Big Tech could never really defy gravity the way Big Tech wanted you to believe. Still, that broad business model of using customers as the product does give the sector some phenomenal hang time. A slowing economy, slashed advertising budgets and wildly brawny dollar are all pushing against the sector - but huge cash revenues and simple time are on its side.
In Q2 2022 Alphabet, Amazon, Apple, Meta and Microsoft all reported their softest results in over a year, but this is hardly confined to the tech sector. It was also inevitable: As the first half of 2020 was the floor of the pandemic economic lock-down and the first half of 2021 the peak of the post-pandemic boom. Sustaining that level of growth for a developed economy that hasn’t just emerged from some socialist utopia, would have been impossible. June of 2022 was always going to look dismal.
With the exception of Meta – the giants are looking at slowing of revenue growth, not a decline growth. Meta’s decline in revenues, it’s first ever, was -1%. The company formerly known as Facebook has a different model that the Big Tech giants; about 98% of that revenue comes from advertising, which has been slowing with dampening consumer demand, along with Apple’s recent changes to its tracking policy. It’s dive into hardware was always going to be a short term drag on profits. Without a cloud computing arm, or any discernable practical use, the company was always more vunerable that its fraternity brothers.
Alphabet, Amazon, Apple and Microsoft all have cloud computing businesses that are about 30% of revenues, along with premium subscription divisions that are doing well. The rising dollar is creating headwinds - 40% of Amazon revenues and 60% of Apple’s are abroad as inflation in local currencies pinch sales. The sheer size of these companies’ cash reserves means that they will be able to weather the storm, or clear the pothole of next year’s likely recession.
In short, don’t count out Big Tech: Time, market share and a huge pile of cash are on their side.