What are we looking for?
Companies benefiting from automation through increasing efficiency.
The screen
AI and automation are dominating conversations for companies and investors alike. While early adoption focused on automating blue-collar tasks through robotics, the next wave could affect white-collar jobs, such as administrative assistants, marketing managers and engineers. Companies that get ahead of the curve will benefit from boosted efficiency from reassigning employees to higher-value functions such as overseeing AI models or building person-to-person relationships with customers, something that AI cannot replicate.
Using FactSet’s screening tool, I identified companies that are set to benefit from the adoption of AI by applying the following criteria:
- Market capitalization greater than US$10-billion.
- Sales per employee greater than US$500,000, setting a high baseline for operational efficiency.
- Year-over-year increase in sales per employee and gross profit margins, indicating improving productivity.
- Year-over-year increase in capital expenditures and research and development, suggesting growing investments in technology and innovation.
- Traded on the S&P 500 index.
The six remaining companies were ranked by sales per employee.
What we found
Five of the six companies that passed our screen operate within the technology sector, which is unsurprising given their leadership in the AI revolution. Tech companies, which predominantly hire white-collar workers, are poised for substantial disruption as AI capabilities advance. There is still ample opportunity to unlock further efficiencies and drive productivity gains. Heading the list were two techs.
Netflix Inc. NFLX-Q, a leading content and entertainment producer, topped our screen with an impressive US$2.8-million in sales per employee. Netflix stands out in AI and automation by leveraging customer data to power its recommendation engine, curating content and marketing strategies, and enhancing streaming quality through data centre investments. While its sales per employee is impressive, Netflix allocates a smaller proportion of sales to R&D and capital expenditures – potentially owing to the substantial costs of producing and licensing creative content – which pushes gross margins down to 45.9 per cent. There is ample room for AI to help drive these margins upward.
Meta Platforms Inc. META-Q, a social-media and technology giant, ranked second with US$2.2-million in sales per employee. The company is placing significant bets on emerging trends such as augmented reality, the metaverse, Meta AI and its proprietary large language model, LLaMA. These strategic bets explain why Meta leads our screen in capital expenditures as a percentage of sales at 22.6 per cent and ranks second in R&D spending at 24.5 per cent. Recently, chief executive officer Mark Zuckerburg stated on Meta’s earnings call that it will continue investing “hundreds of billions of dollars” in AI infrastructure over the long-term, positioning it well to hold its position as one of the world’s AI leaders.
The information in this article is not investment advice. The author assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.
Disclosure: The author personally owns shares in Meta, Google parent Alphabet Inc., Netflix and Advanced Micro Devices Inc.
Arjun Deiva, CFA, is an MBA candidate at the University of California, Berkeley, Haas School of Business.
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