Private equity chief Orlando Bravo has a grim warning for the tech industry.
“I think there will be more pain to come,” Bravo, founder of buyout firm Thoma Bravo, told CNBC’s “Squawk Box Europe” on Thursday.
For years, the tech sector has led the stock market, with companies like Apple and Microsoft becoming some of the most valuable companies in the world.
But in 2022, tech stocks have faced a reckoning as central banks move to rein in runaway inflation. The US Federal Reserve on Wednesday made its most aggressive rate hike since 1994.
Higher rates make future earnings for growth-oriented companies less attractive. Tech companies, especially those backed by venture capital, tend to prioritize growth over short-term profitability.
“When those companies really start to answer the investor question, the path to profitability, they’re not going to love what they see,” Bravo said.
Bravo has a net worth of $6.3 billion, according to Forbes.
“That requires a lot of cost cutting, that requires a lot of pain,” he added. “And it’s hard to execute, especially in a public setting.”
Lately, once-loud tech companies have seen their valuations drop sharply in both the public and private markets, with companies that benefited from the social effects of the Covid-19 pandemic hit harder than others. others.
Shares of Netflix and Zoom have plunged about 63% and 70%, respectively. Peloton, the fitness equipment company, has lost more than 90% of its value.
The effects of the tech stock sell-off are also being felt at private companies, with buy-now-pay-later firm Klarna reportedly cutting its valuation by a third in a new funding round.