The artificial intelligence (AI) revolution is here, and it's likely to have a broad impact on society.
As happens with every new wave of technology, some of the older ways of doing things will naturally become obsolete. We got a hint of this in May when Chegg, the online education company known for selling textbooks and helping students with their homework, said that its growth had slowed in part because ChatGPT was competing with it as a homework assistant.
Generative AI technology is also expected to have an impact on the labor force. A Goldman Sachs report recently said that as many as 300 million full-time jobs globally could be automated using large language models, generative AI, and similar technologies.
It also said that in the U.S. and Europe, about two-thirds of jobs were exposed to some type of AI automation, and as much as a quarter of all work could be completely done by AI.
While past technological advances and strategies like outsourcing affected mostly blue-collar jobs, now white-collar jobs seem to be at risk, especially in areas like content and document creation and tech-centric areas like coding.
One industry that looks threatened by the coming wave of AI is the staffing industry -- companies that make their money providing temporary labor. Such labor is often marginal, and staffing solutions tend to be more expensive on a per-hour basis than hiring someone directly as the company must pay the agency as well as the employee, but they are often the best solution for temporary staffing needs. Such workers are also generally the first to get cut in tough economic times.
AI seems likely to automate away at least some of this work, and one company at risk is Kforce (KFRC 0.20%), which provides labor for technology, finance, and accounting roles. The types of jobs it focuses on include IT, systems development, and even artificial intelligence, as well as financial planning, cost analysis, and taxation.
Kforce and AI
Many of the roles that are most threatened by generative AI are the ones Kforce specializes in such as coding/programming, finance, and data analysis.
Kforce management fielded some questions about AI on its recent first-quarter earnings call, but the responses mostly offered a positive spin about the new technology, with executives saying they see it as an opportunity. Management said the new AI tools would drive efficiencies and productivity, which could mean jobs being squeezed out of the marketplace.
Kforce is coming off the boom in demand for tech talent that occurred during the COVID crisis, and its revenue fell 2.6% year over year in the first quarter to $406 million, which was at the low end of management's guidance range. Profits fell more sharply as earnings per share dropped from $0.93 to $0.82. For the second quarter, its guidance calls for revenue and profits to fall again.
At this point, it's probably too early for ChatGPT to be having a direct impact on demand for Kforce's services, but that risk would grow in a recession. Already, many tech sector companies have instituted broad layoffs, a sign that they recognize that demand is slowing and that their workforces were already bloated.
The combination of that macro shift and the dislocation from generative AI technology seems likely to spell trouble for Kforce and its peers.
After selling off in the aftermath of its first-quarter earnings report, Kforce stock has gained by about 10% over the last month in line with gains in the Nasdaq as investors sense that the worst of the macroeconomic headwinds has passed in the tech sector and that the Fed is done raising interest rates. In the short term, the macro climate could have a greater influence on the stock than the impact of AI.
The impact of AI on the labor force is likely to be a gradual one as past technological disruptions have taken time. Keep an eye on the impact of generative AI on the labor force. If it starts to be successfully used to replace workers or reduce company workforces, Kforce is likely to struggle as demand for its staffing solutions fades.
