As more companies look to present an AI strategy to impress investors, PayPal (PYPL) and IBM (IBM) have joined their ranks this earnings season, showing how they will use AI to advance their business models.
Paypal argues the advancing AI landscape will increase the company’s efficiency going forward.
On the company’s earnings call PayPal CEO Dan Schulman said, “We expect A.I. will enable us to meaningfully lower our costs for years to come. Furthermore, we believe that A.I., combined with our unique scale and sets of data, will drive not only efficiencies, but will also drive a differentiated and unique set of value propositions for our merchants and consumers.”
Although Schulman did not say outright that the impact of AI would primarily be allowing the company to cut costs by laying off workers, analysts note that his call came just one week after IBM CEO Arvind Krishna said in an interview with Bloomberg that AI might allow his company to replace 8,000 workers, by using an AI system which could handle simple tasks, like moving employees between departments
Unfortunately simply citing the potential for AI to improve margins has not been enough to support stock prices in this market. Since IBM announced it might replace 8,000 jobs with an AI system, its stock has been down. At PayPal, its shares are off 10% over worries about its outlook for margin growth.
In new research, Bank of America found that mentions of AI in earnings calls were up 64% compared to a year ago, however the effects of stock prices are more variable.
At companies like Alphabet (GOOG) and Microsoft (MSFT), where they plan to use an AI product to sell other businesses, the technology appears relevant and profitable to investors. Companies like Nvidia (NVDA), which are powering AI with services and hardware are particularly benefiting, as its shares have risen 100% during the boom in AI.
PayPal’s pitch for AI is perfectly timed to this moment in the tech sector however, as layoffs are happening everywhere, and companies like Meta Platforms (META) are talking of a “year of efficiency.”
Schulman was particularly quick to refer back to AI when faced with a question during the earnings call which asked how costs and operating expenses could be reduced, looking beyond 2023.
He said, “You’re going to see our costs continue to come down year-over-year-over-year. And this is not just about efficiencies, by the way. It’s not about just cost reduction. This is about doing things better. I think there’s no question that A.I. is going to impact almost every function inside of PayPal, whether it be our front office, back office, marketing, legal, engineering, you name it. A.I. will have an impact and allow us to not just lower costs, but have higher performance and do things better.”
