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A Speculative bubbles, wrote Nobel laureate Robert Shiller in Unreasonable EnjoymentIn his classic book on human folly, he says, “News of bullish sentiment is a phenomenon in which investor enthusiasm spreads through the psychological touch of person-to-person, gradually amplifying bullish stories and making them reach greater and greater heights. A section of investors, while skeptical about the true value of an investment, are drawn to it partly by envy of others’ successes and partly by the thrill of gambling.
Observers of the tech industry are familiar with this kind of irrationality. In the year In 2020 and 2021, as Covid-19 wreaked economic havoc on countries in the West, the tech industry remained untouched by what was happening on the ground. While the rest of us cower in lockdown, the pandemic has made tech bosses and their owners super rich. As their companies grew faster and more profitable, other industries languished. Apple had so much extra cash that it spent $90bn (£74bn) – almost Kenya’s gross domestic product – buying back its own shares. Amazon in 2010 It has spent $50 billion on warehouses by 2021, hired tens of thousands of workers, ordered a fleet of electric vehicles and built cloud computing centers. and so on.
So while the pandemic has put many conventional companies on life support, Alphabet (aka Google), Amazon, Facebook, Microsoft and Apple seem to have strengthened their dominance, making them the new masters of our networked universe.
And then something happened. In the year On November 19, 2021, the Nasdaq stock market index (heavily influenced by tech companies) peaked at 16,057, then suddenly plunged into a rapid decline. As I write it stands at 12,369. And so the question becomes: Is this just what economists call a “market correction,” or is it an indication that a particular speculative bubble has really burst?
The answer is, if the quarterly figures released by the tech giants last week are anything to go by, the bubble at least appears to have burst. The numbers, according to an analysis by Luke Gbedemah and Tortoise Media’s Sebastian Hervas-Jones, show that a divide is emerging between companies that “are likely to continue economic decline and those that are likely to face existential failure.” The figures indicate that for the first time in the history of the industry, the companies’ total revenue growth was negative rather than positive and total revenues were lower than last year.
For example, Alphabet’s revenue increased by 13 percent, but profits decreased by 14 percent. Apple’s revenue rose by a whisker, but profits fell more than 10 percent. Amazon’s revenue was up 7 percent, but its profit was down 60.6 percent. Meta — that is, Facebook — had a dismal quarter, with revenue down slightly but profits down 36 percent. The only bright spot was Microsoft: revenue rose by about a fifth, but then profits grew by 2 percent.
When interpreting these numbers, the usual caveats apply: These are just one quarter’s worth of results (although the meta now has a whopping two). Global supply chain problems and withdrawal from Russia could have a disproportionate impact on Apple; And Amazon’s results may reflect the impact of a major investment in electric vehicle maker Rivian, where it has ordered 100,000 vehicles.
But overall, one gets the feeling that these giant money-printing machines are entering uncharted territory – instead of having endless resources to expand and experiment, margins are squeezed, costs and benefits are cut, workers are laid off and inefficiencies are found. Suddenly, Alphabet’s CEO called on employees to “work more entrepreneurially, with greater urgency, greater focus and more hunger than we’ve ever seen on a sunny day.” Similar holy admonitions are no doubt given by his fellow giants.
Two additional ideas stand out. The first is that the era of what one might call the “technological divide”—the era in which these companies and their cheerleaders are praised for being different from regular, boring corporations—may be approaching. From now on, it’s just corporations like BT or Unilever.
The second is how much we’ve all taken for granted that Microsoft has overwhelmed the smartphone opportunity. Instead, it focused on providing the basic computing infrastructure of the corporate world. For example, the NHS has as many as 750,000 PCs, all of which run Microsoft operating systems and software. Ditto for the UK government, large corporations, university administrations and small and medium-sized enterprises in the Western world. And now he has a successful cloud computing business. It’s not glamorous or exciting, but it’s a rock-solid sustainable business. If you bought stocks 30 years ago, you’ll have a pretty good retirement base now. And when Facebook becomes a bad memory, it still remains.
What I read
On the ship
Maintenance Racing is an in-progress website that is an exciting account of the history of the world’s only yacht race, the first round of the Stewart brand.
Algorithms and blues
Kyle Chaika is fun new york Essay The Age of Algorithmic Anxiety explores the hidden pressures of spy capitalism.
Photo finish
Instagram Is Dead is an angry blog post by talented photographer Om Malik about how it killed the meta-valued platform.
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