Looking Beyond the AI Trade To Diversify Holdings
For much of the past two years, AI-related stocks and mega-cap technology names have dominated market leadership. Recent earnings reports, however, suggest investors are starting to look beyond the AI trade as strength broadens into select consumer and retail names.
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Several retail and consumer-focused companies recently reported better-than-expected earnings, showing that consumers are still spending despite ongoing economic uncertainty. What stands out is that these companies are gaining traction while many other retailers continue to struggle with slowing traffic, rising costs, and margin pressure.
The difference isn’t just stronger earnings. These companies are executing better, leaning on recognizable brands, and showing a clearer understanding of today’s more selective consumer.
First up is Crocs (CROX). The company continues to benefit from strong direct-to-consumer demand and disciplined inventory management, which has helped it protect margins even as many apparel and footwear retailers resort to heavy discounting.
Crocs also has a highly recognizable product with strong margins and relatively low fashion risk. Management has stayed focused on keeping inventory under control, which has helped offset tariff and margin pressures that continue to weigh on many consumer companies.
Steven Madden (SHOO) has also outperformed, helped by its flexible operating model and ability to adapt to changing fashion trends without becoming weighed down by excess inventory.
The company’s asset-light structure gives it the ability to pivot toward stronger categories while keeping markdown risk under control. Steve Madden also reported earnings that were above estimates and raised its sales outlook for 2025.
Restaurant Brands International (QRS) is seeing improving momentum at Burger King as its multi-year “Reclaim the Flame” turnaround strategy continues to gain traction.
Burger King reported a 5.8% increase in U.S. same-store sales during Q1 2026, outperforming several higher-priced fast-casual competitors. The results also point to an important shift in consumer behavior: customers are becoming more value-conscious, rather than simply cutting spending altogether.
The shift has created pressure for premium restaurant chains such as Shake Shack (SHAK), which has faced slowing traffic trends and margin pressure from elevated beef costs. The stock fell 30% last week after reporting weaker-than-expected results.
The divergence within retail and consumer stocks highlights a broader shift taking place outside of AI. Investors are no longer rewarding broad exposure to one area, such as consumer spending. Instead, they are favoring companies with pricing power, operational discipline, strong brand identity, and the ability to sustain demand in a more cautious consumer environment.
The recent earnings season may mark the early stages of a broader market rotation as investors begin looking beyond AI and mega-cap technology for new areas of leadership. Retail earnings is just getting underway, and so far, the results have been mixed. Selectivity is advised.
Warmly,
Mary Ellen McGonagle
MEM Investment Research
