Big Tech Is Already Back As the Big Five technology firms get even stronger, their stock prices are getting slammed and it's crucial to realize what's going on. Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon.com (AMZN) and Meta Platforms (FB) in 2022 have shed $2.7 trillion in shareholder wealth as analysts trimmed targets ahead of a potential recession. Executives at the big five don't seem worried about a downturn, though. And quite frankly, they shouldn't be. Big Tech has inherent strengths that are about to prove invaluable. A report in the New York Times on Monday notes that Microsoft, Apple and Amazon have committed to pay increases for engineers, while Google is on the hunt to increase headcount. Only Meta, the parent of Facebook, is cutting the number of code writers under contract. Something bigger is going on. All the corporate world is moving to cloud-based computing. This is a big transition that completely changes the way corporations operate. In the future, they will use digital data points to influence every aspect of business. It will temper marketing, product development and the supply chain. And there is no going back. Only a year ago, digital transformation was a viable investment narrative. Cloud was the story. It allowed price-to-earnings ratios for Big Tech to expand. And in the case of hundreds of smaller technology firms, rising sales was even enough to pull money from investors' wallets. Worries about interest rates and recession changed everything. The narrative collapsed. Stock prices followed. But this turmoil leads me to my main argument that ... Digital Transformation Is Still Thriving Amazon, Microsoft and Google—the three biggest players in cloud infrastructure—have announced big increases in spending for new gear to power their data centers. Those centers are the backbone for the transition to cloud-based computing. Those centers also support profitable empires in e-commerce, business productivity software and internet search. And those empires provide the free cash flow execs are now using to invest regardless of the economic cycle. This is a luxury smaller, unprofitable firms do not have. It's the crux of the opportunity ahead of the Big Five. During the Great Recession of 2008, Apple doubled its employee count. The acquisition of P.A. Semiconductor, a chip designer, accelerated the development of its current best-in-class line of MacBook computers. Google bought AdMob, another key component of its huge digital ad network. All-in, the Big Five bought 100 smaller companies between 2008 and 2010, the Times notes. |
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