It’s been a treacherous past year for FAANG stocks. The new year has brought a new round of layoffs and earnings pressures, with FAANG/MATANA firms taking the spotlight for some of the largest cuts in the industry. Big-tech heavyweights Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN), and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) recently let go of 10,000, 18,000, and 12,000 employees, respectively. These are massive numbers amid mounting macro headwinds.
Microsoft also gave investors some jitters when it noted the challenging environment ahead. For such a resilient long-time grower, it’s alarming to hear it’s not immune to the economic forces that have weighed so heavily on the broader tech sector.
Nonetheless, despite layoffs and softening growth across big-tech companies, analysts are still very bullish on GOOGL and AMZN. Therefore, let’s analyze their potential.
Amazon is in a massive rut right now, with shares hovering 46% off peak levels. The massive layoff was far-reaching, but for a firm on the cutting edge of automation technologies, I view Amazon as a prime candidate (do forgive the pun) to improve its operational efficiency, even as the impact of the recession worsens over the coming months. I am bullish on AMZN stock.
As retail sales slide, while AWS hits a bit of a road bump, Amazon can continue investing in intriguing and innovative concepts as its smaller peers go into cost-cutting/pause mode. Amazon doesn’t need to hit the pause button. If anything, the recession is a chance to step back and re-evaluate where the firm can look to disrupt rivals.
Amazon’s still a disruptive force and seems poised to go after its competitors while they’re down and out from the tech sell-off. Amazon’s poised to open its “Buy with Prime” service later this month. The service, which provides a terrific value proposition to merchants and shoppers, could apply considerable pressure to e-commerce firms that empower small- and medium-sized businesses to open their own digital storefronts.
With massive fixed investment in fulfillment, “Buy with Prime” will be a tough, if not impossible, service to match. The service is unlikely to do much to alleviate looming recession pressures. However, I think it’ll be a growth engine to watch longer term.
At writing, AMZN stock trades at 93.1 times trailing earnings, which is surprisingly low compared to the catalog and internet order retail industry average of over 110 times.
What is the Price Target for AMZN Stock?
Wall Street still has a “Strong Buy” rating on Amazon. The average AMZN stock price target of $131.37 implies 28.5% upside potential from its current price.
Alphabet is the latest FAANG company to announce layoffs. Despite letting go of 12,000 (or 6% of the workforce), billionaire investor Chris Hohn thinks more cuts may be needed. Hohn reportedly pushed for a reduction of 20%.
Undoubtedly, it’s hard to gauge how deep Alphabet will cut as it looks to maintain and improve productivity. Still, over the coming months, Alphabet may be a firm to watch as investors call for more layoffs. For now, I remain bullish on GOOGL stock.
Indeed, Alphabet has spent considerable sums on potential growth drivers like the cloud-gaming platform Google Stadia, which it ultimately had to pull the plug on. In a low-rate world, the failure of such moonshot efforts isn’t as drastic. However, as money gets tighter, Alphabet will need to shift gears to improve profitability prospects, even at the expense of growth.
Unlike others tech firms, I think Alphabet is in a good spot to hit the pause button on growth as it looks to double down on profitability. The stock isn’t exactly priced for growth at just 20 times trailing earnings. That’s a multiple lower than no-growth consumer staple stocks!
In any case, I view Alphabet as a terrific value option that can thrive in a higher-rate world. If the Fed cuts rates down the road, setting the stage for a growth comeback, Alphabet can shift back to the growth track and spend freely on projects that may or may not grow to become the next big thing for the firm.
Finally, just because Alphabet is cutting, perhaps at the expense of growth, doesn’t mean the firm isn’t going to have any innovations. Alphabet needs to be more selective with how and where it spends its cash. With all the hype surrounding OpenAI and ChatGPT, Google is reportedly on “code-red.” As a firm that’s well-versed in AI, Alphabet may be in a spot to accelerate efforts on its own language model.
For now, Alphabet remains one of the best value bets in FAANG, and its growth should not go discounted just because it’s going through mass layoffs.
What is the Price Target for GOOGL Stock?
Wall Street still can’t get enough Alphabet, with a “Strong Buy” rating. The average GOOGL stock price target of $126.95 implies 27.75% upside potential.
With layoffs in the books, the two FAANG heavyweights are heading into an earnings season that will move markets. Despite sad news of layoffs and fears of earnings erosion, Wall Street remains bullish on AMZN and GOOGL. Currently, analysts expect more upside potential from AMZN stock for the year ahead, but both companies look promising.