The lockdown instigated by the pandemic of 2020-21 forced corporations to speed up information technology spending. Companies like Salesforce (CRM), Microsoft (MSFT), Amazon (AMZN), and Shopify (SHOP) are among the firms that hired more staff.
When the lockdown ended and the world adapted to a hybrid to a full return to work model, tech spending fell. Microsoft’s 10,000 staff layoff and $1.2 billion charge have implications for big technology.
Investors cannot count on mega-cap firms for long-term growth. They are in cost-cutting mode. They foresee a slowdown in software subscription contracts. Corporations are cutting costs and staff, too.
Previously, tech investors could count on Microsoft Office 365, Azure, a cloud solution, and its Xbox gaming for growth. Growth from software subscriptions is not guaranteed. Customers are complaining that the bundled offering costs too much. They want fewer features at a lower price.
In the gaming segment, Microsoft’s expensive $69 billion bid for Activision (ATVI) looks risky. Markets will shun big tech acquisitions that burn cash. Investors will want to invest in companies that have cost discipline. Unless the acquisition adds immediately to results, shareholders will not pay a premium for stocks like Microsoft.
Microsoft will likely trade in a range. It is a stock to hold for now.
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