THE PAST THREE months have not been kind to large public technology companies. Amid crescendos of criticism about monopolistic power, these companies saw their market value plummet. The rampant selling has leveled off, at least for the moment, so it’s an opportune time to ask: What comes next?

WIRED OPINION

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Zachary Karabell is a WIRED contributor and president of River Twice Research.

This was hardly the first drop in these firms’ share prices, and it won’t be the last. But there’s good reason to think that this is more than just a periodic market correction. It signals a recognition that these companies are maturing, face new challenges from within, from each other, from shifting macroeconomic winds, and from regulators. The massive run-up in share prices this summer may not have been a last hurrah, but it’s likely that it will mark the end of this latest euphoria stage.

During the summer, tech investors—especially shareholders in the leading “FAANG” companies (Facebook, Apple, Amazon, Netflix and Google)—were feeling flush, as were those companies themselves. (Even Facebook, mired in a cascade of bad press over repeated missteps, reached an all-time high in July.) Netflix stock was up 140 percent from December 2017 to its summer peak. Apple was the first trillion-dollar US-listed company, and Amazon followed quickly. Behind the behemoths were a host of smaller companies (each pretty large), such as Salesforce and Nvidia, each up more than 100 percent for the year.

But in October it began to crumble, and fast. Nvidia fell 50 percent from its high, Netflix 40 percent, Facebook 35 percent, Amazon and Apple 25 percent, and Google 20 percent. In fact, the only tech giant not to fall substantially was Microsoft, which seems about to overtake Apple and Amazon as the world’s most valuable company.

It’s always dicey to read too much into stock market moves. Sometimes they forecast something; often they forecast nothing. One common quip is that the stock market has forecast eight of the past five recessions. Many investors, both short- and long-term, made oodles of money on tech stocks, over the past 12 to 18 months especially. So some profit-taking was long overdue.

But there’s good reason to take note of what has changed in Big Tech, beyond the recent stock moves.

Every major tech company is now facing real questions, though not the same ones. Amazon and Google appear to be headed for some regulatory heat. Apple, 10 years-plus after the introduction of the iPhone, is morphing into a luxury brand with increasing revenue from services. Netflix, though it continues to grow at double-digit rates, will face more streaming competition and has amassed considerable debt. And of course Facebook is in a world of hurt, with eroding confidence from the public and investors.

But look at who’s not on that list: Over the past few months, Microsoft’s shares have outperformed the S&P 500 stock index, while almost all else tech collapsed. What sets Microsoft apart is that it faced its come-to-Jesus moment 20 years ago, with years of bad publicity over its aggressive business tactics and a massive US government antitrust suit, which it survived, but only after a judge at one point ordered the company broken up. Coinciding with the bursting tech bubble in 2000, Microsoft’s woes continued for years, as it struggled with vision, with the transition from Bill Gates to Steve Ballmer, and with an investor base that was perplexed about how to value the company going forward.

That may now be true for the FAANG companies. They remain market-dominant and wildly profitable. That much is not at issue. But stock markets don’t put a premium on companies just because they make a lot of money. Investors put a bigger premium on growth than on consistent cash flow, which is why the human-resources software maker Workday, with annual revenue of about $2 billion, commands the same valuation as the insurance company Aflac (the one with the duck commercials), which has annual revenue of about $22 billion. That’s also a key reason why investors are sharply divided over Apple, which generates far more cash than it can spend but whose future trajectory is not going to look like its past.

To make matters dicier, these companies are maturing at a moment when regulators in Europe, and perhaps soon in the US, are taking a harder look at them, and the relatively open global economic order on which they are built seems to be crumbling. That’s why chipmaker Nvidia was valued at almost $200 billion at the end of the summer and is now worth roughly $100 billion: The drivers of its growth, from the brief explosion of bitcoin mining to graphic gaming cards, are in question as concerns about trade wars converge with rising interest rates.

So here we are after the fall. Markets being flighty and unpredictable, it should be no surprise if many of these companies rise 10 percent by Christmas—or decline further if trade-war concerns deepen. The larger issue is that we are entering a new phase of ambiguity and legitimate confusion about what happens next.

This is more than an issue for financial markets and for investors who own these companies. Their growth, and their compensation strategies, have depended on escalating stock prices, as anyone who’s been granted options knows. How these companies are valued also impacts the venture capital market and the valuation of private companies like Uber and Airbnb, which will need to go public soon. There may not be a crisis looming, but many assumptions are about to be upended.

A kick to complacency is not necessarily a bad thing and may ultimately be for the best. If anything, we should welcome this moment as a call to more urgent reinvention. The bigger and more profitable that companies become, the less resilient they tend to be in the face of market turmoil, much as big empires tend to become less secure as they find themselves with more to lose. We should hope that business models will be recalibrated and reset, as will investor expectations. Worse would be if too many of these companies continue to hunker down and become defensive of turf already gained. We will see over the coming year which tendency prevails, but one thing should be clear: Tech land is entering a new phase, with as much uncertainty ahead as there has been for a long, long while.

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