December 2, 2022

No boom will last forever, even for the richest companies in the tech industry. Investors punished the biggest tech companies earlier this year, wiping $2 trillion off their market value, amid fears the industry would falter amid rising inflation and a slowing economy.

But this week, as the U.S. reported a second straight quarter of declines in economic output, Microsoft, Alphabet, Amazon and Apple reported sales and profits suggesting their businesses have the dominance and diversity to fend off an economy that hurts smaller companies predicament.

Microsoft and Amazon are proving that their lucrative cloud businesses continue to expand even as the economy cools. Alphabet subsidiary Google has shown that travel companies and retailers still need search advertising. Apple has masked a slump in its device business by boosting sales of apps and subscription services.

Overall, it’s a sign that tech may have bottomed out and started to rebound, said Dave Harden, chief investment officer at Summit Global, which is based near Salt Lake City and has invested about $2 billion in which Apple is its holding. one of the shares. .

“These guys are still delivering,” Mr Harden said. “They’re acting responsibly and going through a choppy time.”

While Alphabet and Microsoft missed Wall Street’s expectations, better-than-expected results boosted both companies’ shares and rattled the stock market.

The results clearly show that these companies are not immune to supply chain disruptions, rising costs and changes in customer spending. But their big businesses aren’t as vulnerable to the kinds of challenges sweeping the economy as smaller companies like Twitter and Snapchat owner Snap.

In conference calls with analysts, the CEOs of the companies used words like “challenge” and “uncertainty” to alert investors to the months ahead. Concerns about the economy have led some companies, including Alphabet, to slow hiring and take other precautions, but no one said they plan to start laying off workers.

Alphabet CEO Sundar Pichai sees the slowing economy as an opportunity, saying the company will be more focused and “more disciplined as we go forward.” He added, “When you’re in growth mode, it’s hard to always take the time to make all the adjustments you need to make, and moments like these give us the opportunity.”

Many investors see this as a testament to the industry’s optimism, with Microsoft saying it expects double-digit revenue growth next year and Amazon saying it expects sales to rise at least 13% this quarter.

Microsoft CEO Satya Nadella said the company would invest within a year to gain share and build its business, while Amazon CFO Brian Olsavsky said it would have more product inventory and faster delivery.

“This is not a recession forecast,” said Sean Stannard-Stockton, president of Ensemble Capital, a San Francisco-based investment firm with $1.3 billion in assets under management. “If we do avoid a severe recession, it’s clear that a lot of these businesses will see growth rates pick up.”

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

Meta, formerly Facebook, is an outlier among the largest tech companies, reporting quarterly revenue declines for the first time since going public a decade ago. Its woes are the result of growing competition from TikTok, which has weakened its users and advertisers, and challenges from Apple’s implementation of iPhone privacy changes.

The advertising market will grow 8.4% this year and 6.4% by 2023, according to forecasts by market research firm GroupM. GroupM’s president of business intelligence, Brian Wieser, said Facebook’s sales growth last year, with quarterly sales jumping 56%, made it “hard to keep growing.”

Similar challenges have also hit the e-commerce market. Convinced that the surge in online orders during the pandemic represents a fundamental change in the way people shop, Amazon has laid out an ambitious plan to open dozens of new warehouses. But as sales cooled — the number of items sold rose just 1% in the most recent quarter — it reversed course, deciding to close, delay or cancel the opening of at least 35 warehouses.

Amazon’s smaller e-commerce rival Shopify said it would cut about 10% of its workforce. Shopify President Harley Finkelstein said this year will be a transition year for “a largely reset of e-commerce” to the levels of growth recorded before Covid-19.

Apple’s biggest hurdle comes from its reliance on China for the production of most of its devices. In April, the company said it would lose about $4 billion in sales due to the shutdown of a factory in Shanghai that makes iPads and Macs. But it still managed to increase iPhone sales by 3% during that period and set a quarterly record for swapping Android smartphones for iPhones.

Apple CEO Tim Cook said the company had encountered “a range of headwinds” including supply constraints, higher prices for devices overseas due to a stronger dollar and a slowing global economy.

“When you consider the number of challenges in the quarter, we’re very pleased with the growth that we’ve come up with,” Mr Cook said. He added that the company would invest in a downturn but proceeded “with caution out of awareness of environmental realities”.

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