The Compound and Friends• Jan 2, 2026• 56:58Interview

Welcome to 2026 | TCAF 223

From The Compound and Friends

Ben Carlson•Director of Institutional Asset Management, Ritholtz Wealth

Executive Summary

The episode analyzes potential turnaround stocks for 2026, focusing on Lululemon's activist-led proxy fight and Nike's multi-year slump amidst a changing retail landscape.
A key theme is the market's negative sentiment towards enterprise SaaS companies like Adobe and Salesforce, driven by fears that generative AI will cannibalize their business models and lead to a permanent re-rating of the sector's valuation.
The discussion explores Uber's long-term strategy in the autonomous vehicle space, contrasting its partnership-based approach with companies like Waymo against the closed-ecosystem model proposed by Tesla.
A review of 2025 market performance reveals that while the S&P 500 delivered strong returns, most 'Magnificent Seven' stocks underperformed, and the best-performing stocks were often those that had been beaten down the most in the prior year.

12 quotes

Concerns Raised

AI's potential to cannibalize established software businesses like Adobe and Salesforce.
The risk of a permanent valuation de-rating for the entire enterprise SaaS sector.
Uber's vulnerability if a closed autonomous vehicle ecosystem, like Tesla's, dominates the market.
The difficulty for apparel brands like Lululemon to regain cultural relevance and pricing power once lost.

Opportunities Identified

Potential for significant returns in beaten-down stocks from the previous year, as demonstrated by 2025 market data.
Lululemon's activist-led proxy fight could serve as a catalyst for a stock turnaround.
Netflix's long-term growth potential through strategic acquisitions and its dominant position in streaming.
Uber's platform strategy could win in the autonomous vehicle space by aggregating supply from multiple AV partners.

Key Themes

Turnaround Candidates & Retail Sector Dynamics

The analysts discuss several beaten-down stocks as potential turnaround plays for 2026, with a deep dive into Lululemon. They explore the impact of founder Chip Wilson's proxy fight, intense competition from brands like Aloe and Athleta, and past strategic missteps like the Mirror acquisition.

This theme highlights the high-risk, high-reward nature of investing in consumer discretionary stocks that have fallen out of favor, and the catalysts (like activist involvement or fashion cycles) that could drive a recovery.

AI's Disruptive Impact on Enterprise Software

The conversation centers on the significant stock drawdowns for Adobe and Salesforce, driven by the narrative that AI will diminish their value. The fear is that AI tools will either replace their products for amateur users or reduce enterprise headcount, leading to fewer paid seats and a fundamental threat to their business models.

This explores the existential threat AI poses to incumbent tech giants, raising the possibility that the entire enterprise SaaS sector could face a permanent re-rating to much lower valuation multiples, regardless of near-term earnings growth.

The Autonomous Vehicle Race & Uber's Strategy

The analysts debate Uber's long-term positioning in an autonomous future. They highlight Uber's strategy of partnering with multiple AV companies (Waymo, WeRide, etc.) as a platform play, contrasting it with the risk posed by closed ecosystems from competitors like Tesla.

This discussion is crucial for understanding the evolving landscape of mobility and logistics, and whether Uber's asset-light, partnership-driven model can succeed against vertically integrated competitors in the capital-intensive AV market.

Streaming Wars & Media Consolidation

The episode touches on the maturing streaming industry, focusing on Netflix's strategic battle with YouTube for living room dominance. A key development discussed is Netflix's rumored bid to acquire Warner Brothers, signaling a shift from organic subscriber growth to large-scale consolidation to secure content libraries and market power.

This theme indicates a new phase in the media landscape where scale and intellectual property are paramount, and major players are looking to M&A to secure their long-term competitive advantages.

Market Performance & Valuation Shifts

The analysts review the market dynamics of 2025, noting that the S&P 500's strong 18% return was not driven by the usual suspects. Only two of the 'Magnificent Seven' (Google and NVIDIA) outperformed the index, and the technology sector saw significant P/E multiple contraction despite strong earnings growth.

This highlights a potential broadening of market leadership and a shift in investor sentiment, where valuations are coming under scrutiny and previously beaten-down stocks are seeing a resurgence.

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Processed Apr 20, 2026 yt-dlp + mlx-whisper + Gemini