The big tech boom is over and Wall Street knows it

I won’t talk about Elon Musk and Twitter.

Okay, just a little bit: Elon and Twitter are front-page news today, but that’s not the most important story in the tech business.*

The story that really matters to tech and business is this: The giant consumer companies that have supported the tech business for years are not disappearing, but their rocket ship days seem to be coming to an end. And the Wall Street investors who wanted it are profiting, which means these companies and their employees must learn to live on less.

We’ve been watching this game for most of the year as tech stocks have been falling, but this week it caught the eye when Alphabet, Meta and Amazon saw their stocks drop and the sector collectively lose. $400 billion in price.

All tech people have different reasons for investors to worry, but I would argue that they all have the same basic problem: they are mature companies that are no longer going to impress Wall Street with the crazy growth of their core business, and none of them doesn’t look like they have some new giant business. Alphabet, for example, just reported revenue growth. 6 percent is his weakest quarter in a decade.

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

Of course, the big players are still trying to convince investors otherwise. This is a key part of the glasses/glasses metaverse/VR/AR story that Meta, Apple and Microsoft are playing with – that there will be a new revolution in computing that will spark a ton of economic activity and they will be at the center of it.

May be! But these things are very expensive and very speculative, and at the same time, all these companies are focused on generating additional income and profits from their existing business. Apple and Amazon are increasingly focusing on turning their digital real estate into an advertising business. Meta is trying to turn its outdated Facebook and Instagram assets into TikTok clones. And at Alphabet, where 60 percent of revenue still comes from the same search ads they created 22 years ago, it was an attempt to spin off YouTube, which is nearly two decades old.

These are not new concerns. People wondered when Apple was going to create another product that would change the world at the scale of the iPhone, within 15 years (answer: never).

But they were easy to ignore for years, especially after the Great Recession of 2008 when the US government reduced lending rates to zero or close to it and kept them there until recently — which is no coincidence when tech stocks started to drop. If the money is essentially free, investors seek more speculative bets, which increases the value of the companies they bet on, which convinces more investors to invest in the same thing and repeat.

Now everyone is sobering up, so super-fancy things like cryptography are not discussed. And why the big tech companies that are really big and really profitable don’t disappear and their valuations drop. A crude measure of investor enthusiasm is a ratio that compares a company’s stock price to the value of its earnings. For example, Meta had a price-to-earnings ratio of 32.75 at the end of 2020; it has now dropped to 9.434. Alphabet fell from 34.32 to 19.14 in the same time. (However, Amazon has remained the same.even after a recent fall.)

And I would argue that there are other signs that these formerly vibrant companies are hitting a wall. For example: almost all of the men who founded and led large technology companies have handed over senior positions to professional managers. It’s more fun to do other things.

I’m not inclined to be optimistic, but we can definitely spin this around like a glass half full if we want to: Yes, Facebook, which hired over 19,000 people last year – up 28 percent – now says it’s going to keep headcount the same for at least the next 15 months. This is achieved through a combination of very limited hiring, not replacing employees who leave of their own accord, and pushing others out the door.

But theoretically, all those potential Facebook employees who were not hired there could end up … in another place, more interesting. One of the inspirations that have transcended the Web3 craze of recent years has been that the big tech companies have become so big and powerful that it’s impossible to create anything new without their permission. Now they are still big and powerful, but maybe not as attractive to people who want to create something new. It’s not a bad idea.

* This is an interesting story and also maybe funny and maybe scary and I would recommend starting with Nilay Patel if you want to freshen up, read about what’s coming next.

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