Even though Nvidia (NVDA) still captures endless headlines with its AI-driven dominance, its shares have meandered sideways over the past four months. Despite this lull, the chip giant remains a stellar performer year-to-date, boasting a 36% gain that has padded portfolios amid broader tech volatility.

But AI’s spotlight often eclipses other opportunities, reminding investors that not every winner needs neural networks or data centers to be a winner. That’s where we find discount retailer Dollar General (DG), the dollar-store titan that has surged 74% in 2025, more than doubling Nvidia’s returns in a 2-to-1 rout. This sleeper hit proves value plays can thrive when economic pressures favor frugality over flash.

Resilient Consumers Fueling a Turnaround
Dollar General’s explosive 2025 rally stems from a potent mix of operational excellence and macroeconomic tailwinds favoring budget shoppers. After grappling with margin squeezes and inventory woes in prior years, DG staged a robust recovery, as shown by its third-quarter results.

Net sales climbed 4.6% to $10.6 billion, topping estimates, while earnings leaped 44% to $1.28 per share, far exceeding forecasts. This momentum prompted management to hike full-year guidance, now eyeing EPS of $6.30 to $6.50 and net sales growth of 4.7% to 4.9%, with same-store sales projected between 2.5% to 2.7%.

Key drivers include shrinking theft losses, which had plagued profitability but are now trending downward through enhanced security and store protocols. Balanced category growth shone through as well. Consumables like pantry staples lead, but non-consumables, such as seasonal decor and apparel, gained market share as inflation-weary families prioritized value.

DG’s aggressive real estate push added fuel: 196 new stores opened in Q3 alone, alongside over 1,100 remodels under Project Elevate and Renovate, modernizing store layouts to boost traffic in rural strongholds. With over 20,900 locations, DG’s footprint as America’s go-to “neighborhood general store” cements its defensive moat, even capturing trade-down spending from higher-end chains.

A Rival Joins the Discount Rally
Dollar Tree (DLTR) has mirrored this value resurgence, up 63% year-to-date – still handily outpacing Nvidia – thanks to strategic pricing tweaks and post-divestiture focus. Shedding the underperforming Family Dollar banner earlier this year streamlined operations, allowing sharper cost controls and holiday optimism.

Yet DLTR’s gains lag DG’s due to less expansive store growth and lingering integration hiccups, underscoring DG’s edge in scale and execution.

Bottom Line
Looking ahead, Dollar General is primed to extend its edge, blending recession-resistant demand with improving fundamentals. A softening labor market, including weakening job growth and uneven AI-fueled divisions, should amplify consumers trading down to discounters. Lower-income households – Dollar General’s core customer – face ongoing inflation hits, driving up fill-in trips for essentials. Coupled with easing monetary policy via potential rate cuts, this setup fosters consumer resilience without overheating.

DG’s normalized margins and 450+ annual store additions promise low-teens EPS growth through 2026. At a forward P/E below peers, it’s a buy for defensive investors looking beyond the AI headlines.

— Rich Duprey

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Source: Money Morning