Why TimesSquare Capital Trimmed BJ’s Wholesale: The Shift From Retail to AI-Driven Growth

In a market defined by volatility and shifting priorities, TimesSquare Capital’s recent decision to trim its position in BJ’s Wholesale Club Holdings (NYSE:BJ) offers a stark lesson in strategic reallocation. Despite BJ’s 45.91% surge over 12 months—a performance that would make most investors salivate—the fund’s move underscores a broader truth: even standout retailers can’t compete with the gravitational pull of artificial intelligence (AI) in 2025.

At first glance, this decision seems counterintuitive. BJ’s boasts a $20.5 billion revenue stream, an 18.4% gross margin, and a $272 million operational cash flow. Its warehouses and gasoline sales have thrived, even as tariffs and trade wars rattled mid-cap stocks. Yet TimesSquare’s Q1 2025 investor letter made its calculus clear: AI stocks hold “greater promise for delivering higher returns within a shorter timeframe”—a priority that now outweighs the comforts of traditional retail growth.

The Numbers Tell a Story of Strategic Reallocation

The Russell Midcap Index fell 3.4% in Q1 2025, a decline exacerbated by President Trump’s trade policies and fears of a trade war. Even the more resilient Russell Midcap Value Index dropped 2.11%, while the Russell Midcap Growth Index plummeted 7.12%. Amid this carnage, TimesSquare’s U.S. Focus Growth Strategy defied the odds, returning 2.42% gross—a stark contrast to the broader mid-cap growth benchmark.

But here’s the critical detail: this outperformance came despite trimming BJ’s, which had a one-month return of -1.75%. The fund’s focus wasn’t on clinging to winners but on preparing for tomorrow’s winners.

Why Retail Can’t Compete with AI’s Scalability

The trim of BJ’s isn’t just about one stock—it’s a signal of a tectonic shift in investment priorities. Consider the data:
- Hedge Fund Sentiment: While the number of hedge funds holding BJ’s rose from 28 to 43 between Q3 and Q4 2024, the stock still missed TimesSquare’s “30 Most Popular Stocks” list. This lukewarm institutional enthusiasm contrasts sharply with AI’s feverish adoption.
- Valuation vs. Growth: BJ’s trades at a P/E of 19.14—a premium to AI stocks like the unnamed firm highlighted by TimesSquare, which is valued at less than 5x earnings. In a market hungry for growth, AI’s cheaper multiples and disruptive potential offer far more runway.
- Earnings Catalysts: BJ’s May 22 earnings report and a JPMorgan price target hike to $123 may buoy short-term sentiment, but these are drops in the bucket compared to AI’s capacity to transform industries overnight.

The Bigger Picture: Mid-Caps Are a Battlefield

The Russell Midcap Index’s 3.4% decline reflects the struggles of companies caught between rising input costs and fading consumer confidence. TimesSquare’s strategy, however, thrived by leaning into growth-oriented mid-caps like CrowdStrike (CRWD)—firms with defensible moats and secular tailwinds. Meanwhile, traditional retailers like BJ’s, while profitable, lack the scalability and margin resilience of AI-driven businesses.

The fund’s letter also hints at a deeper truth: in a world of 25% tariffs on steel, aluminum, and trade partners, mid-cap companies with domestic revenue concentration (like those in the Russell Midcap’s 24% non-U.S. revenue exposure) are better positioned. But even that edge pales next to AI’s ability to slash costs, reimagine supply chains, and capture new markets.

Act Now: The Clock Is Ticking on Retail’s Dominance

TimesSquare’s move isn’t about abandoning value—it’s about recognizing where value is being created. Retail stocks, for all their merits, are constrained by physical limitations: square footage, inventory, and geographic reach. AI, on the other hand, offers exponential returns through automation, data monetization, and global scalability.

Investors who cling to yesterday’s winners risk missing the next wave of disruption. The fund’s explicit preference for AI stocks—highlighted by its focus on a “promising as NVIDIA but cheaper” firm—suggests that the gap between traditional growth and tech-driven growth is about to widen dramatically.

Final Take: Follow the Money, Follow the Future

BJ’s Wholesale is a testament to disciplined execution in a challenging environment. But in 2025, the game has changed. TimesSquare’s reallocation isn’t a retreat—it’s a strategic advance toward sectors that can thrive in turbulence.

The question for investors is simple: Do you want to own a company that’s mastered the art of selling tires and groceries… or one that’s rewriting the rules of commerce entirely?

The clock is ticking. The future is AI—and it’s time to act.