What’s Next For AI Spending?
A quick note today about some emerging trends and how they may impact AI’s growth trajectory.
It’s hard to avoid the confusion that Walmart caused with comments on US consumer spending. The headline is that deflation is coming, and the company plans to reduce the cost of the staples it sells. That part’s straightforward, but what came next is more complex.
In October, Walmart saw reductions in spending, and in November, customers began spending on discretionary items again after a long pause on that spending category. Is this good or bad? Overall, investors think it’s bad for Walmart, and shares fell a little over 7%.
Macy’s earnings report was strong on margins, but sales declined by 7%, and it expects that decline to continue. The margin improvements were due to less discounting. The company was able to manage inventory levels better, so it didn’t have to put as much merchandise on the clearance rack. Is this good or bad? Again, investors think it’s good for Macy’s, and shares are up 6%.
The trend is uneven, and technology is no exception. The amount businesses spend on tech is expected to remain flat or rise slightly. In its uneven swings, retail exposes how there will be winners and losers in technology.
When the economy is growing, budgets grow as well. In the current economic conditions, budgets are mostly stable. This year’s technology budget will be around the same as last year’s for most companies. It’s the same for households. As the cost of staples comes down, consumers will have more to spend on discretionary items, pay down debt, or save. For companies, the cost of everything tech is rising, not falling. The same budget buys less this year than last.