Nike stock drops following earnings, making money on the AI trade in 2026

Key Concepts

• AI Trade: Investment strategies focused on companies involved in Artificial Intelligence development and implementation.
• PEG Ratio: A valuation metric (Price/Earnings to Growth) used to assess a stock's value relative to its expected earnings growth.
• Capex: Capital Expenditure – funds used by a company to acquire, upgrade, and maintain physical assets.
• Large Language Models (LLMs): Advanced AI models capable of understanding and generating human-like text. (e.g., Gemini, ChatGPT)
• Trump Tariffs: Tariffs imposed during the Trump administration, impacting import costs and potentially company margins.
• Direct-to-Consumer (DTC): A business model where companies sell directly to consumers, bypassing traditional retail channels.
• Basis Points: A unit of measurement used in finance to describe percentage point differences (100 basis points = 1%).
• K-Shaped Economy: An economic recovery where different segments of the population experience vastly different outcomes – some thrive while others struggle.

Nike’s Recent Quarter & Broader Market Concerns

The discussion centers around Nike’s recent quarterly earnings report and its implications for the broader market, particularly heading into next year. The speaker, Brian Sazi, expresses strong disappointment with the results, contrasting them with the overwhelmingly positive reception from Wall Street analysts.

Key Financial Details:

• Quarterly Sales: Up only 1%.
• Nike Direct Sales: Down 8% (online and Nike store sales).
• Gross Profit Margin: Down 300 basis points year-over-year, attributed to discounting and Trump tariffs.
• Converse Sales: Down 30%, potentially leading to a sale of the business.
• Footwear Sales in China: Down 21%, described as “absolutely abysmal.”
• Classic Nike Sneaker Sales: Down 20%.
• Current Quarter Guidance: Significantly below estimates.

Criticism of Management & Analyst Sentiment:

Sazi criticizes Nike’s management for overhyping innovation (e.g., self-inflating jackets) while the financial results demonstrate underlying weakness. He questions the overly optimistic interpretations of the quarter by Wall Street analysts, suggesting a disconnect between the numbers and the narrative. He states, “Every analyst report I have read this morning is praising the Nike quarter as if the company squashed EP estimates by 50 cents… This wasn't the case at all. The quarter largely sucked and so did the guidance.”

Broader Market Implications & Economic Concerns

The Nike quarter is presented as indicative of challenges many companies will face in the coming year: a sluggish economy, Trump tariffs, and high market expectations. Sazi expresses concern that the market has forgotten about these risks, trading at “record valuations.”

Specific Concerns Raised:

• Sluggish Economy: A weakening economic environment will pressure consumer spending.
• Trump Tariffs: Potential reinstatement or escalation of tariffs will increase costs.
• High Market Valuations: Current valuations leave little room for error and increase the risk of a correction.
• Consumer Health: Concerns about the consumer’s ability to continue spending, particularly in light of rising prices.

Discussion with Market Experts (Art Hogan & Anz)

The segment features a discussion with Art Hogan (B. Riley Wealth Chief Market Strategist) and Anz, providing additional perspectives on Nike and the broader market.

Key Points from the Discussion:

• Nike’s Turnaround: Hogan believes Nike is “only about halfway through” a multi-year turnaround, with significant work needed in China. He is optimistic about the stock’s performance over the next year.
• China as a Key Market: Both Hogan and Anz emphasize the importance of China for Nike’s future growth, highlighting the challenges posed by price sensitivity and local competition. Anz notes Chinese consumers are “demanding better price points.”
• Wall Street Patience: The discussion questions whether Wall Street will remain patient with Nike’s turnaround plan, given the current financial performance.
• Converse Sale: The possibility of Nike selling Converse is discussed, with Anz noting its continued consolidation in Nike’s financial statements.
• CEO Elliot Hill: Anz questions the progress of the turnaround under CEO Elliot Hill, noting the lack of improvement in the numbers despite his optimistic statements.

John Highland’s Perspective & Consumer Trends

John Highland, Yahoo Finance’s senior producer, offers a consumer-focused perspective, criticizing Nike’s lack of innovation in product design. He states, “I went to their website and I looked at the clothes and I said, 'What's changed from a year ago?'…There's not a single item of clothing that I want to buy on there today.”

Emerging Consumer Trends:

• Shift in Style: Highland notes a social media trend of rejecting Nike Tech and embracing a more “business casual” look.
• Demand for Innovation: Consumers are looking for more than just functional athletic wear; they want exciting new designs and partnerships.

The AI Trade – Opportunities & Risks

The segment shifts to a discussion of the AI trade, analyzing its future prospects and potential pitfalls.

Key Observations:

• Differentiation within AI: The AI trade is maturing, requiring investors to differentiate between winners and losers.
• Capex & ROI: The amount of capital expenditure (capex) and the return on investment (ROI) are crucial factors in evaluating AI companies. Companies spending heavily on capex without a clear path to profitability are viewed with skepticism.
• Nvidia & Alphabet as Leaders: Nvidia and Alphabet (Google) are identified as leading AI players with strong fundamentals. Nvidia’s valuation (24x next year’s earnings) and Alphabet’s (33x) are considered reasonable given their growth prospects.
• Meta’s Concerns: Concerns are raised about Meta’s significant planned capex spending in AI and its potential impact on profitability.
• Apple’s Sneaky AI Strategy: Art Hogan highlights Apple’s strategic partnership with Alphabet to integrate Gemini into its products, positioning Apple as a potential winner in the AI space.
• Productivity Gains: AI is expected to drive productivity gains across various industries, impacting the labor market.
• Growth Rate Sustainability: The discussion questions whether AI companies can maintain their high growth rates in the long term.

Final Thoughts & Market Outlook

Sazi concludes by reiterating his concerns about unappreciated risks in the market, including tariffs and a potentially weakening economy. He emphasizes the importance of product innovation and the need for investors to be cautious. He also highlights the broadening scope of the AI trade beyond the initial “Magnificent Seven” stocks, with companies across various sectors implementing AI to improve productivity. He notes, “What I think this Nike quarter shows bigger picture here is what I'm concerned about with many companies going into next year…the markets trading at I believe record valuations, company like Nike warning about tariffs, sluggish consumer. It's like the market has forgot about these key risks.”

Concluding Statement: The Nike quarter serves as a cautionary tale, highlighting the importance of focusing on fundamentals and questioning overly optimistic narratives. The market faces significant risks in the coming year, and investors should be prepared for potential volatility.