The latest episode of Motley Fool Hidden Gems Investing covered three major market stories: Target's recent earnings, Moderna's cancer vaccine trial results, and the growth trajectories of OpenAI and Anthropic.
**Target's Turnaround Efforts**
Target reported a promising quarter, with sales up 5.3% and same-store sales increasing by 3.8% – a significant improvement after years of struggle in this area. The headline-grabbing 100% jump in earnings per share (EPS) was largely due to a one-time $994 million tariff refund, which added $1.65 per share. However, even excluding this, Target's fundamental earnings grew a healthy 20% year-over-year.
Analyst Rachel Warren highlighted Target's strategic shifts: lowering prices on over 10,000 items to attract budget-conscious shoppers and expanding digital and service-based revenue channels. Digital sales grew 8.7%, same-day deliveries surged 25%, and non-merchandise revenue increased 20%. Target's historical reliance on discretionary items like apparel and home decor made it vulnerable when consumers cut back on non-essential spending. New CEO Michael Fiske is leading a multi-billion dollar turnaround, investing in store models and price reductions. Warren sees it as a quarter showing "much-needed improvement," but not yet a compelling buy.
Lou Whiteman noted the stock is already up 60% year-to-date, suggesting much of the turnaround is "priced in." He described the results as "the patient has a pulse," acknowledging it was an "ugly beat" but stopped the slide. However, he questioned the sustainability of under 4% comp sales gains and whether Target can differentiate itself long-term. He emphasized that Target needs to explain its unique value proposition, especially when competing with Walmart on price. Despite a 15.6x earnings multiple and a 3% dividend yield, Whiteman questioned if this is enough to justify investment without consistent growth exceeding 4-5%, particularly when risk-free alternatives like T-bills offer higher yields. Travis Hoy also pointed out areas for improvement in their digital strategy, such as the SHIPT integration.
**Moderna's Cancer Vaccine Breakthrough**
Moderna's stock soared 140-160% following positive Phase 3 trial results for its mRNA-based personalized cancer vaccine, marking a "major milestone." Rachel Warren explained that this is the first randomized Phase 3 clinical trial to show an mRNA vaccine can prevent high-risk skin cancer (melanoma) from returning. The vaccine is "made-to-order," analyzing a patient's unique tumor mutations to create a custom mRNA blueprint that trains their immune system to recognize and attack those specific cancer cells.
The study, involving over 1,100 advanced melanoma patients, combined Moderna's vaccine with Merck's Keytruda, successfully prolonging the time patients lived without cancer recurrence and reducing the risk of it spreading. A significant detail was that an independent data monitoring committee halted the trial early due to the exceptional efficacy, allowing control group patients access to the treatment – a rare occurrence in clinical trials. This development is crucial for Moderna's post-pandemic diversification efforts and for Merck, facing Keytruda's patent expiration in 2028. Challenges remain, including the one-month manufacturing time per custom vaccine, scaling production, pricing, and awaiting full FDA approval, which is expected no earlier than next year.
Lou Whiteman called it a "wonderful proof of concept" and a "huge leap" for Moderna, potentially transforming it from a vaccine company into an oncology powerhouse. However, he cautioned investors about the stock's massive jump, noting it's still below previous highs (May 2024, early 2023, and COVID-era peaks). He advised against immediate buying, emphasizing that while there is "reason for hope," there's still a "long path" ahead regarding scalability, cost, and widespread applicability beyond melanoma. Travis highlighted the broader trend toward personalized medicine this represents.
**OpenAI and Anthropic's Growth & IPO Race**
The podcast also discussed the growth numbers for OpenAI and Anthropic. OpenAI reported 18% quarter-over-quarter revenue growth, which, while substantial for a mature company, was seen as disappointing for a "hyper-growth" AI firm. Compounding this, OpenAI's operating loss grew by 30% in the same period, indicating increasing unprofitability. Lou Whiteman noted OpenAI's strategy of lowering API prices to gain market share. He offered a "charitable explanation" that they are investing heavily for future growth, but stressed that the situation is not going according to Sam Altman's "script."
Rachel Warren pointed out the race to IPO for both companies, with Anthropic potentially going public in weeks. For Anthropic, this is about "striking while the iron is hot" to capitalize on their revenue run rate, which has surpassed $65 billion and could anchor a public valuation of up to $2 trillion. For OpenAI, the motivation is to counter increasing operational losses and prevent Anthropic from monopolizing public institutional capital.
Warren believes it's not a "winner takes all" scenario, as both companies can thrive in their niches: OpenAI in consumer user scale and Anthropic in broad enterprise adoption with high-value corporate contracts like Cloud Code. Lou Whiteman reiterated that it's too early to declare a winner in the AI race. Both analysts expressed anticipation for the S1 filings, which will reveal more detailed financial information, costs, and future spending obligations for these pivotal companies.