The Big Tech boom is over and Wall Street knows it

I won’t talk about Elon Musk and Twitter in this one.

Okay, just a little: Elon and Twitter are all over the news today, but it’s not the most important story in the tech industry.*

The story that really matters for tech and business is this: the giant consumer companies that powered the tech industry for years aren’t going away, but their rocket days seem to be coming to an end. And Wall Street investors who wanted this race are getting away with it, which means these companies and their employees have to learn to live with less.

We’ve watched this play for most of the year as tech stocks tumble, but it came into focus this week when Alphabet, Meta and Amazon all saw their stocks get hammered and the sector collectively lost. $400 billion in value.

All the tech guys have different reasons to worry investors, but I’d say they all have the same underlying problem: they’re mature companies that aren’t going to impress Wall Street with crazy business growth anymore. main ones, and none of them seem to have any new giant companies coming. Alphabet, for example, just posted 6% revenue growth, its weakest quarter in a decade.

So in Big Tech now, what you see is what you get. Just like Coca-Cola or Walgreens: no one expects Coke sales to skyrocket anymore, no matter how good the new version of Coke Zero is.

The big players are always trying to convince investors otherwise, of course. It’s a central part of the metaverse/VR/AR glasses/glasses story that Meta, Apple and Microsoft are all playing with – that there’s going to be a new revolution in computing that’s going to generate a ton of business economic and they will be at the center of it.

Maybe! But these things are very expensive and very speculative, and in the meantime these companies are all focused on extracting additional revenue and profit from their existing business. For Apple and Amazon, this increasingly focuses on turning their digital real estate into advertising businesses. At Meta, it’s an effort to turn its aging Facebook and Instagram properties into TikTok clones. And at Alphabet, where 60% of revenue still comes from the same search advertising business it started 22 years ago, it’s an attempt to highlight YouTube, which itself has nearly two decades.

These are not new concerns at all. People wondered when Apple was going to create another revolutionary iPhone-scale product for 15 years (answer: never).

But they’ve been easy to ignore for many years, especially since the Great Recession of 2008, when the US government lowered lending rates to or near zero and kept them there until recently. which is no coincidence when tech stocks started to take a dive. If the money is essentially free, investors seek out more speculative bets, which increases the value of the companies they are betting on, which convinces more investors to do the same thing and repeat.

Now everyone is sobered up, which is why super fancy stuff like crypto is out of place. And why the big tech companies that are really big and really profitable aren’t going away, but their valuations are going down. A rough way to gauge investor enthusiasm is by using the ratio, which compares a company’s stock price to the value of its earnings. Meta, for example, had a price-earnings ratio of 32.75 at the end of 2020; now it’s down to 9.434. Alphabet went from 34.32 to 19.14 at the same time. (Amazon, however, ended up staying the same, even after its recent plunge.)

And I would say there are other proxies to tell you that these once vibrant companies have hit a wall. For example: almost all the men who created and led the big tech companies gave the top job to professional managers. It’s more fun to do something else.

I don’t tend to be optimistic, but we can certainly turn this around like a glass half full if we want: yes, Facebook, which hired more than 19,000 people last year – a 28% increase – now says it will keep its workforce stable for at least the next 15 months. This is through a combination of very limited hiring, not replacing employees who leave on their own, and pushing others out.

But in theory, all those future Facebook employees who aren’t hired there can end up… somewhere else more interesting. One of the driving ideas beyond the Web3 craze of the past two years was that the big tech companies had become so big and powerful that it was impossible to do anything new without their permission. Now they’re still big and powerful, but maybe not as appealing to the kind of person who wants to do something new. It’s not a bad idea.

*It’s an interesting and possibly also amusing and possibly scary story and I recommend starting with Nilay Patel if you want an invigorating read on what follows.