7 Slimmed-Down Tech Stocks to Buy as Pink Slips Fly

Although the implosion of the equities sector in 2022 particularly impacted the technology sphere – and thus caused mass layoffs – certain tech stocks to buy may offer compelling discounts. With the Federal Reserve determined to control inflation through ever-rising interest rates if necessary, the sector needs to downsize. Actually, check that: it’s called “right-sizing” to use the techie parlance.

Whatever you want to call it, the go-go days of the first two years of the coronavirus pandemic likely faded into the rearview mirror. Now, the Fed must deal with the consequences of dovish monetary policies. Considering that the real M2 money stock remains substantially elevated relative to pre-Covid-19 norms, the central bank has plenty of work ahead.

Ultimately, then, the layoffs in the tech space may be necessary to align with present – and possibly future – realities. That said, this dynamic opens the door for contrarian investors. Below are the tech stocks to buy as the pink slips fly.

Amazon (AMZN)

On Jan. 5 of this year, InvestorPlace writer William White reported that e-commerce giant Amazon (NASDAQ:AMZN) disclosed plans to cut more than 18,000 jobs. Notably, the headcount right sizing came in a bit higher than expected. Prior estimates called for the elimination of 17,000 jobs. Further, the impacted workers mostly stem from the company’s e-commerce and human resources divisions.

For close observers of AMZN, the news didn’t come as much of a surprise. As White pointed out, consumers cut back on spending due to inflation and recession concerns. Rumors also indicate that Amazon founder Jeff Bezos may return to the CEO role. We’ll see what happens.

Financially, the company can use some work. On a trailing-year basis, Amazon’s net margin fell to 0.53% below parity. Objectively, AMZN rates as a significantly overvalued investment, with shares priced at a forward multiple of 57.74. Therefore, a significant overhead reduction may be what the doctor ordered. Plus, Wall Street analysts peg AMZN as a consensus strong buy. As well, their average price target stands at $137.05, implying nearly 40% upside potential. Thus, AMZN presents a solid case for tech stocks to buy.

Alphabet (GOOG, GOOGL)

On Jan. 20, InvestorPlace contributor Larry Ramer reported that Google parent company Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) disclosed that it would lay off about 12,000 employees. Ramer mentioned that “[t]hese latest tech layoffs come amid rising interest rates, a slump in digital advertising, and as Google faces its first significant competitive threat in many years.”

Specifically, the pink slips accounted for 6% of Alphabet’s total workforce. It impacted all of the corporation’s units and geographic locations. While those on the firing line will surely feel differently, for stakeholders of GOOG, it might be the right move.

Operationally, Alphabet features enviable metrics, with a three-year revenue growth rate of 22.9% and a net margin of 21.2%. Both stats rank above their respective sector median values. In addition, Alphabet’s Altman Z-Score pings at 9.16, indicating very low bankruptcy risk. However, if the enterprise wants to stay competitive amid concerns from rivals, it needs to be lean and mean.

Pertinently, Wall Street analysts peg GOOG as a consensus strong buy. In addition, their average price target stands at $124.60, implying 30% upside potential. Thus, it makes for an enticing example of tech stocks to buy.

Meta Platforms (META)

One of the more controversial entities among tech stocks to buy amid the layoffs, Meta Platforms (NASDAQ:META) couldn’t escape from the malaise. According to William White recently, the social media and tech giant may be considering more layoffs. The news followed the company’s workforce reduction by 11,000 employees back in Nov. To be sure, nobody roots for people to lose their livelihood. Getting pink slipped represents one of the toughest experiences for anyone to endure. That said, Meta has been tempting fate for some time. Previously, the company attracted much criticism for investing so heavily in the metaverse.

Ultimately, investors will be hoping that the economic challenges forcing the right sizing will wake up management. If so, META may represent one of the most enticing tech stocks to buy. According to Gurufocus.com’s proprietary calculations for fair market value (FMV), META rates as significantly undervalued. It also features strong growth and outstanding profitability metrics. Right now, Wall Street analysts peg META as a consensus strong buy. Their average price target stands at $215.20, implying nearly 25% upside potential.

