This article is from Big Technology, a newsletter by Alex Kantrowitz.
Big Tech’s disaster scenario just played out, and now its bounce back up is beginning. Inflation is moderating, the Federal Reserve is relaxing, cost discipline at the companies is back, and the bar has fallen so low that it’s easy to clear. Suddenly, the tech giants have momentum again.
Already this year, Meta stock is up about 55 percent, Amazon is up 25 percent, Alphabet is up 20 percent, Apple is up 25 percent, and Microsoft is up 9 percent as of late Friday morning. All are healthily beating the S&P 500, even with some muted earnings reports this 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 ascent will be slow—but they’re poised for improvement now that certainty is returning to the economy. As inflation soared in 2021 and 2022 and the Fed raised interest rates rapidly, investors stayed away from Big Tech. 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 this week, investors are returning. This explains at least some of Meta’s 23 percent share price jump on 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.”
The tech giants are well-positioned for a rough economy, if things take a nosedive. 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 call Wednesday, Mark Zuckerberg emphasized that 2023 would be its “year of efficiency,” a message investors loved. And Amazon on Thursday guided to slower growth this year without giving up the day’s gains.
There’s also product energy inside the tech giants that hasn’t been there for years. Recent A.I. 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.
The economy may still fall into a recession, especially as the Fed continues to (slowly) raise interest rates. And Apple’s earnings report Thursday—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 predictably 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.