Big Tech’s disaster scenario just played out, and now the bounce back is beginning. Inflation is moderating, the Federal Reserve is relaxing, cost discipline is back and expectations are so low they’re getting easy to beat. Suddenly, the tech giants have momentum again.
The Point: Why This Article Matters
- Don't call it a comeback? Big Tech companies such as Amazon, Alphabet, Apple, Microsoft and Meta are poised for a comeback as the economy becomes more certain.
- Well positioned. With cost cuts in motion, stability in earnings season and renewed product energy, Big Tech is well-positioned for a rough economy and is expected to beat the S&P 500.
Big Tech's Momentum Restored
Already this year, Meta stock is up 53%, Amazon is up 19%, Alphabet is up 20%, Apple is up 23% and Microsoft is up 11%. All are healthily beating the S&P 500, even with some muted earnings reports last week. As tech analyst Dan Ives put it in a DM Thursday, “Huge rebound underway.”
Big Tech’s share prices are still well below their all-time highs — and the rebound will be slow — but they’re poised for a comeback now that certainty is returning to the economy. As inflation soared and the Fed raised interest rates rapidly, investors stayed away from the tech giants. Each rate hike made their undisciplined pandemic-driven spending look worse. And Wall Street couldn’t properly value them without knowing when the pain would end.
Now that Fed Chair Jerome Powell has started tailing off his rate hikes, using “deflationary” as a buzzword last week, investors are returning. Powell’s Fed raised the federal funds rate by .25% last Wednesday, ending a series of larger raises between .5% and .75%. This explains at least some of Meta’s 23% share price jump in a single day last Thursday. And Ives expects even more money will flow in soon. “So many institutional investors are underweight tech,” he said. “Now with earnings season showing more stability, cost cuts in motion, and ripped Band-Aid off on guidance, they need to reposition ASAP.”
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Tech Giants Well-Positioned for a Tough Economy
The tech giants are well-positioned for a rough economy. They’ve made cuts, including sizable layoffs, well before other industries. And people’s expectations of them have dropped so far that they should be able to deliver. These companies are learning how to telegraph their preparedness to Wall Street, and it’s working. On Meta’s earnings last week Mark Zuckerberg emphasized that 2023 would be its “Year of Efficiency,” a message investors loved. And Amazon guided to slower growth without even giving up its day’s gains.
There’s also product energy inside the tech giants that hasn’t been there for years. Recent AI advances renewed the competition between Microsoft and Alphabet, sent companies like Meta and TikTok into a tizzy as they imagine new creative features, and put new entrants — like OpenAI — into the conversation. Meta and Alphabet’s leadership spoke at length about their vision for AI on their earnings calls this week.
Related Article: Big Tech Enters New Era of Scaled Back Ambitions as Stock Market Contracts
Predictability Returns to the Tech Market
The economy may still fall into a recession, especially as the Fed continues to (slowly) raise interest rates while growth contracts. And Apple’s earnings report — a miss on everything but iPad — didn’t exactly instill confidence that consumer spending will roar back.
But as runaway inflation fears subside, the type of predictability you need to buy big-ticket items like advertising, cloud hosting and computing devices is starting to return. Which is good news for the tech giants. Though it won’t be a straight line upward, it’s fair to say Big Tech hit bottom and is now ascending.