Remote or hybrid work has become the new normal for millions of people. We are only just starting to see the impact.
4 min
The fivefold increase in working from home ushered in by the pandemic is perhaps the largest change to hit U.S. labor markets since World War II. It has touched just about every manager in America, reshaped industries including real estate and business travel, and led to an exodus from city centres to the suburbs.
And working from home is here to stay—at least in a hybrid model where a commute to the office is limited to just a few days each week. Tracking detailed survey data, we see working-from-home levels were rapidly dropping from 2020 to 2022. But by early 2023 they stabilised and have remained flat ever since. Hybrid working has become the new normal for millions of professionals and managers across America.
So, it’s time to tally up the impact. Looking ahead to 2024 and beyond, who are the biggest winners and losers from the work-from-home revolution?
The biggest losers are likely city-centre office and retail property owners. The massive shift to home working has created a doughnut effect in major cities around the world. Millions of employees are no longer commuting every day, leaving many offices half-filled and retail stores struggling for customers. The owners of this real estate—often pension funds, family firms and endowments—have collectively lost hundreds of billions of dollars of investments.
In the long run, the sector will slowly recover as supply contracts. New construction has slowed, some empty buildings are slowly being converted to residential accommodation, and some lower-quality offices will be torn down. But recovery will take years to complete. Winter has come for the office sector. One forecast that a major leasing company shared with me was it would take until 2033 for occupancy to recover to pre pandemic levels in San Francisco—perhaps the hardest hit city.
Another loser has been mass-transit rail systems. Ridership has dropped by 30% nationally as commuters shift from a five-day commuting schedule to two or three days a week. These commuter rail systems have high fixed costs due to inflexible track and train costs, alongside rigid union-controlled labor expenses.
Large drops in ridership revenue translate into larger budget deficits. To date these deficits have been bailed out by pandemic-era federal and state subsidies. But the fear is unless public transit costs can be right-sized, once these subsidies run out they will see devastating service cuts or outright closure.
Growing up in Britain, I heard about the infamous Beeching cuts of the 1960s, which cut station numbers by 55% and devastated rail travel. I fear something similar happening to U.S. transit for 2024 and beyond unless operators and unions can align cost with revenues.
The third big loser has been big cities. American cities occupy surprisingly small spaces. For example, San Francisco is less than 50 square miles, comprising just the tip of a peninsula. So, when city-centre residents fled for the suburbs, they took their tax dollars with them.
As we know from the experience of New York in the 1970s, cities can adjust by cutting expenditures. But this will be painful and risks a hollowing out of city centres if key services like police and education are cut. Indeed, bond markets have already cut the prices of many city municipal bonds, providing an ominous signal of the budgetary struggles ahead.
It isn’t all gloomy, particularly for the biggest work-from-home winners: the workers. In national surveys, employees report they value the ability to work from home two or three days a week as much as an 8% pay increase. Multiplied across the roughly 70 million Americans who are currently working from home, this is a perk valued at roughly $500 billion a year. This vast dividend has benefited employees through less commuting and lower stress, alongside more personal, leisure and family time.
One recent study highlighted how the typical U.S. home-working employee spends 40 minutes more a week on child care from the time saved from avoiding the daily commute. This will have longer-run effects ranging from higher labor-force participation rates—possibly pushing up growth rates—to potentially even a fertility dividend as parenting becomes somewhat easier.
Another winner is the environment, thanks to reduced travel and energy needs. A recent study found working from home two days a week reduces pollution by about 15%. This comes from lower commuting emissions alongside additional savings from lower office energy bills. A double dividend is the reduced congestion on emptier roads, with traffic speed data from Inryx suggesting the morning commute is 10% faster.
And perhaps the biggest work-from-home winner are companies. Research finds that hybrid working three days a week in the office has a net neutral on employee productivity, while allowing firms to save on recruitment and retention costs. Firms can save money by trimming office expenses while using remote working to lower labour costs by hiring employees outside major cities.
U.S. firms made about $1 trillion higher profits in 2022 than in 2019, an increase of almost 50%. While many factors likely contributed to this, including the strong economic growth, it is notable this happened alongside the fivefold surge in working from home. Indeed, the mass adoption of hybrid working by millions of firms across the U.S. and Europe is perhaps the strongest evidence of its positive impact on profitability.
Looking further out, the biggest change will almost surely come from the new technologies we use to work remotely. When I first started working in the 1990s, working remotely meant conference calls and emailing files. Now we telecommute and share files on cloud networks.
The future likely heralds similarly large changes. In discussions with startups and tech firms, I hear about systems for holographic meetings, wall-size screens and global connectivity. This technology means working from home hasn’t just stabilised but is now moving into its longer-run phase of expansion. Ten years from now we will look back at 2023 as the beginning of the long bull market in hybrid working.
