions an industrial-scale “AI factory for energy” to power tailored generative-AI models and agentic-AI tools for energy customers. SLB is building prefabricated ruggedized modular data-center blocks at a manufacturing facility in Louisiana to be deployed by energy companies that need secure on-premises AI supercomputers. This pivot into digital infrastructure represents the future of SLB.

The digital segment crossed $1 billion in annualized recurring revenue this past quarter, with the data-center solutions specifically growing 45% year over year. From that perspective, SLB trading at 20 times earnings can still be appreciated as a bargain. The stock also remains attractively priced next to competitor Baker Hughes, which trades at a 26 times earnings multiple. Baker Hughes has similarly entered the data-center business, but is focused more on power generation with custom-built gas turbines.

Baker Hughes dominates the liquefied-natural-gas equipment market, which has seen fewer disruptions from the conflict in the Middle East. But SLB probably offers more upside during a postwar mobilization phase in the region.

For the full year, Wall Street projects SLB to grow annual sales about 2%, an outlook that could prove to be conservative if the postconflict scenario materializes sooner rather than later. Into 2027, the expectation is for growth to ramp up toward 8%, with a $3.35 earnings-per-share estimate representing a 29% increase from the current 2026 forecast. Meanwhile, high oil prices are positive to its operations in other regions, including Venezuela and Latin America, which have been bright spots. Consistent cash flow supports a plan to return more than $4 billion to shareholders this year through stock buybacks and the regular quarterly dividend, which yields 2%.

In terms of risks, a re-escalation of tensions in the Middle East or a prolonged period of instability in the region would almost certainly undermine the bullish SLB thesis, not to mention carry more concerning consequences to the global economy. Shares could also come under pressure if energy sector sentiment changes abruptly, even if production activity picks up as expected. Investors will want to see evidence that the momentum in SLB’s high-tech initiatives is on track.

Overall, there’s a lot to like about SLB at the intersection of global energy sustainability and the age of AI. For investors with conviction, the stock could be a gusher into 2027.

Bulls say margins will revert to normal once the sneaker maker regains its footing. But what if it just keeps stumbling?

Nike’s turnaround effort hasn’t been a quick pivot, to borrow a basketball term. More like a wobbly slide on a dusty gym floor. The stock price peaked at over $170 in late 2021. It was down to $79 in October 2024, when company lifer Elliott Hill returned from retirement to take over and set things right. Now it’s $46, a price investors could have paid nearly a dozen years ago.

There are two more problems. First, although shares are cheaper than they were, they aren’t trading at a deep and obvious discount, at 24 times projected earnings for the company’s fiscal year ending May 2027. A bounceback in earnings would help, but estimates for the years ahead have been slipping.

Second, Hill is already doing the things that investors are demanding—refocusing the company on performance shoes after years of shuffling along on casual designs, and repairing relationships with stores after an arrogant move online. There are pockets of success, like a modest rebound in North American sales in the latest quarter. But it hasn’t been enough.

It is a tempting buy when one of history’s great growth stocks has fallen so much. A 3.6% dividend is a sweetener. But investors should first consider the possibility that Nike’s problems run deeper than they appear.

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A plunge in demand from China is clearly a key concern, but there are also questions over whether Nike has lost its marketing edge amid what might be a shift in the phenomenon that brought it to dominance to begin with: basketball stardom. It may be wise to wait for more progress before buying shares.

Shoe Drop

An investor who held Nike from the start would have no regrets. Shares sold for 18 cents apiece, split-adjusted, at the initial public offering in 1980. But the price had dropped to 12 cents by Oct. 26, 1984. That was the day Nike gambled a then-unheard of $2.5 million on a five-year shoe deal with a college basketball star who hadn’t yet played a day in the pros, Michael Jordan. The pact was so transformative that Ben Affleck made a 2023 movie about the executive who landed it, called Air, starring Matt Damon.

It isn’t just that Jordan won six championships with the Chicago Bulls in the 1990s, or thrilled fans with soaring dunks. The ’90s were the twilight of monoculture, when consumers watched the same television shows and read the same magazines, before the internet splintered audiences.

