AI creates buying opportunities in these stocks, Jefferies By Investing.com

Jefferies upgraded Expedia Group (EXPE) and Instacart (CART) to Buy, arguing internet stocks have sold off ~30% YTD and now trade at a record ~30% discount to the S&P 500, with multiples ~70% below 2022 peaks. The firm expects EXPE to deliver more than three years of 20%+ EPS growth and forecasts mid-teens EPS growth for CART for over five years; EXPE’s forward P/E sits ~40% below the Internet sector and CART ~25% below. Jefferies cites AI-driven dynamics (OpenAI and Google positioning), lodging booking strength, margin expansion and buybacks as catalysts, calling current levels an "attractive entry point."

Analysis

The market is re-pricing a nuanced shift: AI changes the composition of distribution economics more than it eliminates demand. If platforms move away from checkout and favor referral models, distribution fees and marketing CAC decline for specialist intermediaries; that mechanically boosts OTA and marketplace operating leverage and can turn modest GTV growth into outsized EPS delta via margin expansion and buybacks over 12–36 months.

For Expedia the lever is a compact, quantifiable EPS algorithm: sustained HSD%-to-20%+ lodging booking growth combined with margin expansion and share repurchases creates a path where a 30–50% multiple re-rate is plausible without heroic top-line assumptions. Second-order winners include hotel tech providers and dynamic pricing vendors (they monetize the same demand shift) while hotel chains with direct-booking pushes are the margin-capacity riskiest players over the medium term.

Instacart’s upside is structural if it converts enterprise partnerships and international expansion into recurring GTV and ad revenue; grocery supply chains and CPG digital budgets are the hidden source of margin upside. Execution risk is concentrated in logistics cost per order and cross-border unit economics — if fulfillment cost dynamics don’t improve, enjoying GTV growth will not translate into EPS growth at scale.

Key reversals: a renewed push by major platforms to own checkout or a deterioration in ad/consumer spending could quickly re-open the valuation gap. Watch leading indicators over weekly to quarterly horizons: platform referral terms, OTA conversion rates, gross booking growth, fulfillment cost per order, and incremental margin from repurchases; these will separate a temporary relief rally from a durable re-rating.

Key Decisions for Investors

• EXPE – Initiate a 2–3% portfolio weight via 12–18 month LEAP calls or straight equity (size to risk tolerance). R/R: target 50–100% upside if EPS grows 20%+ and multiple re-rates 30–50% within 12–24 months; downside ~-40% if bookings compress or lodging ADR weakness persists. Add a protective 30–40% OTM put or sell short-dated covered calls to finance premium after a strong pop.
• CART – Build a 1.5–2% position in equity or 9–18 month LEAPs, taking risk-sized exposure to GTV acceleration and enterprise monetization. R/R: 60–120% upside if mid-teens EPS growth materializes and valuation normalizes; downside -50% on execution/fulfillment miss. Hedge market sensitivity with a modest 1:1 short QQQ 3–6 month call spread sized to limit portfolio Vega.
• Relative-value pair – Long EXPE / Short BKNG (equal dollar) over 6–12 months to capture idiosyncratic re-rating of cheaper OTA vs market leader. R/R: if EXPE recovers toward peer multiples, expect 20–40% relative outperformance; tail risk is sector-wide travel shock affecting both names. Use stops at 15% adverse move on the pair.
• Tactical premium strategy – After earnings or a positive platform-announcement, sell 30–60 day put spreads on EXPE/CART to collect elevated IV, size for defined max loss (~3% notional). R/R: collects premium and accelerates entry into names at attractive bases; risk if a surprise macro shock triggers >20% gap down, in which case cut to preset loss limits.