Key Points

The report highlighted that among 44 S&P 500 companies in its sample, managements reported a median operating cost reduction of 1.5 per cent, along with efficiency gains averaging an impressive 24 per cent.

HSBC noted that if AI adoption across the S&P 500 can deliver an aggregate 1 per cent cost saving, a scenario it considers viable, it could offset nearly one-quarter of the burden from a 20 per cent effective tariff.

It stated "Tariffs are a headwind for margins but could also be a catalyst for companies to rapidly adopt AI for cost savings"

The report highlighted that one of the big stories in the coming months will be how wider adoption of AI will support corporate margins and earnings per share (EPS) growth, while also providing an underappreciated offset to the tariff shock currently weighing on US companies.

It compared the potential impact of tariffs on corporate innovation with the COVID-19 pandemic, which had acted as a structural catalyst forcing companies to rewire their operations.

"Just as COVID-19 forced companies to adapt and innovate, tariffs may provide an impetus for broader AI adoption," HSBC stated.

Evidence also suggests that AI adoption among US companies has already begun to accelerate.

The report stated that the Census Bureau survey data showed that since President Donald Trump's election victory, the share of firms reporting AI usage has increased by 50 per cent, rising from 6 to 9 per cent.

However, HSBC also pointed out that this figure likely underestimates adoption among larger companies. In fact, 60 per cent of S&P 500 firms mentioned using AI in their business during their second-quarter earnings calls.

While the acceleration in AI adoption has been encouraging, it has also raised concerns that the push may be driven by companies looking to displace and reduce labor costs.

Labor remains a substantial component of expenses, accounting for 17 per cent of the total operating costs of S&P 500 companies.

The burden is even higher in specific industries, such as software services, where labor makes up 51 per cent of costs, and in commercial, professional, and consumer services.

These sectors are seen as particularly ripe for automation through AI, according to the report.

So the report outlined that the recent surge in AI adoption may mark a concentrated effort by corporates to manage costs and shield themselves from the tariff shock, while simultaneously reshaping operations for the future.

- ANI