Tech Shares Jump As Markets Digest SVB’s Fallout
Markets were in a bit of a recovery mode on Tuesday, focusing on macroeconomic conditions as traders' attention turned to what the Fed could do following the release of the latest CPI data on Tuesday. Inflation showed some cooling month-on-month, despite being historically high, but some macroeconomic conditions may have allowed several tech companies' shares to rise. Alphabet (GOOG) was up over 3%, and Meta (META) registered a substantial rise of over 7% after Tuesday's trading session. In addition, Nvidia (NVDA) climbed as much as 5.5% on early Tuesday, and Microsoft (MSFT) closed 2.71% higher. So what could have pushed tech stocks upward despite SVB’s recent collapse?
META Driven by Layoffs
Meta Platforms Inc, previously known as Facebook, became the first of the big tech companies to announce a second round of layoffs. The announcement to cut headcount by a further 10,000 this year was the primary catalyst behind the jump in the stock price as investors were keen to see headcount costs reduced. The personnel moves were widely anticipated, with the company foregoing its plan to hire 5,000 people and "flatten" middle management layers. The job cuts are expected to reduce Meta's expenses to $86-$92 billion, down from the $89-$95 billion it had previously forecasted.
The company had already cut its workforce by 11,000 back in the autumn of last year, which amounted to about 13% of the workforce. It was the latest move by a tech company to pair down expenses as concerns over a market downturn and rising interest rates have led to a series of job cuts that have seen more than 290,000 tech jobs eliminated since the start of last year. Despite that and cancelling some lower-priority projects, Zuckerberg seems to be entirely committed to the pivot towards the metaverse. The cuts aren't expected to affect the metaverse and AI projects of the company. (Source:Reuters)
APPLE Opts for a Hiring Pause
Although facing the need for cost-cutting too, Apple (AAPL) has opted for a different approach to streamline its operations while facing market uncertainty. Notably, the company has decided not to resort to layoffs, at least for now. Instead, it's limiting bonuses and cutting back on hiring, according to reports. The plan hasn't been made public yet, but it suggests that Apple will reduce the frequency of the bonuses only, not the amount. Apple shares closed only 0.3% higher on Tuesday.
Separately, Apple's main supplier, Hon Hai Precision, reported earnings overnight, suffering a profit drop. More relevant to Apple, however, the owner of Foxconn said it expected its sales of components for consumer electronics to decline slightly. Foxconn is the largest producer of Apple's premium models, and the forecast for lower sales contrasts with the guidance given by Apple for higher sales at the start of the year.
AI Stocks Back to the Forefront
AI has become the hottest topic of the year, especially among tech firms, with big names such as Microsoft, Alphabet, and Nvidia all fighting to be in the lead even today. Microsoft incorporated AI into its Bing search engine and Edge browser, and Alphabet announced its own next-gen AI service channel LaMDA (language model for dialogue applications), to enhance the quality of search results.
In the case of Nvidia, the firm has received much attention around its data centre results, including a partnership with Deutsche Bank (DBK.DE) to enhance AI use. In addition to this, the firm's servers are vital for providing the hardware needed to host and train different AI models. Most recently, Nvidia inked a deal with Microsoft to supply graphics cards for developing AI systems. Microsoft is working on training larger AI models, which require more computing power. The deal was seen as supporting Nvidia's stock price.
Google recently announced that it would invest $300 million to take a 10% stake in a startup that former employees of OpenAI, the developer of the now-famous ChatGPT, founded. The company, called Antropic, is developing an analogue to ChatGPT called Claude, which is still in closed beta testing. The news came along with reports that Google was trialling a new version of its home page, replacing the "I'm feeling lucky" button with a chatbot in a design reminiscent of ChatGPT. But it appears to have one advantage, which is the ability to chat about current events.
Despite the fruitful session on Tuesday, the collapse of the Silicon Valley Bank (SVB) in the last few days has generated concern within the tech space, particularly startups. The company was seen as the backbone of tech finance, and the bank's loss is seen as potentially making it more difficult for startups to find new capital. The incident might keep tech investors on their toes.
Markets were buoyed through trading on Tuesday with a focus on macroeconomic data and what the Fed might do at its next meeting. Several tech companies, with some outliers, saw surges as reports showed they were taking cost-cutting measures. Meanwhile, Microsoft announced a deal with Nvidia to develop larger AI models.