Australian investors are noting a significant trend in corporate earnings calls: a surge in references to artificial intelligence. Goldman Sachs reports that around 60 per cent of Australia’s 200 largest companies mentioned AI during the recent August earnings season. However, only a dozen provided specific figures on their AI usage or its financial impact. This widespread talk is partly attributed to executives responding to analyst questions, but also reflects a strategy to appeal to systematic trading firms that scan for buzzwords, aiming for a perceived share price premium, according to RBC Capital Markets’ Karen Jorritsma.
This phenomenon has raised concerns about “AI washing,” where companies may exaggerate their AI capabilities. Plato Investment Management found that 32 per cent of S&P/ASX 300 companies used AI buzzphrases without reporting any linked metrics or receiving analyst questions on the topic, a notable increase from 15 per cent in 2022. Kitchen appliance maker Breville Group, which designs, develops, and distributes premium kitchen small appliances globally, caught Plato’s attention. Despite its CEO devoting significant time to an “AI transformation” during an earnings call, analysts did not ask any AI-related questions, and the company’s net profit barely moved. Plato has been shorting Breville since March.
Beyond AI, Morningstar notes an even faster surge in references to data centres, up 90 per cent year-on-year. Market strategist Lochlan Halloway suggests this focus on AI infrastructure is due to its more tangible revenue generation compared to potentially distant AI efficiency gains. Even companies with seemingly little connection, such as glove maker Ansell, general insurer QBE Insurance, and iron ore giant Fortescue, have been questioned about data centre exposure. Morningstar has, however, trimmed fair value estimates for some companies “running fastest towards this hot theme,” including Goodman Group, citing the risk of capital misallocation in this “craze.”
