24 December 2022.

Excerpt:

>In 2022 tech’s luck ran out. It has been a difficult year for everyone: the S&P 500, an index of America’s largest firms, has fallen by a fifth since January.

>But digital firms have been hit harder, with the NASDAQ composite, a tech-heavy index, losing a third of its value. Tech’s five giants have collectively lost a dizzying $3trn in market value.

>The most dramatic loser, Meta, barely even counts as part of “big” tech any more—nearly two-thirds of its value was wiped out, leaving its market capitalisation at just over $300bn.

> 

>The end of tech exceptionalism has several causes.

>One is that after years of growth, digital markets are maturing. Take advertising, the lifeblood of Alphabet and Meta, and a growing sideline for Amazon, Apple and Microsoft. In July Meta reported its first-ever quarterly drop in revenue; in October it reported another.

>The next change is competition. For years tech was synonymous with concentrated markets: Google monopolising search, Facebook dominating social media, and so on. These days competition is fierce.

>These changes in the structure of the tech business have coincided with headwinds that are particularly troublesome for digital companies. In America the Federal Reserve has raised the upper bound on its policy interest rate to 4.5%, from 0.25% in January, as it battles inflation.

>This makes life harder for all businesses. But tech companies, whose high valuations reflect investors’ belief that they will deliver outsized earnings far in future, look much less appealing in a world of high rates, which erode the present value of those promised earnings.

> 

>Semiconductors have been another sore spot in the tech world. [Just] as chip production bloomed, demand withered, thanks to falling sales of PCs and smartphones.

>Geopolitical tensions added to the strife. America announced several new trade restrictions on the export of semiconductor equipment to China, the world’s biggest buyer of chips. China has also become an operationally riskier place.

>These difficulties mean that the year ahead will be a lean one in techland. Most have made a resolution to trim their costs, which in many cases means cutting the payroll.

>Tech firms worldwide have announced more than 150,000 job cuts so far in 2022, according to Layoffs.fyi, a website.

The Economist