The 1992 Olympic “Dream Team” showed Jordan off to an adoring world. In marketing, there is a proprietary measure of celebrity reach and popularity called the Q Score. Anything over 20 is excellent, and 40 is a rare pop miracle. In the ’90s, Pope John Paul II, a celebrity pontiff if ever there was one, is said to have scored in the low- to mid-40s. Jordan hit 56—everyone knew him, and everyone liked him. He made Nike the place to be for top athletes.

In Nike’s fiscal year ended May 2025, its Jordan brand did $7.3 billion in sales, or 15% of the company’s total. But that dollar figure was down a painful 16% from the year before.

For years, the brand generated hype through limited releases and instant sellouts of retro shoes, which “sneakerheads” traded on secondary markets. During the pandemic, Nike flooded the market, creating an easy boost for sales and profits, but also suffocating its hard-won hype.

Two disastrous things happened around the same time. Nike’s Consumer Direct Acceleration strategy under previous CEO John Donahoe involved cutting ties with middling shoe retailers and reducing allocations to longtime partner Foot Locker, while pitching more shoes online for a higher cut of profits. Meanwhile, consumer preference abruptly shifted away from bulky basketball silhouettes toward running aesthetics, especially dad shoes and tech wear. New Balance, Hoka, and On surged, and stores that had been spurned by Nike were happy to give them shelf space.

The Skeptic

If there’s a measure beyond Nike’s stock price that captures its slump, it might be operating margin, which averaged around 13% over the decade through May 2024, and is projected to dip below 6% for the one through May 2026.

Part of the decline is necessary medicine. CEO Hill has pulled back on Jordan retro models, along with an oversaturated basketball low top turned lifestyle shoe called Dunks. And he is making amends with retailers, which has involved accepting humbler economics. The bull case on Nike—less than half of Wall Street analysts say to buy the stock today, versus more than three-quarters at its 2021 peak—is that margins will revert to normal once Nike regains its footing.

Jay Sole at UBS isn’t so sure. For one thing, double-digit margins for sneaker giants are unusual. Adidas had an 8% margin last year, and it led Puma and Under Armour. Also, it’s unclear how much Nike needs to shrink to grow. Sportswear, including apparel, has recently been half of sales, Sole reckons, even though the company once said it should never be more than 30%. This risks spending down brand equity that was built with performance shoes, and cultivating a customer base of trend chasers, not brand loyalists.

Stepping back, Sole wonders whether Nike has lost what he calls its superpower—the ability to be all things to all people. “Most brands have some sort of limitation,” he says. “They’re footwear only or they’re apparel only, or they’re one country only, or they’re one sport only, because that’s sort of what they’re known as. And it’s hard to be more than that.” Lululemon Athletica, for example, attracts primarily women, and Under Armour, men. In past UBS surveys that asked respondents which brands are for them, most topped out at 60%, but Nike hit 95%. It sells to men, women, young, old, suburban, urban, and participants in just about every sport, or no sports.

Today, insurgent brands have carved out niches. Nike’s move back to retail has skewed toward lower-price channels. And something important has changed in basketball. LeBron James is a household name, but he’s also 41—unheard of for an active pro. Where is the next Jordan? Today’s greatest stars don’t seem to transcend basketball, or scream sneaker sales.

Pro basketball’s most valuable player of the past two years, Canadian Shai Gilgeous-Alexander, is a midrange sniper, but he might be best known for drawing foul calls—and sometimes, chants of “flopper” from the crowd. Serbian big man Nikola Jokic stuffs the stat sheet, but also has a dad bod and lumbering gait, and displays so little emotion that fans joke about him showing up each season like it’s a factory job, when he’d really rather be back home tending to his horses. France’s Victor Wembanyama is young, likable, and so skilled that his nickname is “the Alien,” but that’s also because he’s 7 feet 4 inches tall, a height that makes “I want to be like Wemby” not ring the same as when kids used to say it about “Mike,” as in 6-foot-6 Jordan. Rookie of the Year Cooper Flagg is 6-foot-8, more relatable on an NBA-adjusted scale, and a niche marketer’s dream. He’s a New Balance man.

