Apple, Amazon, Microsoft and the parents of Facebook and Google lost $2.7 trillion in value so far this yearwhich represents almost the gross domestic product of the United Kingdom.
And what have companies done with this beating on Wall Street? Microsoft doubled its employee bonus pool, Google pledged to hire more engineers, and Apple doled out $200,000 bonuses to its top hardware talent..
The dissonance between the relative panic of the stock market and the calm of ‘nothing happens’ among the tech giants heralds a period in which analysts, investors and economists predict that the world’s largest companies will extend their leadership in their respective markets.
The optimism about its possibilities reflects the understanding that companies have a tight grip on some of the world’s most lucrative businesses: social media, high-end smartphones, e-commerce, cloud computing, and search. Its dominance in those areas and its presence in other businesses should ease the pains of inflation, even as those challenges hit big companies like Walmart and Target and the stock market is nearing bear market territory.
The S&P 500 Index spent much of Friday below the threshold of what is considered a bear market, commonly defined as 20 percent below its latest high, before bouncing back in the late afternoon. The index ended the week down 3 percent, its seventh consecutive weekly decline. It is the longest losing streak since 2001.
In the coming months, Microsoft, Google, Apple and Amazon are expected to boost hiring, buy more companies and come out the other side of a depressed economy stronger and more powerful.; even if they shed some of its total valuation and its relentless growth in recent years.
Big tech companies may say, “Forget economics,” said Richard Kramer, founder of Arete Research, a London-based advisory firm. Flush with cash, he said, “they can invest through the cycle.”
The plans of the big companies are in stark contrast to the wave of spending cuts that is hitting the rest of the tech sector. Sharp declines in share prices of unprofitable companies like Uber, whose value is down 45 percent, and Peloton, which is down 58 percent, have prompted their CEOs to cut jobs or consider layoffs. . Startups are downsizing as venture capital funding dwindles.
The falling value of those companies will create buying opportunities, said Toni Sacconaghi, a technology analyst at research firm Bernstein. Big deals might be tough because the Federal Trade Commission scrutinizes acquisition moves by Facebook, Apple, Amazon, Microsoft and Google, he said, but smaller deals for emerging tech or engineers could be rampant.
During the Great Recession, Facebook, Amazon, Google, Apple and Microsoft acquired more than 100 companies between 2008 and 2010, according to Refinitiv, a financial data company. Some of those deals have become pivotal to its business today, such as Apple’s acquisition of chip company PA Semi, which helped develop its new laptop processors, and Apple’s acquisition of Google from AdMob, which helped create a mobile advertising business.
“Big companies will get bigger and poor companies will get poorer”, said Michael Cusumano, associate dean of the Massachusetts Institute of Technology Sloan School of Management. “This is how network effects work”, he added.
This feeling of invulnerability comes with its warnings. The plans of big companies can always change if the economy continues to deteriorate and consumers reduce their spending even more. And some of the big companies are more vulnerable than others.
Meta Platforms, the parent company of Facebook, has fared worse than its competitors because its business faces long-term challenges. The company has seen its profits fall as its user growth slows amid growing competition from TikTok, and changes to Apple’s privacy policy hamper its ability to personalize ads.
Meta CEO Mark Zuckerberg reacted by temporarily freezing some hiring. During a recent staff meeting, employees asked if any layoffs would occur. Zuckerberg said the company’s current plans did not anticipate job cuts and were unlikely to happen in the future, according to a spokesman. Instead, the company was focused on reining in spending and limiting its growth.
Amazon told its employees much the same thing last month after posting disappointing results. In a call with analysts, Brian Olsavsky, the company’s chief financial officer, said that Amazon would try to contain costs after doubling spending on warehouses and staff to keep pace with pandemic orders. As people return to work and travel, they make fewer purchases from Amazon, leaving the company with more space and staff than it needs.
However, Amazon’s lucrative cloud business, Amazon Web Services, or AWS, is still very profitable. The company plans to build on its success in the coming months by increasing its data center spending. It also pledged to raise the cap on base pay for its corporate staff from $160,000 to $360,000. In addition, it is investing in a plan to build a network of satellites to offer high-speed Internet by launching 38 rockets into space.
The first test for big tech companies will be contagion from rivals. Shares Amazon owns in electric-vehicle maker Rivian Automotive fell more than 65 percent, for a nominal loss of $7.6 billion. Analysts predict that declines in advertising from app developers (who rely on venture capital funding to fund their marketplace) are likely to wreak havoc on Apple’s service sales. And startups are reviewing their spending on cloud services, potentially slowing the growth of Microsoft Azure and Google Cloud, according to analysts and cloud executives.
“People are trying to figure out how to spend wiselysaid Sam Ramji, chief strategy officer at DataStax, a data management company.
The regulatory challenges that are contemplated in the future could also darken the prospects of large technology companies. Europe’s Digital Markets Act, expected to be enacted soon, is designed to increase the openness of technology platforms. Among other things, it could prevent Apple from charging Alphabet about $19 billion to make Google the default search engine on iPhones, a change Bernstein estimates could erase as much as 3 percent of Apple’s pretax profit. .
However, companies are expected to challenge the law in court, which could stall it for years. The likelihood that the law will stall makes analysts reaffirm their view that: “Big tech companies are going to be more powerful. And what is being done about it? Any”, concluded Kramer of Arete Research.
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