Layoffs, project abandonments, valuations under pressure… It seems like a change of era in American tech. Is the golden age of tech over?

After years of exponential growth, tech giants are starting to tighten their belts, far from stock market valuations and record results. The end of the golden age?

“The Nasdaq is the American index that has fallen the most heavily in 2022, around 33%, against 8.8% for the Dow Jones industrial index or 19.4% for the main index, the S&P500,” says Alexandre Goldwasser, director, Goldwasser Exchange.

If investors have punished more than others stocks like Netflix, Amazon, Salesforce, Etsy or Meta, it is mainly because these stocks are considered as growth stocks par excellence. And that a large part of their valuation reflects their ever brighter outlook.

However, when growth tends to decrease or even stop, the stock market sanction is immediate and brutal, explains Alexandre Goldwasser. All the more so with stocks trading at 30 or 40 times expected earnings and, moreover, in a context of rising interest rates.

Back to normal after the pandemic

Regardless of the economic slowdown imposed by the FED in order to curb inflation, the sector’s poor performance is the result of a return to normal after the health crisis.

“Amazon is a perfect example,” says Alexandre Goldwasser. After having experienced a crazy expansion during the pandemic, on the e-commerce and cloud computing fronts, of which it is one of the world leaders, the Seattle-based group closed the first nine months of 2022 with a loss of three billion USD, compared to a profit of 19 billion a year earlier.”

And against the backdrop of disappointing forecasts, Amazon announced last week the largest layoff plan in its history, which will affect 18,000 people.

And this metaverse is struggling to convince…

“The same goes for Meta, which announced at the end of November that it was laying off 13% of its employees, a decision seen as ‘a last resort to reduce costs’. Marc Zuckerberg justified this decision by evoking bad calculations carried out during the pandemic, him who counted on a permanent acceleration” of the sector of the e-commerce. The fault also lies with the heavy investments required by the metaverse, which is struggling to convince … “

As for Microsoft, according to a note published by UBS last week, which caused the share price to fall, the group’s growth engine, namely the Azure infrastructure, has entered “a phase of abrupt deceleration of its growth”…

“Like Amazon’s AWS platform, Azure may be slowing down due to maturation, not just a difficult macroeconomic situation,” the broker says.

The wave of slimming also affects Salesforce, which announced a week ago its intention to lay off 10% of its workforce. “Here too, the company, which is among the world leaders in CRM, lamented an uncertain economic environment and having recruited too much during the pandemic.”

Analysts remain Buy

“After a dreadful stock market year, the planets no longer seem to be aligned for tech stocks, and they may never know it again as they did over the last decade,” fears Alexandre Goldwasser.

However, it is clear that the analyst community remains extremely positive on the sector. “Amazon has 55 buy recommendations, with only one sell recommendation. The median 12-month price target compiled by Bloomberg sends the stock to $135 over a 12-month horizon, a potential of 57% based on the last closing price of $86.”

The must-have is certainly Microsoft, which only collects buy recommendations (52), with a potential of 32% at twelve months, notes Alexandre Goldwasser.

Apple, which would have asked its Asian suppliers to slow down the production rate, against a background of lower demand, collects 36 buy recommendations, against 8 to keep and 2 to sell. It should be noted that Apple is the component of GAFAM to have been the least sanctioned last year … with a decline limited to 26%!