The outlook for technology stocks in 2023 isn’t looking much better than 2022, when the sector underperformed on Wall Street amid layoffs that are spilling over into the new year.
Apple, Amazon, Microsoft, Nvidia and Tesla all ended 2022 well beneath the redline and all down over a one-year period.
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In an interview with FOX Business on Friday, Eric Schiffer, CEO of the private equity firm, The Patriarch Organization, said: “Because tech is so oversold, there might be potential exits for a limited short-term bear rally, but there is a danger facing shareholders.”
“Shareholders should brace themselves for a deeper brutal tech bloodbath driven by the Fed and its ‘Terminator’ like mission to raise rates and wipe out inflation,” he warned. “Many tech companies will enact job carnage in the first quarter, with Salesforce and Amazon just the start.”
“Elon Musk showed tech leaders that most startups and mid-level firms are insanely overstaffed and that you can run a tech firm with far less people, which will pose further threats to jobs as many CEO’s, VC’s and PE firms model Musk,” he added.
After buying Twitter for $44 billion, Musk said he would cut the workforce by 66%.
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Amazon announced Wednesday that it will cut about 18,000 positions to post the largest number of layoffs in company history, while Salesforce also announced job cuts on Wednesday and will lay off 10% of its workforce as part of a plan to reduce operating costs and improve operating margins amid the challenging economic environment.
Other firms announcing layoffs this week include online personal stylist Stitch Fix and video platform Vimeo. Stitch Fix is trimming 20% of salaried positions, Vimeo will lay off 11% of its staff as a part of a broader effort to lower costs.
Schiffer said “Layoffs, while clearly challenging for employees, are highly bullish for shareholders because it builds a greater future potential for earning growth and stock price opportunities in the medium term.”
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Stock performance in 2023 will hinge greatly on the U.S. Federal Reserve’s rate hike strategy, possible recession, and ongoing financial concerns around inflation and COVID-19 stoppages.
“The only surprises in tech stocks will be how beaten up they may get, or how fast many might bounce back if the Fed goes past merely pausing rate cuts should a deep recession arise,” Schiffer said.
“With interest rates rising more in the short term, the intrinsic valuation of tech stocks, especially those with no earnings, will be beaten down as valuations explode further into bits,” he went on. “So, if you have a risk appetite for shorting, it is in your favor that we have not seen a bottom for tech, and it is likely to get much uglier.”
The Fed is expected to raise interest rates again when it meets on Jan. 1 – Feb. 1. The central bank raised interest rates seven times last year and hinted of more increases to come. The benchmark rate stands at a range of 4.25% to 4.5%, the highest in 15 years.
Source: https://finance.yahoo.com/news/tech-stocks-headed-bloodbath-2023-184411155.html