The white collar decline is well underway.
After nearly a decade of six-figure salaries, cushy jobs and lavish office perks, Silicon Valley companies are finally cutting back. Almost 90,000 tech workers will be laid off in 2022 alone. This year isn’t off to a great start either. On January 5, Amazon announced 18,000 job cuts.
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And now, SEC filings show that Microsoft plans to cut 10,000 jobs by the end of the third quarter.
Things aren’t much better for those who have (so far) avoided the cuts. Countless tech companies, private and public, have watched their valuations decline over the past 12 months.
And now, the Financial Times reports, a number of panicked laid-off workers are “flooding the secondary markets” with shares in their former companies. Which means those valuations are likely to drop further.
Here’s what it could mean for your portfolio and where you can apply.
Tech turns around
Record low interest rates in the last decade have prompted more investors to seek risky investments. Harmful tech companies were probably the most dangerous place for this excess cash. Tech valuations have soared since 2020, allowing startups and tech giants to use their inflated stock as a way to retain talent.
Technical employees were paid excessive stock-based compensation. In fact, some companies like Snap and Pinterest paid out as much as 46% of their total compensation in the form of stock options. This boosted total compensation for tech workers during the boom, but is now having the opposite effect as valuations plummet.
Invesco QQQ Trust ( NASDAQ:QQQ ) , a fund that tracks technology stocks, is down 22.7% over the past 12 months. Meanwhile, private companies have also seen their valuations drop by as much as 80%. Employees of these firms are rushing to cash in on secondary markets, according to a recent Financial Times report.
Companies struggling to turn a profit have been the biggest losers so far. Morgan Staney’s index of loss-making companies has fallen 54% over the past year. Many of these money-losing companies have seen their valuations settle to pre-pandemic levels.
Looking ahead, some experts believe valuations will not recover until the Federal Reserve decides on its interest rate strategy. Lower or stable interest rates can make risky tech stocks more attractive. However, this is unlikely to happen until late 2023, according to interest rate swaps.
Until then, investors should probably focus on high-yielding tech companies that have been unfairly punished in this crash.
Adobe ( NASDAQ:ADBE ) has lost 31% of its value over the past year. The company has underperformed the broader market by a wide margin. However, the business behind it is still thriving.
The company reported revenue of $17.61 billion for fiscal 2022, up 12% from last year. And in September, the company acquired the Figma design platform, which expands Adobe’s suite of core design tools.
The company is also tapping into the upcoming AI boom by tracking how its users use core tools and integrating OpenAI tools with Figma.
Shares are trading at a price-to-earnings ratio of 33.9.
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Microsoft ( NASDAQ:MSFT ) is also getting in on the AI boom. The company was an early adopter of OpenAI and now has access to ChatGPT for its Bing search engine. The integration could be completed as early as this year, which means the online search market is on the verge of disruption.
But none of this is reflected in the stock price. Microsoft has lost 21% of its value over the past year. It now trades at just 24.5 times earnings per share.
The world’s most profitable tech company certainly deserves a mention on this list. Apple ( NASDAQ:AAPL ) posted earnings of $6.11 per share in its most recent quarter, up 9% from a year ago. The company is expected to launch a new virtual reality headset this year and continue its supply chain migration from China to India.
Apple shares trade at 21 times earnings, making it an ideal target for investors in 2023.
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This article provides information only and should not be construed as advice. Provided without any kind of warranty.