Eurozone economy growing faster than expected, but so is inflation

No boom can last forever, even for the wealthiest companies in the tech industry. Investors punished the biggest tech companies earlier this year, wiping out $2 trillion in market value over fears the industry would falter in the face of rising inflation and a slowing economy.

But this week, as the United States announced that economic output had fallen for the second consecutive quarter, Microsoft, Alphabet, Amazon and Apple posted sales and profits that showed their companies had the dominance and diversity. necessary to challenge the economic difficulties that are hurting small businesses.

Microsoft and Amazon have proven that their lucrative cloud businesses continue to grow even as the economy cools. Alphabet subsidiary Google has demonstrated that search ads remain in demand among travel agencies and retailers. And Apple hid a slowdown in its device business by increasing sales of apps and subscription services.

Collectively, it was a sign that technology may have already bottomed out and was beginning to rebound, said Dave Harden, chief investment officer at Summit Global, a company near Salt Lake City with about $2 billion in assets. investments that counts Apple among its holdings. .

“These guys always deliver,” Mr. Harden said. “They are acting responsibly and going through a turbulent time.”

The better-than-expected results lifted company stock prices and rattled the stock market, even as Alphabet and Microsoft fell short of Wall Street expectations.

The results clearly showed that companies are not immune to issues such as supply chain disruptions, rising costs and changes in customer spending. But their giant corporations aren’t as vulnerable to the various challenges running through the economy as smaller companies like Twitter and Snap, the owner of Snapchat.

In calls with analysts, company chief executives cautioned investors about the months ahead, using words such as “challenges” and “uncertainty.” Worries about the economy are leading some of them, including Alphabet, to slow the pace of hiring and take other precautions, but none have announced plans to start layoffs.

Sundar Pichai, chief executive of Alphabet, presented the slowing economy as an opportunity, saying the company would be more focused and “be more disciplined going forward”. He added, “When you’re in growth mode, it’s hard to always take the time to make all the readjustments you need to make and times like this give us a chance.”

Credit…Kyle Johnson for The New York Times

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 expected sales to grow at least 13% in the current quarter.

Microsoft CEO Satya Nadella said the company would invest over the year to take shares and grow its business, while Brian Olsavsky, Amazon’s chief financial officer, said it would have more products in stock and faster deliveries.

“This is not a recession forecast,” said Sean Stannard-Stockton, chairman of Ensemble Capital, a San Francisco-based investment firm with $1.3 billion under management. “If we avoid a severe recession, it is clear that many of these companies will see their growth rates pick up again.”

Although Apple and Alphabet did not provide guidance, the companies repurchased tens of billions of dollars worth of stock during the period. The purchase of Apple for $21.7 billion and Alphabet for $15.2 billion signaled the companies’ belief that their businesses will continue to grow in the years to come.

Meta, the company formerly known as Facebook, was an outlier among the biggest tech companies, posting its first quarterly revenue drop since going public a decade ago. Its woes were a consequence of growing competition from TikTok, which undermined it from users and advertisers, and the challenges of privacy changes on iPhones implemented by Apple.

The advertising market is expected to grow 8.4% this year and 6.4% in 2023, according to GroupM, a market research firm. Facebook’s sales growth last year, when quarterly sales jumped 56%, made it “incredible to continue to grow,” said Brian Wieser, president of business intelligence at GroupM.

Similar challenges have hit the e-commerce market. Convinced that a surge in online orders during the pandemic represented a fundamental change in the way people shopped, Amazon advanced an ambitious plan to open dozens of new warehouses. But as sales cooled – with the number of items sold up just 1% in the last quarter – it reversed course and decided to close, delay or cancel at least 35 store openings. warehouses.

Amazon’s smaller e-commerce rival, Shopify, said it would cut about 10% of its staff. Harley Finkelstein, president of Shopify, said this year will be “a year of transition in which e-commerce is largely reset” to the growth levels it saw before Covid-19.

Apple’s biggest hurdle 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 factory closures in Shanghai, where it makes iPads and Macs. But it still managed to increase its iPhone sales by 3% during the period and set a quarterly record for the number of people who traded in Android smartphones for iPhones.

Tim Cook, Apple’s chief executive, said Apple is seeing “a cocktail of headwinds,” including supply constraints, a stronger dollar that has boosted device prices overseas, and slowing the world economy.

“When you think about the number of challenges in the quarter, we’re very pleased with the growth we’ve put in place,” Cook said. He added that the company would invest in the event of a downturn, but would be “deliberate in doing so in recognition of the realities of the environment”.

Leave a Comment