TD Cowen raises Grocery Outlet stock price target on traffic gains

Grocery Outlet reported Q1 2026 EPS of $0.05 versus $0.03 expected and revenue of $1.17 billion versus $1.15 billion expected, but comparable store sales rose only 1.0% against 1.8% estimates. Gross margin remains under pressure from promotions and inventory liquidations, and the company closed 27 stores this quarter while refreshing 58 year-to-date as part of an optimization plan. TD Cowen raised its target to $8 from $6 and Jefferies to $9 from $7, both maintaining Hold ratings, citing improving traffic and product mix.

Analysis

NVDA's tape reaction matters less for the immediate revenue delta than for what it says about policy elasticity: if export controls can be selectively relaxed for a performance tier like H200, the market should start pricing a higher probability that China demand remains a meaningful second half backstop. The second-order effect is on supply allocation and gross margin mix: any incremental China channel access is likely to be margin-accretive relative to low-end SKUs, but it can also tighten supply for hyperscale customers and subtly extend lead times for the rest of the fleet. That supports the near-term multiple, but it also raises the risk of a sharper-than-expected rotation in customer mix if U.S. cloud capex growth slows.

For GO, the core signal is not the modest top-line improvement; it is that traffic is healing before basket and unit economics fully recover. That sequencing is important because it suggests the business is still in the early phase of a margin repair cycle: traffic can improve quickly, but basket expansion usually lags by one to two quarters, and gross margin can remain pressured until promotional intensity normalizes. Store closures and remodels should reduce fixed-cost drag over the next 6-12 months, but they also imply a cleaner denominator for comp growth, so the market may overstate the durability of the rebound if units per transaction do not inflect.

The consensus appears to be treating both names as incremental positives without fully pricing in the asymmetry of reversal risk. For NVDA, the overhang is political: any re-tightening of export permissions would hit the China narrative immediately, while the upside from broader access is likely to accrue over quarters, not days. For GO, the risk is that traffic gains are being misread as a full demand recovery when they may simply reflect improved value perception amid heavy promotions; if promo cadence eases before basket recovers, margins can stall and the stock likely remains range-bound rather than re-rating materially.

Key Decisions for Investors

• NVDA: Add tactically on any intraday pullback tied to policy headlines; use a 2-4 week horizon and size for a 1.5-2.0x upside versus downside if export relief persists, but keep a hard stop if Washington commentary turns restrictive.
• NVDA: Buy call spreads 1-3 months out rather than outright calls to express a moderate upside view while capping premium if the market is overestimating near-term China monetization.
• GO: Stay underweight or hold only a trading position until basket size and units per transaction show a second consecutive improvement; the next 1-2 quarters are the key validation window.
• GO: Pair long a profitable grocer with stronger margin durability against short GO to isolate execution risk from the broader consumer demand rebound; this is attractive if traffic data improves but margins lag.
• GO: If the stock rallies into the mid-$8s on sentiment alone, consider fading the move with a short-dated put spread, because the valuation case needs proof of operating leverage, not just better traffic.