The white-collar decline is well underway.
After nearly a decade of six-figure salaries, cushy jobs and extravagant office perks, Silicon Valley firms are finally winding down. Nearly 90,000 tech workers were laid off in 2022 alone. This year is not off to a good start either. Amazon cut 18,000 jobs on January 5.
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Now, SEC filings show that Microsoft plans to cut 10,000 jobs by the end of the third quarter.
Things aren’t looking so good for those who have survived the layoffs (so far). Countless tech firms, private and public, have seen their valuations drop over the past 12 months.
Now the Financial Times reports that a number of panicked laid-off workers are “flooding the markets again” with shares in their former companies. This means that these valuations will fall even further.
What this could mean for your portfolio – and where you might want to apply.
The technique is falling
Record low interest rates over the past decade have prompted more investors to seek risky investments. Loss-making tech companies were perhaps the riskiest place for this excess cash. Tech valuations have risen since 2020, allowing startups and tech giants to use their inflated reserves to retain talent.
Technicians were paid an excessive amount of 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. That boosted total compensation for tech workers during the boom, but is now having the opposite effect as valuations fall.
Invesco QQQ Trust ( NASDAQ:QQQ ) — a fund that tracks tech stocks — has fallen 22.7% over the past 12 months. Meanwhile, private companies also saw their valuations drop by as much as 80%. According to a recent report by the Financial Times, employees of these firms are rushing to cash out in secondary markets.
Companies struggling to turn a profit have been the biggest losers so far. An index of loss-making firms compiled by Morgan Staney has fallen 54% over the past year. Many of these money-losing firms saw their valuations drop to pre-pandemic levels.
Looking ahead, some experts believe that valuations will not recover until the Federal Reserve settles on its interest rate strategy. Low or stable interest rates can make risky tech stocks more attractive. However, due to interest rate swaps, this is unlikely to happen until late 2023 at the earliest.
Until then, investors should focus on the high-yielding tech companies that were likely unfairly 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 posted revenue of $17.61 billion for fiscal 2022, up 12% from the previous year. In September, the company acquired Figma, a design platform that expands Adobe’s core set of designer tools.
The company is also participating in the upcoming AI boom by tracking how its users use key tools and integrating OpenAI tools with Figma.
Shares trade at a price-to-earnings ratio of 33.9.
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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 the Bing search engine. The integration could be completed as early as this year, meaning the online search market is about to be disrupted.
But none of this is reflected in the stock price. Microsoft has lost 21% of its value in the past year. It now trades at just 24.5 times net 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 earlier. This year, the company is expected to launch new virtual reality headsets 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. Provided without any warranty.