No boom can last forever, even for the wealthiest companies in the tech industry. Investors punished the biggest tech companies earlier this year, wiping $2 trillion from market value over fears the industry was bogging down in the face of rising inflation and a slowing economy.
But this week, as the US reported economic output fell for the second consecutive quarter, Microsoft, Alphabet, Amazon and Apple announced sales and earnings that showed their businesses had dominance and diversification to challenge economic problems hurting small businesses.
Microsoft and Amazon have proven that their lucrative cloud business continues to expand even as the economy slows. Alphabet subsidiary Google has shown that search ads are still in demand among travel companies and retailers. Apple countered the decline in its hardware business by increasing sales of apps and subscription services.
Collectively, it was a sign that technology may have already bottomed out and started to recover, said Dave Harden, chief investment officer at Summit Global, a company near Salt Lake City with investments of about $2 billion that counts Apple among its holdings. .
“These guys still deliver,” Mr. Harden said. “They act responsibly and navigate through a volatile period.”
The better-than-fear results lifted corporate stock prices and rattled the stock market, even as Alphabet and Microsoft failed to meet Wall Street expectations.
The results showed that companies are not immune to problems such as supply chain disruptions, rising costs, and shifts in customer spending. But their giants are not as vulnerable to the various challenges sweeping the economy as smaller companies like Twitter and Snap, the owner of Snapchat.
During calls with analysts, company CEOs warned investors about the coming months, using words like “challenges” and “uncertainty.” Concerns about the economy have led some, including Alphabet, to slow the pace of hiring and take other precautions, but none have said they plan to start laying off workers.
Alphabet CEO Sundar Pichai portrayed the slowing economy as an opportunity, saying the company will increase its focus and “will be more disciplined as we go.” He added, “When you’re in growth mode, it’s always hard to take the time to make all the adjustments that you need to do, and moments like this give us a chance.”
In what many investors interpreted as a testament to industry optimism, Microsoft said it expects double-digit revenue growth for next year, and Amazon said it expects sales to increase at least 13% in the current quarter.
Microsoft CEO Satya Nadella said the company would invest throughout the year to take a stake and build its business, while Brian Olsavsky, Amazon’s chief financial officer, said it would have more products in stock and faster delivery.
“This is not a recession forecast,” said Shaun Stannard Stockton, president of Ensemble Capital, a San Francisco-based investment firm that manages $1.3 billion. “If we avoid a severe recession, it’s clear that a lot of these companies will see a pickup in growth.”
Although Apple and Alphabet did not provide guidance, the companies bought back tens of billions of dollars in stock during this period. Apple’s $21.7 billion purchase and $15.2 billion purchase of Alphabet was a test of companies’ belief that their business would continue to grow in the coming years.
Meta, formerly Facebook, is out of the way for the biggest tech companies, reporting its first drop in quarterly revenue since it went public a decade ago. Its problems were a product of increased competition from TikTok, which drained it from users and advertisers, and challenges from privacy changes on iPhones implemented by Apple.
The advertising market is expected to grow 8.4 percent this year and 6.4 percent in 2023, according to market research firm GroupM. Brian Wieser, GroupM’s head of business intelligence, said Facebook’s sales growth last year, when quarterly sales jumped 56%, made it unreasonable to continue growing.
Similar challenges have hit the e-commerce market. Convinced that the increase in online orders during the pandemic represents a fundamental change in the way people shop, Amazon has introduced an ambitious plan to open dozens of new warehouses. But as sales have slowed — with the number of items sold increasing just 1 percent last quarter — it has reversed course and decided to close, delay or cancel at least 35 warehouse openings.
Shopify, Amazon’s smaller e-commerce competitor, said it would cut about 10 percent of its staff. Harley Finkelstein, president of Shopify, said this year will be a “transition year in which e-commerce is largely reset” to its pre-Covid-19 growth levels.
The biggest obstacle for Apple has come from its reliance on China to manufacture most of its devices. In April, the company said it would lose about $4 billion in sales due to the closure of factories in Shanghai, where it makes iPads and Macs. But it still managed to increase its iPhone sales in this period by 3 percent and set a quarterly record for the number of people who traded Android smartphones for iPhones.
Apple CEO Tim Cook said Apple has seen a “mixture of headwinds,” including supply restrictions, a rising dollar that has driven up prices for devices overseas and a slowdown in the global economy.
“When you think about the number of challenges this quarter, we feel really good about the growth that we put in,” El-Sayed said. Cook said. He added that the company would invest during the downturn, but it was “deliberate in doing so in recognition of the reality of the environment.”