Microsoft layoffs are not enough to shake our cautious view of the tech giant

Published Wed, Jan 18 20234:24 PM EST

Kevin Stankiewicz @in/kevinstankiewicz @kevin_stank

Microsoft 's (MSFT) layoff announcement Wednesday doesn't shake our guarded view of the stock. In fact, it reinforces our belief that the technology giant's business still has more challenges ahead. The company is making the job cuts — roughly 10,000 workers, not quite 5% of its workforce — because revenue growth is slowing, and it needs to bring down expenses to better align with its near-term revenue projections. Other tech giants like Amazon (AMZN) and Facebook parent Meta Platforms (META) have recently laid employees off, too. The Club wants to see tech giants tighten their belts, and Microsoft took a step in that direction — although more may need to be done, Jim Cramer suggested Wednesday. However, we see no reason to run in and buy Microsoft shares on the layoff news because it doesn't allay concerns about slowing sales growth and margin pressure. It confirms them, which is why this isn't an all-clear signal to start buying the stock here. Microsoft CEO Satya Nadella warned earlier this month that the next two years could be challenging for the tech industry as demand for its products normalizes following a bump during the pandemic. Those Nadella comments put a fine point on the fact tech isn't booming like it once was, and helped motivate the Club's decision last week to lock in profits on 125 Microsoft shares purchased roughly five years prior. Microsoft's headcount reduction is an even more concrete acknowledgement that the winds have changed. MSFT 1Y mountain Microsoft's stock performance over the past 12 months. Near-term caution on Microsoft doesn't invalidate the company's long-term potential, though. In some ways, Microsoft currently exemplifies a tension investors often face between present fears and future promise. Microsoft has received a flurry of positive headlines in recent weeks stemming from its close partnership with ChatGPT, an artificial intelligence-powered chatbot that went viral after its public release late last year. While the Club wrote about ChatGPT's impact on Microsoft in December , the chatbot has continued to capture Wall Street's attention. On Wednesday alone, two different analysts published notes discussing Microsoft and its work with OpenAI, the startup behind ChatGPT. Microsoft invested $1 billion OpenAI in 2019 and reportedly has eyed a larger investment in recent weeks . "We believe investors are focused on these layoffs when instead the