Artificial Intelligence (AI) has emerged as the proverbial "pixie dust" for big technology stocks this year. A recent report reveals that during their second-quarter earnings calls, more S&P 500 index companies mentioned "AI" than at any point since 2010.
Interestingly, the report from FactSet indicates that companies discussing AI, even those outside the obvious tech giants, have experienced better stock performance compared to those that haven't embraced AI.
Analyzing the data, FactSet states that shares of S&P 500 companies that mentioned "AI" on their second-quarter earnings calls saw a slight dip of 0.8% since June 30. However, these shares have risen by an impressive 13.3% since December 31. In contrast, companies that didn't discuss AI during their calls experienced a more significant fall of 2.3% since the end of June, with only a modest 1.5% increase since the end of last year.
Even when excluding the prominent "Magnificent Seven" tech companies (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla), FactSet reports that the S&P 500 companies mentioning "AI" still outperformed those that did not cite AI during these periods.
On another note, Wall Street analysts have long anticipated a rebound in corporate America's profits for the second half of 2023 after a challenging year dominated by concerns over inflation's impact on the economy. However, the extent of this collective recovery continues to rely heavily on strong performance from the world's leading tech players.
According to the FactSet report, analysts expect S&P 500 companies to achieve a modest 0.5% increase in per-share profit growth during the third quarter. If this projection holds true, it would mark the first quarter of earnings growth since Q3 of last year.
Nevertheless, the fortunes of these potential gains largely depend on the performance of tech giants like Amazon.com Inc., Meta Platforms Inc., and Alphabet Inc. These companies hold substantial influence over the market and overall financials of S&P 500 companies. They have already demonstrated resilience this year after a temporary setback due to reduced digital demand caused by the pandemic.
The intertwining relationship between AI adoption, stock performance, and corporate profits signifies that AI has become a significant game changer in the business world, impacting even non-tech companies. As AI continues to shape various industries, it will be intriguing to observe its continued influence on the stock market and corporate landscape.
This Week in Earnings
Three years of supply disruptions have upended the economy and driven prices higher, forcing the Federal Reserve to embark on a delicate effort to bring them lower by discouraging borrowing and spending through a series of interest-rate hikes. But what about the impact on bowling? For answers, we turn to results this week from bowling-alley chain Bowlero Corp., which saw a jump in demand following the economy's reopening but now faces questions about that demand as it shows signs of returning to Earth. Convenience-store chain Casey's General Stores Inc. and homebuilder Lennar Corp. also report.
The Call to Put on Your Calendar
Digital-media, analytics, and design firm Adobe Inc. reports quarterly results on Thursday. But Mizuho analyst Gregg Moskowitz said his focus was on the company's broader digital transformation.
He cited stronger web traffic, the potential for more deals with bigger customers, signs of improving trends in Adobe's analytics segment, as well as the segment that includes design tools like Photoshop. But he said the company's moves in generative AI could be "a significant growth driver." Adobe this year unveiled Firefly, an AI image and text-enhancement model that can be incorporated into Adobe's software.
Moskowitz said that "while very early, our checks indicate an already high level of large customer interest in GenAI projects, including Firefly for Enterprise." However, he said the company's $20 billion acquisition of online design platform Figma was still "a big question mark," as costs and regulatory scrutiny accumulate.
The Number to Watch
Oracle Results, Supply Situation:
Cloud and IT-network developer Oracle Corp. reports results on Monday. Like much of the tech world, Wall Street sees the company as an AI play. But UBS analysts said that as businesses race to secure the components that power AI, Oracle could have an "underappreciated edge" over rivals.