That Spells Trouble

Image source: Google

What's going on?

Google’s parent company Alphabet announced job cuts on Friday – the latest in a series of layoffs by tech titans.

What does this mean?

If the world of tech was a TV show, you’d say that the screenwriters are getting lazy: after all, they keep falling back on the same old “job cut” trope to prop up this season’s flagging plotline. This episode, it’s Google’s turn in the hot seat, which was probably all but inevitable. The Silicon Valley posterboy managed to hold out longer than plenty of its peers, but with shrinking ad budgets sapping the firm’s search revenues, downsizing was probably a sensible strategy. That’s left about 12,000 jobs (or 6% of the workforce) on the chopping block – a move that Alphabet hopes will let it focus on hot, up-and-coming areas like artificial intelligence.

Why should I care?

Zooming in: Don’t panic.
Job cuts in the tech industry were up 649% in 2022, but that doesn’t mean that the sector’s facing some kind of Doomsday scenario – far from it. The number of positions being axed at the minute actually pales in comparison to the number of jobs that were added during the pandemic. That means these layoffs often just wind firms’ headcounts back to where they were about a year ago – like in Meta and Salesforce’s cases. And it’s not just them: Amazon’s workforce nearly doubled since 2019, and Microsoft’s doubled in 2022 alone, which suggests their recent job cuts are less of a shakeup and more like a step toward normality.

For markets: What a drag.
That doesn’t mean everything’s hunky-dory, mind you: analysts’ Big Tech revenue projections are down 5% since October, and shares in Meta, Amazon, Alphabet, Apple, and Microsoft are expected to be among the biggest drags on the S&P 500 for a few months yet. But that’s not guaranteed, especially when the firms could fund some bumper share buybacks with the $110 billion in cash they collectively hold.

Originally posted as part of the Finimize daily email.

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