IT Strategy

Execs are talking up ‘operational efficiency’ and AI in earnings calls

Mentions of efficiency, cost-cutting, and automation have dominated recent corporate earnings discussions, according to Morgan Stanley analysts.
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Francis Scialabba

· 3 min read

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“Operational efficiency” is one of the biggest buzzwords in recent corporate quarterly earnings reports, according to Morgan Stanley analysts.

In a recent note, Morgan Stanley equity strategist Michael Wilson and team wrote that mentions of the phrase “operational efficiency” have skyrocketed in transcripts of recent earnings reports, with executives often focused on the kind of efficiencies they imagine will arrive from cutting costs and pivoting to AI.

The strategists wrote that “expense discipline” and “technologies that can drive future productivity like AI” were a major theme for executives across a range of industries. The report emphasized overlap between discussions of cost control and AI in several sectors, including the software industry, finance, healthcare, and professional services.

“Interestingly, the high operational efficiency factor has shown strong outperformance since AI became front and center for investors broadly last year,” the report continued. “We view operational efficiency as an extension of the quality factor, and are constructive on this cohort.”

Another note, from RBC Capital Markets strategist Lori Calvasina, stated that executives have also recently highlighted “the temporary nature of certain cost problems” and some predicted a rebound later in 2024, according to Bloomberg.

Last year, a MarketWatch analysis found that the amount of time devoted to AI discussions in corporate earning calls had skyrocketed, even in sectors where AI will likely have a minimal impact, like natural gas or Seattle’s real estate market.

Whether or not AI will translate into these hoped-for gains in productivity and efficiency in the short term remains unclear. For example, CIO.com reported that many executives have eyed cloud computing as an area for cutbacks, even as they brace for the substantial costs of running AI server farms. Researchers from MIT, the Productivity Institute, and IBM’s Institute for Business Value have projected it may be years or decades until AI development costs allow for profitable automation of a wide variety of tasks currently performed by humans.

A recent BCG X survey found that 89% of executives named AI and/or generative AI as one of their top three technology priorities for 2024, IT Brew recently reported, though the same survey found that 90% of respondents had launched only minimal AI initiatives or expected the tech to take at least two years to develop.

Around half of respondents to the BCG X survey said their organization had no clear investment strategy on AI yet. As for cost cutting, just 19% named expense as one of their top concerns with AI solutions, even though their price tag is key to AI’s commercial viability.

Top insights for IT pros

From cybersecurity and big data to cloud computing, IT Brew covers the latest trends shaping business tech in our 4x weekly newsletter, virtual events with industry experts, and digital guides.