As Q2 earnings reports from nearly half of the stocks in the Nasdaq 100 Stock Index ($IUXX) (QQQ) are being released, a positive trend is emerging among tech company executives. According to a Bloomberg analysis, there is a noticeable shift in language used by tech executives during earnings calls with analysts and investors, with fewer mentions of words like headwinds, inflation, and recession. This shift in tone is seen as a positive signal for technology stocks and reflects growing optimism about a soft landing for the U.S. economy.
During this earnings season, technology executives in the U.S. are talking less about economic recession and more about the potential of artificial intelligence (AI). This shift in focus is seen as an encouraging sign for business prospects and profitability, as it indicates that the economy remains reasonably resilient. Forward-looking comments in conference calls suggest that further improvements in earnings are likely on the horizon.
While tech companies are becoming less concerned about potential economic risks, they are now eager to elaborate on how they plan to monetize new AI products and services. This includes discussions on selling software or manufacturing hardware to support AI applications, such as powering servers and cloud infrastructures. This marked contrast from last year's worries over macroeconomic concerns is contributing to the positive sentiment among technology stocks.
According to data compiled by Bloomberg, references to recession and related terms like economic slowdown have decreased by more than 70% this quarter in earnings calls compared to a year ago. This reduction in economic concerns is leading many analysts to question whether the U.S. economy will experience a recession at all. Federal Reserve Chair Powell's statement that staff economists on the Federal Reserve are no longer forecasting a recession further validates this view.
The easing of price pressures has also led tech executives to reduce their mentions of inflation headwinds. In Q4, inflation concerns were mentioned 70 times in conference calls, but in this quarter, it decreased to only 31 mentions. On the other hand, there has been a significant increase in the frequency of mentions of AI by technology executives. The term "AI" has been used 390 times already this earnings season, compared to only 92 times a year ago, with Nvidia (NASDAQ:NVDA) yet to report. Mega-cap tech firms like Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), and Meta Platforms (NASDAQ:META) are now prioritizing discussions about their AI pipelines and investment plans for developing this cutting-edge technology, shifting away from emphasizing economic concerns.
Overall, the optimism expressed by tech companies, along with their focus on AI, is driving a positive outlook for the sector. The reduced mentions of recession and inflation headwinds further contribute to the belief that the U.S. economy may be on a stable path, fostering confidence among investors and industry analysts alike.