MW AI stocks are flashing 'Code Red' - insiders at these familiar companies are seeing green
By Michael Brush
The end of the AI boom has begun, and these consumer-focused stocks are playing to win
The Atlanta Braves celebrate their victory in the 2021 World Series. The Braves organization is a publicly traded stock that some value investors favor.
OpenAI CEO Sam Altman reportedly issued a "code red" alert to employees, warning them to prepare for the "vibes out there to be rough for a bit."
Clearly, investors have been moving money out of highflying AI-related stocks and redeploying cash to basic, analog businesses.
That means it's time to hunt for stocks that will benefit as AI investors redeploy cash. But first, here's why investors will continue to rotate out of AI names, according to Savita Subramanian, Bank of America's head of U.S. equity and quantitative strategy, who said AI-related stocks will hit an "air pocket" next year.
Read: The AI boom is over - here's your bubble survival guide
Her chief concern? Hyperscaler use of leverage to build out capacity. Her research showed that of all balance sheet metrics, leverage puts the most downward pressure on valuation multiples. That's because it increases earnings volatility risk. In AI, this is another way of saying the earnings from hyperscaler spending might not arrive fast enough to satisfy investors. "We might not see them for a year. That is the air pocket," Subramanian said in a Dec. 2 press briefing.
Also: This crazy chart shows just how much cash OpenAI is burning as it chases AI profits
It's a big risk because AI stocks are so expensive, Subramanian said, however, she thinks investors will switch from "buying AI all day every day" to buying other sectors and broadening market strength. "Is AI in a bubble? No. Will it continue unfettered leadership in 2026? Also no."
Read: An AI air pocket and a struggling consumer could become a double whammy for stocks in 2026, Bank of America predicts
For new stock-purchase candidates, it pays to follow the lead of corporate insiders. Here are four companies with solid brand power that insiders are buying in size.
1. Starbucks $(SBUX)$: Unlike its coffee, Starbucks' stock just keeps getting cheaper. The shares are off 9% so far this year. The stock recently traded at two times sales, a 28% discount to its trailing five-year average, according to LSEG.
One insider likes the discount. Director Jørgen Vig Knudstorp recently bought $994,500 worth of stock at $85. Starbucks is in the midst of a turnaround. It often pays to follow insiders' lead when companies are doing turnarounds. Turnarounds take time and progress in fits and starts. So it's common that insiders pick up on the positive trends ahead of investors.
Same-store sales and traffic fell last year as consumers pushed back on the high prices. Enter CEO Brian Niccol, who took the helm in September 2024. He brings turnaround experience from a stint at Chipotle Mexican Grill $(CMG)$. His "Back to Starbucks" turnaround plan addresses the price issue with an everyday value menu. He's also renovating stores, shutting down underperforming ones and eliminating bottlenecks that caused delays in peak hours.
The plan seems to be having an effect. Third-quarter U.S. comparable sales were flat - an improvement following six consecutive quarters of declines. Overall, sales grew 5% on 1% global comparable-store sales growth and store openings. Management's 2026 outlook at a January investor event could push the stock higher.
2. Nike $(NKE)$: Nike has lost its way. Its shares have lost 16% so far this year, and are down 43% over the past three years.
To turn sales around, the athletic footwear company's board put Nike veteran Elliott Hill in the CEO slot a little over a year ago. His fix is a "Win Now" turnaround strategy. It offers a mix of marketing to reconnect with consumers, $2 billion in cost cutting and better product innovation - one of the company's long-term strengths. Nike spends over $500 million - about 1% of sales - on innovation.
This turnaround stands a good chance of working because of Hill's extensive experience at Nike in key marketing and management roles over the decades. (He started as an intern in the late 1980s.)
"Given his company knowledge and relationships with key partners, we are confident in his ability to improve results," Morningstar analyst David Swartz wrote in a recent research note.
