AI and the Investment Power of Sales Per Employee

Its impact on employment is among the most widely discussed potential consequences of the AI revolution. But will this shift have a meaningful effect on investing? I believe it already does.

A recent Bloomberg article by Walter Frick highlights a telling trend: startups are increasingly succeeding with lean teams. Low headcount has become a strategic advantage, and AI is at the center of that shift. Companies can scale without expanding their workforce as AI takes on more operational functions. This makes sales per employee the new holy grail—a metric that captures both productivity and efficiency in the AI era.

Keeping teams small is now a deliberate goal for startups, elevating sales per employee to a critical performance measure. But the trend extends beyond startups. A recent Barron's article by Ben Levisohn notes that AI's soaring demand for power is reshaping the energy sector, positioning even traditional oil majors like Exxon and Chevron as unexpected AI beneficiaries. In fact, according to our data, sales per employee has become an important signal for energy stock performance.

Clear evidence of this broader dynamic appears in the S&P 500 Growth Index. In this group, sales per employee has become one of the most potent drivers of stock returns. Over the past three years, it has delivered an annualized risk-adjusted factor return of 1.6 and an even stronger 2.1 over the past year, outpacing competing factors. The chart showing cumulative factor returns for a monthly rebalanced long-short portfolio based on sales per employee highlights a clear turning point in early 2023, coinciding with the rise of AI adoption.

What's striking is the broader transformation: a metric once associated with nimble startups is now driving performance in large-cap growth stocks. This reflects more than an operational shift—it marks a strategic one. As AI reshapes how companies scale, sales per employee is emerging as a powerful signal for investors, translating operational efficiency into market outperformance.