'Darker Macro' Awaits As Amazon, Google, Meta Forced To Cut Costs After 'Hypergrowth' Phase: Analyst Says What's Next For Tech Stocks

Zinger Key Points
  • Tech space will see further costs cuts and M&A, as big names take advantage of depressed valuations, says Wedbush.
  • The firm remains positive on the growth setup for tech stocks.
'Darker Macro' Awaits As Amazon, Google, Meta Forced To Cut Costs After 'Hypergrowth' Phase: Analyst Says What's Next For Tech Stocks

Big techs are laying off personnel and freezing hiring for the first time in over a decade, with Amazon Inc. AMZN and Meta Platforms Inc. META in particular starting bigger job cuts. This portends to a further slowdown in growth, Wedbush analyst Daniel Ives said in a note.

Hyper Growth Spending To Cost Cuts: Tech companies, both big and small, have hired and splurged money over the last few years, thanks to massive growth prospects, easy free capital and transformational trends on enterprise and consumer fronts, Ives said.

It continues to be an “arms race, to keep up with the competition in the tech world, as the bar is raised on innovation and go-to-market strategies, he said.

The analyst estimates that the shifts around cloud, 5G, cybersecurity, next-gen chips, artificial intelligence and electric vehicles, combined, will be a $2 trillion market opportunity over the next decade.

See Also: What Will Big Tech Earnings Tell Us About China?

Survival Of Fittest: In the quickly deteriorating macro, with a likely recession, management teams are prepping for the storm and cutting non-strategic costs and R&D projects, which are not realistic shots on goal, Ives noted.

Meta’s Mark Zuckerberg, the analyst noted, cut some significant costs as the Street was losing patience with the company’s metaverse focus. The analyst is bracing for cost cuts around the edges by Apple Inc. AAPL and Microsoft Corp. MSFT.

“While the clock has struck midnight on hyper-growth in the tech industry and multiples reflect accordingly, we believe this period of time will further differentiate the winners from the losers in the tech arms race as we enter 2023,” Ives said.

The analyst also expects M&A in areas such as cloud and cyber security to be more pronounced over the coming year. Strategic players such as Oracle Corp. ORCL, Microsoft, Alphabet Inc. GOOGL GOOG, Salesforce Inc. CRM, Adobe Systems Inc. ADBESAP AG SAP and financial buyers will take advantage of these reduced valuations, he said.

Wedbush remains positive on tech stocks into the year-end and 2023, given estimates are de-risked, inflation cools off, the Fed is expected to pause in the first half of 2023 and attractive valuations.

The firm’s top picks are:

  • Microsoft, Salesforce in software
  • Tesla Inc. TSLA in EVs
  • Fortinet Inc. FTNT, Check Point Software Technologies Ltd. CHKP, Zscaler Inc. ZS, Palo Alto Network Inc. PANW, CyberArk Software Ltd. CYBR and Tenable Holdings Inc.TENB in cybersecurity.

The firm’s overall top tech name remains Apple.

Price Action: The Technology Select Sector SPDR Fund XLK traded down 0.21% to $131.49 in premarket trading, according to Benzinga Pro data.

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Posted In: Daniel IvesMark ZuckerbergmetaverseWedbushAnalyst ColorNewsAnalyst RatingsTech