Soaring stock prices during the pandemic gave way to losses and layoffs. Now the sector is figuring out its next moves.
Flash back to the summer of 2020, or even to the later stages of 2021, and you’ll find tech stocks soaring. Hirings were aplenty, and the tech sector seemed to weather the pandemic far better than any other. Since the calendar flipped to 2022, however, things have changed dramatically. People started going out again, for one, meaning more in-person get-togethers and fewer virtual ones. For another, the Federal Reserve has been steadily raising interest rates in hopes of tamping down inflation, meaning tech companies can’t spend as freely as they did when rates were near zero. The last year or so has seen tumbling stock prices and layoffs by the thousands, leaving many wondering where the tech industry is headed.
Nothing has been more indicative of the changes than the Nasdaq Composite Index. A peak in November 2021 had the index at more than double its pre-pandemic total. The stock market devoted to tech then lost a third of its value in 2022, suffering its worst year since the 2008 Great Recession. For the first time in its history, the Nasdaq was in the red all four quarters, and four of its top eight performers entering the year lost half or more of their value. Meta lost about two thirds, Amazon half, and Microsoft was down about a quarter of its value. All told, companies listed on Nasdaq saw more than $7 trillion in value wiped out.
Things were bad for big tech, and for startups, too. IPOs were way down after reaching new heights in 2020 and 2021, and most tech companies that did go public last year saw their valuations take big hits.
For the first time since going public a decade earlier, Meta saw a revenue decrease. That is in large part due to its heavy investment in the metaverse, which the company has staked its future and identity on. The long-term ramifications of that are yet to be seen. More clear is the issue of declining ad revenue for Meta-owned Facebook, Instagram, and WhatsApp triggered by Apple allowing iPhone users to limit how much apps track them. Meta’s loss of targeted ad revenue might have been as much as $10 billion last year. Across the board in the tech sector, ad revenues were down because of recession fears, which all go back to those increasing interest rates.
Lead to Layoffs
The valuation and revenue losses have translated into cutbacks. Amazon is laying off about 18,000 people; Google parent Alphabet about 12,000; Meta cut 11,000 jobs, about 13% of its workforce; Microsoft is cutting 10,000 jobs. Twitter is no longer public since Elon Musk’s purchase of the platform, but it has slashed thousands of jobs as well.
In total, the tech sector has laid off more than 200,000 people, about 4% of the industry workforce, and announcements keep coming. Layoffs.fyi keeps a running tally. To add insult to injury, scammers have been trying to steal money and identities from laid-off workers by posing as recruiters, conducting fake interviews, and offering nonexistent jobs, the Wall Street Journal reported.
It’s a far cry from the hiring binges of 2020 and 2021, when there was great competition among tech companies for talent and new employees could pretty much name their starting salaries.
Whereas people used to leave other industries for tech jobs, interest in doing so is down 30 to 40%. The flow is going the opposite direction, with laid-off tech workers seeking jobs in other fields.
But There’s Good News
After a lot of bad news, the good news for tech workers is that other sectors, such as healthcare, retail, financial services, and manufacturing are desperate for their skills. They’re still hiring, and as regular BOSS readers will note, leading companies in these industries are in the midst of digital transformations that require high-level tech skills to implement.
“All strategies continue to lead to technology,” Accenture chief executive Julie Sweet said in an earnings call with investors.
With the tech sector notorious for long hours and questionable cultures, non-tech companies can offer a beacon of hope to those looking for a change.
“With many tech employees now seeking job security and stability, as well as flexibility and autonomy, non-tech companies that offer hybrid and remote work options have a competitive advantage in attracting and retaining top talent,” Disaster Avoidance Experts CEO Gleb Tsipursky wrote in Forbes.
As for tech companies, a Gartner survey indicates that even with more planned interest rate increases, tech spending will go up about 5% this year as the industry seeks balance after a boom followed quickly by a bust. Funds from the Inflation Reduction Act and Chips and Science Act going to tech investment began flowing in January.
“Now, tech is in a position of resetting itself,” New York Times tech reporter Tripp Mickle said in the NYT newsletter. “But if you look at the fundamentals of most of these businesses, they remain pretty strong. It’s just that they went through a period of accelerated growth, and the ability to sustain that is difficult.”
Tech drives our economy and lifestyles now. While the last few years have seen rapid growth followed by rapid cuts, tech is simply too ingrained into life as we know to stay down for long.