No boom can last forever, even for the tech industry’s richest companies. Investors punished big tech companies earlier this year, wiping $2 trillion off the industry’s market value amid fears of rising inflation and a slowing economy.
But this week, as the U.S. reported a second straight quarter of economic output declines, Microsoft, Alphabet, Amazon and Apple posted strong sales and profitability, showing the dominance and diversity of their businesses in weathering the economic woes hitting smaller companies.
Microsoft and Amazon have made sure that their profitable cloud businesses continue to grow even as the economy cools. Alphabet subsidiary Google has shown that search ads are in demand among travel companies and retailers. And Apple papered over a slump in its device business by boosting sales of apps and subscription services.
Overall, it was a sign that the technology had hit bottom and was beginning to rebound, said Dave Harden, chief investment officer of Summit Global, a company near Salt Lake City that counts Apple among its holdings, with about $2 billion invested. .
“These guys are still delivering,” Mr. Harden said. “They are acting responsibly and going through difficult times.”
As Alphabet and Microsoft fell short of Wall Street’s expectations, the more-than-fearful results boosted the companies’ stock prices and sent the stock market into a frenzy.
The results made it clear that the companies are not immune to problems such as supply chain disruptions, price increases and customer spending shifts. But giants like Twitter and Snap, which own Snapchat, aren’t as vulnerable to the various challenges facing the economy as smaller companies.
In calls with analysts, the companies’ CEOs warned investors about the months ahead, using words like “challenges” and “uncertainty.” Concerns about the economy are leading some, including Alphabet, to slow hiring and take other precautions, but none have said they plan to lay off jobs.
Alphabet CEO Sundar Pichai cast the slowing economy as an opportunity, saying the company would increase its focus and be “more disciplined as we go forward.” He added, “When you’re in growth mode, it’s always difficult to take the time to make the adjustments you need to make and times like this give us an opportunity.
In what many investors interpreted as a sign of optimism for the industry, Microsoft said it expects double-digit revenue growth next year, while Amazon said sales will rise at least 13 percent in the current quarter.
Microsoft CEO Satya Nadella said the company will invest throughout the year to take stock and build its businesses, while Amazon’s chief financial officer, Brian Olsavsky, said it would have more products in stock and faster shipping.
“This is not a recession forecast,” said Shane Stannard-Stockton, president of San Francisco-based Ensemble Capital, which has $1.3 billion under management. “If we avoid a severe recession, it’s clear that many of these businesses will improve their growth rates. “
Although Apple and Alphabet did not issue guidance, the companies bought back tens of billions of dollars worth of stock during the period. Apple’s $21.7 billion acquisition and Alphabet’s $15.2 billion purchase testify to the companies’ belief that their businesses will continue to grow in the coming years.
The company Meta, formerly known as Facebook, reported its first quarterly revenue decline since going public a decade ago. The problems were increasing competition from TikTok, which has alienated users and advertisers, and the challenges of privacy changes implemented by Apple on iPhones.
The advertising market is forecast to grow 8.4 percent this year and 6.4 percent in 2023, according to market research firm Group M. Facebook’s sales growth last year, when quarterly sales rose 56 percent, “made it impossible to continue growing,” said Brian Wieser, president of business intelligence at Group M.
Similar challenges have fallen on the e-commerce market. Believing that the surge in online orders during the pandemic will mark a fundamental change in the way people shop, Amazon has announced ambitious plans to open dozens of new warehouses. But when sales slowed — just 1 percent of units sold in the most recent quarter — it reversed course and decided to close, delay or cancel at least 35 warehouse openings.
Amazon’s smaller e-commerce rival Shopify said it would cut 10 percent of its workforce. According to Shopify President Harley Finkelstein, this year will be a “transitional year for e-commerce startups” from pre-Covid-19 levels of growth.
Apple’s biggest obstacle is its dependence on China to manufacture 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 percent during the period and set a quarterly record for trading Android smartphones for the iPhone.
Apple CEO Tim Cook said Apple had seen a “cocktail of headwinds” including supply constraints, a strengthening dollar that raised overseas equipment prices and a global economic slowdown.
“When you think about the number of challenges in the quarter, we feel very good about the progress we’ve made,” Mr Cook said, adding that the company would invest in reductions but “do so deliberately with an awareness of environmental realities”.
