<https://www.theguardian.com/commentisfree/2022/aug/06/have-the-tech-giants-finally-had-their-bubble-burst-id-hate-to-speculate>
A speculative bubble, wrote Nobel laureate Robert Shiller in Irrational
Exuberance, his landmark book on human foolishness, is “a situation in which
news of price increases spurs investor enthusiasm, which spreads by
psychological contagion from person to person, in the process amplifying
stories that might justify the price increases and bringing in a larger and
larger class of investors, who, despite doubts about the real value of an
investment, are drawn to it partly through envy of others’ successes and partly
through a gambler’s excitement”.
Observers of the tech industry are wearily familiar with this kind of
irrationality. Throughout 2020 and 2021, as Covid-19 wreaked economic havoc on
countries throughout the western world, the tech industry remained strangely
untouched by what was happening on the ground. While the rest of us cowered in
lockdown, the pandemic made tech bosses and owners insanely richer. Their
companies grew faster and became even more profitable while other industries
languished. Apple had so much extra cash that it spent $90bn (£74bn) – nearly
the gross domestic product of Kenya – buying its own shares. Amazon laid out
$50bn in 2021 on warehouses, hiring tens of thousands of employees, ordering
fleets of electric vehicles and building cloud computing centres. And so on.
So while the pandemic had put many conventional companies on life support, it
looked as though it had consolidated the dominance of Alphabet (neé Google),
Amazon, Facebook, Microsoft and Apple, making them the new masters of our
networked universe.
And then something happened. On 19 November 2021 the Nasdaq stock market index
(which is heavily influenced by tech companies) stood at an all-time high of
16,057, then suddenly went into rapid decline. As I write, it stands at 12,369.
And so the question became: was this just what economists euphemistically call
a “market correction” or an indicator that this particular speculative bubble
had really burst?
The answer, if the quarterly figures released last week by the tech giants are
anything to go by, is that it looks as though the bubble has at least been
punctured. The numbers, according to an analysis by Luke Gbedemah and Sebastian
Hervas-Jones of Tortoise Media, suggest that a split is emerging between the
companies that can “sustain an economic downturn and those that might be facing
existential decline”. The figures indicate that, for the first time in the
history of the industry, the combined real revenue growth rate of the companies
was negative rather than positive and real revenues overall were less than the
year before.
Alphabet’s revenues, for example, were up by 13% but its profits fell by 14%.
Apple’s revenues increased by a whisker but profits were down by more than 10%.
Amazon’s revenues were up by 7% but profits fell by a whopping 60.6%. Meta –
that is, Facebook – had a terrible quarter, with revenues slightly down but
profits dropping by 36%. Just about the only bright spot was Microsoft: its
revenues were up by nearly a fifth, but even then profits just inched up by 2%.
In interpreting these numbers, the usual caveats apply: these are just one
quarter’s results (though Meta has now had two dreadful ones); global supply
chain problems and pulling out of Russia may have had a disproportionate impact
on Apple; and Amazon’s results may reflect the impact of its huge investment in
Rivian, the electric vehicle manufacturer, from which it has ordered 100,000
vehicles.
But overall, one has the feeling that these giant money-printing machines are
moving into territory that is unfamiliar to them – territory where, instead of
having endless resources for expansion and experimentation, margins will be
squeezed, costs and perks cut, workers fired and efficiencies found. Suddenly,
Alphabet’s chief executive is calling for staff “to be more entrepreneurial,
working with greater urgency, sharper focus and more hunger than we’ve shown on
sunnier days”. Similar sanctimonious exhortations are doubtless being issued by
his counterparts at the other giants.
Two further thoughts stand out. The first is that the period of what one might
call “tech exceptionalism” – the era when these companies and their
cheerleaders were lauded for being different from normal, boring corporations –
may be drawing to a close. From now on, they’re just corporations – like BT or
Unilever.
The second is the extent to which we have all underestimated Microsoft simply
because it fumbled the smartphone opportunity. Instead, it focused on providing
the basic computational infrastructure of the organisational world. The NHS,
for example, has something like 750,000 PCs, all of them running Microsoft
operating systems and software. Ditto for the UK government, large
corporations, university administrations and small and medium-size enterprises
in the western world. And it now has a successful cloud computing business.
It’s not glamorous or exciting but it’s a rock-solid, enduring business. If you
bought shares in it 30 years ago, you’d have the basis for a pretty good
pension now. And it’ll still be around when Facebook is just a bad memory.
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