How technology’s defying economic gravity came to an abrupt end

W.Anyways Good times, the sun always seemed to shine Silicon Valley. America’s 5 Biggest Tech Companies — Apple, Microsoft, Alphabet, Amazon, meta— Their revenues and profits grew five times faster than America’s GDP 10 years until 2021.

In 2022, the technician’s luck has run out. This year has been a difficult year for everyone. S.&P. The 500, the index of America’s largest companies, has fallen a fifth since January. But digital companies have been hit harder. Nasdaq The Composite, a technology-heavy index, loses a third of its value. Five giants of technology In total, we lost a dizzying $3 trillion in market value (see Figure 1). The most dramatic loser, Meta, “Big” technology Nearly two-thirds of its value was wiped out, leaving a market cap of just over $300 billion.

The demise of technological exceptionalism has several causes. One is that the digital market is maturing after years of growth. Advertising is the lifeblood of Alphabet and Meta, and a growing sideline for Amazon, Apple and Microsoft. During past recessions, advertising spending declined, but spending on digital advertising continued to grow. tv set and newspapers and shifted advertising online. Today, much of that transition has already taken place. Nearly two-thirds of US ad spend this year was digital. Online advertising platforms are therefore vulnerable to the cyclical changes that have long plagued their offline rivals. In July, Meta reported its first-ever quarterly revenue decline. There was another report in October.

The next change is competition. For years, technology has been synonymous with centralized markets. Google dominates search, Facebook dominates social media. Competition is fierce these days. One of the reasons for Meta’s pain is that new rivals, especially his TikTok, saw user numbers decline for the first time on the company’s flagship social network, Facebook. Tech companies are also increasingly encroaching on each other’s turf. Growth in Amazon’s cloud computing division has slowed sharply, in part because Google is pouring billions into its own cloud services and losing big to gain a foothold in the business. Netflix has been streaming virtually for years, but now faces competition from Disney and Warner Bros., as well as Apple and Amazon, who have more freedom to splurge on content. This is one reason why its market value has fallen by 50% this year.

These changes in the structure of technology businesses coincide with headwinds that are particularly troubling for digital companies. In the US, the Federal Reserve has raised its policy rate cap to 4.5% from 0.25% in January to fight inflation. This makes life difficult for all businesses. But high valuations of tech companies, which reflect investors’ belief that they will generate huge returns in the distant future, are less attractive in a world of high interest rates that undermine the present value of promised earnings. It looks like Higher interest rates have been particularly difficult for venture capitalists (VCs) industry makes long-term bets on unprofitable value VCs According to research firm Preqin, the number of global deals fell 42% in the first 11 months of 2022 compared to the same period last year. This is a steeper decline from 2007 than he did after the 2009 financial crisis.

Semiconductors are another problem in the technology world. Over the past two years, chip supplies have increased as manufacturers added capacity. But just as chip production surged, computerand smartphone. Further pain was caused by the collapse of the Cryptoverse. This means that the digital currency miner no longer needs his Nvidia-built advanced processor. AMD, two major chip makers. On December 21, American memory his chipmaker Micron Technology reported a quarterly loss and announced it would lay off a tenth of his employees in the new year.

Geopolitical tensions added to the fray. The United States has announced some new trade restrictions on the export of semiconductor equipment to China, the world’s largest buyer of chips. China has also become a place of higher operational risk. Its strict zero-coronavirus policy forced the factory to shut down abruptly before demolition began in recent weeks. Apple, which makes most of its gadgets in China, is steadily moving new production to India and Vietnam. Supply chain issues weigh heavily on the world’s most valuable companies. Despite outperforming his peers, he has lost more than a quarter of his market value in the last 12 months.

These challenges mean the coming year will be lean for Techland. Most people are determined to cut costs, which often means cutting labor costs (see Figure 2). Tech companies around the world have so far announced he will cut more than 150,000 jobs in 2022, according to the website Meta alone accounts for 11,000 of them. Amazon has told graduates who were due to start working in May 2022 that they will have to wait until the end of 2023. Technology used to feel like heaven for investors and employees, but that may not feel like it in the coming months. . How technology’s defying economic gravity came to an abrupt end

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