Pricing Power Stocks: Why Investors Should Favor Companies That Can Raise Prices Without Losing Customers
- Max Teh
- 3 days ago
- 5 min read
Table of contents:
Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.
Part of the series: Complete Framework for Constructing and Managing a Long-Term Equity Portfolio
One of the most effective ways to evaluate a company's near-to-medium-term growth potential is to identify concrete initiatives that management is implementing to improve future earnings and profitability.
In a previous article, I discussed how companies can improve profitability through cost reductions and operational efficiencies.
Today, let's examine another powerful earnings growth driver:
2) Increasing the Prices of Goods & Services
This forms part of the three key levers management teams can pull to improve future earnings:
Increasing Prices (leading to higher revenue and margins)
Expanding Into New Markets (or revitalizing existing ones)
Of these three, increasing prices is often one of the most attractive.
Why?
Because unlike opening new stores, building new factories, hiring more employees, or entering new countries, price increases typically require very little additional capital.
When executed successfully, higher prices can directly translate into:
This makes pricing power one of the highest-quality growth drivers a company can possess.
Why Pricing Power Matters
When management announces plans to raise prices, investors should immediately ask:
"Why are customers willing to pay more instead of switching to a competitor?"
The answer often reveals the existence of an Economic Moat.
In consumer-facing businesses, pricing power is often driven by:
Product Differentiation
Customer Loyalty
Premium Positioning
For AI infrastructure and cloud computing companies, pricing power is often driven by:
Technological Leadership
Supply Shortages
Bottleneck Positions Within The Value Chain
When demand significantly exceeds supply, companies gain the ability to charge higher prices without materially impacting demand.
As investors, these are precisely the types of businesses we should pay attention to.
Real-World Examples: Companies Currently Planning Price Increases
i) AI & Cloud Infrastructure
Company | Period | What Management Has Communicated | Why It Matters |
NVIDIA | FY2027 Outlook (2026) | Management has indicated that future AI platforms such as Vera Rubin and Rubin Ultra will command higher pricing than previous generations. | Data Center products generate the vast majority of company revenue, meaning higher pricing can have a significant impact on both revenue and margins. |
TSMC | 2026–2027 | Management reiterated that every new technology node carries higher pricing and continues discussing pricing adjustments with customers to reflect the value delivered. | Advanced nodes account for approximately 74%-77% of wafer revenue, making pricing increases highly impactful to overall revenue growth. |
Tencent | Q1 2026 | Management confirmed cloud pricing increases driven by AI-chip shortages and strong enterprise demand. | Cloud services fall within FinTech & Business Services (~31% of revenue), while AI-driven improvements are also supporting stronger advertising pricing. |
ii) Consumer Goods & Financial Services
Company | Period | What Management Has Communicated | Why It Matters |
Birkenstock | FY2026 | Management intends to continue implementing targeted mid-single-digit price increases across products and regions. | Helps offset tariffs and inflation while protecting profit margins. |
Netflix | 2025–2026 | Multiple subscription price increases have been implemented globally, with additional adjustments announced in several markets. | Subscription revenue remains the primary earnings driver of the business. |
Dave | Q2 2026 | The company is removing fee caps on its ExtraCash product while testing higher monetization opportunities across newer offerings. | ExtraCash contributes the majority of company revenue, making successful fee increases highly impactful. |
The Best Signal: Companies That Have Already Done It Before
Of course, management can always announce future price increases.
The more important question is:
Have they successfully raised prices before?
Many businesses can increase prices once.
Far fewer can do so repeatedly while continuing to grow customers, revenue, and market share.
This is where investors can gain valuable insight into the strength of a company's economic moat.
The examples above become even more compelling when we examine whether these companies have successfully executed similar price increases in the past.
If a company has repeatedly raised prices while continuing to grow customers and revenue, it provides strong evidence that its competitive advantage remains intact.
Interestingly, many of the same companies planning future price increases today have already demonstrated this capability over multiple years.
Companies That Have Successfully Raised Prices While Continuing To Grow
i) AI & Cloud Infrastructure
Company | Period | Evidence of Pricing Power | Business Result |
NVIDIA | Hopper (2022), Blackwell (2024), Rubin (2026) | The company has consistently introduced higher-priced AI systems with each new generation of products. Customers willingly pay more because the performance improvements often reduce their overall cost of computing. | ✅ Data Center revenue has grown nearly 13-fold since the emergence of ChatGPT, while demand continues to exceed available supply. |
TSMC | 2021–2026 | Average selling prices have steadily increased alongside each new technology node. Customers continue adopting newer nodes due to superior performance and energy efficiency. | ✅ Demand for advanced manufacturing remains stronger than available capacity, making supply the primary bottleneck. |
Tencent | 2024–2026 | The company successfully improved cloud pricing while simultaneously increasing advertising monetization through AI-enhanced targeting capabilities. | ✅ Enterprise cloud demand and advertising spending continued growing despite higher pricing. |
ii) Consumer & Financial Services
Company | Period | Evidence of Pricing Power | Business Result |
Birkenstock | 2021–2026 | The company has repeatedly implemented mid-single-digit price increases across product lines and regions. | ✅ Despite higher prices, footwear volumes continued growing while maintaining over 90% full-price sell-through rates. |
Netflix | 2019–2026 | Netflix has consistently increased subscription prices across multiple markets over the years. | ✅ Paid memberships surpassed 325 million while retention rates remained strong and churn continued improving. |
Dave | 2025–2026 | Management successfully increased transaction fees and subscription pricing through multiple product initiatives. | ✅ Monthly Transacting Members & ARPU continued growing rapidly, while management reported no meaningful impact on retention. |
What This Reveals About Economic Moats
One common misconception among investors is that businesses must constantly lower prices to remain competitive.
In reality, many of the world's best businesses have demonstrated the exact opposite.
Customers are often willing to pay more when:
The product saves them money elsewhere.
The product significantly improves productivity.
The brand carries trust and prestige.
Switching to competitors creates friction or risk.
Alternative supply is limited.
This is precisely what we see with companies such as NVIDIA, TSMC, Tencent, Netflix, Birkenstock, and Dave.
In the case of NVIDIA, TSMC, and Tencent Cloud, pricing power largely stems from their position as critical bottlenecks within the AI ecosystem, where demand currently exceeds supply.
For Birkenstock and Netflix, pricing power is primarily derived from brand strength, customer loyalty, and product differentiation.
Despite operating in entirely different industries, both groups share one common characteristic:
They possess products and services that customers are willing to continue paying for even when prices rise.
That is often one of the clearest signs of a durable economic moat.
Key Takeaway For Investors
When evaluating a company's near-to-medium-term growth potential, don't focus solely on:
Revenue Growth
Earnings Growth
Valuation Multiples
Also ask yourself:
"Does management have a credible and realistic plan to improve future earnings?"
One of the strongest answers you can find is:
"We intend to raise prices, and history suggests our customers will gladly pay."
Companies that can successfully raise prices without sacrificing growth often enjoy:
✅ Better Inflation Protection
✅ Evidence of a Durable Economic Moat
As investors, these are exactly the types of businesses that deserve a place on our watchlists and, potentially, within our portfolios.
Pricing Power Stocks:
Pricing Power Stocks
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