Tech Stocks Valuations Still High Despite Stock Price Weakness

The Wall Street Journal reported today that Meta Platforms (META) plans to cut thousands of jobs beginning this week.  Meta Platforms joins Apple (AAPL), Microsoft (MSFT), and other mega-cap technology stocks in reducing or freezing their payrolls as they cut costs in the face of an economic slowdown and a looming recession.  Meta Platforms is up more than +5% today on the news. 

The market tends to look favorably on company layoffs because they mean lower costs and higher profits.  Nevertheless, despite the announcement of a multitude of corporate layoffs this year, the Nasdaq 100 ($IUXX) (QQQ) is down more than -33% this year and shows few signs of improvement.  In addition, Saxo Bank said, “layoffs will stabilize things and improve sentiment in technology stocks, but interest rates will still go higher next year, and the economy will likely flirt with a recession, lowering growth expectations.” 

According to Layoffs.fyi, which tracks corporate layoffs, about 100,000 technology jobs have been cut this year.  Companies including Intel (INTC), Apple, and Amazon.com pledged cost controls in their earnings announcements over the past few weeks, while Lyft Inc (LYFT) and Opendoor Technologies (OPEN) said they would reduce employment by at least 13%.

Even though technology stock prices are beginning to reflect the slowdown in the economy and earnings, valuations in tech stocks are still not cheap, arguing against a big rally in the near term.  The Nasdaq 100 is priced at about 19.5 times estimated earnings, mildly below its average of 20.4 for the past ten years but well above the 10-year low of 13.3.

Technology companies will be under pressure for more layoffs but may be reluctant to make deeper cuts since they struggled to fill positions during the economic rebound from the pandemic.  Northern Trust Asset Management said, “companies will choose to reduce headcount by less than expected, given how challenging it was for companies to hire people in the first place.”  As a result, Northern Trust Asset Management expects more hiring freezes than layoffs in technology companies.

• The Brazilian Election Results and the Future for the Leading South American Economy
• Stocks Mixed on as Meta and Apple Head in Different Directions
• Meta Platforms' Options Attract Value Buyers As Facebook Is Cutting Costs
• Markets Today: Stocks Climb on Lower T-note Yields and Meta Rally