Amazon, Salesforce Job Cuts Are Warning Signs for Stock Prices

Tens of thousands of tech sector job cuts may not be enough to reverse the collapse in share prices, given the looming economic downturn could slash companies’ revenues far more than the cost savings they make via layoffs. Inc. last week announced more than 18,000 job cuts, the biggest reduction in its history, while Salesforce Inc. said it would cut about 10% of its workforce, adding to the toll in a sector that has been scrabbling for months to retrench. Industry tracker estimates 18,300 employees have been let go this year, following the loss of 154,000 jobs in 2022.

Amazon rose 1.6% on Tuesday, while Salesforce gained 0.6%. The Nasdaq 100 Index rose 0.3%.

Investors have applauded the cuts on the expectation that they will help protect margins; Salesforce, for instance, has rallied since its announcement, while shares in Facebook owner Meta Platforms Inc. have rebounded 34% since it announced it would cull more than 11,000 jobs.

Yet in an industry that hired prolifically during its pandemic boom years, the cuts may be too little, too late, analysts say. For many, share prices do not yet reflect how much of a hit profits will take as demand for tech cools in a slowing economy.

“Layoffs should be a move of last resort, so it can’t be good circumstances if you’re getting rid of 10,000 people,” said Ashwin Alankar, head of global asset allocation at Janus Henderson Investors. “It tells me demand is much worse than the market expects, which suggests multiples need to contract more.”