🦉 The Night Owl Newsletter for June 8th

Trump plotting new lockdown? (From Porter & Company)

Five Below Pops on Strong Earnings, But Rally May Stall

Written by Chris Markoch

Off-price retail stocks have had a good week, and Five Below Inc. (NASDAQ: FIVE) was no exception. After the market closed on June 4, the company reported strong earnings and raised its full-year guidance. FIVE stock is up more than 50% after bottoming out after the Liberation Day tariffs announced in April. However, even after the strong results, investors may not want to chase FIVE stock at these levels.

The headline results for Five Below were bullish. Net sales came in at $970.5 million that was a 19.5% year-over-year (YOY) increase from the $811.9 million in the same quarter last year. The company also reported that comparable sales increased by 7.1%.

On the bottom line, earnings per share (EPS) of 86 cents beat expectations of 83 cents per share and were 43% higher YOY. The company cited its “trend-right product” strategy and store expansion as the reasons for its strong performance.

However, the story for all retailers in 2025 is guidance, which was also bullish. The company raised its full-year revenue outlook to a range between $4.33 billion and $4.42 billion, which puts the low end to the high end of its previous guidance. Five Below also raised the low end of its full-year EPS outlook to $4.25 from $4.10.

Both numbers assume the company will open an additional 30 new stores to the 50 it opened in the last quarter. That is expected to drive an estimated 7% to 9% increase in comparable store sales.

Will Tariffs Sink FIVE Stock?

A significant concern heading into earnings was the impact of tariffs on a company like Five Below, which sources much of its inventory from China. The company acknowledged that its guidance was based on where things stood today.

However, it also said it was working on diversifying where it sourced its product from. Specifically, it noted it had already reduced goods sourced from China by approximately 10% for the second half of 2025.

The Bullish Results Are Likely Priced Into FIVE Stock

FIVE stock is up more than 57% in the last 30 days. That was due in large part to a gap-up move in mid-May when Five Below issued a bullish pre-earnings release. That strong move has pushed the stock more than 20% above its consensus price target of $103.45. That means investors were front-running the earnings report.

Five Below didn’t disappoint. However, the stock is trading near its 52-week high, and any disappointing news regarding tariffs is likely to send the stock lower. Fundamentally, with a forward price-to-earnings (P/E) ratio of around 26x, it’s expensive compared to itself.

Investors may want to wait for a pullback before getting involved. That’s supported by the stock’s relative strength indicator (RSI), which is around 74, indicating overbought conditions in the stock.

Two areas to watch are a price around $121.50 and another around $107.25, as they correlate with FIVE stock’s 50-day moving average.

Analysts Are Quick to Raise Targets

The price movement in any stock after a post-market earnings report can change quickly on the following trading day. One reason for that is that the following days give analysts time to chime in.

FIVE stock continues to hold on to gains of more than 7%, but it has pulled back from its opening price of around $135. An encouraging sign for investors is that the Five Below analysts’ forecasts on MarketBeat show six analysts reiterating a bullish rating for the stock, with several raising their price targets.

The most bullish of these comes from UBS Group, which raised its target from $110 to $160. Further price increases would support a case to buy FIVE stock on any meaningful dip.

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Intel’s Dual Gamble: AI Innovation Now, Foundry Fortunes Later?

Written by Jeffrey Neal Johnson

Intel Corporation (NASDAQ: INTC) continues pursuing a demanding dual strategy to revitalize its market standing and financial health. The company’s stock price is hovering near $20.25 in early June 2025, reflecting a significant investor evaluation of its turnaround prospects. The company’s turnaround strategy hinges on successfully balancing two core imperatives.

First, Intel must drive rapid innovation and capture immediate market share in artificial intelligence (AI)-powered client and data center products. Second, Intel must complete its current Foundry business undertaking and become a global player in contract chip manufacturing.

The effective management of these distinct yet interconnected ambitions is the most critical factor that could reshape Intel’s market position and ultimately enhance shareholder value.

The AI Engine: Intel’s Bid for Immediate Product Wins

Intel’s immediate focus on integrating artificial intelligence across its key product lines is designed to generate quicker financial returns and demonstrate market leadership. Success in this arena could provide vital momentum and resources while its longer-term foundry ambitions continue to mature.

