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Software is the best performing sector for qualitative growth, catapulted by artificial intelligence and a strong earnings season.
Morgan Stanley analysts in a report on US equity strategy analyzed the breadth of last week’s performance and the breadth of earnings revisions across sectors the software proved to be the strongest.
The sector, analysts say, continues to stand out as a leader within the quality growth pack.
“As earnings season has progressed, we have seen a renewed focus from companies on operational efficiency,” the analysts wrote.
In earnings transcripts, references to “operational efficiency” are at an all-time high as companies focus on expense discipline but also invest in technologies, such as artificial intelligence, that could boost productivity.
“There is a fair amount of overlap between the industries that discuss operational efficiency the most and those that discuss artificial intelligence,” the analysts noted. “These groups include software, professional services, healthcare services and financial services.”
High operational efficiency showed strong outperformance as interest in AI became more evident during the second quarter of 2023. Operational efficiency, MS analysts say, is an extension of the quality factor to benefit of these sectors.