No boom can last forever, even for the wealthiest companies in tech. Investors penalized the biggest tech companies earlier this year, wiping out $2 trillion in market values over fears the industry would falter amid rising inflation and a slowing economy.
But this week, as the United States reported that economic output fell for the second straight quarter, Microsoft, Alphabet, Amazon and Apple reported sales and earnings that showed their companies have the dominance and diversity to weather the economic woes to defy corporations.
Microsoft and Amazon have proven that their lucrative cloud businesses continue to expand even as the economy slows. Alphabet subsidiary Google showed that search ads are still popular with travel companies and retailers. And Apple covered a downturn in the device business by boosting sales of apps and subscription services.
Overall, it was a sign that the technology may already have bottomed out and is starting to recover, said Dave Harden, chief investment officer at Summit Global, a company based near Salt Lake City with about $2 billion under management dollars that Apple counts among its holdings.
“These guys are still delivering,” said Mr. Harden. “You are acting responsibly and navigating through a troubled time.”
The better-than-feared results sent company stock prices higher and roiled the stock market even as Alphabet and Microsoft underperformed Wall Street’s expectations.
The results made it clear that companies are not immune to problems such as supply chain disruptions, rising costs and shifts in customer spending. But their giant companies aren’t as vulnerable to the various challenges that span the economy as smaller companies like Twitter and Snap, the owner of Snapchat.
During phone calls with analysts, company CEOs warned investors about the coming months with words like “challenges” and “uncertainty.” Concerns about the economy are prompting some, including Alphabet, to slow hiring and take other precautionary measures, but no one has said they plan to start layoffs.
Alphabet chief executive Sundar Pichai saw an opportunity in the slowing economy and said the company will sharpen its focus and “be more disciplined going forward.” He added, “When you’re in growth mode it’s difficult to always take the time to make all the necessary adjustments and moments like this give us a chance.”
In what many investors took as evidence of the industry’s optimism, Microsoft said it expects double-digit revenue growth for next year, and Amazon said it expects revenue to grow at least 13 percent in the current quarter.
Microsoft chief executive officer Satya Nadella said the company will invest throughout the year to acquire shares and build its businesses, while Amazon chief financial officer Brian Olsavsky said it will stock more products and speed up deliveries.
“This is not a recession forecast,” said Sean Stannard-Stockton, president of Ensemble Capital, a San Francisco-based investment firm with $1.3 billion in assets under management. “If we avoid a severe recession, it’s clear that many of these companies will pick up the growth rate again.”
Although Apple and Alphabet didn’t provide guidance, the companies repurchased tens of billions of dollars worth of stock during this period. The $21.7 billion purchase of Apple and the $15.2 billion purchase of Alphabet are testament to the companies’ belief that their businesses will continue to grow in the years to come.
Meta, formerly known as Facebook, has been an outlier among the biggest tech companies, reporting its first decline in quarterly revenue since going public a decade ago. Its troubles were a result of increasing competition from TikTok, which robbed it of users and advertisers, and challenges from privacy changes on iPhones implemented by Apple.
According to GroupM, a market research company, the advertising market will grow by 8.4 percent this year and by 6.4 percent in 2023. Facebook’s revenue growth over the past year, when quarterly revenue surged 56 percent, made it “implausible to continue growing,” said Brian Wieser, GroupM’s president of business intelligence.
Similar challenges have hit the e-commerce market. Believing that a surge in online orders during the pandemic represented a sea change in people’s shopping habits, Amazon has pushed ahead with an ambitious plan to open dozens of new warehouses. But as sales have cooled — the number of items sold rose just 1 percent last quarter — it has reversed course and decided to close, postpone or cancel at least 35 warehouse openings.
Amazon’s smaller e-commerce rival Shopify said it will cut about 10 percent of its workforce. Harley Finkelstein, President of Shopify, said this year will be “a transitional year, largely resetting e-commerce to pre-Covid-19 levels of growth.
Apple’s biggest obstacle has been its reliance on China to manufacture most of its devices. In April, the company said it would lose about $4 billion in revenue due to factory closures in Shanghai, where it makes iPads and Macs. Still, the company managed to grow its iPhone sales by 3 percent during the period and set a quarterly record for the number of people who traded Android smartphones for iPhones.
Tim Cook, Apple’s chief executive officer, said Apple has seen “a cocktail of headwinds,” including supply shortages, the stronger dollar raising device prices overseas, and the slowing global economy.
“If you think about the number of challenges we had in the quarter, we feel really good about the growth we’ve delivered,” said Mr. Cook. He added that the company would invest during a downturn, but “doing so consciously, recognizing the realities of the environment.”
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