In the Client Computing Group (CCG), Intel is aggressively targeting the burgeoning AI PC market. Key initiatives include:

Product Pipeline: Leveraging its Core Ultra processors and advancing a roadmap that features Panther Lake, Lunar Lake, Arrow Lake, and newly outlined CPUs like Nova Lake-S/U, Wildcat Lake, and Bartlett Lake-S.
Market Target: A stated goal of shipping over 100 million AI PCs by the end of 2025.
Financial Potential: This AI PC push could increase Average Selling Prices (ASPs) and improve profit margins for the CCG segment, which recorded $7.6 billion in revenue in Q1 2025.

Within the Data Center and AI (DCAI) segment, Intel is also making strides:

Key Offerings: The rollout of new Xeon 6 processors and Gaudi 3 AI accelerators aims to strengthen Intel’s competitive position against rivals in the high-growth AI infrastructure market.
Performance Metrics: The DCAI segment showed positive momentum with $4.1 billion in revenue in Q1 2025, an 8% year-over-year increase.

Strong market adoption and financial performance from these AI-centric products could offer significant near-term catalysts for Intel’s stock, potentially alleviating some investor concerns stemming from the high costs associated with its foundry development strategy.

Intel’s Foundry Bet: High Stakes, High Rewards

Parallel to its AI product drive, Intel is pursuing the transformative, multi-year goal of establishing Intel Foundry as a world-leading contract manufacturer, a cornerstone of its IDM 2.0 strategy. This endeavor is crucial for Intel’s long-term competitive positioning but comes with substantial financial commitments and execution risks.

Key aspects of this long-term strategy include:

Technological Reclamation: The “five nodes in four years” roadmap is central to regaining leadership in the manufacturing process. The Intel 18A node, which entered risk production in April 2025 and features advanced RibbonFET transistors and PowerVia backside power delivery, is a critical test. The new Panther Lake CPUs are slated to be its first products, and their release is anticipated in the second half of 2025.
Building Credibility and Business: Securing commitments from major external customers is paramount. Microsoft (NASDAQ: MSFT) has already committed to using Intel 18A for a future chip design, and a partnership with Amazon Web Services covers Intel 3 and 18A nodes. These are vital early endorsements.
The Financial Hurdle: The foundry segment currently operates at a significant loss, reporting a $2.3 billion operating deficit in Q1 2025. Intel is targeting break-even status for this division by 2027, a crucial milestone given the $18 billion gross capital expenditure target for 2025. Furthermore, Intel Foundry must “earn” business from Intel’s product divisions, a dynamic intended to ensure its competitiveness against external foundries like TSMC.

This foundry venture’s perceived risks and eventual payoff heavily influence investor sentiment towards Intel’s stock. Demonstrable progress in technology, customer acquisition, and a clear path to profitability are essential long-term drivers for the stock.

Gauging Risks and Rewards in Intel’s Dual Strategy

Intel’s dual strategy, while ambitious, presents a compelling risk/reward scenario for investors. With the stock trading near its 52-week low and a cautious analyst consensus, much of the market’s skepticism appears to be priced in.

This environment potentially offers an attractive entry point for long-term investors, particularly considering upcoming catalysts such as the Panther Lake CPU launch in late 2025.

While execution risks persist in product innovation and foundry development, the potential upside is considerable. Intel’s strategic push into high-growth AI segments aims to bolster its near-term financial performance. These gains can, in turn, support the capital-intensive build-out of Intel Foundry, which benefits from government incentives and a global need for diversified chip manufacturing.

This potential is supported by Intel’s sizable asset base, reflected in a price-to-book ratio (P/B) of approximately 0.83.

Investors should monitor key indicators for positive momentum:

Stronger AI product sales and margin improvements.
New high-volume foundry customer wins and clear progress on the Intel 18A manufacturing ramp.
A steady climb in overall gross margins from the current Q2 non-GAAP guidance of ~36.5% towards the company’s +50% target.

