Monthly commentary - Mackenzie Growth Team

Written by the Mackenzie Growth Team

Digital advertising expenditure is emerging as one of the strongest themes this quarter. Meta commented this quarter on how digital ad spend has been a bright spot for them with their ad revenue for the quarter up 21% YoY. This has been largely driven by AI unlocking gains in that ecosystem.

Playing along this theme has been Reddit, a holding in our US Mid Cap Opportunities fund.

• Ad revenue for Reddit increased 84% year-over year to $465 million propelling the stock price by 31% YTD.
• Reddit has also incorporated AI in its business model through Reddit Community Intelligence and Reddit Insights.
• Reddit Community Intelligence, which is the collective knowledge (data) from billions of human conversations across Reddit, powers their ads and insight products helping marketers make informed business decisions.
• Reddit Insights is an AI-powered listing tool that uncovers strategic value from two decades of Reddit conversations. For example, what people think about a brand, product, service and its position relative to competitors, offering real-time insights for campaign strategy, creative testing and better decision-making.

One of the overarching themes this earnings season has also been the uncertainty surrounding trade policy and its effect on global supply chains. Companies have been forced to rethink their supply chain strategies in a bid to shift towards localization to help mitigate the risk of rising costs. Strategic thought process has shifted from efficiency to regionalization in what has been described as ‘In region, For region’.

As U.S. manufacturers strive to localize supply chains to upend disruptions and tariffs, two of our holdings, Cognex and MSC Industrial Direct, are well positioned to benefit from this shift towards having regional supply chains.

Cognex:

• Specializes in designing and manufacturing machine vision products.
• These systems are essentially high-tech cameras, sensors, and software that check, track, and guide products as they move through automated production lines or distribution centers.
• The company's business revolves around industrial automation with a focus on growing markets such as logistics (e-commerce parcel handling and sorting) and factory automation.
• Recent years have seen Cognex double down on artificial intelligence (AI) capabilities in its vision systems, aiming to help customers automate quality control and traceability more efficiently.
• Q2 showed progress in revenue growth and profitability driven by positive momentum in warehouse and factory automation.
• The management also provided positive guidance for the next quarter, indicating a revenue range up by 9% compared to this time last year.

MSC Industrial Direct Co.

• MSC Industrial Direct is a major distributor of metalworking and maintenance, repair, and operations products.
• Their extensive product range and services are essential for various industries, including construction and manufacturing.
• The vast majority of their business is in the United States.
• Because of their leadership in metalworking, they are focused on manufacturing 
• At the same time as their markets are potentially poised to recover, they are engaged in several self-help initiatives including revitalizing the sales organization and revamping their digital presence.

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