The S&P 500 is trading at a record and the Nasdaq is at its highest in two years. Alphabet shares reached a new pinnacle on Thursday, as did Meta and Microsoft, which ran past $3 trillion in market cap.
Don’t tell that to the bosses.
While Wall Street cheers on Silicon Valley, tech companies are downsizing at an accelerating clip. So far in January, some 23,670 workers have been laid off from 85 tech companies, according to the website Layoffs.fyi. That’s the most since March, when almost 38,000 people in the industry were shown the exits.
Activity picked up this week with SAP announcing job changes or layoffs for 8,000 employees and Microsoft cutting 1,900 positions in its gaming division. Additionally, high-valued fintech startup Brex laid off 20% of its staff and eBay slashed 1,000 jobs, or 9% of its full-time workforce. Jamie Iannone, eBay’s CEO, told employees in a memo that, “We need to better organize our teams for speed — allowing us to be more nimble, bring like-work together, and help us make decisions more quickly.”
The swarm of activity comes ahead of a barrage of tech earnings next week, when Alphabet, Amazon, Apple, Meta and Microsoft are all scheduled to report quarterly results. Investors lauded the cost-cutting measures that companies put in place last year in response to rising inflation, interest rates hikes, recession concerns and a brutal market downturn in 2022. Even with an improving economic outlook, the thriftiness continues.
Layoffs peaked in January of last year, when 277 technology companies cut almost 90,000 jobs, as the tech industry was forced to reckon with the end of a more than decade-long bull market. Most of the rightsizing efforts took place in the first quarter of 2023, and the number of cuts proceeded to decline each month through September, before ticking up toward the end of the year.
One explanation for the January surge as companies budget for the year ahead: They’ve learned they can do more with less.
At Meta, in CEO Mark Zuckerberg’s words, 2023 was the “year of efficiency,” and the stock jumped almost 200% alongside 20,000 job cuts. Across the industry, artificial intelligence was the rallying cry as new generative AI technologies showed what was possible in automating customer service, booking travel and creating marketing campaigns.
‘Reposition themselves for AI’
The AI hype raised concerns in many corners of the economy about the declining need for human labor as technology gets smarter. But it’s having a more immediate impact on the workforce. AI demand is so great that some tech companies are cutting headcount in parts of the business to invest more heavily in developing AI products.
“These companies, in general, are reducing numbers of employees associated with product lines or divisions that have not been successful because they want to reposition themselves for AI,” said Art Zeile, CEO of DHI group, which owns the tech recruiting platform Dice.
Zeile was quick to point out that the cuts we’re seeing this January are far below the numbers from a year prior, adding that “it’s not the kind of news that it was earlier.”
Company execs choose different verbiage to convey their downsizing message to employees and investors, but the through line is that they’re trying to become more focused.
Microsoft Gaming CEO Phil Spencer said his company’s layoffs were part of a larger “execution plan” that would reduce “areas of overlap,” a little more than three months after Microsoft closed its acquisition of Activision Blizzard. SAP said its restructuring is designed to increase “focus on key strategic growth areas, in particular Business AI.”
Phil Spencer, CEO of Microsoft Gaming, appears at the Political Opening of the Gamescom conference in Cologne, Germany, on Aug. 23, 2023.
Franziska Krug | German Select | Getty Images
Alphabet CEO Sundar Pichai told employees in a memo titled “2024 priorities and the year ahead” that, “we have ambitious goals and will be investing in our big priorities this year,” and that “to create the capacity for this investment, we have to make tough choices.” And at Amazon’s Audible unit, CEO Bob Carrigan said “getting leaner and more efficient” is the way the company needs to operate for the “foreseeable future.”
Nigel Vaz, CEO of consulting firm Publicis Sapient, told CNBC that some companies are probably looking at the boon that Meta and Salesforce got after their hefty cost-cutting measures last year.
Salesforce cut about 10% of its workforce in January 2023, and the stock ended up nearly doubling for the year, its best performance since 2009. Following Meta’s announced cuts, the company’s shares had their best year since Facebook debuted on the Nasdaq in 2012.
“I look at Meta and Salesforce as only two examples of companies that needed the impetus,” Vaz said. “The minute they got the impetus, then demonstrated what happens when you act with edge on stuff that you probably knew you needed to do.”
