Big Tech, the collective term for the largest and most influential technology companies in the world, is generally considered to include; Apple, Amazon, Google, Meta (formerly Facebook) and Microsoft, with some also counting Twitter, Netflix and Tesla amongst its rankings. These US firms, which have always been highly profitable and enjoyed vast and rapid growth over the past decade, are suddenly experiencing a period of change.
Reports from Big Tech companies suggest a slowing and, in some cases, even a freeze on recruitment and a downturn in profits across the board in what is usually one of the most prosperous industries on the planet.
Quarterly reporting at the end of July 2022 saw Apple sales drop by 10% and Meta sales drop for the first time. CEO Mark Zuckerberg stated that he would introduce austerity measures to "get more done with fewer resources."
The concern for the business world is that an economic recession in the tech sector and especially in the Big Tech companies, creates uncertainty not just in tech but in other industries as well, which could cause widespread panic, leading to a drop in share prices, loss of investment and a self-fulfilling prophecy of financial collapse for many organisations. But are businesses right to be worried?
Why the downturn?
Several factors have affected the sector recently, including global economic pressures caused by the war in Ukraine and subsequent sanctions and hostilities with Russia, pushing the price of energy and goods and creating a cost-of-living crisis. The rising costs directly affect businesses as their overheads soar and reduce customers' buying power, which obviously affects sales revenue. For example, recent research shows that there has been a substantial reduction in online advertising sales, especially on social media, which is causing issues for both Meta and Google. Research company Magna estimated that the US digital ad market increased by only 11% in the second quarter of 2022, compared to 58% in the same period last year.
However, another viewpoint is that this 'downturn' is, in fact, just a return to more 'normal' times. Big Tech companies saw unprecedented growth during the lockdown as everything went online, meaning they were among the few sectors to prosper from the pandemic. Recruitment increased in these companies to keep up with consumer demand, and investors flocked to get a slice of the action. But, as the world returned to life outside of lockdown, there was always likely to be a levelling off of growth in the tech sector, with people having the choice to be able to shop, socialise and communicate offline again.
Not all bad news
So, while the slowdown is undoubtedly not a work of fiction, the outlook may not be as bleak as it first appears. A slowdown in recruitment and a reduction in profits doesn't necessarily mean Big Tech collapses. It could be more of a streamlining of their services to operate efficiently and provide for reduced post-Covid customer demand.
Also, while Big Tech growth may be slowing, Reuters reported last month that some results published by Google and Microsoft are not as bad as predicted, helping to restore confidence in the market and suggesting that Big Tech could survive a recession, which is good news for all businesses, as investor confidence could help to avoid industry panic.
Wall Street seems to be getting behind Big Tech, too, as analysts remain cautiously optimistic about Big Tech stock, with the majority of experts predicting that companies like Apple, Microsoft and Google can continue to post substantial profits in the long run.
Could there even be an upside?
Odd as it may sound, the Big Tech slowdown could even have some unforeseen positives.
For starters, investors can now buy shares in some of the biggest companies at a more attractive entry point, as Lindsey Bell, Chief Markets and Money Strategist for Ally, also identified that "there are some encouraging signs" in the market.
Secondly, over the last couple of years, recruitment and retention have been significant issues for many companies, with far more jobs available than candidates to fill them, causing staff shortages and skills gaps. Perhaps a slowing of recruitment in Big Tech, with a ripple effect on smaller tech companies and across other industries, could help ease the war for talent with more tech professionals becoming available, helping to balance out the recruitment sector again and give employers back some control over the recruitment process and retention of good employees.
Big Tech could be in for a rough ride over the coming months. Still, judging by the results filtering through so far and Wall Street's continued confidence in the sector, it is one which they can survive and come out the other side of as more efficient businesses than before.
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