‘Unstoppable Until They’re Not’: Are Tech Market Losses Signs of Collapse? | Technology

Jeff Bezos knew this day was coming. Back in April, the boss of Amazon warned of an impending market downturn, tweeting that the epic tech boom experienced over the past two years might not last forever.

“Most people drastically underestimate how remarkable this bull run is,” he said. “Such things are unstoppable…until they are not.

“Markets teach,” Bezos added. “Lessons can be painful.”

For years, the tech industry has dominated the stock market with explosive profits, fueled by a pandemic that has moved much of the world online. Now that has all changed, with trillions in market value lost in recent weeks. Once-hot startups are being abandoned by investors, and even tech giants considered stable investments have faltered.

Apple is no longer the most valuable company in the world, having lost $200 billion in market value this week. It joins a number of other tech companies in a slump that began in late 2021 and sent the largest Nasdaq Composite tumbling more than 13% in April – down more than 30% from record highs for the year. previous.

Meta lost a record $230 billion market value in February after a disappointing earnings report in which it revealed its Facebook platform had seen its first-ever drop in users. Amazon reported its first loss since 2015 in its latest earnings report last month. Alphabet’s revenue fell short in its first-quarter report. Small businesses are also struggling, with pandemic hit Peloton seeing shares fall 20% this week as demand for indoor exercise equipment plummets.

Hiring freeze underscores post-pandemic slowdown

Twitter announced in an internal memo on Thursday that it was freezing new hires, and Meta did the same last week, citing a spending indication given in its recent earnings report. Amazon said on a recent earnings call that its warehouses are “overstaffed” and while it isn’t considering layoffs, it is “working to address that.”

Startups are seeing similar trends, with layoff tracking site Layoffs.fyi showing that at least 55 tech companies have reported layoffs since the start of 2022, compared to just 25 in the same period of 2021.

The slowdown in hiring comes even as the broader market sees job growth, adding 431,000 jobs in April. The freeze is proof that the market boom was due to a confluence of unique factors and was not a long-term trend, said Haris Anwar, senior analyst at Investing.com.

“Overall market sentiment is reversing from the very bullish sentiment we’ve seen during the pandemic, during which companies have seen a huge boom in demand. In the post-pandemic world, that demand is now reaching a more normalized level,” he said.

When Covid-19 hit in early 2020, companies such as Peloton, Zoom and Netflix exploded as offices closed and people spent more time at home. Zoom has seen its value explode by more than 500% in a year, but in recent days the stock has nearly fallen to pre-pandemic lows. Netflix, which added more than 36 million subscribers in the first year of the pandemic, has lost more than half its value since posting disappointing results on April 19.

This type of growth cannot be predicted, nor sustained indefinitely, said Raj Shah, analyst at digital transformation consultancy Publicis Sapient.

“Revenues are down, costs are up, and tech companies are going to do what every other company in this situation would do – cut costs by freezing hiring, get rid of costs like unused real estate, push to higher productivity and re-examining investments,” he said.

“Is it a tech bust? That remains to be seen,” he added.

Other factors at play

The pandemic recovery isn’t the only thing slowing the meteoric growth of tech companies, experts say. The war in Ukraine has had an effect on ad spend and accelerated supply chain issues already introduced by the pandemic, a difficulty cited in a number of recent earnings calls.

“The war in Ukraine, which is a real humanitarian tragedy, has also impacted our business,” Meta CEO Mark Zuckerberg said in a call with investors accompanying his earnings report. of the first trimester. “We were blocked in Russia and decided to no longer accept ads from Russian advertisers globally. We also saw effects on businesses globally after the war started.”

Such headwinds are likely spooking investors, said Brian Wieser, global president of business intelligence at GroupM, accelerating the slowdown.

“There’s an overwhelming sense of fear and worry that a lot of policymakers have around anything economic right now,” he said. “War certainly catalyzed a lot of it, but inflation and supply chain issues were already an issue.”

US inflation was higher than expected in April, approaching its highest level in 30 years at 8.3%. Inflation has a general impact on consumer spending, which can have a major impact on businesses that rely on e-commerce.

Fears that the Federal Reserve will continue to raise interest rates to the point where the economy slips into recession are further affecting investor decisions, Anwar said, as many shy away from high-growth tech stocks.

“Markets always think ahead,” he said. “Many investors act as if a depression is a done deal. Is this going to happen? It’s a big question mark. But that is why we are seeing an exodus from these stocks.

Crypto takes a hit

The technology downturn has not been limited to the traditional market. As cryptocurrencies nosedived this week and Bitcoin fell well below $30,000 for the first time in nearly a year, wiping over $200 billion from the broader market, some declared that “crypto is dead”.

Crypto’s stumble was attributed, in part, to a recent market upheaval when a popular “stablecoin” called TerraUSD crashed. Stablecoins, a type of digital currency pegged to the US dollar, are considered less volatile than traditional cryptocurrencies.

Its fall scared investors that it might not be true, says DailyFX analyst Tammy Da Costa, as evidenced by Terra’s collapse coupled with a dismal earnings report from major crypto exchange Coinbase. .

“A major concern is that many retail traders have invested in bitcoin and cryptos in an effort to earn higher returns in a low interest rate environment,” he said. “Now, as price pressures mount and the cost of living continues to soar, fears [have raised] that a systemic shock can occur if large institutions continue to withdraw funds from their crypto wallets.

Besides digital currency mistakes, the same market forces that influence big tech companies could also affect digital currencies, Wieser said. Although crypto has traditionally been seen as separate from the market, it cannot escape the war in Ukraine and other major headwinds.

“Higher interest rates make everyone more aware of investing and the choices they make when it comes to dynamic assets,” he said. “It doesn’t take much to send these kinds of markets the other way.”

Not a crisis, but a deceleration

While many are panicking, Wieser is quick to note that it’s not like these companies are failing — it’s that the explosive growth seen over the past two years isn’t sustainable.

“Deceleration is not the same as decline,” he said. “If you’ve grown 20-30% and then suddenly only grow 10%, that might seem like a big change. But it’s no accident.

While tech companies appear to be slowing hiring patterns, there is still no indication that massive layoffs are on the horizon for top companies such as Meta, Twitter and Amazon – all of which have said they are not. did not plan to reduce their workforce.

Still, rumors are circulating that big cuts are on the horizon for small businesses. “The next 6 to 8 weeks are going to be a bloodbath,” tweeted JD Ross, co-founder of the Royal music investment platform. “I hear rumors about a ton of companies planning to lay off 20-40% of their staff.”

The slowdown stems from a confluence of factors affecting businesses across the market, Publicis Sapient’s Shah said: inflation, the war in Ukraine, supply chain issues and changing consumer behaviors. consumers. Big tech companies will likely remain “safe havens” – long woven into our digital lives and more likely to weather the market storm. But it remains to be seen how the industry as a whole will be changed.

“Tech stocks are about to get bumpy,” he said.

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