Zhitong
2024.02.12 12:26
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The two major topics that American companies cannot do without in this earnings season: cost reduction and AI.

The number of times US companies discussed cost control issues during earnings conference calls has reached a historic high. Companies are focused on expenditure discipline, but also investing in technologies that can drive future productivity, such as artificial intelligence. Operational efficiency and artificial intelligence are the most frequently discussed topics, covering industries including software, professional services, healthcare services, and financial services. Some companies are protecting profit margins through cost-cutting measures while reallocating funds to develop their businesses. Some companies are taking measures such as layoffs to improve efficiency and reduce costs. Estee Lauder is downsizing to respond more quickly to beauty trends, Meta is making significant investments in artificial intelligence technology, and Amazon is taking a cautious approach.

Zhitong App learned that according to an analysis by Morgan Stanley strategists, US companies are discussing cost control issues at an unprecedented rate during earnings conference calls as they strive to reallocate funds and invest in new technologies.

A team led by Michael Wilson wrote in a report that mentions of "operational efficiency" by US companies reached an all-time high during this earnings season, as companies focus on expenditure discipline while also investing in "technologies that can drive future productivity, such as artificial intelligence."

Strategists noted a significant overlap between industries that commonly discuss operational efficiency and those that discuss artificial intelligence. These groups include software, professional services, healthcare services, and financial services.

Compiled data shows that Pfizer (PFE.US), BlackRock (BLK.US), and Lam Research (LRCX.US), all constituents of the S&P 500 index, have been promoting operational efficiency during their earnings conference calls this quarter.

Cost control is receiving increasing attention as companies seek to protect profit margins amid hopes of an economic soft landing. Investors have been looking for signs of a cooling job market to gauge when the Federal Reserve will lower borrowing costs, but recent data indicates that the Fed will not ease policy in the short term.

Managing expenses has been a key theme this quarter. Disney (DIS.US) stated that profits this year will increase by at least 20% due to cost reductions; Hertz (HTZ.US) is seeking to lower costs; Levi's (LEVI.US) announced that a new efficiency initiative will include cost-cutting measures such as layoffs.

Some companies are reallocating these funds to develop their businesses. As part of a reform plan, Estée Lauder (EL.US) is laying off employees to respond more quickly to new beauty trends and increase investment in its brands. Meta (META.US) is making significant investments in artificial intelligence technology, while Amazon (AMZN.US) is taking a cautious approach to new investments.

In the field of artificial intelligence, all eyes are on Nvidia (NVDA.US), which is expected to announce its earnings later this month. Arm (ARM.US) stock has been soaring this quarter, mainly due to spending on artificial intelligence that has helped support the performance guidance of this chip design company. Palantir (PLTR.US) is also benefiting from significant demand for its artificial intelligence technology.

As the biggest beneficiary of the artificial intelligence trend, there are high expectations for Nvidia in the market. Analysts widely expect the company's earnings per share to increase by 602% year-on-year for the fiscal quarter ending on January 31. Several strategists believe that the "Big Seven," including Nvidia, need to deliver outstanding performance to continue outperforming the market. Morgan Stanley's Wilson recently included Nvidia, Apple (AAPL.US), Microsoft (MSFT.US), and Google (GOOGL.US) in the list of high-quality growth stocks that the bank's analysts have given a "buy" rating. He has a positive view on this group of high-quality stocks as well as stocks that provide high operational efficiency as an extension.