Did the tech giants finally explode? I hate to speculate | John Notting
a Speculative bubble, Nobel Prize winner Robert Schiller wrote in illogical AbundanceHis landmark book on human folly, is “a situation in which news of price hikes stimulates investor enthusiasm, which is spread by psychological contagion from person to person, in the process of amplifying stories that might justify price hikes and bring in the largest and most broad class of investors, who, despite skepticism about the The real value of the investment, they are attracted to partly by envying the successes of others and partly by the excitement of the gambler.”
Tech industry watchers are familiar with this kind of irrationality. Throughout 2020 and 2021, when the Covid-19 virus wreaked economic havoc in countries across the Western world, the tech industry remained aloof from what was happening on the ground. While the rest of us have shrunk in lockdown, the pandemic has made tech heads and owners insanely richer. Their companies grew faster and became more profitable while other industries declined. Apple had so much extra cash that it spent $90 billion (£74 billion) – nearly Kenya’s GDP – to buy its own shares. Amazon committed $50 billion in 2021 on warehouses, hired tens of thousands of employees, ordered fleets of electric vehicles, and built cloud computing centers. and so on.
So, while the pandemic has put many traditional companies on life support, it has seemed as if it cemented the dominance of Alphabet (neé Google), Amazon, Facebook, Microsoft and Apple, making them masters of our networked world.
Then something happened. On November 19, 2021, the Nasdaq stock index (which is heavily influenced by technology companies) reached an all-time high of 16,057, then suddenly declined rapidly. As I write, the number was 12369. And so the question became: Is this exactly what economists euphemistically call a “market correction” or an indication that this particular speculative bubble has already burst?
The answer, if the quarterly numbers released last week by the tech giants are anything to go by, is that it looks as if the bubble has at least been punctured. The numbers, according to an analysis by Luke Gbedemah and Sebastian Hervas-Jones of Tortoise Media, point to the emergence of a split between companies that can “withstand an economic downturn and those that may face existential decline”. The numbers show that for the first time in the industry’s history, the growth rate of companies’ combined real revenue was negative rather than positive, and real revenue was generally lower than the previous year.
For example, Alphabet’s revenue is up 13% but its profit is down 14%. Apple’s revenue increased slightly but profits fell by more than 10%. Amazon’s revenue rose 7% but profits fell by a whopping 60.6%. Meta – that is, Facebook – had a bad quarter, with revenue down slightly but profits down 36%. Microsoft was almost the only bright spot: its revenue was up about a fifth, but even then, profits were up 2%.
When interpreting these numbers, the usual caveats apply: These are just one quarter results (although Meta now has a shocking two); Global supply chain problems and the withdrawal from Russia may have a disproportionate impact on Apple; Amazon’s results may reflect the impact of its massive investment in Rivian, the electric car maker, which has ordered 100,000 vehicles.
But in general, one feels that these giant money-printing machines are moving into territory unfamiliar to them – an area where, instead of endless resources to expand and experiment, margins will be squeezed, costs and perks slashed, workers laid off and efficiencies found. Suddenly, the CEO of Alphabet called for employees to “be more entrepreneurial, work with more urgency, sharper focus, and be hungrier than we showed on sunny days.” Undoubtedly, similar sacred warnings were issued by his peers in the other giants.
Two other ideas stand out. The first is that the period of what we might call “tech exceptionalism” — the era in which these companies and their pioneers were lauded for being different from the boring regular — may be coming to an end. From now on, they are just companies – like BT or Unilever.
The second is how much we’ve all underestimated Microsoft just because they fumbled at the smartphone opportunity. Instead, it focused on providing the basic computing infrastructure for the organizational world. The NHS, for example, has approximately 750,000 computers, all running Microsoft operating systems and software. The same is true for the UK government, large corporations, university administrations and small and medium-sized enterprises in the Western world. She now has a successful cloud computing business. It is not glamorous or exciting but it is solid and durable work. If you bought shares in it 30 years ago, you will have a good pension basis now. And it will still be around when Facebook is just a bad memory.
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