Big Tech is proving resilient as the economy cools

No boom can last forever, even for the most prosperous companies in the tech industry. Investors punished the biggest tech companies earlier this year, wiping out $2 trillion in market value on fears the industry would falter in the face of rising inflation and a slowing economy.

But this week, as the United States reported economic output fell for the second straight quarter, Microsoft, Alphabet, Amazon and Apple posted sales and profits that showed their businesses have the dominance and diversity to defy the economic woes plaguing businesses. smaller.

Microsoft and Amazon have shown that their lucrative cloud businesses have continued to expand even as the economy cools. Alphabet subsidiary Google showed that search ads were still in demand among travel companies and retailers. And Apple is masking a downturn in its device business by increasing its sales of apps and subscription services.

Taken together, it was a sign that the technology may have already bottomed out and is starting to recover, said Dave Harden, chief investment officer at Summit Global, a company near Salt Lake City with an investment of about $2,000. million that has Apple among its holdings. .

“These guys are still delivering,” Harden said. “They are acting responsibly and navigating through a hectic period.”

The better-than-feared results lifted company share prices and sent a jolt to the stock market, even as Alphabet and Microsoft missed Wall Street expectations.

The results made it clear that companies are not immune to problems such as supply chain disruptions, rising costs and changes in customer spending. But its giant companies aren’t as vulnerable to the various challenges battering the economy as smaller companies like Twitter and Snap, Snapchat’s owner.

During calls with analysts, CEOs of the companies warned investors about the coming months, using words like “challenges” and “uncertainty.” Concerns about the economy are prompting some of them, including Alphabet, to slow down hiring and take other precautions, but none have said they plan to start layoffs.

Sundar Pichai, chief executive of Alphabet, cast the slowing economy as an opportunity, saying the company would sharpen its focus and “be more disciplined as we go.” He added: “When you’re in growth mode, it’s hard to always take the time to make all the readjustments you need to make and times like this give us a chance.”

In what many investors took as a testament to the industry’s optimism, Microsoft said it expected double-digit revenue growth next year, and Amazon said it expected sales to rise at least 13 percent in the current quarter. .

Satya Nadella, Microsoft’s chief executive, said the company would invest during the year to participate and develop its business, while Brian Olsavsky, Amazon’s chief financial officer, said it would have more products in stock and faster delivery.

“That’s not a recession forecast,” said Sean Stannard-Stockton, president of Ensemble Capital, a San Francisco-based investment firm that manages $1.3 billion. “If we avoid a severe recession, it is clear that many of these companies will see a recovery in growth rate. ”

Although Apple and Alphabet did not provide guidance, the companies bought back tens of billions of dollars worth of stock during the period. Apple’s $21.7 billion purchase and Alphabet’s $15.2 billion purchase testified to the companies’ belief that their businesses will continue to grow for years to come.

Meta, the company formerly known as Facebook, was an exception among the biggest tech companies, reporting its first drop in quarterly revenue since going public a decade ago. Its problems were a consequence of growing competition from TikTok, which has sapped it of users and advertisers, and the challenges of Apple’s iPhone privacy changes.

The advertising market is forecast to grow 8.4 percent this year and 6.4 percent in 2023, according to GroupM, a market research firm. Facebook’s sales growth last year, when quarterly sales jumped 56 percent, made it “implausible to continue to grow,” said Brian Wieser, president of business intelligence at GroupM.

Similar challenges have plagued the e-commerce market. Convinced that a surge in online ordering during the pandemic represented a fundamental shift in the way people shop, Amazon has laid out an ambitious plan to open dozens of new stores. But as sales cooled, with the number of items it sold down just 1 percent in the most recent quarter, it changed course, deciding to close, delay or cancel at least 35 store openings.

Amazon’s smaller e-commerce rival Shopify said it would cut about 10 percent of its staff. Harley Finkelstein, president of Shopify, said this year would be “a transition year where e-commerce is largely reset” to the growth levels it saw before Covid-19.

Apple’s biggest hurdle came from its reliance on China to make most of its devices. In April, the company said it would lose about $4 billion in sales due to factory closures in Shanghai, where it makes iPads and Macs. But it still managed to increase its iPhone sales in the period by 3 percent and set a record. quarterly for the number of people who traded in Android smartphones for iPhones.

Tim Cook, Apple’s chief executive, said Apple saw “a cocktail of headwinds,” including supply constraints, a strengthening dollar that pushed up device prices abroad, and a slowing global economy.

“When you think about the number of challenges in the quarter, we feel very good about the growth we achieved,” said Cook. He added that the company would invest during a recession, but would be “deliberate in doing so in recognition of environmental realities.”

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