Brutal week for Big Tech with $940 billion wiped off valuations

Mark Zuckerberg, chief executive officer of Meta, is under pressure from investors. Photo / AP

Investors spooked by weak earnings season and runaway costs at largest digital companies More than US$550 billion (NZ$940b) has been wiped off the value of the biggest US tech companies this week, with headlong growth stalling because of the slowing global economy and mounting cost pressures.

The stock market slump has underlined a surprisingly weak earnings season from the US digital giants, ending a surge in growth during the pandemic and putting paid to hopes that they would withstand the inflation and weakening growth that are hitting the wider economy.

Facebook's parent, Meta, delivered the latest blow to Wall Street's faith in the resilience of Big Tech late on Wednesday when it reported a slump in its profit margins on the back of slipping advertising revenue and soaring costs.

Mark Zuckerberg faced a barrage of questions from Wall Street analysts about why his company was planning to double down on its bets on artificial intelligence and the metaverse next year, despite an eroding advertising business and a lack of any clear promises about when the massive spending would pay off.

Echoing the wary mood at the end of a fractious earnings call, Brent Thill, an analyst at Jefferies, said: "There are just too many experimental bets versus proven bets on the core."

In a note to investors, analysts at Morgan Stanley added that they were breaking with their normal practice of not issuing immediate ratings downgrades in response to bad news because Meta's spending plans were a "thesis-changing" moment.

Wall Street's loss of confidence in the progress of Zuckerberg's metaverse vision wiped 22 per cent from Meta's shares on Thursday morning in New York, cutting US$80b from its stock market value. It left Meta's shares 73 per cent blow the record they hit 14 months ago, and extended a two-day slump for Big Tech that began on Tuesday with weak earnings from Alphabet, Google's parent company.

Fears that Big Tech was doing too little to rein in its soaring costs were triggered when Alphabet said it had added nearly 13,000 new employees in just the last three months, one of its biggest hiring binges ever, despite a recent internal call from CEO Sundar Pichai for the company to become more "focused" in its spending.

Like Meta, Google also said its massive capital spending would continue, intensifying the race by the biggest tech companies to meet the growing demands of AI.

The biggest stock market loser, Microsoft, saw US$174b slashed off its market value by Thursday morning after signalling earlier in the week that growth in its cloud computing business was slowing faster than expected. The news added to fears that some of the businesses that were thought to be most resilient in a slowdown, including cloud computing and Google's search advertising, were starting to suffer.

Between them, Alphabet, Amazon, Apple, Meta and Microsoft had lost US$566b in stock market value by Thursday morning, leaving them with a combined value of US$6.64 trillion. Amazon and Apple were due to report their earnings later on Thursday.

Written by: Richard Waters and Hannah Murphy

© Financial Times