Tech investors won’t soon forget this week. On Wednesday, the shares of the Facebook group Meta fell after the quarterly figures were announced and lost almost 70 billion dollars in market value. The Google group Alphabet had already lost just as much in market capitalization with its disappointing figures on Tuesday.
On Thursday, the world’s largest online retailer, Amazon, surpassed these price slumps again. The group lost around 150 billion dollars in market value in after-hours trading – that is far more than the overall valuation of the German software manufacturer SAP. Perhaps a little less spectacular, but just as powerful: Microsoft’s valuation fell by a similar amount this week after the announcement of its business figures.
The figures alone show that this is not about stock market theatre. Companies become victims of their own success. Despite different business models, they have grown incredibly large. Network effects, strong algorithms, digital market power and many self-reinforcing effects turned tech companies into Big Tech.
Big Tech is becoming value stocks
However, the limits of these forces are now becoming apparent. Example Meta: For many years, Facebook was indispensable for billions of people. The next generation relied on Instagram, which Mark Zuckerberg had wisely secured beforehand. But the clock is ticking there now, young people are using Tiktok today. Note: The network effect is strong, but limited in time.
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Meta, Google and, to some extent, Microsoft are also making an unpleasant discovery: the online advertising business is no longer growing unhindered. The market is now so large and established that, like conventional advertising, it cannot escape economic developments.
>> Read also: Amazon, Meta, Alphabet – Tech giants experience stock market crash
To put it in investor jargon, Big Tech is becoming value stocks. The time of wild growth is over, just because of the base effect. 30 percent growth on a billion dollar turnover is much easier to achieve than on 50 billion or even 100 billion dollars. Given the overall size, when Amazon or Microsoft post amazing growth in the cloud business, that’s no longer enough to wow investors.
For tech managers, the word value harbors a great terror. Your stock option currency will be devalued if less large price jumps are expected. This makes it more difficult to retain young talent, which will have a negative impact on innovative strength in the long term.
But that doesn’t mean that Big Tech will lose its market power overnight. Just as Coca-Cola or other value stocks have dominated their market for years, so will Google & Co. But they have passed their peak.
More: Amazon presents disappointing outlook – share temporarily collapses 20 percent.