Tech Stocks Plunge. Meanwhile, Costco Surged to All-Time Highs.

Things were getting quite a bit volatile for tech to start the week. And while Wednesday’s session gave relief to tech-heavy investors, it’s hard to tell which direction the tech sector and some of the most overheated names in AI (look no further than those red-hot semi plays) will head next as Nvidia (NASDAQ:NVDA | NVDA Price Prediction) sets the tone following its quarterly earnings result. The first-quarter Nvidia numbers themselves were incredibly impressive.

They beat estimates handsomely, and the results probably should have fuelled a run in the stock. But, of course, the GPU giant saw its shares slide mildly, by just under 2%, in the after-hours session of trade. I’m not quite sure what the crowd was hoping for, but investors should have been conditioned to see a home run be met with pin-drop silence by now, or even a few boos by some who were looking for a reason to offload their positions.

Another wonderful Nvidia quarter, another after-hours drop. A gloomy cloud hovers over tech

Simply put, there was a tough crowd for Nvidia going into its number, especially after shares broke out to new highs after a rather lengthy period of sideways action. Though I could be wrong, it’s looking like Nvidia’s incredible results and questionable reaction might cause some of the overheated parts of the AI tech trade to feel the pain again.

If Nvidia, which has been less heated compared to the rest of the semis this year, is moving lower on spectacular results (and no, I’m not sugar-coating it despite the underwhelming investor reaction), I really do fear what could happen to some of the other parabolic names in the semi space.

Of course, Michael Burry has already given his take on what he thinks could be the fate for stocks that have gone parabolic. But the real question is whether the many investors who are up big will be able to hang onto their gains as the overheated semis reverse course and run the risk of dragging the rest of tech down with it. Tech is taking a hit, and some semi stocks have already been dealt an amplified hit to the chin.

Costco’s breakout moment could come after its coming quarter

All the while, Costco (NASDAQ:COST) is looking like a relatively safe haven for the kind of environment that could lie ahead. In a prior piece, I highlighted Costco as a great non-tech stock to consider as a breakout play, one that might be spared if tech were to suddenly roll over all at once. With earnings just a week away and inflation incentivizing shopping at retailers where there’s a better value proposition, one could argue that Costco is the ultimate defensive growth play for when tech gets a tad on the overheated side.

What’s more, though, is what could happen if a big drop in tech causes a rotation back to the steadier staples. Costco is a natural name to consider rotating into if you’re looking for non-tech exposure, which may have been neglected amid the year-to-date rise in tech, AI, semis, and all the sort.

Such growth-to-value rotations aren’t anything out of the ordinary, but I do think predictability, steady earnings, and, of course, recession-resilient growth could go for a greater premium, especially if Costco reports a strong number while tech stumbles despite clocking in massive earnings beats. At just north of 55.0 times trailing price-to-earnings (P/E), there’s no question that Costco’s getting pricey again.

The bottom line

For those who just need to have the momentum, though, Costco does stand out after its latest spike higher. Amid the spike in gas prices, it’s Costco that stands out as an oasis of value.

And as grocery prices rise in the face of more constrained budgets, it’s again Costco that looks like it could step up to the plate. Combined with e-commerce momentum and the opportunity to grow its membership base further as restaurants look to lose share to grocery stores, I’m inclined to view Costco as a great rotation candidate if it isn’t one already.