AI mentions on the rise in tech earnings calls as recession talk fades

With nearly half of the Nasdaq 100 firms having reported, executives are less frequently using words like headwinds, inflation, and recession in calls with analysts and investors, according to a Bloomberg analysis. That marks a sharp reversal from last year, when such concerns drove steep equity declines.

While the C Suite is talking less about potential risks, mentions of artificial intelligence show no sign of slowing. Executives are scrambling to elaborate on how they plan to monetize new AI products and services — be it up-selling software or manufacturing hardware to power servers and cloud infrastructures. Even the term metaverse has made a comeback.

“Collectively, this is a positive signal with respect to business prospects and profitability, a reference to how the economy remains reasonably resilient,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott. “Since comments in conference calls tend to be forward-looking, this could suggest more improvement in earnings is ahead.”

With about 40 Nasdaq 100 companies having reported, here are some trends that have emerged in executive calls with analysts and investors:

Recession

Discover the stories of your interest

References to recession and related terms like economic slowdown are down more than 70% this quarter in earnings calls compared to a year ago, with only 21 references as of Thursday. The usage is poised to decline for the fourth consecutive quarter, according to data compiled by Bloomberg based on the companies that have reported this season. Some forecasters are now casting doubt on whether the US economy will slide into a recession after all. This view received some major validation this week from Federal Reserve Chair Jerome Powell, who said the US central bank’s staff economists are no longer forecasting one.

AI

AI has been the buzzword of the year — its emergence has contributed to the tech-heavy Nasdaq 100 Index jumping 43% this year — and mentions have more than quadrupled. Executives have dropped the term 390 times already this earnings season compared to 92 a year ago. AI poster-child Nvidia Corp. is still to report.

Big tech firms like Microsoft Corp., Alphabet Inc. and Meta Platforms Inc. spent their conference calls telling investors about their AI pipeline and how much they are planning to invest in developing the new technology. Generally the reports have been greeted warmly by investors. Both Alphabet and Meta rallied after their results, though Microsoft fell.

Headwinds

With inflation cooling, companies have started using the term fewer times on calls. Even references to headwinds, which saw 70 mentions in the fourth quarter, slipped to 31.

The Fed has since early last year engaged in the most aggressive tightening campaign since the 1980s in an effort to curb inflation, which in 2022 hit a 40-year high. June’s consumer-price report showed inflation decelerating.

Metaverse

A familiar term is starting to make something of a comeback. The Facebook parent mentioned metaverse a dozen times in its conference call this week. With the company’s growth back on track, Chief Executive Officer Mark Zuckerberg spoke about the project that had him re-brand his multi-billion dollar social media business.

Wells Fargo Securities analyst Ken Gawrelski, who upgraded his rating on the stock to overweight from equal-weight, noted that the company’s estimates are moving meaningfully higher despite heavy spending on its long-term metaverse vision.