Not just tech
The layoffs aren’t limited to the tech industry. Embattled bank Citigroup said earlier this month that it was cutting 10% of its workforce. And on Thursday Levi Strauss said it will lay off at least 10% of its global corporate workforce as part of a restructuring. Paramount became the latest media brand to announce cuts, with CEO Bob Bakish saying on Thursday the business needs to “operate as a leaner company and spend less.”
Within tech, a wide variety of companies, big and small and spanning the consumer and enterprise markets, are eliminating jobs.
At the large publicly traded companies, there’s an “intense focus” on profitability, margins and cost cutting, said Tim Herbert, chief research officer at CompTIA, which tracks trends across the tech sector. But, he added, there’s an “enormous base” of small and mid-sized tech companies across the U.S., and that in some cases contractors, freelancers and overseas workers are being hit particularly hard.
However, Herbert echoed Zeile in noting that there’s not enough data to get too panicked about the activity in January.
“There’s a lot of nuance to the data, so we always want to be a little bit careful not to read too much into it,” Herbert said. “We don’t want to ever get too hung up on just one month of data, or even two months of data.”
While investors will get a clearer picture on the near-term outlook for business and consumer spending in tech earnings announcements next week, the latest macroeconomic reports provide some reasons for optimism.
The economy grew at a faster-than-expected pace in the fourth quarter, and inflation cooled over that stretch, the Commerce Department reported Thursday.
Gross domestic product increased at a 3.3% annualized rate in the quarter, topping the Wall Street consensus estimate for a gain of 2%. Meanwhile, consumer prices rose 2.7% on annual basis in the quarter, down from 5.9% a year ago. Inflation has been easing from its pandemic-era peak in mid-2022.
The market has been rallying, as investors see those key numbers leading to the likelihood of Federal Reserve rate cuts in 2024 after the central bank lifted its benchmark rate 11 times in less than two years to fight inflation.
Vaz said many corporate leaders are optimistic over “inflation actually meaningfully starting to come down” at the same time that “spending is essentially coming back in so many sectors.”
— CNBC’s Michael Bloom, Annie Palmer and Jennifer Elias contributed to this report
To Barry Diller, a friend of Amazon founder Jeff Bezos, the decision for The Washington Post not to endorse a candidate in tomorrow’s presidential election was “absolutely principled” — and poorly timed, he said Monday on CNBC’s Squawk Box.
“They made a blunder — it should’ve happened months before, and it didn’t, and that’s the issue with it,” Diller said.
Diller is chairperson of both online travel company Expedia and IAC, which owns media platforms and websites like Dotdash Meredith and Care.com. He and Bezos appear to have been close friends for years, with Diller and his wife, fashion designer Diane von Furstenberg, hosting Bezos’s engagement party to fiancee Lauren Sanchez.
The decision not to endorse a presidential candidate in the 2024 race or for future presidential races came directly from Bezos, the paper’s owner, according to an article published by two of the Post’s own reporters.
The move prompted public condemnation from several staff writers, a flood of at least 250,000 digital subscription cancellations and the resignations of at least three editorial board members.
Bezos defended his position in his own op-ed late last month, calling the move a “meaningful step in the right direction” to restore low public trust in media and journalism.
“Presidential endorsements do nothing to tip the scales of an election,” Bezos wrote, emphasizing that the decision to not endorse a candidate was made “entirely internally” and without consulting either campaign. “I wish we had made the change earlier than we did, in a moment further from the election and the emotions around it.”
Diller said he spoke to Bezos following the decision.
“I think it was absolutely principled,” Diller said. “The mistake they made — and it was a mistake admitted by him — was timing.”
While Nvidia’s spectacular surge remains the biggest story in the technology industry, the AI chipmaker’s performance on the market has been dwarfed this year by a digital advertising company with a specialty in gaming.
AppLovin has soared 310% in 2024, beating every U.S. tech company with a market cap of at least $5 billion, according to FactSet data. Nvidia, which has led the artificial intelligence boom and become the world’s second-most valuable public company, is up 173% this year.
Founded 12 years ago, AppLovin went public in 2021, riding a Covid-era wave of excitement in online games. Now, the company’s games unit generates relatively slow growth, but its online ad business is bustling from advancements in AI that have improved ad targeting.
Great returns bring great expectations, and AppLovin has a lot to prove in its earnings report on Wednesday, as investors look for proof that the rally is warranted. In its third-quarter report, analysts are expecting revenue growth of 31% to $1.13 billion, according to LSEG, following two straight quarters of growth above 40%.
