US companies are discussing cost cuts and AI like never before | Tech News

US companies are discussing cost cuts and AI like never before

US companies are discussing cost control on earnings calls at a record rate, amid a push to reallocate funds and invest in new technologies, according to an analysis by Morgan Stanley strategists.

| Updated on: Feb 12 2024, 19:06 IST
NASA Nova-C moon lander to be wrapped in sportswear
Morgan Stanley strategists
1/7 Intuitive Machines, a contractor for NASA, is gearing up to launch its Nova-C lander to the moon. Scheduled to take off from Cape Canaveral, Florida, aboard a SpaceX Falcon 9 rocket, the mission is set for a moon landing on February 22. (NASA)
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2/7 One notable feature of the Nova-C lander is its special insulation provided by Columbia Sportswear. Columbia's lightweight-yet-warm insulation, inspired by NASA's Apollo-era space blankets, will be used to cover the lander's critical fuel tanks. (NASA)
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3/7 Haskell Beckham, vice president of innovation at Columbia Sportswear, explains that the insulation material consists of aluminum with a protective coating and a polyester textile fabric underneath. This material is the same as what is used in Columbia's jackets. (NASA)
Morgan Stanley strategists
4/7 Intuitive Machines is part of NASA's Commercial Lunar Payload Services initiative, which aims to explore the moon with the help of private sector partners. Through this program, NASA seeks to establish regular moon missions in preparation for future human exploration. (NASA)
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5/7 The endeavor to reach the moon is not without its challenges. Other recent attempts, such as Astrobotic Technologies' Peregrine lander, have encountered setbacks, highlighting the difficulties of lunar exploration. (Pixabay)
Morgan Stanley strategists
6/7 The partnership between Intuitive Machines and Columbia Sportswear has led to collaborative innovation. Columbia's material, tested to withstand the extreme conditions of space, has inspired new developments in consumer products, such as the Arch Rock Double Wall Elite jacket. (Pixabay)
Morgan Stanley strategists
7/7 As NASA and its partners continue to push the boundaries of space exploration, collaborations between private companies and government agencies are expected to yield further advancements. The mission to the moon represents not only a scientific endeavor but also an opportunity for technological innovation with potential benefits for humanity on Earth. (ISRO)
Morgan Stanley strategists
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US companies are prioritizing cost control and operational efficiency on earnings calls, while also investing in technologies like AI to drive future productivity, according to Morgan Stanley strategists. (Bloomberg)

US companies are discussing cost control on earnings calls at a record rate, amid a push to reallocate funds and invest in new technologies, according to an analysis by Morgan Stanley strategists.

Transcript mentions of “operational efficiency” are at highest ever in the US during this earnings season as companies focus on expense discipline, but also invest in technologies “that can drive future productivity like AI,” a team led by Michael Wilson wrote in a note.

There is a notable overlap among the industries discussing operational efficiency most prevalently and those that are discussing AI, the strategists said. These groups include software, professional services, health care services, and financial services.

Pfizer Inc., BlackRock Inc., and Lam Research Corp. were among S&P 500 companies touting operational efficiency in their earnings calls this season, according to data compiled by Bloomberg.

The rising focus on cost control comes as firms position to protect margins amid hopes for a soft economic landing. Investors have looked for signs of cooling in the jobs market to gauge when the Federal Reserve will lower borrowing costs, although recent hot data has signaled the Fed won't be easing anytime soon.  

Managing expenses has been a key theme this season. Walt Disney Co. said profit this year will rise at least 20% thanks to cost cutting. Hertz Global Holdings Inc. is looking to reduce costs and Levi Strauss & Co. said a new initiative to boost efficiency will include cost-cutting operations like eliminating jobs. 

Some companies are reallocating these funds to grow their business. Estée Lauder Cos. is cutting jobs as part of a revamp plan to allow it to respond more quickly to new beauty trends and invest more in its brands. Meta Platforms Inc. is spending aggressively on artificial intelligence advancements while Inc. will be cautious about new investments.

On the artificial intelligence front, all eyes will be on Nvidia Corp. which is expected to report later this month. So far this season, Arm Holdings Plc soared as artificial intelligence spending helped bolster the chip designer's forecast. Palantir Technologies Inc. also benefited from big demand for its AI technology.

The bar is high for Nvidia, which has been the biggest beneficiary of the AI trend. Analysts estimate earnings-per-share will rise 602% in its fiscal quarter ending Jan. 31 from a year ago. The Magnificent Seven group of megacap tech stocks including Nvidia need to deliver stellar earnings to keep outperforming the broader market, according to various strategists.

Morgan Stanley's Wilson recently listed Nvidia, Apple Inc., Microsoft Corp. and Alphabet Inc. among a screen of high-quality growth stocks that have overweight ratings from the bank's analysts. He's constructive on this group of quality stocks, as well as those delivering high operational efficiency as an extension.

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First Published Date: 12 Feb, 18:07 IST