What Tech Layoffs Mean for Investors

Tech layoffs have been making headlines recently. 

Most notably is news that Facebook parent Meta Platforms (META, $101.47) will let go a significant portion of its global workforce.

"Today I'm sharing some of the most difficult changes we've made in Meta's history," said Mark Zuckerberg, CEO of Meta, in a letter to company employees. "I've decided to reduce the size of our team by about 13% and let more than 11,000 of our talented employees go." Zuckerberg added that META is taking "additional steps to become a leaner and more efficient company" by reducing discretionary spending and freezing hiring through the first quarter of 2023.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

The news was well-received by Wall Street, with Meta stock jumping more than 6% in reaction. 

The Facebook parent is hardly alone. Tech companies of all sizes and profitability have been laying off staff for weeks, which begs the question: What do these tech layoffs mean for investors?

Meta Layoffs Are the Tip of the Iceberg

According to Layoffs.fyi, a website dedicated to tracking job cuts at tech startups since the beginning of COVID-19, there have been 106,046 tech layoffs so far in 2022, including the 11,000 from Meta.

Not surprisingly, Meta has the highest number of job cuts this year, but it also started 2022 with a global workforce of nearly 72,000 employees. That's a much higher base than many tech firms on the Layoffs.fyi tracker.

Relatively speaking, Twitter CEO Elon Musk took a much bigger ax to that social media firm when he took over operations earlier this month. Musk fired approximately 50% of Twitter's 7,500 employees on Nov. 4. There are news reports that Twitter has asked some of the employees it let go to return to their jobs.

It's a mess in the tech world and will only worsen.

Take for instance the recent news in the cryptocurrency space. On Nov. 8, Binance, the world's largest crypto exchange, said it would buy the non-U.S. assets of its struggling competitor, FTX Trading.

"This afternoon, FTX asked for our help. There is a significant liquidity crunch," Binance CEO Changpeng Zhao posted on Twitter. "To protect users, we signed a non-binding (letter of intent), intending to fully acquire FTX and help cover the liquidity crunch."

Just one day later, the company announced via Twitter that  it will not be buying FTX due to "the latest news reports regarding mishandled customer funds and alleged U.S. agency investigations." 

Given FTX's massive financial struggles, the list of casualties from its spectacular death spiral will be extensive. In addition to likely layoffs for employees of the embattled crypto exchange, some of the biggest names in investing were affected, including Canada's third-largest pension, which invested in FTX earlier this year. 

Recent tech layoffs just add to a broader trend. Consulting firm Challenger, Gray & Christmas said the tech industry cut nearly 9,600 jobs in October. That's the highest monthly total since November 2020.

That said, current firings have so far been less than the nearly 300,000 tech layoffs that occurred between January 2001 and December 2002, the height of the dot.com bust. More job cuts are likely, but a lengthy and severe recession would jeopardize that number.

What Do Tech Layoffs Mean for Stocks?

It might appear that the sky is falling for those working in the tech industry. It's no fun if you're handing out the pink slips, and it's not something any employee wants to experience.

As for investors, here are a few things to remember before unloading your tech stocks.

First, today's tech industry is a much different beast than during the dot.com bust. In many cases, the layoffs the industry is currently experiencing are big companies like Meta having to rein in spending for the first time in years. In Meta's case, maybe ever.

Second, Meta had 71,970 employees at the end of last year. As of Sept. 30, it had 87,314 employees worldwide. So if you subtract 11,351 (13% of 87,314), you're left with 75,963 employees, nearly 4,000 higher than when it started the year.

Are the tech layoffs a big deal? Absolutely.

Do they sound the death knell for the industry or investors of tech stocks? Not likely.