More than revenue, AppLovin has shown a massive increase in profit. Based on LSEG’s consensus, EPS is expected to more than triple to 92 cents, while analysts see operating income more than doubling to $424.2 million, according to FactSet.
AppLovin attributes much of its growth to its AI advertising engine called AXON, particularly since releasing the updated 2.0 version last year. The technology helps put more targeted ads on the mobile gaming apps the company owns, and works for other studios that license the software.
“AXON enhancements through ongoing self-learning and our dedicated development efforts have fueled robust business performance this quarter,” AppLovin said in its second-quarter shareholder letter in August. Revenue in the software business jumped 75% in the second quarter to $711 million, accounting for about two-thirds of total sales.
Analysts have gotten increasingly bullish.
Wells Fargo initiated AppLovin with the equivalent of a buy rating on Oct. 29, calling the company a share gainer. Analysts at BTIG lifted their price target last week to $202, the highest among firms tracked by FactSet. Oppenheimer, Stifel Nicolaus and Jefferies also raised their targets in October.
According to analysts at Wedbush, the ad opportunity in the mobile gaming industry will grow from $10 billion today to $50 billion over the next decade.
“Investors have bought into the story, driving APP shares to all-time highs, and we think that the rally is warranted,” Wedbush analysts wrote in a note on Oct. 11. They said the company’s “real opportunity” is to catch the influx in brand advertising towards mobile gaming from more conventional channels like social media or legacy broadcasting.
Because of its position in digital advertising, AppLovin faces potential competition from some of the most well-capitalized companies on the planet. In its latest annual filing, AppLovin named Google, Amazon and Facebook as competitors. The company also relies on a small set of mobile platforms, most notably from Apple and Google, for distribution.
AppLovin didn’t respond to a request for comment.
Among the biggest financial beneficiaries of AppLovin’s historic rally is founder and CEO Adam Foroughi, whose stake has soared to about $5 billion in value.
Things could’ve turned out very differently.
In September 2016, several years before the IPO, Foroughi agreed to sell a majority stake in AppLovin to Chinese investment firm Orient Hontai Capital in a deal valued at $1.4 billion. The transaction never materialized as the agreement came at a time when the U.S. government was clamping down on Chinese involvement in the domestic tech sector.
More recently, AppLovin was supposed to be on the other side of a deal that ultimately got scuttled. In 2022, AppLovin gave up on efforts to buy gaming software developer Unity Software for $20 billion, after Unity shareholders rejected the bid.
Unity has since struggled mightily, losing more than half its value. Over that same stretch, AppLovin’s market cap has ballooned by almost sixfold.
Chey Tae-won, chairman of SK Group, during the SK AI Summit in Seoul, South Korea, on Monday, Nov. 4, 2024. SK Hynix is working with Nvidia to resolve the supply bottleneck, Chey said.
Jean Chung | Bloomberg | Getty Images
Shares of SK Hynix rallied 6.5% on Monday after the business announced a next-generation memory chip and the parent company’s chair said that the South Korean semiconductor firm sped up the supply of a key product to Nvidia.
Speaking at the company’s event on Monday, Chey Tae-won, chair of SK Group, ran through an anecdote in which he said Nvidia CEO Jensen Huang asked him if SK Hynix could move the supply of high-bandwidth memory (HBM) chips called HBM4 forward by six months. SK Hynix’s CEO at the time said it was possible to do so, according to Chey.
It’s unclear if this will shift SK Hynix’s production timeline from the previously-announced second-half of 2025.
High-bandwidth memory is a key component of Nvidia’s chips, which are in turn used to train huge artificial intelligence models. Tech giants around the world have been snapping up Nvidia chips in a bid to produce the most powerful models and applications.
SK Hynix is a key supplier to Nvidia, and the huge demand for the American company’s products has helped the South Korean firm to achieve rapid growth this year and record profits.
SK Hynix shares are up around 36% this year.
On Monday, the company also announced a new product that helped support its share price rally. Samples of the chip — a 16-layer HBM — will be provided to customers in early 2025, SK Hynix said.
HBM is a type of dynamic random access memory, known as DRAM, where chips are vertically stacked to save space and reduce power consumption. Adding more layers to a HBM will, in theory, give it more capacity to handle complex AI applications.
The aggressive roadmap from SK Hynix comes as its closest rival Samsung, which has fallen behind in HBM, tries to stage a comeback and get its most advanced chips certified for use by Nvidia.