The Believer

“They are taking the right steps,” says Christopher Rossbach, chief investment officer at bottom-up asset manager J. Stern, of Nike’s turnaround efforts. “In the U.S., it’s starting to work.” Last quarter, to his point, inventory fell. North American sales increased 3% as growth in footwear offset declines in apparel and equipment. There is still more investment in innovation needed after a pandemic lull, says Rossbach, a member of the Barron’s Roundtable. But what’s mainly holding the company back now are overseas sales, especially in Greater China, down 7% in the latest quarter, after a 17% drop during the same quarter a year ago.

Rossbach views the stock’s decline as an overreaction, even though an inventory overhang in China suggests more difficulty ahead. What is mainly needed there, he says, is the same thing that is needed everywhere: fresher products. Tariffs have hurt, but Rossbach isn’t concerned that trade tensions have turned China’s consumers against an iconic American footwear brand. “I think these problems are absolutely fixable,” he says. “There’s no indication that there’s a backlash against U.S. brands.”

Beyond Nike’s turnaround steps, Rossbach points to its cost-cutting—Nike has completed a $2 billion savings program over the past three years—and two catalysts: the recent passing of one year since a big ramp up in tariffs, which should make future comparisons easier, and the U.S. World Cup of soccer in June, hosted across North America, which could spur sales.

The Sneakerheads

“I’m just a guy that grew up a fan of Michael Jordan,” says YouTube sneaker reviewer Sean Go. “Air Jordans were the way for me to connect with my favorite athlete of all time.” Asked why he thinks Nike is struggling, he points to the recently launched Air Jordan 40, which marks the 40th anniversary of the brand, and was designed as a performance sports shoe with a casual fashion look. It’s $205, and not a runaway hit so far.

“Michael Jordan has been retired for so long,” says Go. Kids don’t relate. And Go’s friends that are buying shoes for performance are choosing other brands—his runner friends like Wolverine World Wide’s Saucony, Decker Outdoor’s Hoka, Asics, and New Balance. In basketball, he points to Adidas’ recent success selling shoes around pro star Anthony Edwards—he’s 6 foot 4 inches tall, and dunks like he’s playing a kid brother on a Fisher-Price hoop. Go also highlights the rise of Chinese shoes, not just in China or for nationalistic reasons, but around the world, for their quality. “They’re just really good shoes to wear on the court.”

Chris Chase concurs. A lead reviewer for the WearTesters YouTube channel, he first got into sneakers through Nike Air—not a single shoe, but rather a technology involving a pressurized nitrogen pouch embedded in soles. “I was probably in middle school at the time, and it took me a long time to go from Payless to getting Nikes,” he says. “I had to convince my mom to spend that money because she was not interested.”

Today, Chase plays basketball four or five times a week, and his shoe rotation includes two brands from China, which he says has parlayed the country’s role as manufacturer into one as an innovator. Li-Ning has a deal with former Jordan signee and retired pro basketballer Dwyane Wade for a shoe line called Way of Wade. And Anta Sports Products has signed Kyrie Irving and Klay Thompson. “Their product was really bad,” says Chase, “and now their product is like top-tier stuff.”

Asked what Nike should do to turn things around, Chase says the question is fresh in his mind, because he tackled it at the end of a recent video. “Integrity needs to be first and foremost, along with your brand’s original mission statement, which is that everybody is an athlete,” he says. “That’s something that Nike really was great at during its heyday. And I just feel like those things are lost.”

It isn’t easy to find companies that deliver both dividends and earnings growth. Watchmaker Movado Group is doing it—hiking its dividend to reach a 4.75% yield, while boosting its bottom line.

Unlike most other luxury brands, Movado is on a roll. The stock spiked 12% on Wednesday after the Swiss watchmaker reported adjusted operating earnings of 32 cents a share in the first quarter, up from eight cents a year earlier. Revenue rose 4.5% to $142 million on a constant currency basis, up from $132 million.

