What tech companies/industries will do well in a recession?

Don't invest for the winners in the recession.

Invest near the depths of the recession for the winners of the recovery where everything looks like its on a firesale.

The problem is of course timing the bottom. And resisting the emotional urge to think nothing could ever recover.

The 2020 extraordinarily V-shaped recovery surprised me a lot.

Given that nothing financial is really popping that hard and a lot of the headwinds we're facing now are just high commodities prices, bullwhip effects from the pandemic, and China is shutting down again, all of those factors are likely to be temporary so any near-term recession is likely to be V-shaped as well.

I suspect this is just a correction and we're close to maximum pessimism and investors should start looking for what to buy in the near term. And if you didn't already sell then you're probably too late and would be looking at locking in any losses that you had and missing the rebound.

But this is a description of conditions as they are today, not a crystal ball of the future. If something detonates tomorrow everything could change (and literally if Russia launches some nukes at Kiev tomorrow everything may change in an instant -- but I'm more considering a financial detonation).

Speaking of a recession, I hope the recession isn't another massive redistribution of wealth into the hands of an older generation.

Housing has continued shooting up, as those in the 30s find themselves with fewer assets to buy it with. The low interest rates amortize the costs allowing affordability, but the older generation still gets a massive payout. Then when the economy start recovering back up, the older generations find themselves with all of this liquidity to exploit, while the younger generation is stuck paying off mortgages.

Housing is controlled politically, and holds safety, convenience and schooling hostage. It doesn't play the supply-n-demand game. Thus, it gets to stay unaffected by recession as long as default rate stay low. I am not sure what the mechanism for it is, but I do selfishly wish that housing prices and interest rates will back down to normal sometime soon.

Related question: which tech products are 'inferior goods' - goods whose demand rises when incomes fall https://en.wikipedia.org/wiki/Inferior_good

I suppose we could also frame the question as which tech companies and industries will NOT do well during the recession.

I think that streaming services will not do well. People will return to torrenting and piracy. Same with crypto trading platforms. Basically any place where Joe Average can't afford to spend more than he has on hand. Tesla will see a big drop too, as people will cash out to buy their groceries.

As for what will: free for the end user services that get by on ad revenue and data mining. Alphabet, Facebook, stuff like that.

Someone from Wells Fargo was on CNBC earlier this week. I liked his viewpoint:

They're bullish on a subset of tech that's specifically focussed on efficiency and process automation.

I think the same category would do well in a recession. If money is tight, you'll trim down your workforce and you'll cut out "nice to have" goods and services from your budget, but you probably won't cut services/tools that help you get things done faster with fewer people.

Any company who’s customer is the government. There’s only one entity that spends money in a recession, and that’s the government. Safest job you could have is one working for the federal government. Everything else is speculative and subjective to whatever is influencing the economy at any given point.

Look for companies and industries that can pass rising costs onto customers more easily. So typically staples over discretionary. Fuel, food, medicine.

We're arguably in a recession right now: https://en.wikipedia.org/wiki/COVID-19_recession

Companies offering free services or cheap ownership of things should do well I think, but any company that relies on subscriptions or upgrades would be hit hard.

Companies that cater mostly to luxury clients

Anything energy related.

Geography also plays an important role. Places like the valley saw very little impact while the place I was living at in the South basically had it's software ecosystem gutted. It did bounce back within a year though, so just make sure you have enough funds to ride a recession out in the worst case.

People downscale their food choices during recessions.

They drop Five Guys and go back to McDonald's. Panera vs Subway, Chipotle vs Taco Bell, etc.

"Recession" is a bit ambiguous. To identify winners and losers in any economic climate you need to consider the specific factors at play, and the winners of previous "recessions" may or may not be winners in the next.

In this case _my_ assessment is that we're facing a prolonged period of high inflation partially fueled by factors which can't be mitigated by Fed actions (COVID lockdowns in China, global transportation backlogs, European conflict, food shortages) and perpetuated by high household savings levels. I don't think we're going to face significant slowdown of consumer spending this year.

In that economic environment, consumer staples which do their own production and have the ability to quickly respond to inflation are favoured. I'm in a sector ETF for this.

I also believe profitable tech which is ad-funded is at an advantage - anything where prices are set by auction and ROI is demonstrable/visible is golden, as are industries like cloud computing which have natural deflationary economics. This implies Meta/Goog/MSFT (and in this I'm betting on specific tactics and am choosing specific companies).

