Big U.S. Tech Companies Boost Focus on Profitability

Recent actions by mega-cap U.S. technology companies signal they are prioritizing profitability over growth.  For example, Alphabet (GOOGL) recently joined the ranks of Tesla (TSLA), Microsoft (MSFT), and Meta Platforms (META) in slowing hiring and even cutting jobs in an attempt to boost profits.

Many mega-cap technology companies are reevaluating staffing amid a looming recession and the most aggressive Fed-rate-hike cycle in decades.  Cutting costs to boost profits could make the pricey tech growth stocks more attractive to investors as the era of easy money and low-interest rates comes to an end.

Alphabet CEO Pichari said this week in an email to his staff that the company will slow hiring overall for the rest of the year while keeping a focus on recruiting for “engineering, technical and other critical roles.”  Also, the Washington Post reported that Meta Platforms is trying to weed out the lowest-performing employees as it seeks to rein in costs. According to Layoffs.fyi, about 52,000 technology jobs have been cut so far this year.

With soaring inflation keeping aggressive Fed rate hikes in play, the new focus by tech companies on bottom lines is unlikely to change anytime soon.  This year’s selloff in technology stocks has knocked the Nasdaq 100 ($IUXX) (QQQ) down 28% so far this year.  According to Bloomberg data, the rout has hit unprofitable mega-cap stocks particularly hard, leaving only 15 unprofitable companies in the Russell 3000 Index with a market capitalization of more than $25 billion versus 48 such companies a year ago.

MAPsignals, a data platform that tracks institutional flows in the market, said, “equity investors are no longer willing to subsidize these profitless growth businesses.”  They are demanding that these companies move toward profitability “as quickly as possible” in order to continue to fund them. Bank of America said the “war for talent” narrative is turning into a prudent “tactical hiring or downscaling” across the global technology sector.  “As we head into Q2 earnings season, we expect more caution around hiring.”

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