Successfully hitting these markers could significantly shift the current market narrative, suggesting Intel has the resources and strategy to achieve its objectives and deliver notable long-term shareholder value.

Intel’s Need for Tangible Results

Intel’s journey to redefine its market position and deliver enhanced shareholder value is intricately tied to its ability to execute its dual mandate flawlessly.

Near-term successes in the AI PC and data center markets, driven by compelling product innovation, are essential for immediate financial health. They build confidence and provide the resources needed for the longer, more arduous path of establishing a globally competitive and profitable foundry business.

Ultimately, consistent and tangible results across both these strategic fronts will be the decisive factor in Intel’s turnaround and its ability to reward patient investors.

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X: 1 Reason to Bet on U.S. Steel, and 1 Reason to Hold Back

Written by Sam Quirke

After a scorching 35% rally in just three weeks, United States Steel (NYSE: X) is sitting at levels not seen since 2010. Powered by a wave of trade protectionist sentiment and renewed optimism over a $14 billion acquisition bid from Japan’s Nippon Steel, the industrial giant is suddenly in the spotlight.

But with the stock trading just shy of the proposed buyout price, and the political winds still swirling, investors are asking the million-dollar question: Is there still upside left, or has the rally run its course?

Let’s break down one compelling reason to stay bullish and one major red flag to keep in mind.

1 Reason to Love It: The Acquisition Could Still Fall Through

While the recent announcement of 50% tariffs on steel imports has helped, the major driver of the recent rally has been Donald Trump’s vocal support for Japan’s Nippon Steel’s $55-per-share bid to acquire United States Steel. This deal had previously been blocked by the Biden administration and dismissed by Trump himself.

That single statement caused the stock to jump more than 20% in a single session, and for a good reason: the deal had been tied up in regulatory limbo, and Trump’s endorsement is being seen as one of the final pieces of the puzzle. But here’s where it gets interesting, and where the long case still has legs.

While trading below $54 per share, which is where the stock closed on Tuesday, the current price still offers some upside against the proposed $55 takeover price. That may sound negligible, but the market isn’t just trading on that number. What’s also being baked into the price is the possibility that the deal still might not go through and that a better offer could follow if it fails.

Union Support As a Secondary Headwind

Labor unions remain firmly opposed to the Nippon acquisition. The United Steelworkers union has repeatedly voiced concern that a foreign buyer would jeopardize domestic jobs and undercut U.S. industrial policy. Trump himself had previously been vocally against the deal, which casts some doubt on how fully committed he is to this new approval. In other words, this still isn’t a done deal.

If the acquisition is ultimately blocked again, or if Trump walks back his support under political pressure, two major domestic steelmakers, Cleveland-Cliffs Inc. (NYSE: CLF) and Nucor Corp (NYSE: NUE), are widely expected to re-enter the fray with fresh bids. Both had previously shown interest and could be perceived as more “politically acceptable” acquirers.

Their potential offers would likely exceed Nippon’s $55-per-share bid, especially if they believe they can push a deal through with union support.

1 Reason to Pass: The Upside Is Already Priced In

Despite all the excitement and the potential for shares to go even higher if the deal were to falter, there’s a good argument to be made that United States Steel stock has simply gone too far, too fast.

Aside from the fact that it’s trading essentially within a dollar of Nippon’s proposed $55/share offer, from a technical standpoint, the stock’s relative strength index (RSI) is above 75 and solidly in overbought territory. That suggests traders may have already priced in the best-case scenario, with little room left for upside without fresh news.

In fact, it is trading right around the most recently updated price targets from analysts such as those at JPMorgan Chase, who just this week rated the stock Neutral. With little near-term fundamental change to earnings expectations and the deal story mostly priced in, there’s an argument to be made that the upside potential has all but been realized already.

There’s also the lingering risk that the deal gets tied up in legal and political knots once again. Even with Trump’s endorsement, it’s unclear how regulators, or Trump himself, will act in the weeks ahead. This remains a volatile and politically sensitive story until a formal agreement is signed and cleared.

Investors getting involved should do so with a clear understanding of the risks and keep in mind that, perhaps more than is usual with stocks, many variables are in place right now that are outside their control.

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