Movado is also delivering dividend growth. The company increased its quarterly dividend by five cents to 40 cents a share, giving it 4.75% yield at recent prices around $33.50. Movado generated $2.43 cents a share in free cash flow last year, easily enough to accommodate the new $1.60 annualized dividend.

Investors have noticed. Shares are up 63% this year, making the stock a breakout hit among luxury peers. Richemont is down 3.4% this year. LVMH Moët Hennessy is off 25%. Swatch, which recently had a hit with its Audemars Piguet collaboration, is an exception with shares up about 21%.

Several things are going right for Movado.

Along with its namesake brand, the watchmaker is known for midtier luxury brands like Ebel and Concord. The company, which is U.S.-based and listed on the New York Stock Exchange, also generates sales from selling watches under licensed brands such as Calvin Klein, Coach and Lacoste, a business that accounts for the bulk of revenue.

The Middle East proved “extremely challenging” during the first quarter, CEO Efraim Grinberg told analysts on Wednesday. But Movado offset that by delivering double-digit sales increases at company-owned stores and Movado.com. Its licensed brands division also saw growth, with sales up 6.5% year over year, excluding the Middle East, according to Grinberg.

One advantage for Movado is that it doesn’t just play in the high-end market. Its licensed brands and relatively lower price points helped it generate 42% of sales in the U.S., one of the healthier global markets as wealthy Americans continue to spend. By contrast, only about 25% of Richemont sales are U.S.-based with more than 50% coming from Asia and the Middle East.

Wall Street doesn’t seem to pay much attention to Movado. FactSet lists just two analysts who follow the stock. They forecast 15% to 19% profit growth over the next two years, on average.

The company is now reaping the fruits of its decision to increase ad and marketing spending several years ago, says Hamed Khorsand of Beating Wall Street. That investment cut into earnings per share and pressured the stock. But after a strong holiday season, Movado has now logged two strong quarters in a row.

Celebrity endorsements and tie-ins are helping, too. Khorsand cites the strength of Movado’s BOLD watch line, endorsed by musician Ludacris and actress Jessica Alba, and a line of jewelry that Movado recently produced for Lacoste.

Shares aren’t cheap anymore, trading at 20 times forward earnings, according to FactSet, up from 16 earlier this year. Still, that’s below the S&P 500’s average of 21, and well below Swatch, which trades at 47 times, and Richemont, at 26 times.

Khorsand’s $31.50 price target, set in March, was eclipsed by Wednesday’s rally. But he rates the stock a Buy and says he hasn’t changed his mind.

“It’s coming together for them,” he says. “They are a growth story.”

Key Points

Utility stocks are great again. In Europe. Driven by the green energy transition.

While U.S. power and light providers steal headlines with data center superprojects and the proposed megamerger between NextEra Energy and Dominion Energy, Old World cousins are outperforming. The MSCI Europe Utilities index has gained 18% this year; its U.S. counterpart, 10%.

An Iran war–driven spike in natural-gas prices delivered some windfall earnings to continental power generators like Germany’s RWE and France-based Engie. The longer-term story is about overhauling an aging grid to absorb renewable-generation capacity that now provides nearly half of the European Union’s electricity, by official EU figures.

“Renewables require a completely different kind of grid,” says Luca Moro, chief investment officer at energy-focused fund SpesX, “a capillary system instead of one-way transmission from a power plant.”

Electrification of vehicles and home heating is pushing up total power demand for the first time in decades, and stock valuations remain relatively subdued. European utilities are priced at an average nine times earnings before interest, taxes, depreciation, and amortization, or Ebitda, compared with 12 times for U.S. peers, says Jens Zimmermann, the sector analyst at Gabelli Funds.

That all spells exciting times for sleepy, regulated natural monopolies that control the last kilometer to the customer. “Companies that have been cash cows for dividends suddenly have growth to offer,” Zimmermann says.

