Recruitment stocks make a desperate comeback! After the panic sell-off of "AI disruption," leading HR stocks in the U.S. violently rebound

According to Zhitong Finance APP, professional talent recruitment companies have been soaring in the U.S. stock market, with some companies even expected to achieve their best performance in years, despite analysts' concerns that artificial intelligence could lead to their decline. For example, ManpowerGroup (MAN.US) and Robert Half (RHI.US) have seen their stock prices rise by 120% and 94%, respectively, since the lows in March and February. At that time, the emergence of new AI tools triggered a massive market sell-off known as the SaaSpocalypse.

Investors were worried that AI could severely impact the human resources industry, as this technology can replicate some of its functions while reducing the demand for many white-collar workers—who are the very resources that recruitment companies rely on, even though their demand was already weak. ManpowerGroup's stock price has not seen positive growth since 2021, and Robert Half's stock price has not experienced an annual increase since 2023.

However, the index tracking professional services companies has risen by 44% since April. ZipRecruiter (ZIP.US) has seen its stock price climb nearly 183% from its low in March, while the American Depositary Receipts of Recruit Holdings Co., which owns Indeed and Glassdoor, have surged 170% from their own lows.

Jeff Silber, an analyst at BMO Capital Markets, stated in an interview: "Earlier this year, we 'threw the baby out with the bathwater' because of the SaaSpocalypse."

In a report last month, Silber wrote: "Recruitment stocks have performed well in the early stages of the recovery in the human resources industry, and we believe we are currently in a recovery phase. Most industry indicators have returned to growth, and we believe this growth momentum will continue unless impacted by an economic shock."

In July, the strong momentum in the human resources industry was evident, with both ManpowerGroup and Robert Half exceeding revenue expectations for the second quarter and indicating that market demand is improving. ManpowerGroup reported its highest quarterly operating profit in three years, and its stock price is expected to achieve its best annual performance since 2013.

Additionally, reports have emerged that private equity firm Silver Lake is in talks to acquire human resources software manufacturer Workday (WDAY.US). Following the news, Workday's stock price rose, indicating strong investor interest in the industry, whereas just a few months ago, investors were fleeing the sector.

However, the human resources industry still faces many challenges. Despite a strong labor market this year, U.S. employers unexpectedly laid off workers in July, and hiring numbers for the previous two months were also revised down, indicating that the job market is weaker than previously thought.

Despite a recovery in professional services firms in recent months, their stock prices are far from the levels seen in early 2022, just before the U.S. labor market softened under the highest inflation and rising interest rates in a decade.

Moreover, the upside potential for human resources service stocks may be limited. Data shows that ManpowerGroup's stock price is only 1.5% below its average target price, while Robert Half's stock price is over 20% above its average target price.

However, Barclays analyst Manav Patnaik wrote in a report to clients in July that the recent earnings of these two companies indicate that the industry's recovery is "undoubtedly underway."

UBS analyst Joshua Chan stated, "I initially thought AI would be hard to disrupt, but with actual data, that inherent notion can be broken." He remains neutral on ManpowerGroup's stock. Before ManpowerGroup released its earnings report, he was reluctant to recommend human resources stocks due to investors' pessimism about the potentially disruptive impact of AI.

In an analysis report in July, he added, "While we expect AI to remain an important topic of discussion, even in a cyclical recovery, the sustained acceleration of growth may alleviate concerns about AI over time."

Analysts point out that the human resources industry is likely to leverage AI to enhance productivity. For example, ManpowerGroup is using this technology to assist in the interview process.

Additionally, William Blair analyst Trevor Romeo noted that as companies navigate the AI-disrupted labor market, the value of human resources firms may indeed become more apparent. With the increasing number of AI-generated job applications received by companies, "you need someone who knows how to sift through different resumes and truly find the best candidates for the position," he said in an interview