With nearly half of the stocks in the Nasdaq 100 Stock Index ($IUXX) (QQQ) having reported Q2 earnings, more and more company executives are optimistic about a soft landing for the U.S. economy. According to a Bloomberg analysis, tech executives are less frequently using words like headwinds, inflation, and recession in earnings calls with analysts and investors, a positive factor for technology stocks.
Technology executives in the U.S. are talking less about recession and more about artificial intelligence (AI) this earnings season. Janney Montgomery Scott said, “Collectively, this is a positive signal with respect to business prospects and profitability, a reference to how the economy remains reasonably resilient. Since comments in conference calls tend to be forward-looking, this could suggest more improvement in earnings is ahead.”
While technology companies are less worried about potential economic risks, executives this year are scrambling to elaborate on how they plan to monetize new AI products and services, whether it be about selling software or manufacturing hardware to power servers and cloud infrastructures for AI applications. This sharply contrasts with last year when technology stocks slumped as company executives fretted over macroeconomic concerns.
According to data compiled by Bloomberg based on the companies that have already reported quarterly results this reporting season, references to recession and related terms like economic slowdown are down more than 70% this quarter in earnings calls compared to a year ago. Many analysts are now casting doubt on whether the U.S. economy will slide into recession at all. This view received major validation this week after Fed Chair Powell said the staff economists on the Federal Reserve are no longer forecasting one.
The easing of price pressures has also prompted tech executives to reduce their mention of inflation headwinds, which fell to 31 mentions this quarter in conference calls from 70 mentions in Q4. However, the mentions of AI by technology executives this year have more than quadrupled. Company executives have used the term AI 390 times already this earnings season compared to 92 a year ago, with Nvidia (NVDA) still yet to report. Instead of mentioning their economic concerns, mega-cap tech firms such as Alphabet (GOOGL), Microsoft (MSFT), and Meta Platforms (META) spent their conference calls telling investors about their AI pipelines and how much they are planning to invest in developing the new technology.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