Nicholas Bloom is a professor of economics at Stanford University.
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Nvidia’s earnings will test Wall Street’s confidence in the AI boom.
3 min
Chip makers are fighting to assure investors that the artificial-intelligence boom is racing forward. Wall Street might not believe it until Nvidia’s NVDA -0.98%decrease; down pointing triangle Jensen Huang says so.
When Huang steps up to the mic for his company’s earnings call Wednesday, he will have the world’s attention. What he says about Nvidia’s present will preview the future of AI, dictate the path forward for a tech-crazed stock market and influence an American economy increasingly tethered to hopes that the boom won’t go bust.
The $5 trillion chip maker has provided the key building blocks for AI since the launch of ChatGPT in 2022 set off a race for dominance among OpenAI, Anthropic and established Silicon Valley giants. Now, as Nvidia backstops sprawling data-center projects and an exotic money pipeline to boost chip demand, the company’s influence is arguably bigger than ever.
But there are signs of trouble ahead. Political pushback to AI is growing. A bond selloff propelled borrowing costs to their highest levels in years. The hyperscalers that include some of Nvidia’s key customers—once cash-printing machines—are relying more on debt. OpenAI recently told investors its revenue rose by a tepid 18% in the second quarter while its losses deepened.
Nvidia is increasingly stepping in to shore up potential weak points across the market. Earlier this month, the company teamed up with six of Wall Street’s biggest firms on a $500 billion AI-financing plan, pledging to backstop lending to customers that can’t afford its chips otherwise. The chip maker last week also took a stake in Cloverleaf Infrastructure, which arranges power for data centers, and struck a $6 billion deal with startup Poolside aimed at developing a powerful open-weight AI model.
After watching shares in other chip makers and the so-called Magnificent Seven tech companies swing wildly in recent months, Wall Street is hoping Nvidia can beat expectations—again. The countdown is on.
“It’s kind of becoming more and more like the World Cup final than the Super Bowl at this point,” said Brian Mulberry, chief market strategist at Zacks Investment Management. “It’s just gotten to be that big.”
The company has smashed analysts’ earnings estimates for each of the 14 quarters since the AI boom kicked into high gear. Nvidia posted 210% annual growth in net income in its last three-month period, according to FactSet, making Wall Street’s 126% projection look pedestrian.
Expectations for a blowout second quarter have risen rapidly over the course of this year. All Nvidia will have to do to beat this target: outrun 95% annual earnings growth to more than $51.5 billion. Analysts project the chip maker will report record sales of $92 billion for the period, up from a forecast of $78 billion at the start of this year.
In July, big-tech earnings sparked volatility. Concerns about runaway capital spending spread across the sector after Alphabet’s and Tesla’s results, driving a $890 billion wipeout that contributed to the unwind of hedge fund Situational Awareness. Microsoft posted the largest one-day gain in market capitalization by any company, ever, after a quarter proving that it could still show investors the money. SpaceX rocketed higher after a record-breaking initial public offering, only to see $1 trillion in value evaporate.
Surging memory prices and borrowing costs have fueled fears that those and other companies will be unable to keep plowing more money into supplies including Nvidia chips. Shaia Hosseinzadeh, founder of OnyxPoint Global Management, has recently bought dips in AI-infrastructure stocks when Wall Street has strained to absorb massive debt issued by Silicon Valley.
“The macro data is really quite robust,” he said. “Of course, there’s a level at which everything breaks.”
Investors have kept pumping money into the AI trade despite concerns around chip consumers—and to the benefit of chip producers. That is why Nvidia’s outlook for semiconductor demand could send ripples through counterparts such as Micron Technology and Sandisk, developers of the data centers in which their chips reside, and a supply chain of power producers, contractors and other specialists that underpin the globe-spanning AI build-out.
“We joke internally that we’re all Nvidia analysts now,” said David Lefkowitz, head of U.S. equities at UBS Global Wealth Management.
The irony is that investors have tended to sell Nvidia stock immediately after blockbuster earnings, with shares falling each trading session after its four past quarterly reports. Some are betting that will be the case this time around, too.
The options market is pricing in a 5.3% swing, higher or lower, in Nvidia shares during the session following earnings, according to Option Research & Technology Services. That is higher than the 4.8% average move in Nvidia’s stock over the last 12 months after the company reports quarterly results.
In recent days, some of the most actively traded Nvidia options have been put contracts tied to the stock falling from its Friday value of $214.75 to $205 and $210 apiece, according to Cboe Global Markets data. Put options give the right to sell a stock by a set price and typically represent a bearish wager.
Many analysts remain optimistic. Frank Lee, global head of tech hardware and semiconductor research at HSBC Global Investment Research, recently raised his price target for Nvidia shares to $360 from $325, citing, among other things, Nvidia’s strategic partnerships with suppliers and its role as a top contributor to open-source AI.