Those are my bets, you should form your own hypothesis and extrapolate appropriately.

Also note that these are systemic factors, but will always be dominated by idiosyncratic realities. Individual stocks are only loosely correlated with sector movement, if you think you have a winner or asymmetric knowledge about a specific company don't let larger trends dissuade you (or vice versa).

Finally, a corollary to the above: when you invest on macro/sector trends, do so through sector/strategy ETFs. If you're investing on asymmetric knowledge or insight, invest in specific equities. Combine the two strategies at your peril.

There is no exact answer to this question, just a set of factors that contribute towards doing better than someone else.

First, do you directly make money for a company, or directly reduce costs? The closer you are to core activities that generate income, or increase efficiency, then the more protected you will be from being laid off. This applies to companies too in a way.

Companies need core services like email or ERP. Chat like Slack is now core compared to the situation in 2008. This core software is going to be the last thing that companies want to change. What they will focus on eliminating is all of the nice-to-have software that has been deployed in their organization. SaaS costs add up at the department and company levels and companies will look to eliminate low hanging fruit.

If something has low usage numbers, that'll go. When some product has a nice UX, but there is an alternative within some other product, then the nice UX won't win out (e.g. use Jira instead of Asana.)

These are examples of software, but the same patterns play out across other categories. What's worth considering, is how can these things come out of a recession? At the start of the recession, contingent staff or contractors were often let go before employees. As the economy recovered, hiring contractors was a safer bet during the uncertain window when it wasn't clear that we had turned a corner. SaaS started to become a viable option because you could get started cheaply and didn't have to stump up funds for implementation. We take SaaS for granted now, but a lot of the growth came out of the last recession when you could make arguments for it.

Because workers have more time to upskill in a recession, companies that offer services in this area (e.g. SIS systems, etc.) might also do well. From what I can recall, one of my former employers (https://moderncampus.com) has traditionally done well during an economic downturn.

Not hurt badly: Already free cash flow positive ones.

Success or Grow meaningfully: not sure. There's also other risks (geopolitical, supply chain). It also depends on what it means by growth. Growing revenue? Is success measured by external measures (stock price) or other intrinsic factors (profitability)

I work at a startup currently and am wondering if it’s time to start job hunting at the big companies because I worry about stability. There will be some flood of labor soon I can feel it in the air and I want to get in before that

Ed tech - when people lose their jobs they want to upskill themselves

Any company that is pre-revenue or is subsidizing growth by under charging for their services will be in a bad spot (unless they have a long run way).

Any company that has an unsexy middle of the line offering. Those companies usually sit on tons of cash anyway and will be fine through the duration.

Anything that assumes low interest rates might be negatively affected. Capital intensive things based on renting/leasing (e-scooters?) are in the cross-hairs.

Credit/pay-later services will have greater credit losses, higher risks and higher rates.

Viewing hours on ad-based tech might not be negatively affected, but that doesn't translate linearly to revenue.

Power Systems or certain companies in the healthcare space? I was working in a company making software for utilities and oil & gas companies (think competition to GE, Siemens etc). Don't think this will ever be slowed down or have to lay off people specifically due to a 2008-09 like recession

I'm not totally sure, but I suspect quantitate finance/market makers, of which tech is a big part, would do well during recessions- profits there seem correlated to volatility and volume of stock trading, which I'd guess would be high during a downturn and recovery?

During the 2008-2009 episode, analytics companies did well. Apparently a lot of their customers were interested in trimming the fat and needed analytics software for it. I'd guess any tech company that directly helps cut the enterprise costs will be in a good position.

In every recession we have seen a big uptick in startups being created. If you look at the last big one in 2008 a number of notable startups got their start including Twilio. So I would imagine the same will happen if we dip into a big recession. We are starting to see some of that happen now. I read a report that in 2021 VCs invested in double the SaaS companies than they did in 2020. However, 2020 was a bad year for all VC funding, but it says something that the growth in VC backed SaaS companies grew so drastically while the market has struggled for the past two years.

It varies depending on the context of each recession. For the likely upcoming recession, energy/industrial/agriculture/real estate. In other words, hard assets, manufacturing, and commodities.

A recession will probably lead to even more consolidation. The big companies will get bigger and smaller companies will die or be bought. The whole economy is increasingly favorable toward bigger players.

Organizations with lots of cash on hand and very little debt/leverage.

From all the FAANGMULA companies, only Apple and Facebook haven't had layoffs during a recession.

