The Big Tech boom is over and Wall Street knows it

Not gonna talk about Elon Musk and Twitter in this one.

Okay, just a little: Elon and Twitter are front-page news today, but it’s not the most important story in the tech business.*

The story that really matters for tech and business is this one: The giant consumer companies that have powered the tech business for years aren’t going away but their rocket-ship days look like they’re coming to a close. And Wall Street investors who’ve wanted that ride are getting off, which means those companies and their employees need to learn to live with less.

We’ve been watching this play out for most of the year as tech stocks dropped, but it came into focus this week when Alphabet, Meta, and Amazon all saw their shares get hammered and the sector collectively lost $400 billion in value.

All of the tech guys have different reasons to worry investors, but I’d argue that all of them have the same underlying problem: They’re mature companies that are no longer going to impress Wall Street with crazy growth from their core businesses, and none of them look like they have any new giant businesses coming down the pike. Alphabet, for instance, just posted revenue growth of 6 percent — its weakest quarter in a decade.

So in Big Tech now, what you see is what you get. Just like Coca-Cola or Walgreens: No one expects Coke sales to explode through the roof anymore, no matter how good the new version of Coke Zero is.

The big guys are all still trying to convince investors otherwise, of course. That’s a core part of the metaverse/VR/AR goggles/glasses story that Meta and Apple and Microsoft are all playing with — that there’s going to be a new revolution in computing that’s going to generate a ton of economic activity and they’ll be at the center of it.

Maybe! But those things are very expensive and very speculative, and in the meantime those companies are all focused on wringing extra revenue and profits from their existing businesses. For Apple and Amazon, that’s increasingly focused on turning their digital real estate into ad businesses. At Meta, it’s an effort to turn its aging Facebook and Instagram properties into TikTok clones. And at Alphabet, where 60 percent of revenue still comes from the same search ad business it created 22 years ago, it’s been an attempt to highlight YouTube — which itself is nearly two decades old.

These aren’t at all new concerns. People have been wondering when Apple was going to create another world-changing product on the scale of the iPhone for 15 years (answer: never).

But they were easy to ignore for many years— particularly since the Great Recession of 2008, when the US government lowered lending rates to zero or close to it and kept them there until just recently — which is not coincidentally when tech stocks started plunging. If money is essentially free, investors go looking for more speculative bets, which increases the value of the companies they’re betting on, which convinces more investors to pile into the same thing, and repeat.

Now everyone is sobering up, which is why super-fanciful stuff like crypto is off the table. And why big tech companies that are really big and really profitable aren’t going away, but their valuations are coming down. A rough way to measure investor enthusiasm is via the ratio that compares the price of a company’s stock to the value of its earnings. Meta, for instance, had a price-earnings ratio of 32.75 at the end of 2020; now it’s down to 9.434. Alphabet dropped from 34.32 to 19.14 in the same time. (Amazon, however, has ended up staying the same, even after its recent plunge.)

And I’d argue there are other proxies to tell you that these formerly dynamic companies have hit a wall. For instance: Almost all of the men who started and ran the big tech companies have handed over the top job to professional managers. It’s more fun to do other stuff.

I don’t tend to do optimism, but we can definitely spin this as a glass half-full if we want: Yes, Facebook, which hired more than 19,000 people in the last year — a 28 percent increase — now says it’s going to keep its headcount flat for at least the next 15 months. That’s via a combination of very limited hiring, not replacing employees who leave on their own, and pushing others out the door.

But in theory, all of those would-be Facebook employees who aren’t getting hired there can end up ... somewhere else more interesting. One of the animating ideas beyond the Web3 craze of the last couple years was that the big tech companies had become so big and powerful that it was impossible to make anything new without their permission. Now they’re still big and powerful, but maybe not as appealing to the kind of person who wants to make a new thing. That’s not a bad idea.

* It’s an interesting story and also maybe amusing and maybe scary and I’d recommend starting with Nilay Patel if you want a bracing read about what’s next.