The EU estimates necessary grid investments at 584 billion euros ($679 billion) by 2030. Governments look ready to increase rates accordingly, despite already-high power prices, says Tancrede Fulop, who covers the sector for Morningstar. Utilities in the United Kingdom and Spain already have “visibility” on their rate structure into the next decade, with Germany “in negotiations,” he says.

U.S. President Donald Trump’s hostility toward Europe, plus the Strait of Hormuz closure, refocused minds on breaking fossil-fuel dependency, Zimmermann adds. “European politicians want more renewables as fast as possible again,” he says.

Investors may have to hunt a bit to find more-or-less pure plays in the grid space. The two dominant European utilities by market capitalization, Iberdrola and Enel, are integrated giants across the supply chain and geographies. The biggest names in the grid space are the U.K.’s National Grid and Germany’s E.ON, says Moro. He likes both.

Morningstar’s Fulop is also bullish on National Grid, though he sees the sector as “fairly valued” in aggregate. Zimmermann is more broadly optimistic. “There’s upside on both the earnings and valuation side, and Europe hasn’t really seen the data-center driver yet,” he says.

One yellow flag is grid operators spending beyond their means on green transformation, warns Nadege Tillier, head of corporate credit research at ING. The average capital budget has reached 130% of Ebitda, she calculates. “Their capex is far beyond the cash they make,” she says.

Bond markets are so far making up the difference, lending at close to sovereign rates. Spanish grid monopolist Redeia still got a downgrade from Fitch earlier this year, and Germany’s Amprion from Moody’s, though both remain investment-grade.

With debt mounting, rising interest rates have emerged as the sector’s top risk, Fulop adds. Financial markets are anticipating at least two hikes this year from the European Central Bank to offset the inflationary jolt spurred by the Iran war.

Stock investors tend to prefer growing pains to no growth at all, though. European utilities are starting to deliver it, and for a good reason.

A furious rally has raised fears of a new bubble. If and when the party ends, five stocks will be left standing. They all remain undervalued.

Chip stocks used to be the gritty part of the tech complex. In trading patterns and profit margins, they had more in common with cyclical commodities than software. But as with so many things, artificial intelligence changed everything. Almost overnight, chips became the accelerant for the technology—and the market.

Supply constraints compounded the excitement. During one stretch this spring, the PHLX Semiconductor Sector Index, or SOX, rose for 18 straight days, for a gain of 47%. The index is up 80% since March 30, leading to worries about a new dot-com-style bubble with chips looking like the 2026 version of fiberoptic stocks.

Indeed, the gains have been indiscriminate. While Nvidia is up 30%, low-margin chip makers like On Semiconductor and STMicroelectronics have each risen 122%.

These stocks trade at huge multiples of earnings, way above historical trends, while Nvidia looks cheap by any historical measure.

“The multiples cannot all be accurate,” Gavin Baker, chief investment officer of Atreides Management, says of the wide range of price/earnings ratios across the AI landscape. “You have memory makers at low- to mid-single-digit P/Es, you have Nvidia at a low P/E, you have other accelerator companies at reasonable multiples. And then most everything else—power, cooling, optical, and semi-cap equipment—are at dramatically higher multiples.”

The disconnect sets up an opportunity for investors. As the market corrects its math, the quality names should outperform. Investors should focus on Advanced Micro Devices, Broadcom, Taiwan Semiconductor Manufacturing, and, yes, $5 trillion Nvidia.

In the world of semiconductors, quality means having technological advantages that are durable and enable better products and high gross margins. Quality also means having nimble executives who can identify and react to changes in a fast-moving environment. Think Nvidia’s Jensen Huang and Broadcom’s Hock Tan. The quality focus becomes more important as subsidized Chinese manufacturers increase the supply of chips made using older technologies.

All indications point to accelerating demand for AI computing. This year, the five so-called hyperscalers— Microsoft, Amazon.com, Google parent Alphabet, Meta Platforms, and Oracle —could combine to spend over three-quarters of a trillion dollars on AI data centers.

Even after its massive expenditures, Microsoft recently said its cloud-computing capacity was so constrained that it had to forsake external cloud sales to run its own operations.

