If you look at the headlines surrounding Big Tech today, the picture wouldn’t look too rosy. Layoffs, shares slumping and valuations tumbling don’t make for a good combination for companies that have seemingly grown exponentially for the last decade. So, what’s going on here?
It seems to many economists and people on Wall Street that we are in the midst of a change of direction for many of these companies. From frivolous spending to more frugal budgets – Big Tech can no longer aimlessly spend. The prospect of recession around the world, the slowing down the global economy and supply chain issues have hit these tech companies hard. The money isn’t pouring in as fast and production issues are forcing products to take longer to release. This is the same for many companies the economy over, but tech stocks were seen as high value for many investors and now with the multitude of issues facing them, investors are looking elsewhere. This is a big change from during the pandemic where many of these companies were reaching record highs in their stock price and market capitalisation.
Tech companies are tightening the purse strings and one of the quickest ways to save money is to lay people off. Within the last 4 months, Amazon, Microsoft, Meta, and Alphabet (Google) have laid off 50,000 people. The layoffs in other sectors of the economy haven’t been as large as in tech. Originally a lot of these layoffs had been in America but recently Deliveroo has announced it is laying off 10% of its workforce, possibly starting this trend amongst more UK tech firms.
Dealing with the disruption to supply chains might be one way to remedy some of the downturn these companies are facing. Semiconductors are still partially affected by COVID with more demand and reduced production over the pandemic. The worst seems to be over for chip makers, but manufacturing is the next challenge. China previously had a Zero Covid Policy which caused strict lockdowns for areas that had a few cases. This has caused major delays in the production of electronics and delayed big products like the iPhone and PS5.
Focusing on more profitable projects is another way the tech world might prove to investors that it’s a stocks worth investing in again. We’re on the cusp of an AI revolution, with an AI powered search battle between Microsoft and Google brewing. Big conversations are happening in the boardrooms of big tech around these new technologies, so we’ll have to wait and see what is in store for us as consumers.