The recent first quarter gains from US tech stocks can be summed up as a relief.
In an industry known for growth and new ideas, revenue expansion rates of 3% in both Half AND Alphabet it hardly sounds impressive. But at least that reverses the decline Meta reported last year. It also shows that global digital ad spend is holding up. Corporate budgets aren’t as tight as feared.
Add in heavy cost reductions through layoffs and the tantalizing prospects of artificial intelligence, the industry has managed a difficult task. He explained why operating margins will be lower in the short term but could explode in a few years. Wedbush technology investment analysts predict that spending on AI will reach $800 billion over the next decade. McKinsey suggests AI could add about $6 trillion in value.
But the cost of artificial intelligence and concerns about the potential effects of the recession have opened a rift between Big Tech stocks that can afford to invest and smaller companies that struggle to make a profit and are unable to invest money in research and development.
US economic growth has slowed to 1.1%. in the first three months of the year. Cautious business and consumer spending compares unfavorably with the height of the pandemic, when demand for technology products and services surged. PC sales, for example, fell by a third in the first quarter, according to data from Canalys. Cloud computing customers have scaled back demand. Amazon and Microsoft refer to this trend as “optimizing” customer spending.
Tech stocks have staged a rally this year, but some of the biggest companies are still trading about 30 to 40% below their 2021 highs. The Nasdaq is up 6% over the past year, compared to the previous year. 1% of the S&P 500.
But software-as-a-service companies like Zoom and DocuSign remain in the doldrums. This fault will expand. Rising interest rates have increased the cost of capital. Companies that can leverage funds from profitable lines of business are much better positioned than those still valued on growth.
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