But the demand trend is shifting, and investors need to pay attention to the nuances.

Early in the AI boom, growth was tied to training new models, a slow, resource-intensive process. Now workloads are moving toward running those models, a process known as inference.

The inference trend is being supercharged by the rise of AI agents, software that can use AI models to complete a complex series of tasks from a simple conversational prompt. Agents chew through computing at a rate no person could match. If predictions are correct, it won’t be too long before they outnumber humans on enterprise networks.

Nvidia already won the battle for training, but inference opens the door to new competition. Moreover, agents are software and run on traditional server central processing units, or CPUs, which should also see increasing demand in the coming years.

Even AI can’t change the fundamentally cyclical nature of semiconductors, but it can—and will—lengthen the cycle. Right now, anyone close to the AI supply chain will tell you that the industry is nowhere close to satisfying demand. That’s why Micron Technology has seen its forward P/E multiple expand from an industrial-like single-digit figure. It’s still undervalued. So are the shares of Nvidia, AMD, Broadcom, and Taiwan Semi.

Relative to expected earnings growth over the next two years, all five stocks trade at a PEG, or price-to-earnings growth ratio, of less than 0.6 times. By comparison, the S&P 500 index fetches a two-year PEG of 1.

All five companies are pillars of the new economy—ones that have lasting value and staying power, even as the momentum inevitably fades from the broader chip trade.

Nvidia has been developing hardware and software tools for AI computing for nearly two decades, giving it the pole position when generative AI caught fire. Adjusted earnings per share have grown from 33 cents in fiscal 2023 to $4.77 in fiscal 2026, which ended in January. Over the next two years—a critical period in the AI transition—Wall Street analysts expect Nvidia’s EPS to hit $12.37, giving the stock a P/E of 17 times.

Nvidia’s graphics processing unit chips, or GPUs, are the workhorses of AI computing, and they’re the company’s main source of sales. Just as important, though, is the company’s two-decade focus on AI bottlenecks.

Nvidia built a unique AI “stack” that layers in software and other types of chips. Its Vera Rubin AI servers, due to ship this year, have a total of five chips, each with a specific purpose.

Nvidia remains undervalued by investors, perhaps because they misunderstand the company’s true data-center dominance. The chip maker is also the largest maker of networking chips for the data center. And it’s now making CPUs, too.

Nvidia recently said it would sell $20 billion in stand-alone data-center CPU chips this year, roughly the size of Intel’s own data-center business.

Nvidia glues everything together with software called CUDA, short for “compute unified device architecture.” The company provides its customers with hundreds of free software libraries and AI models that receive regular updates.

To be sure, Nvidia’s top customers would like to diversify their supply chains, and the shift to inference offers an opening. Inference is less demanding than model training, and non-Nvidia chips that thrive at the intense math work are finding a place in the data center. Amazon, Microsoft, Google, and Meta each make their own custom inference chip.

Despite its early lead, Nvidia isn’t sitting still and continues to out-innovate everyone else. It has adopted a “ticktock” release schedule, with major a

rchitecture advances coming every two years and upgrades in the intervening years.

Nvidia has also fought back by using its newly loaded balance-sheet muscle. It has entered into a large licensing deal with an inference-chip start-up called Groq. In March, Huang laid out a vision of data centers where Nvidia’s GPU servers are deployed side by side with new Groq servers, working together on what each does best. Nvidia’s Groq servers are set to ship later this year, after Vera Rubin.

Nvidia is also taking stakes in a broad swath of AI start-ups. At the end of the first quarter, its private-equity investments were valued at $43 billion, up from $3.4 billion at the beginning of 2025. The company also owns 4.5% of Intel, 9% of CoreWeave, and 2.5% of Synopsys.

And there’s something for shareholders, too. Nvidia has bought back $85 billion in shares in the past two years, and this past month it increased its quarterly dividend from one penny to an almost respectable 25 cents.

Heaping praise on Nvidia doesn’t mean there isn’t room for other chip makers to be part of the AI investment boom. BofA Securities analyst Vivek Arya estimates that Nvidia has a durable 70% share of the AI chip market.