Yes, even Microsoft had some layoffs back in 2008-2009, and Google had some 'stealth' closures. Also they did a hire freeze as well back then. Just right now they laid off the GCP customer support team. We know all the others (Uber, Airbnb, Lyft, etc, had all layoffs as well).

It really depends on the CEO's mentality. Some companies, even if their balance sheet is fine, they will use as an excuse to cut some fat.

So far only Apple and Meta are the exceptions.

I knew of an online company that caters toward attorneys. They publish bankruptcy notices. They do very well in every economic downturn. But that's pretty niche isn't it.

I would say its more based on companies than industry. If the company is not profitable, has <6mo runway(startup) than it most likely will be one to avoid.

Big companies that make money, google, apple, etc will be fine. For medium sized companies if you involved in a unit that makes the company money or run core infrastructure you should also be fine. For smallish companies if they survive you better hope you are single point of failure and if you left things would be in a bad state.

In the (potentially) incoming recession? Anything related to the basics, food and military, and those serving them, are sure. Everything else - it depends.

Probably most, if not nearly all; tech is eating everything.

What do you mean by well? Like stock increases, profitability, etc?

I guess what I’m asking is are you looking for stocks to invest in or a job to ride out the storm kinda thing?

Depends on what you're looking for? Stability in employment? Hard to say, even successful companies can have rounds of layoffs during a recession.

As for investing, you're probably best off with the bog-standard 'invest in everything' index fund - during a recession is when you get to pick up shares at lower prices, but it's hard to time the bottom.

Even "big names" like Berkshire can be affected by a recession.

fintech SaaS companies. the banks have all the money, so those companies who provide services to them should thrive. regardless of the economy, people need bank accounts, credit cards, mortgages, etc. a recession just makes competition more fierce, and players in the vertical require technology to stay competitive

Anything with solid fundamentals based on a legitimate, defensible USP or captive audience within a sector having recession-proof demand.

Food, drugs and administration.

Add to that deep science and technology ventures that would do well anyway and don't care if it's a recession.

Faang companies are printing cash. Instead of making 50bil maybe they will only make 45.

Ones that save you money: https://vantage.sh and https://mainstreet.com are ones I've used.

One I've yet to see mentioned here is Security.

It's an industry built on top of a cat and mouse game and so will always be required in some capacity, and things like breaches and fines are recession invariant.

Skimp on security at your own risk.

Home service businesses (contractors, electricians, plumbers, HVAC, roofers, etc). Even houses owned by banks/investment groups need repairs done. It's a huge industry that desperately needs employees.

The defense sector, but you'll eat lower payments until a recession

Sites targeting distressed or bankruptcy assets like: https://www.inforuptcy.com/

> What tech companies/industries will do well in a recession?

every company that’s not driven by hype (example: crypto, chatbots) and not focused on growth as primary objective

Just buy the index like everyone else will be doing. TINA

I work in Fintech. Our company has never done layoffs through the recession. It is not a FAANG company, but if you want stability, it has that.

If you're wondering what to invest in, I would stick to VTI/ITOT/etc. Some people will definitely be lucky but nobody knows nothing!

Recessions impact every industry there’s no good stocks. If you’re asking what will do well this cycle: Energy, materials, industrials.

If anyone could predict this with any reasonable accuracy, there would never be another recession. Ergo, there is no answer to this.

None. Tech is highly cyclical.

Maybe some are closer to government spending which maybe will rise in a recession but they will all be hurt.

Probably military-related will be the most insulated in the upcoming recession given the current events in Europe.

Why has it been a while since the last recession. Wasn't there a recession in 2020 due to the pandemic?

Are you asking in the context of investment or job search? The answer may vary significantly based on this.

I think the answer is Berkshire Hathaway. But the problem is whether you can afford to buy one share.

M&M Mars. People buy M&MS instead of more expensive chocolate. Similar to the Kraft Index.

Avoid consumer cyclical companies.

Companies that make it easier/faster to onboard new customers.

Support the arms industries. War is peace.

Outsourcing firms like Upwork

Netflix

Military.

Healthcare and insurance.

Telecom and Military

Video streaming

I think companies that focus on a specific use case or problem where there is a strong value proposition will be the ones that do well in a recession. For example, when you have less money, what are you going to invest in? Probably not something that does everything for you. So I'd expect to see some very niche products and tools take off.

Platforms like airBnb/Uber. The house always wins.