Tech to Suffer as Cost Cuts Come Late, Morgan Stanley Says

John McCorry and Jonathan Ferro, Bloomberg News

Mike Wilson, chief U.S. equity strategist at Morgan Stanley & Co., speaks during a Bloomberg Television interview in New York, U.S., on Tuesday, Aug. 22, 2017. Wilson discussed growing calls for caution in the markets and his thoughts on investing. Photographer: Christopher Goodney/Bloomberg , Bloomberg

(Bloomberg) -- Salesforce Inc. shares rose Wednesday after the software maker unveiled a 10% workforce reduction. Before investors get too excited about the technology sector reining in spending, they might listen to Mike Wilson, who led the field of Wall Street prognosticators in what was a dismal 2022.

Tech companies “are not good cost cutters,” Morgan Stanley & Co.’s chief US equity strategist told Bloomberg Television’s Surveillance 90 minutes after Salesforce said in a regulatory filing that it aims to complete a workforce restructuring by the end of fiscal 2024. “They are growth companies.”

“They want to invest aggressively through all periods of time. They are not good at cost cutting and they will be late on that,” he said. “It will take longer than you think, and the margin degradation can be more severe in those areas.”

Wilson, whose bearish forecasts ranked him No. 1 in last year’s Institutional Investor survey, still sees the S&P 500 Index falling about 20% to 3,000 as consumer spending and the economy slows, with stocks recovering somewhat later in the year.

“It’s all about profitability,” he said. “We will get a nasty earnings recession and the companies that can deliver on cost efficiency will be the ones that can continue to perform.”

Read more: JPMorgan, Goldman Say Stocks Recovery Won’t Be Easy in 2023

--With assistance from Tom Keene and Lisa Abramowicz.