Beyond AI Naming Dropping: Why Mentioning AI 100 Times on Your Next Earnings Call Won’t Elevate Your Value. Here Is What Will.

New Series Launch: Navigating The Future.

As the discourse on generative AI and its implications on the market intensifies, investors are more interested than ever in the strategies and implementations being adopted by public companies.

While mentions of AI might have surged during earnings call reaching nearly 60 in a Q2 prepared remarks and over 175 times including Q&A, what truly matters is not the frequency of such mentions, but the tangible actions and foresight companies display in harnessing the technology.?

Incumbents like Google, Amazon, and Microsoft might dominate the discussions, but?real questions?remain.?How are they, smaller and new entrants, differentiating their AI offerings and ensuring they're not just hopping on the AI bandwagon, but genuinely revolutionizing their operations, services and future return profile and doing it in a way that optimizes capital allocations??

Critically to elevate their value, are they communicating using the Foundational Four, a Breakwater Strategy approach focused on providing the right information that inspires investors to assign a valuation beyond what the financial evaluation suggests.

1. Strategic Trajectory:?which includes the quality of the management team and organizational culture, how the company’s strategy is positioned to handle a range of scenarios across political, social, economic, technology and industry factors, strengths, weaknesses, opportunities and threats, organic and inorganic growth outlook, the quality of the company’s assessment of the strategic and operational risk environment and robustness of the mitigation plans and the quality and governance of the company.
2. Market Position: which includes the competitive landscape, broader industry cycles, current market share and opportunity for expansion, the strength of the brand, barriers to entry for competitors, sustainable advantage including innovation and R&D, stakeholder satisfaction levels, the legal and regulatory landscape and broader macroeconomic conditions globally and in key geographies.
3. Capital Structure:?which includes alignment between the business strategy and the portfolio of strategic initiatives and investment, financial flexibility, leverage and reliance on debt, changes in capital structure, stakeholder and creditor relationships, sensitivity of the company to the current or projected economic environment and equity dilution and control.
4. Performance Excellence: which includes the companies’ capabilities in strategy and operational execution, system for tracking and communicating progress towards annual and strategic goals including value from M&A, operating agility in adapting to changing market, legal and regulatory conditions and circumstances while maintaining and consistently delivering against quarterly, annual and multi-year financial commitments. Also includes operational efficiency and relativity of expense management to peers.

?By following this approach,?and integrating the?Foundational Four during the Q2 Earnings Call process and approach?companies can enhance their investor value proposition, build market confidence, and drive sustainable valuation growth overtime.

Under the lens of the Foundational Four, a clear approach emerges for companies looking to communicate how they leverage the power of AI to create value focusing on:

1. Strategic Trajectory:

Potential: Note the importance of Generative AI and its transformative potential.

Foundational: Describe the journey towards AI becoming a mainstream and foundational technology and not just a small piece of the future.???

Productivity: Focus onAI's ability to unlock productivity, democratize large datasets, and transform the way data is represented and understood in your business.

Management Quality: Highlight team expertise, prior successes, and commitment to ethical AI practices.

Leadership: Demonstrate leadership in navigating the AI landscape, especially given the challenges and opportunities presented.

Vision: Share the long-term vision for the technology's evolution and how it will shift the landscape over the next several years.

?The Power of Incumbency: For firms that have been active in AI, emphasize the advantages of being a current large player in the AI space (e.g., data access, scale, capital, computing resources).

Innovation and Disruption: Newer entrants should highlight their plans to differentiate from other competitors, particularly new disruptors.

2. Market Position:

Competitive Positioning: Understand and communicate the company's standing relative to incumbents like Microsoft, Google, Amazon, etc., and potential threats from these giants.

?Customer Experience: Describe how your AI solutions offer seamless, intuitive experiences in users' workflows.

?Data Moats: Highlight the company’s unique datasets and the advantages they bring.

?Differentiation: Highlight the unique selling points of the company’s AI solutions compared to competitors, especially in a market where many might offer similar AI capabilities.

?Adaptability: Emphasize the ability to adapt and execute amidst market changes, keeping pace with technological evolution.

Investment: Note the significant investment required to develop, implement, and scale AI solutions as a competitive advantage.???

Reach and Diversity: Show efforts in expanding AI services globally and catering to diverse populations.

3. Capital Structure:

Investment in AI: Communicate clearly the current and planned investments in AI in 2024 and beyond, especially if large expenditures are expected.

Monetization Strategy: Detail how the company plans to monetize AI capabilities and the expected timeline for returns on investment and relative to others in your capital allocation framework.

Transparency: Provide insights into how the company manages its financial resources to support AI initiatives without compromising other core business areas and the ability to drive margin expansion, or if margin reduction in near term, how that will be recouped strategically.

Risk Management: Address concerns about copyright infringement, data privacy, and potential regulatory risks and how you are mitigating them.

Partnerships and Collaborations: Showcase any strategic partnerships or acquisitions that strengthen the AI proposition and the use cases that enable your strategic trajectory

Long-term View: Give a clear explanation of how these investments will drive future revenue, despite potentially slow initial returns.

4. Performance Excellence:

?Execution and Leadership: Highlight leadership's role in successfully implementing and expanding AI strategies and their historical track record of executing on technological advancements and strategies.

?Ethics: Address the ethical concerns related to AI, such as privacy, data misappropriation, copyright issues, and potential misuse. Describe how you have embedded these approaches into your operational platform.

?Productivity Gains: Offer insights into how AI will improve company productivity, operational efficiency, and decision-making processes. Describe how this will impact the overall business architecture and enterprise technology architecture.

?Improved Decision Making: Showcase how AI solutions improve decision-making, access to data, and overall operational efficiency.

?Customer Retention and Growth: Discuss how AI will lead to higher customer retention, reduced churn, and opportunities for upsell and cross-sell.

Financial Outlook: Provide clarity on expected financial performance due to AI, including any anticipated near-term costs or long-term revenues and how that will impact your business performance.

Adoption Milestones: Celebrate significant milestones like user adoption rates to signify product success.

Data Usage: Describe how the company plans to use and protect user data, addressing concerns about privacy and misuse.

By focusing on these areas – the “Foundational Four,” companies can effectively communicate their AI strategy and vision, instill confidence in investors, and illustrate the potential for growth and value creation in the rapidly evolving AI landscape.