Earnings Season: Will Big Tech Short Circuit?

All Eyes on Tech

Ever since the dot-com bubble, big tech has seemed unstoppable. Companies like Meta Platforms (META), Amazon (AMZN), and Google (GOOGL) have posted quarter after quarter of nonstop growth. Now, that could be about to change.

Over the past several months, many tech companies have frozen hiring, cut costs, and laid off employees. For these unstoppable growth machines, these are almost unprecedented moves.

So far, investors have only been able to speculate on what might be happening. But, as earnings reports start to roll in, they will finally get a closer look behind the scenes.

What’s Changed?

Big tech companies have successfully navigated the 2008 financial crisis, a global pandemic, and countless crises in between. So what’s different this time around?

To start, there’s the challenge of inflation eating away at consumers’ buying power. Inflation is sitting at a 40-year high, meaning consumers are spending more money than ever on necessities. This leaves less money left over for luxuries, such as the newest Apple (AAPL) iPhone or Meta Quest VR headset.

There’s also the matter of a strengthening US dollar. While it sounds like a stronger dollar would be a good thing, it actually means that overseas sales are not worth as much. For major international companies, falling conversion rates can put a serious dent in total revenue.

Back to Basics

Big tech companies are famous for having a main gig that prints money and funds dozens of side hustles.

For example, Facebook sells digital ad space to its billions of users, bringing in the billions of dollars it’s spending to build a metaverse. Google’s main gig is selling ads through Google Search. On the side, its “moonshot factory” X Development contributes money to a lot of high-risk projects, hoping one will hit a home run. Amazon and others have similar strategies. However, any reports of negative earnings or lowered outlooks next week could force tech firms to prioritize their core businesses and pull back on riskier spending.

Due to their reach and influence, major tech companies have an outsized impact on the economy. With this in mind, even non-investors will want to keep an eye on next week’s earnings reports.

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