Are you worried about an artificial intelligence (AI) bubble? You're not alone if you are. Fears abound in the media that AI stocks are going through the same cycle internet stocks did during the dot-com boom and crash in the late 90s and early 2000s.
AI stocks have generated incredible returns over the past three years but it's always a good idea to hedge your bets.
And the business I want to talk about today is a consumer discretionary company has absolutely nothing to do with AI, so it ought to make a solid hedge against it and allow you to profit from what seems to be the company's recovery from two years of struggle.
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Seattle's best
If you remember the early 2000s, then I'm certain you recall jokes about new Starbucks (SBUX 1.24%) locations opening everywhere. There's a lot of truth behind the jokes, between 1999 and 2009 Starbucks exploded from 2,498 stores to 16,680. That's roughly 1,400 new locations a year or almost four per day.
But over the past two years, Starbucks has had a rough go of things, with stagnant and declining sales. As the S&P 500 surged over 75% in the last five years, Starbucks is only up about 2% from where it was in 2021. Over the last year, it has tumbled 11.5%.
Things got so bad that the company replaced former CEO Laxman Narasimhan with Brian Niccol in late 2024. Since then, he seems to have started turning the company around.
As of its latest results for Q1 of its fiscal 2026 (reported Jan. 28, 2026), Starbucks has seen genuine sales growth for the first time in eight quarters. Over the past month, the stock has recovered by almost 11% and things are looking up for the Seattle-based company.
I don't think Starbucks requires much explanation. It operates a chain of cafe restaurants across the country. But under Brian Niccol's tenure, the company has reoriented itself back to being a "third place" between work and home rather than the grab-and-go sort of coffee joint it was becoming for years.
Though, admittedly, COVID-19 restrictions forced that shift for Starbucks and most other restaurants and cafes independent of anything company leadership wanted to do. Either way, the company is planning to renovate 10% of its U.S. stores to have comfier chairs, couches, and more power outlets to encourage an extended stay.
The best part is that strategy seems to be starting to pay off and it has seen Starbucks rally in the days since its latest earnings release.
NASDAQ: SBUX
Key Data Points
A return to form?
For Q1 of Starbucks' fiscal 2026, it saw a 3% increase in comparable transactions per store which spurred 4% global sales growth, breaking an eight-quarter streak in the doldrums and signaling upward momentum for the first time in two years. And the company was able to open 128 new stores in the quarter bringing its total to 41,118 worldwide with 52% company-operated and 48% franchised.
Consolidated net revenue grew 6% to $9.9 billion in the quarter. However, the company's operating margin fell 640 basis points to 41.3% and earnings per share (EPS) fell 62%.
It was the company's international operations that saw some of the best results with its total net revenue from those locations surging 10.3% and its operating income from them growing 19.2%.
In all, the results were a mixed bag with more good signs than bad. Is it perfect? No. But it is very promising and I think it's reason enough to give Starbucks another look if it fell off your radar in the past couple of years.
