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‘Unstoppable until they aren’t’: are tech market losses signs of a bust?

Apple is no longer the most valuable company, Meta took a $230bn hit, Amazon reported its first loss since 2015, but a slump ‘is a big question mark’

A large screen mounted on a wall shows Amazon's market loss. In the foreground, traders for the New York Stock Exchange sit at desks and talk on phones.
Recent stock market losses in the tech industry have experts speculating whether a bust is on the horizon. Photograph: Xinhua/Rex/Shutterstock
Recent stock market losses in the tech industry have experts speculating whether a bust is on the horizon. Photograph: Xinhua/Rex/Shutterstock

Jeff Bezos knew this day was coming. Back in April the Amazon boss warned of an impending market slowdown, tweeting that the epic tech boom experienced during the last two years could not last for ever.

“Most people dramatically underestimate the remarkableness of this bull run,” he said. “Such things are unstoppable … until they aren’t.

“Markets teach,” Bezos added. “The lessons can be painful.”

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

Apple is no longer the most valuable company in the world, after losing $200bn in market value this week. It joins a number of other tech companies in a slump that began in late 2021, and brought the larger Nasdaq Composite down more than 13% in April – a more than 30% drop from record highs the previous year.

Meta lost a record $230bn in market value in February after a disappointing earnings report in which it revealed its Facebook platform had experienced its first ever user decline. Amazon reported its first loss since 2015 in its most recent earnings report last month. Alphabet revenue fell short in its first-quarter report. Smaller firms are also struggling, with pandemic success story Peloton seeing shares plunge 20% this week as demand for indoor exercise equipment fell.

Hiring freezes underscore a post-pandemic slowdown

Twitter announced in an internal memo on Thursday it was freezing new hires, and Meta did the same last week, citing an expense guidance given in its recent earnings report. Amazon said in a recent earnings call its warehouses were “overstaffed” and while it is not considering layoffs it is “working to remedy that”.

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

The hiring slowdown comes even as the broader market experiences employment growth, adding 431,000 jobs in April. The freeze is evidence that the boom in the market came from a confluence of unique factors, and was not a long-term trend, said Investing.com senior analyst Haris Anwar.

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

As Covid-19 hit in early 2020, companies such as Peloton, Zoom and Netflix boomed as offices shuttered and people spent more time at home. Zoom saw its value explode more than 500% in one year, but in recent days has seen stock fall nearly to pre-pandemic lows. Netflix, which added more than 36 million subscribers during the first year of the pandemic, has lost more than half of its value since reporting disappointing results on 19 April.

This kind of growth cannot be predicted, nor can it be maintained forever, 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 through freezing hiring, get rid of costs like unused real estate, push for higher productivity and re-examine investments,” he said.

“Is this a tech bust? It remains to be seen,” he added.

Other factors at play

Pandemic recovery is not the only component slowing tech companies’ runaway growth, experts say. The war in Ukraine has had an effect on advertising spending and has accelerated supply chain problems already introduced by the pandemic, a difficulty cited in a number of recent earnings calls.

“The war in Ukraine, which is a real tragedy on a humanitarian level, has also had an impact on our business,” Meta’s CEO, Mark Zuckerberg, said in a call with investors accompanying its first-quarter earnings report. “We’ve been blocked in Russia and we decided to stop accepting ads from Russian advertisers globally. We’ve also seen effects on business globally following the start of the war.”

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

“There’s an overwhelming sense of fear and concern a lot of decision makers have around all things economic right now,” he said. “The war certainly catalyzed a lot of it, but inflation and supply chain issues were already a problem.”

US inflation was higher than expected in April, nearing a 30-year high at 8.3%. Inflation broadly impacts consumer spend, which can have a major impact on companies that rely on e-commerce.

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

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

Crypto takes a hit

The tech slowdown has not been limited to the traditional market. As cryptocurrencies took a major nosedive this week, and Bitcoin fell well below $30,000 for the first time in nearly a year, wiping more than $200bn off the broader market, some declared that “crypto is dead”.

Crypto’s stumble has been attributed, in part, to a recent shake-up in the market when a popular “stablecoin” called TerraUSD collapsed. Stablecoins, a type of digital currency pegged to the US dollar, are thought to be less volatile than traditional cryptocurrencies.

Its fall has investors spooked that this is perhaps not true, said Tammy Da Costa, Analyst at DailyFX, as evidenced by the collapse of Terra 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 receive 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 may occur if large institutions continue to withdraw funds from their crypto portfolios.”

Aside from digital currency blunders, the same market forces influencing big tech companies could also be affecting digital currencies, said Wieser. Although crypto has traditionally been thought of as separate from the market, it cannot escape the war in Ukraine and other major headwinds.

“Higher interest rates make everyone more conscious about investing and the choices they’re making when it comes to momentum driven assets,” he said. “It doesn’t take a lot to send these kinds of markets the other direction.”

Not a slump, but a deceleration

While many are panicking, Wieser is quick to note that it’s not as if these companies are failing – it is that the explosive growth seen over the last two years is not sustainable.

“Deceleration is not the same as decline,” he said. “If you’ve grown 20-30%, and then you are suddenly growing just 10%, it might feel like a significant change. But it’s not a crash.”

While tech companies seem to be slowing hiring patterns, there are not yet indications that mass layoffs are on the horizon for leading companies such as Meta, Twitter, and Amazon – all of whom have all expressed that they have no plans to downsize.

Still, rumors have been roiling that big cuts are on the horizon for smaller firms. “The next 6-8 weeks is going to be a bloodbath,” tweeted JD Ross, co-founder of the music investment platform Royal. “I’m hearing rumors about a ton of companies preparing to lay off 20-40% of their team.”

The slowdown is coming from a confluence of factors affecting companies across the entire market, said Shah of Publicis Sapient: inflation, the war in Ukraine, supply chain woes, and changing consumer behaviors. Big tech companies will probably remain “safe harbors” – long woven into our digital lives and more likely to weather the storm of the market. But how the larger industry will be altered remains to be seen.

“Tech shares are in for a bumpy ride,” he said.