The past year has been a perilous year for FAANG stocks. The new year brings new layoffs and revenue pressures, with FAANG/MATANA companies spotlighting some of the biggest cuts in the industry. Big tech tycoon Microsoft (Nasdaq: MSFT),Amazon(NASDAQ: AMZN), and the alphabet (Nasdaq: GOOG) (Nasdaq: GOOGL) recently laid off 10,000, 18,000 and 12,000 employees respectively. These are huge numbers amid mounting macro headwinds.
Microsoft also gave investors some trepidation when it mentioned the difficult environment ahead. It’s alarming to hear that for such a resilient, long-standing grower, the economic factors that have weighed heavily on the broader tech sector are not immune.
Nonetheless, analysts are still very bullish on GOOGL and AMZN despite job cuts and slowing growth across big tech companies.
Amazon (NASDAQ:AMZN)
Amazon is now in a very rut, with its stock price down 46% from its peak. Massive job cuts have been far-reaching, but for companies on the cutting edge of automation technology, Amazon is seen as the frontrunner (pardon the pun) to improve operational efficiency. Moon. I am bullish on AMZN stocks.
AWS faces some challenges as retail sales decline, but Amazon continues to invest in compelling and innovative concepts as smaller peers enter cost-cutting/suspension mode can do. Amazon doesn’t need to hit the pause button. If anything, the recession is an opportunity to take a step back and reassess where companies can look to disrupt their rivals.
Amazon remains a disruptive force and appears poised to go after competitors while they drop out of technology sales. Amazon is poised to launch a “Buy with Prime” service later this month. Offering great value to merchants and shoppers, the service can put considerable pressure on e-commerce companies to allow small businesses to open their own digital storefronts.
Fulfillment requires a huge capital investment, so “Buy with Prime” would be a comparable, if not impossible, service. The service is unlikely to do much to ease the pressure of a looming recession.
At the time of writing, AMZN stock is trading at a trailing return of 93.1x. This is surprisingly low compared to the catalog and internet order retail industry average of more than 110x.
What is your target price for AMZN stock?
Wall Street still has a “strong buy” rating on Amazon. AMZN’s average price target is $131.37, meaning the stock could rise 28.5% from its current price.
Alphabet (NASDAQ:GOOGL)
Alphabet is the latest FAANG company to announce layoffs. Billionaire investor Chris Hohn believes more layoffs may be needed despite letting go of 12,000 people (or his 6% of employees). Hohn reportedly asked for a 20% cut.
Admittedly, with Alphabet looking to maintain and improve productivity, it’s hard to tell how much to cut. Still, Alphabet could be a company to watch as investors call for further job cuts in the coming months. For now, I’m bullish on GOOGL stock.
In fact, Alphabet has spent a good amount of money on potential growth drivers such as cloud gaming platform Google Stadia, but ultimately had to pull the plug. In a world of low interest rates, the failure of such moonshot attempts is less dramatic. But as funding becomes tighter, Alphabet will have to shift gears to improve its profitability prospects, even at the expense of growth.
I think Alphabet, which is looking to double its profitability unlike other tech companies, is in the right place to hit the pause-growth button. The stock price is only 20 times the expected earnings, which is not exactly priced in for growth. That’s several times lower than consumer goods stocks, which have no growth prospects.
Either way, I see Alphabet as a great value option that can thrive in a world of higher rates. In that case, Alphabet could be back on a growth trajectory, free to invest in projects that may or may not grow and become the next big thing for the company.
Finally, just because Alphabet is cutting back, perhaps at the expense of growth, doesn’t mean the company won’t innovate. Alphabet needs to be more selective about where and how it spends cash. Due to the hype surrounding OpenAI and ChatGPT, Google is reportedly working on “Code Red.” As an AI-savvy company, Alphabet may be in a position to accelerate its efforts on its own language model.
For now, Alphabet remains one of the best value bets in FAANG, and its growth shouldn’t be taken lightly just because it’s making massive layoffs.
What is your target price for GOOGL stock?
Wall Street hasn’t gotten enough of Alphabet with a “strong buy” rating yet. An average GOOGL stock price target of $126.95 implies a 27.75% upside potential.
Takeaway
With book layoffs, two FAANG stalwarts head into a market-moving earnings season. Wall Street remains bullish on his AMZN and GOOGL despite the sad news of job cuts and fears of lower earnings. Now analysts are looking at a possible upside for his AMZN stock over the next year, but both companies look promising.
Disclosure
The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.