How tech’s defiance of economic gravity came to an abrupt end – The Economist

by | Dec 24, 2022 | Financial

Whatever the economic weather, the sun always seemed to shine on Silicon Valley. America’s five largest technology companies—Apple, Microsoft, Alphabet, Amazon and Meta—saw their revenues and profits grow at five times the rate of American GDP in the decade to 2021. Tech’s ability to thrive as others struggled seemed to be confirmed during covid-19 lockdowns, when firms in the Valley posted record earnings even as much of the economy crumpled. In 2022 tech’s luck ran out. It has been a difficult year for everyone: the S&P 500, an index of America’s largest firms, has fallen by a fifth since January. But digital firms have been hit harder, with the NASDAQ composite, a tech-heavy index, losing a third of its value. Tech’s five giants have collectively lost a dizzying $3trn in market value (see chart 1). The most dramatic loser, Meta, barely even counts as part of “big” tech any more—nearly two-thirds of its value was wiped out, leaving its market capitalisation at just over $300bn.The end of tech exceptionalism has several causes. One is that after years of growth, digital markets are maturing. Take advertising, the lifeblood of Alphabet and Meta, and a growing sideline for Amazon, Apple and Microsoft. During past downturns, ad spending fell but spending on digital ads kept growing, as advertisers pulled their budgets from old media like TV and newspapers and shifted adverts online. Today, much of that migration has already taken place: about two-thirds of ad spending in America this year was digital. Online ad platforms are thus vulnerable to the cyclical shifts that have long battered their offline rivals. In July Meta reported its first-ever quarterly drop in revenue; in October it reported another.The next change is competition. For years tech was synonymous with concentrated markets: Google monopolising search, Facebook dominating social media …

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