Job cuts from Amazon and Salesforce are the first step in staging a turnaround for tech that will see the sector jump 20% in 2023, Wedbush says

• Recent job cuts from Amazon and Salesforce represent the first necessary step in staging a turnaround for tech stocks, according to Wedbush.
• "Investors want these management teams to get ahead of the storm and preserve margins and the bottom-line," Wedbush said.
• Wedbush expects the tech sector to deliver a 20% gain in 2023 despite economic uncertainty.

Recent job cuts at Amazon and Salesforce represent the first necessary step in staging a turnaround for the technology sector, according to a Thursday note from Wedbush analyst Dan Ives.

He doubled down on his call that the tech sector could deliver 20% returns in 2023 despite the uncertain macro environment and ongoing concerns of an imminent recession. 

But the tech sector is finally taking its medicine after over-expanding during the COVID-19 pandemic, when business was booming and companies needed more employees to satisfy demand. Amazon said it would shed 18,000 jobs this week, while Salesforce announced a 10% cut to its employee count.

"The stage is being set: tech names across the board are cutting costs to preserve margins and get leaner in this macro," Ives said. "Investors want these management teams to get ahead of the storm and preserve margins and the bottom-line."

The next step for tech companies is to give conservative earnings guidance, blaming the economic uncertainty, he added. But those downgraded forecasts should prove easy to beat and help give the sector a much-needed boost.

Ives is bullish on the tech sector because valuation multiples are below their five-year average, and it is "the most under-owned tech sector we have seen since 2009," according to the note. 

Another factor that should help technology stocks is the likelihood that the Federal Reserve will tame inflation and end its interest rate hikes by the end of this summer. That should provide relief for growth stocks like tech, especially if interest rates start to trend downwards rather than upwards.

"We remain in the beginning of a 4th Industrial Revolution that will spur the next growth cycle and ultimately that creates a number of opportunities across the tech sector to own in our opinion. We double down on our call that we believe tech stocks will be up 20% this year and are way oversold at current levels," Ives said. 

His top pick for 2023 is Apple, with other favorites including Microsoft, Salesforce and cyber security stocks like Palo Alto Networks, among others.