In a massive market, that leaves big opportunities for other firms, particularly AMD and Broadcom, which are smaller companies with more room to grow. They are being lifted by the same tailwinds as Nvidia, and they are a hedge against Nvidia market share loss.

A perpetual No. 2, AMD has changed the narrative under CEO Lisa Su. In the data center, AMD has caught up to Intel in CPU chips, and it’s making a play to challenge Nvidia in GPUs.

While AMD shares Nvidia’s roots in GPUs for gaming, AMD never made a meaningful effort to compete in the data center until recently. When the AI boom began, it was far behind.

Now AMD has turned its data-center GPUs into a multibillion-dollar business, including recent deals with Meta and OpenAI, which are set to drive future sales.

AMD is even more competitive when it comes to CPUs for servers. As Intel’s technical woes grew over the past decade, AMD leaned into architectural breakthroughs and an asset-light manufacturing strategy. It now has a 40% share in the market, the company says.

AMD recently doubled its estimate for the data-center CPU market to $120 billion by 2030.

“These results mark a clear inflection in our growth trajectory and a structural shift in our business,” Su said during the company’s recent earnings call. “Data center is now the primary driver of our revenue and earnings growth.”

Wall Street analysts expect AMD’s adjusted earnings per share to jump from $4.17 last year to $13.10 in 2027, a 77% annualized increase.

Investors have priced in much of the growth, with shares up 164% since March 30. At 40 times 2027 earnings, the P/E is richer than the other quality chip makers, but it’s by no means pricey given the growth.

Like Nvidia and AMD, Broadcom is in position to benefit from multiple high-end AI data-center chips. But it has a different path to success, partnering with some of tech’s largest companies.

A decade ago, as Google’s AI ambitions grew, the company ran into a now familiar problem: Nvidia GPUs were expensive and hard to get. Google developed an in-house alternative, the Tensor Processing Unit, or TPU, which could quickly accomplish the complex math of AI.

Broadcom has been Google’s chip-design partner from the start, and the TPU is on its eighth generation. Google uses the chips for its own AI needs and rents them out in the cloud. Start-up Anthropic is a major customer. Google recently hooked up with Blackstone to create a joint venture that will specialize in renting out TPUs in the cloud.

Today, Broadcom is the go-to partner for similar custom chips. It has publicly talked about deals with Meta and OpenAI in addition to Google. In total, Broadcom counts six customers for custom AI chips.

Broadcom has long been strong in networking chips, another big part of its AI opportunity.

Total AI chip sales doubled in the latest quarter. The company is targeting $100 billion in 2027. The board is betting a lot on Tan. The CEO stands to receive 1.8 million shares, worth about $750 million today, if Broadcom’s AI revenue hits $120 billion by the end of fiscal 2030.

Wall Street sees Tan easily hitting that target, with semiconductor revenue projected to be $132 billion in fiscal 2027. Earnings are set to grow an annualized 63% over the next two years, to $18.17 by 2027. The stock fetches a 2027 P/E of 23.

All of the chips mentioned above, with one exception, have something in common: They are made by Taiwan Semiconductor Manufacturing.

Taiwan Semi has been the leader in chip manufacturing for years, spurred by its work for Apple, which began using TSMC to make its in-house chips starting in 2014. The so-called fabless chip model is now the industry standard. Chip makers can focus on designing the best chips, while avoiding the costly and messy business of actually producing them.

Taiwan Semi, meanwhile, can specialize in building the best factories with the most advanced manufacturing. The company is wisely conservative with its plans, refusing to overbuild.

The combination means high margins for Taiwan Semi and its customers—everyone wins.

The strategy has paid off in the form of consistent growth, even in a highly cyclical business. Taiwan Semi’s earnings have slipped just twice in the past 14 years. EPS has doubled over the past two years, and analysts expect it to grow another 90% by 2027. The stock trades at 21 times 2027 projected earnings.

