AI Mentions Rise in Tech Earnings Calls as Recession Speculation Fades

During this earnings season, tech firms in the US are displaying increased optimism about a soft economic landing, as they talk less about recession and more about artificial intelligence. A Bloomberg analysis reveals that executives from nearly half of the Nasdaq 100 companies have shifted away from using terms like headwinds, inflation, and recession in their calls with analysts and investors. This marks a notable change from the previous year, when such concerns triggered significant declines in equity values.

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Conversely, discussions related to artificial intelligence are on the rise, indicating executives' focus on how to monetize new AI products and services, such as software up-selling and hardware manufacturing for servers and cloud infrastructures. Even the term "metaverse" has resurfaced in the tech industry's discussions.

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This shift in rhetoric is viewed as a positive signal regarding business prospects and profitability. Forward-looking statements made during conference calls suggest that more improvements in earnings are ahead. The reduced references to recession and economic slowdown terms, down by over 70% this quarter compared to the previous year, reinforce the notion that the US economy may not slide into a recession after all. This view received validation from Federal Reserve Chair Jerome Powell, who stated that the US central bank's staff economists are no longer forecasting a recession.

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The buzz around artificial intelligence has played a significant role in driving the tech-heavy Nasdaq 100 Index up by 43% this year. Mentions of AI have quadrupled, with executives mentioning the term 390 times this earnings season, compared to 92 mentions a year ago. Companies like Microsoft Corp., Alphabet Inc., and Meta Platforms Inc. have emphasized their AI pipeline and investment plans in the new technology, receiving positive responses from investors.

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As inflation cools down, references to the term "inflation" have reduced during earnings calls, and even the usage of "headwinds" has decreased. The Federal Reserve's aggressive tightening campaign since early last year aimed to curb inflation, and the recent consumer-price report in June indicated a deceleration in inflation.

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Additionally, the term "metaverse" is making a comeback, with Facebook parent company, Meta Platforms Inc., mentioning it a dozen times in their recent conference call. The company's growth is back on track, and CEO Mark Zuckerberg spoke about the project that led to the re-branding of the multi-billion dollar social media business.

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Wells Fargo Securities analyst Ken Gawrelski noted that despite heavy spending on Meta's long-term metaverse vision, the company's estimates are moving significantly higher, leading him to upgrade his rating on the stock to overweight from equal-weight.

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