Growing AI optimism among CFOs
UK CFOs are upbeat on investment in digital technology and AI's productivity-enhancing powers.
The latest Deloitte CFO Survey, released today, shows that chief financial officers are increasingly more optimistic about the potential for AI to improve their own businesses' performance. Almost three-quarters report an improvement in optimism on AI over the last 12 months, the highest reading since we began asking this question in 2024.
An overwhelming majority say investment in digital technology and assets by UK businesses will rise over the next five years and nearly three-quarters expect an improvement in productivity and business performance over the same period. With many corporates now well into their AI deployment programmes, a sizeable proportion of respondents also expect productivity gains over the coming 12 months.
This quarter we also asked CFOs to assess key drivers of demand for graduates. They reported a wider business impetus for cost control as the biggest hindrance to graduate hiring in the past and next 12 months, ahead of artificial intelligence. They expect the use of AI and outsourcing to be the second and third-biggest dampeners of demand for graduates over the next 12 months.
This edition of the survey saw an easing in CFO perceptions of uncertainty. 47% now rate the level of external financial and economic uncertainty as high or very high, below the post-pandemic average and well below readings in the summer of 2022, after Russia’s invasion of Ukraine. Reduced uncertainty has fed through to relative improvements in sentiment and risk appetite.
CFOs continue to assume a defensive strategy stance though, with cost reduction and cash control their top two priorities for the coming 12 months. There is a discernible tilt away from defensive strategies, with a softer focus on cost control and reducing leverage in this edition of the survey. In keeping with improved risk appetite, CFOs are placing greater emphasis on introducing new products or services, or expanding into new markets, and on making acquisitions.
The global economy has, so far, weathered the shock from the war in Iran better than many had feared. Corporate sentiment and strategies seem to be responding to this relative resilience. Geopolitics remains the top risk facing businesses although concerns have eased somewhat. Worries about the domestic economy persist. CFOs rate poor UK productivity and weak competitiveness as the second biggest risk, assigning it the highest risk rating since we began asking this question in 2014.
Chart of the week
Earlier this month, we discussed the key trends in asset markets in the first half of the year. One of which was the star performance of the firms building the infrastructure required to support the AI boom.
We cited chipmakers as a clear example of this ‘picks and shovels’ investment approach - the share price of South Korean chipmaker SK Hynix had more than quadrupled this year (before recently losing some of those gains along with other semiconductor firms). However, this theme extends beyond chipmakers.
Howmet Aerospace is one of only four western producers of specialised blades used in gas turbines, and it estimates its market share to be over 50%. These turbines are increasingly being used in energy-hungry AI datacentres, to supplement grid-supplied power or temporarily bypass the grid. The company has seen a near eight-fold increase in its share price in the past five years. Growing demand for turbine blades for use in jet engines, from the airline and defence industries, is also likely to have boosted Howmet’s appeal among investors.
What we're looking out for this week?
On Wednesday, the Office for National Statistics will release its estimate of inflation for the year to June. Inflation fell from 3.3% in March to 2.8% in April and held steady in May. A cut in the Ofgem’s energy price cap announced just before the war in Iran began in February, became effective in April, lowering energy bills for households.
Therefore, the impact of higher global energy prices is expected to feed through to bills only from July, when the quarterly energy price cap rose. As a result, economists expect a slight easing of inflation in June before it accelerates through the summer months and early autumn, due to higher energy bills and the continued pass through of higher energy prices to other consumer goods and services.
This, alongside the ONS's labour market update for May that is released tomorrow, will be closely watched by the Bank of England's Monetary Policy Committee ahead of next week’s interest rate decision.
And finally...
Next term, students in a New York school will be greeted by a humanoid AI learning robot. Named Sally, the robot will have a lifelike appearance and be used as a classroom assistant to provide personalised support for each student - machine learning