Geopolitics is a known risk for Taiwan Semi, given the possibility that China could take control of the disputed island territory. The company has added factories in other countries, such as the U.S. and Japan, but 80% of its long-term assets are still in Taiwan.

Memory chips have long been a commoditized part of the semi industry, directly exposed to consumer demand, which leads to sharp fluctuations in inventories and prices. The down cycle of 2023 was particularly brutal, leaving Micron with a negative gross margin for four consecutive quarters.

But the latest memory cycle is being driven by an investment boom, not consumer demand. Because of the beating they took in 2023, Micron and rivals—Korea-based SK Hynix and Samsung Electronics—held back on committing capital to another expansion. Now, supply is the tightest it has ever been and memory prices have skyrocketed. New memory factories aren’t slated to come online until the middle of next year, and the logjam may not clear until 2028.

Meanwhile, Micron and its peers are in uncharted territory. The company saw 196% year-over-year sales growth with a 74% gross margin in the most recent quarter. It guided to even better performance in the current quarter. Analysts think that adjusted EPS will grow from $8.29 to over $100 in fiscal 2027, which ends in August. Because of its highly cyclical earnings, Micron has always had a low forward P/E. At a recent $924, the stock is trading at just nine times 2027 EPS.

However long this cycle lasts for Micron, management is being opportunistic and using the cash flow to clean up the company’s balance sheet. Over the past three quarters, debt has been reduced by 33%. The company is also buying back shares for the first time since 2022.

Nothing lasts forever, and that’s especially true in the chip business. Data centers are still being held back by energy, land, and building constraints. And opposition to massive complexes is growing, part of an overall backlash against AI in the U.S. and elsewhere. In a March Gallup poll, 71% of U.S. respondents opposed the local construction of data centers.

War in the Middle East is crimping the supply of energy and much-needed helium. The conflict is also driving up long-term interest rates, increasing the cost of capital for data-center investments.

These headwinds could cut the chip rally short—making it all the more important for investors to be discriminating in their stock-picking. Quality always shines. Years into the AI rally, it’s more crucial than ever.

Meta CEO Mark Zuckerberg said last month that the number of people using Meta’s AI glasses daily has tripled year-over-year. “This continues to be one of the fastest-growing categories of consumer electronics ever,” he said in a Facebook post after Meta reported quarterly earnings.

Himel’s memo doesn’t include the specifications of the planned AI pendant—though it could include a camera. It says the company plans to start “dogfooding” the device, jargon for internal testing, next spring.

Upcoming ‘Mojito’ Glasses

Meta also is expanding the range of branded glasses it will offer, moving beyond the Ray-Ban Meta and Oakley Meta glasses it has already launched in partnership with EssilorLuxottica. The company plans to scale the number of devices it offers consumers by expanding the number of brands and styles in order to broaden appeal and improve its gross profit, the memo says.

The first glasses to be released this year, code-named “Modelo,” are expected to debut as soon as next month. Additional models, code-named “Luna” and “RBM2 Refresh,” are slated for the fall, followed by a fourth pair called “Mojito VIP” in December. Additional internal prototypes, including “Artemis” and “SSG” (so-called “supersensing” glasses), are also being tested internally in the fall ahead of potential future releases.

The glasses and other future devices will be powered by Meta’s latest AI model, Muse Spark, and other upcoming models, alongside the yet-to-be-released AI agent Hatch, the memo says.

The strategy also involves launching a wearables developer platform, where developers will be able to upload apps to its devices. The new Wearables for Work service will target commercial customers, which Himel noted have shown a willingness to pay for devices with “vertical-specific capabilities.” The goal is to secure pilot programs with at least 10 companies, as well as deployments within at least two large organizations with more than 100 seats or devices each, he said.

Competition in AI hardware is intensifying. OpenAI acquired io Products, co-founded by former Apple designer Jony Ive, for $6.5 Billion. As of early this year OpenAI had more than 200 people working on a family of AI-powered devices that will include a smart speaker likely to be priced between $200 and $300, The Information reported. Google has also announced plans to release smart glasses this fall, in partnership with Samsung.