Solid insider buying supports the bullish case for this turnaround. A $1 million director purchase at $62.09 in early November reversed $1.5 million in summer selling in the low- to mid-$70 range. Insider reversals like this enhance the insider signal. Size buys are also bullish for analyzing insider activity.
U.S. import tariffs will hurt Nike, costing $1.5 billion a year. But given the company's brand power, it should be able to pass the damage onto consumers through price hikes without hurting demand, Swartz said. He predicted 6% compound annual sales growth over the next 10 years.
Meanwhile, Nike will use its balance sheet strength and solid cash flow to support buybacks and a current 2.5% dividend yield. Nike looks cheap, trading at a price-to-sales ratio of 1.7. That's a 43% discount to its trailing five-year average price-to-sales ratio of 2.9, according to LSEG.
3. Atlanta Braves Holdings $(BATRA)$: This company owns the Atlanta Braves MLB baseball team and its stadium. It also owns property near the ballpark, including office, hotel and retail space in an area called The Battery Atlanta.
Third-quarter revenue grew 7%. Attendance for the Braves slipped, but that was more than offset by higher ticket prices and broadcast revenue. The Battery Atlanta properties also posted revenue gains.
Pricing power based on brand strength is great, but the main attraction here is that the stock looks cheap compared with the company's hidden asset value, says Christopher Marangi, co-chief investment officer for value at Gabelli Funds, which specializes in value stocks and is a large owner of Atlanta Braves Holdings shares.
Marangi said the company's current enterprise value (market cap plus debt) of just under $3.2 billion puts the valuation of the baseball team at around $2.2 billion. That's because Battery Atlanta is worth around $1 billion, according to his valuation model. Comparable professional sports team sales suggest the Atlanta Braves are actually worth around $3.5 billion. If he's right, that means the $42 stock should be trading north of $60.
This steep discount probably explains why media mogul John Malone purchased $5.3 million worth of stock at around $42 a share in November. What might close the discount? "The ultimate catalyst is the sale of the team," Marangi said. Malone might spin off the baseball team from the real estate, which could encourage investors to recognize the real value of the baseball team. "Sports franchises are unique and scarce stores of value," says Marangi. "They are in many ways the ultimate anti-AI play."
4. Fiserv (FISV): It's still possible to get tech stocks at a discount. Insiders are showing us the way. They were recently big buyers at this company, which offers payment- and financial-services technology. Fiserv is a global giant in this space. Whenever you buy things on your phone or online or make bank transfers, the chances are good you are using Fiserv's products.
The stock looks cheap. It recently traded at a price-to-sales ratio of 1.7. That's a 64% discount to the trailing five-year average of 4.7, according to LSEG. It's also a 50% discount to the S&P 500 SPX, which has a price-to-sales ratio of 3.3.
A turnaround may get Fiserv's valuation back to normal. The stock has lagged behind because the company has been overly focused on boosting near-term growth at the expense of investing for the long term, according to CEO Michael Lyons. He has been reversing this since taking the helm last May. This could lower both margins and growth near-term, but boost growth and stock performance in the long run.
Three insiders recently endorsed the turnaround by purchasing $2.2 million worth of stock at between $62.41 and $65.18 a share. Buyers included the CFO and an officer. Clusters of insider buys are bullish, and so is C-suite buying.
Fiserv has an attractive blend of stable free cash flow from its bank business and potential continued growth from a fintech business called Clover. This is a payment product similar to Square, operated by Block. The ongoing shift toward online buying and electronic payments serves as a good tailwind.
Michael Brush is a columnist for MarketWatch. Brush has suggested BATRA, SBUX and CMG in his stock newsletter, Brush Up on Stocks. Follow him on X @mbrushstocks
More: As ChatGPT turns three, Deutsche Bank offers these solutions to Altman's 'Code Red'
Also read: OpenAI Issues 'Code Red' Warning to Staff. Why That's Good News for Oracle Stock.
-Michael Brush
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 09, 2025 08:20 ET (13:20 GMT)
Copyright (c) 2025 Dow Jones & Company, Inc.
Comments