The white-collar recession is in full swing.
After nearly a decade of six-figure salaries, cushy jobs and extravagant office perks, Silicon Valley companies are finally cutting back. Almost 90,000 technical workers were laid off in 2022 alone. This year isn’t off to a great start either. Amazon announced 18,000 job cuts on January 5th.
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And now, SEC filings show that Microsoft plans to lay off 10,000 employees by the end of the third quarter.
Things aren’t much better for those who have (so far) escaped layoffs. Countless tech companies, private and public, have watched their valuations plummet over the past 12 months.
And now, the Financial Times reports that a number of panicked laid-off workers are “flooding the secondary markets” with their shares in their former companies. Which means these valuations are likely to drop further.
Here’s what that might mean for your portfolio – and where you might want to go.
Record low interest rates over the past decade have prompted more investors to seek out risky investments. Perhaps the riskiest place for that excess cash is tech companies, which are incurring losses. Technical ratings soared Since 2020, which has allowed startups and tech giants to use their inflated stocks as a way to retain talent.
Tech workers have been overpaid in stock-based compensation. In fact, some companies like Snap and Pinterest have paid out up to 46% of their total compensation in the form of stock options. Boost this total compensation for Tech workers during the boombut now has the opposite effect with lower ratings.
The Invesco QQQ Trust (NASDAQ:QQQ) — a fund that tracks tech stocks — is down 22.7% over the past 12 months. Meanwhile, private companies have also seen their valuation drop sharply, by as much as 80%. Employees of these companies are quick to take advantage of secondary markets, according to a recent report by the Financial Times.
Companies struggling to turn a profit have been the biggest losers so far. The index of loss-making companies compiled by Morgan Staney is down 54% over the past year. Many of these loss-making companies have seen their valuations stabilize at pre-pandemic levels.
Looking ahead, some experts believe valuations won’t recover until the Fed puts its focus on it interest rate strategy. Low or flat interest rates may make risky technology stocks more attractive. However, this is unlikely to happen until late 2023 at the earliest, according to Interest Rate Swaps.
Until then, investors will likely focus on the highly profitable tech companies that were unjustly punished during this crash.
Adobe (NASDAQ:ADBE) has lost 31% of its value over the past year. The company underperformed the broader market by a wide margin. However, its core business is still thriving.
The company reported $17.61 billion in revenue for fiscal year 2022 – up 12% from the previous year. And in September, the company acquired the Figma design platform, which expands Adobe’s suite of core designer tools.
The company is also participating in the upcoming AI boom by tracking the way users use core tools and integrating OpenAI tools with Figma.
The stock is trading at a price-to-earnings ratio of 33.9.
Microsoft (NASDAQ:MSFT) is also participating in the artificial intelligence boom. The company was an early investor in OpenAI and now has access to ChatGPT for its Bing search engine. The integration could be completed by early this year, which means the online search market is on the brink of collapse.
But none of this is reflected in the share price. Microsoft has lost 21% of its value over the past year. It now trades at 24.5 times net earnings per share.
The world’s most profitable tech company certainly deserves a mention on this list. Apple (NASDAQ:AAPL) generated $6.11 in earnings per share in its most recent quarter — up 9% from a year earlier. This year, the company is expected to launch a new virtual reality headset and continue to migrate its supply chain from China to India.
Apple stock trades 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. It is provided without warranty of any kind.