Netflix (NFLX)

Back on June 23, InvestorPlace contributor Chris MacDonald reported that content streaming giant Netflix (NASDAQ:NFLX) laid off 300 employees. At the time, it was the second round of layoffs for the entertainment enterprise. The reason centered on bringing Netflix’s cost in line with its revenue growth.

So far, the headcount reduction and other initiatives have proven productive for NFLX. For instance, shares gained nearly 19% of equity value since the start of this year. While they’re down over the past 365 days to the tune of 9%, it’s a remarkable improvement from 2022’s trough. Financially, Gurufocus.com warns that NFLX still rates as a possible value trap. However, with the company’s leaner and meaner profile, it should be better aligned with current economic realities. Operationally, investors are looking at a three-year revenue growth rate of 16.2%. In terms of net margin, Netflix commands 14.21%. Both stats rate well above their respective sector median values.

Theoretically, the job cuts should help Netflix maintain its operational supremacy. Presently, Wall Street analysts peg NFLX as a consensus moderate buy. Admittedly, their price target implies downside of 1%. However, the changes should make NFLX one of the tech stocks to buy.

Workday (WDAY)

On Jan. 31 of this year, William White reported that business software firm Workday (NASDAQ:WDAY) would cut 3% of its global workforce. Per its corporate statement, the layoffs stem from a “challenging economic environment.”

According to White, “[t]he current state of the economy hasn’t been kind to tech companies. That’s due to inflation weighing on consumers. As consumers spend less, advertisers also spend less money. That affects many tech companies that rely on ads for funds.” Interestingly, Workday made it a point to stress that the layoffs didn’t materialize due to over-hiring.

Whatever the case may be, the job cuts could make WDAY one of the tech stocks to buy. According to Gurufocus.com’s FMV calculations, Workday rates as a significantly undervalued investment. Further, it features solid three-year revenue growth of 15.8%, outpacing 70% of the competition. However, one of the challenges centers on negative net margins on a trailing-year basis.

It’s possible that the layoffs could help correct this matter, making WDAY one of the tech stocks to buy. If anything, Wall Street analysts apparently believe so too, pegging shares a consensus moderate buy.

DigitalOcean (DOCN)

Just recently, William White noted that cloud-computing specialist DigitalOcean (NYSE:DOCN) would reduce its headcount by roughly 200 workers. This tally represents approximately 11% of the firm’s workforce.

In a meeting following the layoffs announcement, Yancey Spruill, CEO of DigitalOcean, included a presentation. In part, the slide read, “Our goal was to do this once so we would move forward towards business as usual again. Ongoing reductions are disruptive to the business and more importantly our employees, and we would like to minimize this as much as possible.”

The slide also stated that no plans exist to conduct future workforce reductions. Over time, the layoffs could bolster DigitalOcean. An aspirational enterprise, the business has zero problems generating revenue. Its three-year sales growth rate stands at a stratospheric 25.4%. However, its profitability presents huge challenges. Right now, its net margin slips nearly 5% below parity.

Currently, Wall Street analysts peg DOCN as a consensus moderate buy. Their average price target implies 4% downside. However, with the job cuts, the possible improvement to the bottom line should raise this target eventually.

Twilio (TWLO)

Finally, William White again reported a sighting of the corporate Grim Reaper, this time targeting Twilio (NYSE:TWLO). Recently, the programmable communication tools firm stated that it intends to cut 17% of its workforce. As well, it will close down some offices. Plus, Twilio is expecting to suffer a charge of $100 million to $135 million in connection to this restructuring plan, per White.

Fundamentally, Twilio probably had no other alternative. First, the implosion of the cryptocurrency market meant less demand for its two-factor authentication protocol. Second, its communication APIs may have struggled as end users tightened their belts. Financially, the data tells you everything you need to know. In terms of the top line, Twilio posts a three-year revenue growth rate of 34.6%. This stat outpaces nearly 82% of the competition. However, its net margin stinks, slipping 36% below breakeven against the trailing year. Gurufocus.com also warns that TWLO may be a possible value trap.

With the reduction in overhead costs, TWLO may start performing better. Also, Wall Street analysts peg shares as a consensus moderate buy.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.