3 in 3: Pricing Fatigue, Private Label Pressure, and AI Adoption Winners

Consumers are starting to show signs of pricing fatigue. Private labels are under pressure. And markets are turning to companies that are putting AI to work. 

I'm Jim Lydotes, and these are our three points in three minutes. So let's flip over the timer and let's go. 

Earnings season's wrapping up. And one of the takeaways is that after years of inflation and price increases, consumers seem to be growing a lot more selective. We saw this recently with Pentair. This is a company that makes all sorts of water-related products. Their recent earnings report showed one of the weakest areas for them was pool supplies. This is a category that has benefited enormously during and after COVID. But now consumers are starting to push back. 

It's the same thing we're seeing in pest control. This is normally one of the most reliable, steady businesses out there. There are probably a hundred things people are willing to cut back on before letting cockroaches move back into their kitchens. But this quarter, a company called Rentokil, one of the largest pest control companies in the world, delivered a pretty disappointing earnings report.

Essentials are still going to be essentials, but there are growing signs that consumers are being more careful about these recurring charges. Part of that could be that now it's easier to track spending with new finance apps. But I think the bigger reason is that consumers are finally showing some real pricing fatigue. We're watching to see if that accelerates and how that could affect certain other consumer-facing businesses. 

Over the last several years, private label products have been one of the biggest earnings boosters both for retailers and distributors. These are brands like Amazon Basics or Kirkland Signature. Companies love these brands. They're typically cheaper for customers, and they bring in higher margins for the seller. But we're starting to now hear a different story. Input costs are rising, and customers are becoming more price sensitive. So these private labels are getting squeezed from both sides, and margins are really starting to feel the pressure. This is an area our industrials team surfaced, and it's one that I think is worth watching. Not that other consumer-focused goods aren't feeling the same. But the relative advantage that private label products really could be shrinking. 

And then finally, AI trade may be shifting away from the companies that are building AI to the ones that are using AI to make their businesses better. One example is a company called Doximity. This is basically the LinkedIn, Zoom, and Salesforce for doctors, all on one platform. 

For the last year and a half, this business and the stock has been treated like an AI loser. The concern was that if doctors could ask ChatGPT medical questions, what's the value proposition of a company like Doximity? 

Well, their recent earnings report helped to answer a lot of those questions. It turns out that the company's AI integration is actually driving more activity, not less. It makes the platform stickier, not more vulnerable. It's another example of how the AI opportunity is broadening. It’s not just about who builds the tools. It's about who can put them to work in a way that deepens customer engagement, improves productivity, and really strengthens the business model. And in the AI trade, we think that's the area that people are going to start to go to. 

So that's our three points in three minutes with a little sand left in the bottle. Have a great week, and we'll see you back here next time. 

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