Brutal week for Big Tech with nearly $800bn wiped off valuations nearly $1tn was wiped off the value of the biggest US tech companies this week before a partial rebound, with headlong growth stalling because of the slowing global economy and mounting cost pressures.
The stock market losses accelerated late on Thursday after Amazon shocked Wall Street with a weak revenue forecast for its all-important fourth quarter of the year, when holiday shopping normally buoys its revenues. The US ecommerce company indicated revenue in the period was likely to be as much as $15bn below the $155bn analysts had been predicting.
The news extended a surprisingly weak earnings season from the huge US digital groups, ending a surge in growth during the coronavirus pandemic and putting paid to hopes that they would withstand the inflation and weakening growth that are hitting the wider economy.
Brutal week for Big Tech with nearly $800bn wiped off valuations
Amazon and Microsoft said that growth in their cloud computing businesses was slowing more than expected as customers looked to rein in their spending growth. The news added to fears that some of the businesses thought to be most resilient in a slowdown, including cloud computing and Google’s search advertising, were starting to suffer.
Amazon’s downbeat forecast also extended the pain to the ecommerce sector, and the reaction to its earnings news left the combined value of the five biggest tech companies — which also include Alphabet, Apple, Meta and Microsoft — about $950bn lower than when the earnings season began.
Only Apple managed to withstand the disappointment, reporting revenue and earnings above analysts’ expectations. The news contributed to a partial recovery late in the day, trimming the overall loss in market value to $770bn and leaving the five with a combined value of $6.43tn.
Facebook’s parent, Meta, delivered one of the biggest blows to Wall Street’s faith in the resilience of Big Tech late on Wednesday when it reported a slump in its profit margins on the back of slipping advertising revenue and soaring costs.
Mark Zuckerberg faced a barrage of questions from Wall Street analysts about why his company was planning to double down on its bets on artificial intelligence and the metaverse next year, despite an eroding advertising business and a lack of any clear promises about when the massive spending would pay off.
Echoing the wary mood at the end of a fractious earnings call, Brent Thill, an analyst at Jefferies, said: “There are just too many experimental bets versus proven bets on the core.”
In a note to investors, analysts at Morgan Stanley added that they were breaking with their normal practice of not issuing immediate ratings downgrades in response to bad news because Meta’s spending plans were a “thesis-changing” moment.
Wall Street’s loss of confidence in the progress of Zuckerberg’s metaverse vision wiped 24.6 per cent from Meta’s shares on Thursday in New York, cutting $84.6bn from its stock market value. It left Meta’s shares 74 per cent below the record they hit 14 months ago Manage Fonts on Windows 11, and extended a two-day slump for Big Tech that began on Tuesday with weak earnings from Alphabet, Google’s parent company.
Fears that Big Tech was doing too little to rein in its soaring costs were triggered when Alphabet said it had added nearly 13,000 new employees in just the past three months, one of its biggest hiring binges ever, despite a recent internal call from chief executive Sundar Pichai for the company to become more “focused” in its spending.
Like Meta, Google also said its massive capital spending would continue, intensifying the race by the biggest tech companies to meet the growing demands of AI.
Twitter’s chief executive, Parag Agrawal, and chief financial officer Ned Segal are no longer with the company, two of the people said, as the world’s richest man now takes the reins. Musk also fired Change Account name on Windows, Twitter’s head of legal, policy and safety, as well as general counsel Sean Edgett, one person said.
Shares of the company will be suspended from trading on the New York Stock Exchange today.
The acquisition comes after months of legal wrangling and puts Musk, a self-described “free-speech absolutist”, at the helm of a platform that is popular among global politicians and relied on by millions of users around the world for news.
Musk has promised to cut jobs and costs at Twitter, while boosting product innovation in an attempt to build a “super app” that incorporates payments, commerce and messaging.
Five more stories in the news
1. Amazon stock sinks on weak holiday sales forecast The ecommerce giant warns consumer spending is in “uncharted waters” after issuing revenue forecasts well below Wall Street expectations. Shares fell as much as 20 per cent in after-hours trading yesterday, deepening the sense of gloom hanging over the tech sector.
A brutal week for big tech: Weak earnings have wiped nearly $800bn off valuations.
Apple: The iPhone maker says it expects a difficult December quarter as it confronts “significant” headwinds from a strong dollar.
2. British business and universities demand R&D be spared cuts As the government prepares its debt reduction plan, UK universities and business leaders have called on Chancellor Jeremy Hunt to invest £20bn annually in research and development. Prime Minister Rishi Sunak has warned of “difficult decisions” ahead of next month’s Autumn Statement.
3. Marks and Spencer bets on property shake-up The retail chain says its costly plan to modernise stores by 2028 is starting to pay off. The more than £1bn shake-up is a key plank in its turnround strategy as it adapts to the digital world and grapples with rising costs and a challenging economic backdrop.
4. Lebanon and Israel agree maritime deal The landmark agreement resolves a long-simmering dispute over the countries’ maritime borders, but there was no joint public signing ceremony, a stark reminder of the two sides’ bellicose history and legacy of conflict. The awkward choreography ensured that the leaders did not meet, as Israel and Lebanon have never held diplomatic ties.
5. Russia rejects claims of intent to use nuclear weapons President Vladimir Putin has countered western warnings that Moscow might be planning to detonate a “dirty bomb” in Ukraine in a false flag operation, saying he saw “no point” in a nuclear strike. The remarks were made an international relations forum yesterday, in which he seemed to take a more conciliatory tone than in prior months.
Events and holidays Municipal and regional elections will be held in Slovakia tomorrow. Today is Independence Day in the Czech Republic, while Sunday is the annual day of remembrance for the victims of Stalin’s purges in Russia.
European Daylight Saving Time Ends on Sunday. Be sure to turn your clocks back one hour.
What else we’re reading and listening to
Hijab re-emerges as flashpoint in Iran More than a month of protests in the country has made the issue of women’s clothing a flashpoint in demands for radical change. The demonstrations underscore how quickly the Islamic republic’s long-held values, which give women little or no choice but to cover up in public, have come under pressure.
Will Credit Suisse’s ‘radical surgery’ pay off? For over a century, Credit Suisse steadily grew to become an international bank offering wealth management and investment banking on a global scale. Yesterday, it unveiled a radical new strategy aimed at arresting years of losses. The question now is whether the restructuring will work.