Earnings Takeaways: Q4 2023

Here are the latest insights from Goldman Sachs Research on the key issues facing company managements.

As we near the end of the fourth quarter 2023 earnings season, Goldman Sachs Research analyzed company earning calls to gain perspective on key issues facing company managements. 

Over the last quarter of 2023, three key themes emerged from the calls: artificial intelligence (AI), supply chains, and the labor market. Here are the takeaways.

Earnings are better than expected

As of mid-February, around four-fifths of companies listed in the S&P 500 had released their Q4 earnings results, collectively representing 80% of the index’s market cap. Among these companies, 79% exceeded analyst estimates, while only 18% fell short of expectations. 

Key themes heard on company earnings calls

Our Research colleagues analyzed company conference call transcripts from 120 companies, and the following are the key themes that have emerged from the calls: 

1. Artificial intelligence: Companies highlighted AI’s potential to enhance productivity, reduce costs, and enrich product offerings. Others also noted that they are seeing a notable uptick in demand for AI-related solutions. On the earnings calls, 36% of S&P 500 companies mentioned “AI”, marking a new high with a particular increase from the energy sector. Unsurprisingly, the information technology sector had the highest proportion of companies mentioning AI, with 85% of them discussing the new technology.

   Companies anticipate capital expenditure and research and development spending to likely rise in the near term as they ramp up AI investments. Goldman Sachs economists estimate that investments in AI will approach $100 billion in the US by 2025.

2. Supply chains: Discussions around disrupted supply chains have lessened since the peak in late 2021 and 2022, but focus remains elevated relative to pre-pandemic levels. Commentary mostly centered around how companies have improved supply chains following pandemic-era bottlenecks; 42% of S&P 500 companies mentioned supply chains during their Q4 2024 earning calls, compared to 70% at the peak in early 2022.
3. The labor market: Commentary on the state of the labor market remains mixed. While the proportion of companies discussing layoffs increased during Q4 earnings calls, reaching approximately 6% of S&P 500 firms, this figure is notably lower than the peak of 14% seen in mid-2021. Despite these discussions, jobless claims continue to remain low, and January’s nonfarm payrolls growth came in much stronger than expected.

   This quarter, several companies have addressed persistent challenges in hiring. Yet, on a broader scale, company commentary indicates a more balanced labor market compared to the historically tight conditions experienced in 2021.