The Dawning of the ‘Profit Productivity Era’

Large cap growth stocks are poised to continue their leadership, driven by disproportionate Artificial Intelligence (AI) tailwinds, particularly strong ‘Magnificent 7’1 (‘Mag 7’) fundamentals and the ‘profit productivity’ driver. Whereas economic productivity is output per hour worked, the term ‘profit productivity’ refers to profit per hour worked. And since stocks are fractional ownership in companies’ profits, ‘profit productivity’ improvements are very good news for investors of large cap growth stocks. 

‘Profit productivity’ was born from the ashes of an extended period of zero interest rate policy (“ZIRP”) and Silicon Valley venture capital group think around growth at any cost. In 2022, when the cost of money normalized, the markets sent a strong message to public company CEOs and venture capitalists to run the companies more efficiently and to focus on scaling up profits, not just revenue. The silver lining of the heavy investment period is that it left many large cap growth companies with enviable competitive positions from which to begin a period of sustained profit monetization. Some extreme examples include Spotify and Uber, which secured competitive moats but reported significant operating losses during ZIRP and have since changed course. We believe there is a long runway ahead for this new era. Even venture capitalists have pivoted toward profitable growth – and the new mindset has gone viral.