Angelo Zino, Senior Industry Analyst at CFRA Research, joined Closing Bell to discuss the confluence of factors leading to hiring freezes or layoffs at big tech companies like Meta, Amazon, and Uber.

Closing Bell

Layoffs, Hiring Freezes at Tech Companies Amid Rough Year for Stocks

well turns out now it might be even harder for tech workers to get a job in the coming months despite a tight labor market. And that's as layoffs and hiring freezes do start to permeate the industry. I met at the parent company of facebook instituting a hiring freeze until the end of the year. We still have more than half of the year to go. Uber signaling. It will slow down hiring to cut down on costs and amazon saying its warehouses are overstaffed the video sharing service cameo, laying off a quarter of its own workforce and all of this as the NASDAQ just recorded its fifth straight week of losses. A Robin Hood of course, another recent company announcing layoffs but for more on the crunch hitting the tech sector specifically, I do want to bring in Angelo Zino, senior industry analyst at CFR I research Angelo. It's always good to see you um and get your own insight here. So it certainly does seem to be an industry wide trend. I think for some of the biggest growth companies out there, some of them are down 50 60 close to 70% from their own recent pandemic highs, what are the biggest factors leading to the losses? Yeah, I mean listen, I think when we kind of look at, you know, where the biggest underperformers have been, you know, clearly it's been in areas like e commerce, some of the social media type names and you know, those are clearly in our view very much evaluation driven and you know, of course, you know, if the evaluation driven a lot of it has to do with the spike up in interest rates and of course some of the inflationary pressures going on um within kind of the broader markets. So um that's literally led to a reset in valuations across markets such as that. Now that being said we remain very constructive on broader tech, large, certain large cap tech names, whether it be an apple and Microsoft, kind of high quality earnings drivers names that aren't overly or excessively value the name like an alphabet among others. Now when you kind of think about, you know, looking forward, um, you know, we think that you potentially see a peak and inflation if hiring starts to ease. I think that kind of Um, you know, puts Annie's on some of the wage pressure, wage inflationary pressures that we've seen out there specifically on the tech side of things. Right? I mean there's been an absolute kind of war for good talent out there and retaining talent as well over the last 3-4 quarters and we've seen a number of large cap tech names Um, and high growth tech names kind of increased, uh, apex anywhere from 20 to 40%. So it would be natural here we think kind of over the next couple of quarters to see some semblance of um, you know, easing in terms of the hiring process going on. And you kind of alluded to some of the questions are great examples of Angelo, Let me ask you this. I know you said basically just your return to more normal valuations, but It took a 40% drop to get more normal valuations for some of these big technology names. I mean, it would seem like there are concerns, right? The recession concern is certainly out there and it seems like that too, is percolating into the share price is not just some profit taking, like we saw at the start of the year and so, knowing that knowing that the recession concern is out there, that the Fed is aggressively raising rates, um that inflation is still relatively high, even though the comps will get better and that there are major unknowns like china and Russia, how much further could we pull back on these major technology names in the tech sector? Yeah. And you know, there are other examples that there are other risks out there, whether we talk about kind of um you know, the stronger dollar out there clearly being a huge headwind for another, a number of these names as well. So I think it all depends on kind of um you know, how long some of these trends continue to go on, right? I mean, so I think the real answer is nobody really knows how long um you know what valuations are levels um when you know this stuff kind of starts looking more attractive, but that being said, history has shown kind of, if you are a patient investor out there and nobody can call that bottom, um, you pull back like this often represent a great buying opportunity on the tech side of things. When you kind of look at a lot of these large cap tech names, whether we're talking about an alphabet or an apple or Microsoft, the growth rates aren't rolling over there, just slowing down significantly and we're kind of trying to find that new normalized level. We expect to find that here over the next couple of months or so. I think Q one kind of helped, you know, investors to some extent, um, realize some of the concerns that are out there and the impact that it's going to have on a lot of these large cap tech names were probably not there yet, but we're starting to get there and it is a process certainly is a process and I agree everything that I'm hearing down here on the trading floor is that we could have some further losses ahead of course, as some of these challenges get ironed out. But my question for you long term, when it comes to technology, when it comes to the tech sector, main street jobs at these large tech firms as well as Wall Street tech investments. The fact that the biden administration and these companies are waking up during covid that they have to bring some of their supply chains back home, that they got to bring some of this manufacturing here in the US. What kind of position does that put these technology names in longer term 5, 10 years from now knowing that it will include costs to invest here in America but that there might be some better protection if another pandemic happens. Yeah, listen, I we have our concerns in terms of, you know, some of the thoughts that are out there in terms of the Capex investments required here in the US. I mean to be honest with you, I think there's I think there's an expectation out there for us to bring x amount of jobs back here. Um ultimately the some of the commentary being placed today come to fruition, probably not. And the reason I say that is because from a cost perspective a lot of these tech names and it just doesn't make sense to kind of bring jobs back here on the manufacturing side of things. Now that being said, I do think it makes a lot of sense um to diversify um more of these jobs and kind of the supply chain, you know, from a broader perspective whether it be in India and other, you know cheaper, more affordable areas of the globe relative to china. So I think you'll see more diversification at the end of the day whether or not a lot of those kind of jobs and opportunities come back here in the U. S. And in europe I think remains to be seen. But yeah, I mean, listen, I think from a Capex perspective, even if you look at, you know, a name like meta here, um, they kept their their Capex spend unchanged, but this year did cut on the opposite side of things. But as far as Capex spend, uh, you know, for a lot of these companies, whether it be on the data center side of things or other areas of their business, and I think that that will let you know, those investments will, will remain okay. So maybe you buy the dip situation ahead here, of course, as we all try to get these challenges and headwinds under control, Angelo Zino, we appreciate the time. Angelo's a senior industry analyst at CFR Research.