US companies are discussing cost cutting and AI like never before

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US companies are discussing cost containment 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 references to “operational efficiency” are at an all-time high in the US as companies focus on cost discipline, but also invest in technologies that “can drive future productivity, such as AI,” the team led by Michael Wilson wrote in a note. .

There is significant overlap between the industries that most prominently discuss operational efficiency and those that discuss AI, strategists say. These groups include software, professional services, health care services and financial services.

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

The growing focus on cost containment comes as firms position themselves to protect margins amid hopes for a soft economic landing. Investors are looking for signs of a cooling in the jobs market to gauge when the Federal Reserve will lower borrowing costs, but recent hot data suggests the Fed won't be easing anytime soon.

Managing expenses is a key issue this season. The Walt Disney Company said it expects profit to rise at least 20% this year thanks to cost cutting. Hertz Global Holdings Inc. Looking to cut costs and Levi Strauss & Co. The new initiative to increase efficiency will include cost-cutting activities such as job cuts, he said.

Some companies re-allocate these funds to grow their business. Estée Lauder Cos. The job cuts are part of a restructuring plan that will allow it to respond more quickly to new beauty trends and invest more in its brands. Meta Platforms Inc. While spending aggressively on artificial intelligence advancements, Inc. 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, artificial intelligence spending has helped boost the chip designer's forecast. Palantir Technologies Inc. It has also benefited from large demand for its AI technology.

The bar is high for Nvidia, the biggest beneficiary of the AI ​​trend. Analysts expect earnings per share to rise 602% from a year ago in the fiscal quarter ending January 31. A stellar group of seven megacap tech stocks, including Nvidia, should deliver stellar earnings to beat the broader market, according to various strategists.

Morgan Stanley's Wilson recently held Nvidia, Apple Inc., Microsoft Corp. and Alphabet Inc. listed in a screen of high-quality growth stocks from bank analysts. He builds on this group of quality stocks, as well as offering high operational efficiency as an extension.

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