24.03 Liontrust Global Innovation Report - The Rise of AI 04.24 - Flipbook - Page 25
FROM GROWTH TO PROFIT
Returning from Silicon Valley in October 2022, we were struck by the number of companies
we met refocusing their businesses on profitable growth after years of growth at all costs.
Nasdaq 100 & MSCI World earnings per share growth Q2 2022
to Q1 2023
This was a seismic shift in the narrative of management, and a
necessary one: 2022 was bruising for technology companies who
were faced with the sharpest interest-rate hiking cycle in history
combined with a climb down from unsustainable Covid-induced
demand. Indeed, earnings per share growth for the Nasdaq
witnessed a 30% peak-to-trough decline in the 18 months leading
up to the first quarter of 2023, while the MSCI World index posted
growth of 4%.
10%
10
4%
5%
5
0%
0
-5%
-5
-1-10
0%
-1-15
5%
-2-20
0%
-2-25
5%
-30%
-30
-30%
-35%
-35
Nasdaq 100
MSCI World
Source: Bernstein, data as at 31.01.24.
This marked a recession in the technology sector, well ahead of any broader economic weakness. Simply put, technology companies are
first in, first out. The technology sector is now firmly in recovery mode and companies have wasted no time in rationalising their cost bases,
becoming leaner and more profitable. We have seen over half a million job cuts sector-wide, the optimisation of sales and marketing
expenses and prioritisation of R&D projects.
Tech job losses (000s)
120
109
100
80
56
60
51
52
45
40
20
14
17
17
Dec-23
15
Nov-23
15
Jan-24
Oct-23
May-23
Apr-23
Mar-23
Feb-23
Jan-23
Dec-22
Nov-22
Oct-22
Sep-22
Aug-22
Source: Nvidia and Liontrust (2023)
Source: Bernstein, data as at 31.01.24.
Jul-22
Jun-22
11
May-22
6
Apr-22
Jan-22
8
Mar-22
1
6
Feb-22
1
Dec-21
20
32
31
24
21
Sep-23
22
Aug-23
29
Jul-23
23
Jun-23
40
0
51
Now in 2024, we are starting to see the impacts of this shift come through in improved operational efficiency. The key question we are now
asking is whether pivoting to profit sacrifices a company’s ability to grow. Does the customer value proposition remain intact when investment
dollars are stripped away? We believe that innovators who have not just cut costs but are finding more productive ways to achieve similar
growth are excellently positioned to capitalise on the new technology cycle we have just entered.
Past performance does not predict future returns.
The rise of AI: Technology and Innovation Report - 25