Despite imminent job cuts, analysts foresee a potential bull market during the upcoming earnings season
Will 2024 usher in a boom or a bust for big tech? Despite over 7,500 layoffs recorded in the sector since the year began, industry observers anticipate robust performances during the upcoming US big tech earnings season. These quarterly financial reports could indicate that the sector has addressed pandemic-era overhiring, restructuring around cloud computing and AI, leading to layoffs in less promising areas. Analysts optimistic about AI suggest the beginning of a tech bull market.
Since the beginning of the year, Google has implemented layoffs affecting over a thousand employees in various departments, including hardware, ad sales, search, shopping, maps, policy, core engineering, Google Assistant, and YouTube. While the current cuts are modest in comparison to the 12,000-worker layoff announced by Google’s CEO Sundar Pichai last January, he has cautioned that additional cuts may be on the horizon.
In a recent internal memo, he informed employees that Alphabet was streamlining operations by eliminating certain layers to enhance efficiency and speed in specific areas. Pichai emphasized the company’s ambitious goals and planned investments in key priorities for the year. He acknowledged the necessity of tough choices to create capacity for these investments but assured that the scale of the cuts would be less than last year’s reductions and would not impact every team.
Despite Pichai’s explanation, the Alphabet Workers Union criticized the layoffs, deeming them “needless” in a post on X (formerly Twitter).
Amazon has also joined in with a new wave of job cuts, affecting hundreds of employees in its Prime Video and Amazon MGM studios divisions. This move is part of a strategic shift away from excessive spending on entertainment, focusing on core priorities like online shopping logistics and emerging areas such as AI.
At Meta, the trend of departmental restructuring, which led to over 20,000 job cuts in the previous year, seems to have eased, although not come to a halt. In mid-January, Instagram streamlined its structure by removing a layer of management, resulting in the reduction of 60 technical program managers. Despite last year’s commitment to expanding the workforce to bolster “priority areas” and adjusting the composition to include more “higher-cost technical roles,” changes continue within the organization.
And this could be the prevailing narrative for the tech industry in 2024. If Wedbush analyst Dan Ives’ predictions hold true, significant job cuts have already occurred, and the upcoming earnings season is anticipated to be a noteworthy event. Ives suggests that the AI revolution will bring benefits but will also necessitate companies to trim costs in non-revenue-generating areas while intensifying their focus on AI.
“It’s more about reallocating resources than anything else because most of the cost-cutting is already behind us. The robust will become even more robust, while the weaker entities will face exposure,” he remarks.
However, identifying which entities fall into these categories is a complex task. Apple, for instance, is placing its bets on the Vision Pro headset, set to be released this month, and new iPhone models incorporating generative AI features to revitalize sluggish sales. Facing challenges in the Chinese market, Apple has resorted to discounting smartphone prices in the hope of a turnaround.
In a recent analysis, Bank of America securities analyst Wamsi Mohan presented an optimistic outlook for Apple’s year, suggesting the potential for a “stronger multi-year iPhone upgrade cycle” driven by the anticipation of AI features.
According to Ives, the upcoming earnings season will highlight increased demand for enterprise software and cybersecurity, coupled with a surge in interest surrounding major AI projects. This trend is expected to persist as the AI revolution gains momentum.
The frontrunners in this transformation are already becoming evident. In the previous week, Microsoft achieved the status of the most valuable global company, surpassing Apple for the first time since 2021, boasting a market capitalization nearing $3 trillion. Microsoft, with a workforce reduction of 16,000 employees out of 232,000 last year, is anticipated to gain substantially from its leadership in AI, potentially contributing an additional $25 billion to the company’s revenues by 2025, according to Wedbush.
“The shift to cloud and AI is having a massive effect on tech, including the reallocation of jobs and a lot of changes to Apple and Google,” remarks Ives. “AI monetisation is going to start with Nvidia and Microsoft, and we believe we’re seeing the beginning of a new tech bull market that began in the summer of 2023.”
