Big tech is getting clobbered on Wall Street. It's a good time for them

In the months ahead, Microsoft, Google, Apple and Amazon are expected to boost hiring, buy more businesses and emerge on the other side of a bearish economy stronger and more powerful — even if they shed some of their total valuation and their relentless growth of the last few years.

“Big Tech can say, ‘Forget the economy,’” said Richard Kramer, founder of the London-based advisory firm Arete Research. Flush with cash, he said, “they can invest through the cycle.”

The large companies’ plans contrast sharply with a wave of spending cuts crashing through the rest of the tech sector. Steep declines in share prices at unprofitable companies such as Uber, down 45%, and Peloton, down 58%, have led their CEOs to cut jobs or consider layoffs. Startups are pruning their workforces as venture capital funding slows.

Those companies’ plummeting values will create buying opportunities, said Toni Sacconaghi, a tech analyst at Bernstein, a research firm. Large deals may be difficult because the Federal Trade Commission is scrutinizing takeover moves by Facebook, Apple, Amazon, Microsoft and Google, he said, but smaller deals for emerging technology or engineers could be rampant.

During the Great Recession, Facebook, Amazon, Google, Apple and Microsoft acquired more than 100 companies from 2008-10, according to Refinitiv, a financial data company. Some of those deals have become fundamental to their businesses today, including Apple’s acquisition of chip company PA Semi, which contributed to the company’s development of its new laptop processors, and Google’s acquisition of AdMob, which helped create a mobile advertising business.

“The big will get bigger and the poor will get poorer,” said Michael Cusumano, deputy dean of the Sloan School of Management at the Massachusetts Institute of Technology. “That’s the way network effects work.”

There are caveats to this sense of invulnerability. The big companies’ plans could always change if the economy continues to deteriorate and consumers pull back even further on their spending. And some of the big companies are more vulnerable than others.

Meta Platforms, Facebook’s parent company, has fared worse than its peers because its business is facing long-term challenges. It has posted falling profits as its user growth slows amid rising competition from TikTok, and changes in Apple’s privacy policy stymie its ability to personalize ads.

Meta CEO Mark Zuckerberg has responded by instituting a temporary hiring freeze for some roles. During a recent all-hands meeting with staff, employees asked if layoffs would follow. Zuckerberg said job cuts weren’t in the company’s current plans and were unlikely in the future, according to a spokesperson. Instead, he said the company was focused on slowing spending and limiting its growth.

Amazon sent a similar signal to its employees last month after it posted disappointing results. In a call with analysts, Brian Olsavsky, the company’s finance chief, said Amazon would look to corral costs after it doubled spending on warehouses and staff to keep pace with pandemic orders. As people return to work and travel, they are making fewer Amazon purchases, leaving the company with more space and staff than it needs.

But Amazon’s lucrative cloud business, Amazon Web Services, or AWS, continues to gush profits. The company plans to lean into its success in the months ahead by increasing its spending on data centers. It also has committed to raising the cap on base compensation of its corporate staff to $350,000, from $160,000. And it is investing in a plan to build a network of satellites to deliver high-speed internet by launching 38 rockets into space.

The first test for the biggest companies in tech will be contagion from their peers. Amazon’s shares in electric vehicle maker Rivian Automotive have plunged more than 65%, a $7.6 billion paper loss. Apple’s services sales are likely to be crimped by a slowdown in advertising by app developers, which rely on venture-capital funding to finance their marketing, analysts say. And startups are scrutinizing their spending on cloud services, which will probably slow growth for Microsoft Azure and Google Cloud, analysts and cloud executives said.

“People are trying to figure out how to spend smartly,” said Sam Ramji, chief strategy officer at DataStax, a data-management company.

Regulatory challenges on the horizon could darken the Big Tech companies’ prospects, as well. Europe’s Digital Markets Act, which is expected to become law soon, is designed to increase the openness of tech platforms. Among other things, it could scuttle the estimated $19 billion that Apple collects from Alphabet to make Google the default search engine on iPhones, a change that Bernstein estimates could erase as much as 3% of Apple’s pretax profit.

But the companies are expected to challenge the law in court, potentially tying up the legislation for years. The probability it gets bogged down leaves analysts sticking to their consensus: “Big Tech is going to be more powerful. And what’s being done about it? Nothing,” Kramer of Arete Research said.