The long shadow that Big Tech has cast over the world of business and finance just got a little shorter.
But while the planet’s wealthiest and most powerful tech groups began 2023 with an uncharacteristic sense of resignation, they are far from entering a lasting phase of evolution — or a short-term correction.
Some of the tech industry’s leading companies seemed to have reached a turning point late last year, when their latest quarterly earnings signaled that the expansion era might be coming to an end.
“Trees don’t grow to the sky,” said Jim Tierney, a growth investor at AllianzBernstein, describing the sentiment on Wall Street. Realizing that digital markets like online advertising and e-commerce are running out of steam, investors hit the reset button on tech prices.
In terms of the stock market, 2022 ended the long dominance that Big Tech enjoyed over the leading indices. The five biggest tech companies — Alphabet, Amazon, Apple, Meta and Microsoft — lost nearly $3.7 trillion in value during the year. The 38 percent decline was double the 19 percent decline in the S&P 500 index.
It’s a sign of layoffs that have begun to expand across the sector in the final two months of 2022. Facebook and Instagram parent Meta said it would cut 11,000 jobs amid Wall Street turmoil. Amazon said it plans to cut its workforce by 18,000 this month.
However, according to Steve Levy, director of the California Center for Economic Continuity Research, tech companies appear to be doing little more than “balancing” to slow growth and decelerate their recent employment growth. “It’s not the dot-com bust,” Levy said, comparing the current downturn to previous downturns. It’s different from previous seasons.”
Sean Randolph, senior director of the Bay Area Council’s Economic Institute, said the pandemic has led to a “dramatic increase in technology spending.” The big companies “believed that this increase in digital activity that came in the epidemic will continue”. It is only when they are forced into “adjustment”.
Marc Benioff, CEO of software company Salesforce, reflected in January when he announced plans to cut 8,000 jobs: “While our revenue has been accelerated by the pandemic, we’ve hired too many people to lead to our current economic downturn.” I am faced with it and I take responsibility for it.
However, after the outbreak, Salesforce will have 23,000 more employees than when the outbreak began three years ago — a 47 percent increase. And Meta’s job cuts raise the head count to two-thirds of what it was when the pandemic hit.
If these cuts reflect more than a sharp correction, there are three forces that could combine to make 2023 a significant turning point for the tech giants.
The first is the collapse of demand for digital services, artificially inflated by the pandemic. As Randolph points out, many tech companies anticipated that the boom in internet shopping, online work meetings and video games would lead to continued demand, as new digital habits took hold. However, in many cases, this hope has proved unfounded.
Also, it is still unclear whether some customers have brought future technology spending to deal with the pandemic emergency. If so, the demand may go back even further.
A second factor clouding the outlook for 2023 is the impact of an economic slowdown. Warnings of weakening demand You heard it like a drumbeat throughout 2022, which was getting louder as the year drew to a close. However, while sales of PCs and smartphones have slowed, overall demand for technology has remained strong. A hard fall changes that.
A third factor is the weakening of the secular growth drivers that have fueled Big Tech’s growth over the past two decades, with markets such as ecommerce and online advertising becoming more mature. Even with long-term growth in technology at its peak, investors like Tierney warn that the secular forces that fueled the boom will inevitably weaken. If that time has indeed come, 2023 will be a turning point for Big Tech.