The recent trend of companies trimming down their workforce and integrating AI technology with the aim of cost-saving has sparked concerns about an overheated market. In 2023, the tech industry alone shed 262,595 jobs, and that trend has now expanded into the non-tech sector, with nearly 30,000 employees laid off in January 2024. This collective behavior, aimed at widening operating margins, has raised questions about the potential overvaluation of numerous firms.
Echoes of the Past
The parallel to the dot-com bubble burst in March 2000 sends shivers down the spine of many seasoned investors. In that calamity, Nasdaq lost approximately 78% of its value, wiping out swift gains made due to excessive investment and unmet promises. The aftermath was a recession in 2001, coinciding with the 9/11 attacks, when both consumer spending and business investments plummeted.
Today, the signs point to a looming recession that could deflate the overinflated valuations of many companies.
Apple Inc: Riding on Shaky Ground
Apple Inc, the behemoth valued at $2.86 trillion, has leaned heavily on stock buybacks to bolster earnings per share (EPS) for shareholders. Over the past decade, the company has been the reigning king of stock buybacks, having splurged an astounding $573 billion on the endeavor.
While the strategy has been pivotal in projecting Apple as a ‘safe haven’ for investment, it is also precariously unsustainable, potentially driving the firm to accrue debt just to sustain the facade. Moreover, in a recessionary climate, Apple’s core business model could face severe blows, particularly in a saturated and mature smartphone market, where high-priced models could struggle to attract buyers.