It’s been a tough few days for Big Tech with Google-parent Alphabet, Microsoft, Meta Platforms, Apple and Amazon all seeing their share prices plunge after reporting disappointing quarterly results.

They’ve also all lost at least 30% of their value so far this year. Is now a good time for investors to consider buying Big Tech again or is it too early with further losses likely? Could this even be the end of their cycle of dominance for some of the world’s biggest companies?

A rare wobble for Alphabet

Alphabet published its results on Tuesday after markets closed for the day on Wall Street and fell short of analyst expectations for 8% growth with the actual figure coming in at 6%. While 6% growth for such a huge company in such a tough economic environment might not sound terrible, Alphabet’s colossal valuation is underpinned by high growth.

A year ago growth of 41% was achieved over the same three months compared to 2020 and 6% is the lowest quarterly growth figure Alphabet has recorded in almost a decade. More worrying, advertising revenue, mainly generated by the Google search engine and YouTube, was down for the first time since the company started reporting it separately. The Alphabet share price promptly dropped by almost 9% and is now down over 35% for the year-to-date.

Source: The Times

Alphabet has a fast growing cloud computing unit, Google Cloud Platform, and also expects to generate big future revenues from new business verticals like self-driving cars. But for now, it is heavily reliant on digital ad revenue and is seen as a proxy for the global industry.

Meta share price slumps 22%

The slowdown, and hit to the company’s valuation, was more pronounced at Meta Platforms, which owns Facebook, Instagram and the chat app WhatsApp. Profits at the company more than halved in the third quarter and marked the first time in almost a decade that its profits have fallen for four consecutive quarters. It said revenues could drop to as low as $30 billion for the three months to the end of the year.

Other figures reported were a mixed bag with total revenue down 4% to $27.7 billion, ahead of expectations for $27.4 billion but net income falling short of a predicted $5.1 billion say investors bail out, sending the company’s share price down by over 22%. Meta’s valuation has plunged by 70% in 2022.

While that might sound like an obvious buying opportunity, there are warning signs. If the company’s huge bet on the Metaverse doesn’t come off, and that has to be a major risk at this stage with nobody really knowing what Metaverse business models will look like, the future looks bleak.

Facebook and Instagram are too big to disappear any time soon but look in terminal decline against a backdrop of new social media competitors like TikTok, which is far more popular with younger demographics.

The year ahead looks like being a tough one for Big Tech

The next 12 months don’t look like they will bring much obvious relief for Big Tech. The strength of the dollar is an issue for U.S. companies that earn much of their revenues internationally in other currencies and have high overheads at home for things like R&D. Alphabet’s finance chief Ruth Porat said that the strength of the dollar, after hedging costs, wiped 5% off third quarter revenue growth.

With the U.S. economy currently expected to tip into recession next year, and much of the rest of the world before then, the immediate outlook isn’t rosy. Barclays analysts are forecasting earnings of 5.62 cents a share this year and a decline to 5.02 cents next.

The same can be said of Facebook-owner Meta Platforms. Its valuation has slumped by over 22% to its lowest level since 2016 after it published results yesterday that showed the slowdown in advertising spend as companies brace for a recession.

Microsoft

Microsoft’s share price also fell on Wednesday, down 7.7% after the tech giant published results that showed growth in its cloud computing division is decelerating and warned investors to expect a drop for the personal computing market due to tough economic conditions.

Microsoft is a well diversified business, selling software including the Windows operating system and Office productivity suite as well as cloud services and the Xbox gaming consoles and personal computers and laptops. Over the past couple of years, it has swapped positions with Apple as the world’s biggest company.

It was far from a terrible set of results for Microsoft, with revenues up 11% to $50.1 billion over its fiscal first quarter and growth would have been 16% if it hadn’t been for exchange rate losses caused by the strong dollar. The best performing unit was the company’s Intelligent Cloud business whose sales rose to $20.3 billion. However, the Azure cloud computing platform, part of the Intelligent Cloud unit, saw its growth slow to 35% compared to 40% over the previous quarter and 50% for the same three months a year earlier.

While the huge growth experienced in cloud computing was always going to ease at some point as the market matured, Amazon and Google’s cloud computing units have experienced the same trend, Microsoft’s results fell short of analyst estimates for 36% growth.

The company also told investors cloud computing margins are dipping due to higher energy costs that mean server overheads have shot up. Investors were also presented with a cautious outlook and Microsoft admitted that the macroeconomic conditions expected over the coming year would likely mean less advertising spend on its LinkedIn platform, enterprise cloud budgets being impacted and a drop off in PC sales.

Amazon warns its profit could vanish entirely

The Amazon share price dropped 13% in after-hours trading yesterday after the world’s largest retailer and cloud computing provider warned that high inflation could entirely wipe out its profit over the year ahead.

Despite a 15% increase in net sales over the most recent quarter to $127.1 billion, that was short of analyst forecasts and Amazon’s profits fell by 9% to $2.87 billion. The company also offered forward guidance of $140 billion to $148 billion for the fourth quarter covering the festive period when analysts had expected over $155 billion. Operating profits for the current quarter could, said Amazon, reach $4 billion in the most optimistic scenario but be zero at the other end of the scale.

The company told investors it will tighten its belt by reducing spend on side projects like autonomous delivery vehicles, without compromising the pursuit of its long-term strategic bets.

As well as its huge online retail operation and AWS cloud computing division, the world’s biggest, Amazon has interests across online groceries, digital advertising and streaming. The company has lost around 35% of its value this year.

Apple the best of a bad bunch in Big Tech

Apple’s share price actually opened over 4% up on Friday despite the iPhone maker also disappointing somewhat on iPhone sales and services revenue. Investors have reacted positively to overall profit and revenue coming in ahead of expectations for the most recent quarter.

Overall, revenue at Apple rose 8.1% to $90.15 billion during the three months to September and net income improved by 0.8% to $20.7 billion.

Is it time to buy the Big Tech dip or too early?

In total, the five biggest tech companies, Apple, Microsoft, Alphabet, Amazon and Meta, have seen a total $770 billion wiped off of their valuations this week. Over 2022, the figure is in the trillions.

Investors may be wondering if it’s time to start buying Big Tech stocks again after the significant losses their share prices have suffered this year. For owners of these stocks, it is almost certainly not a good time to sell them, even if losses continue to mount. Meta could be an exception after Morgan Stanley analysts downgraded the stock and labelled the company’s spending plans a “thesis changing moment”.

There have to be concerns over Meta’s future with especially Facebook and possibly also Instagram in seemingly terminal decline already. Neither platform is expected to return to significant growth over coming years and this may be the beginning of a slide towards irrelevance for both. If the bet on the future metaverse economy doesn’t pay off handsomely, and it’s not clear what the business model will be or even what the metaverse will look like, the company is in trouble.

Amazon, Microsoft, Alphabet and Apple all look well placed to ride out economic troubles ahead with huge piles of cash and diversified income streams. However, it is not unlikely their valuations will continue to fall over the next several months due to the generally bleak macroeconomic environment and negative investor sentiment.

Owners of these stocks will probably feel quite happy to hold onto them in the belief the future stock market recovery will see their valuations return to 2021 levels. However, that’s not guaranteed. For new investments in Big Tech, it is probably still early. Further softening of valuations wouldn’t be a surprise.