The tech industry is hit by an earthquake.
The five biggest technology giants in the US have collectively lost more than $2 trillion in market capitalization this year. There are frequent announcements of delays or layoffs at large and small companies, including at facebook† Uber† Robin Hood and the celebrity video app cameo† Start-up founders who turned down eager investors a few months ago now have to struggle to get more money. (Gas for breath.)
The great unknown: is this? meltdown THE BIG one that will boot tech out of its position as the most dynamic and successful industry in the world? Or is this, as so often in the decades-long technological boom, a temporary panic?
I asked my colleague Erin Griffithreporting on tech start-ups and venture capital, to assess the current moment of fear for technology.
Shira: Does this technical downfall and gloom make sense?
in it: I go back and forth, because I have seen this cycle so many times. Every few years for the past decade, smart people predicted that the growth of the tech economy since the Great Recession could not possibly continue. And every time, those predictions were wrong†
Still in the early months of the Covid-19 pandemic, technology investors thought a lot of businesses would be wiped out. But in a few months heaps of money poured into all things technology, and corporate values went to the moon. The past two years of tech money madness were like nothing I had seen before. Now we are hear the warnings again.
Shira: Sorry, but I have to ask: is this time different?
in it: Could be. We have this combination of economic fear and high inflation before. Economists are weighing the risks of a US recessionand companies in many industries are: Worried that slows down their business. During other uncertain times for tech, there was not the same combination of economic tensions.
And because there’s been so much hype, growth, and money in technology since 2020, maybe there are a lot of companies that aren’t close to what they were worth a year or two ago, and others were shaky to start with and maybe not. against a contraction.
Shira: Has anything really changed? Amazon, Zoom Video and the grocery delivery start-up instagram car are worth a lot less than they were six months ago, but are they worse companies?
in it: Not really! Until now, this has been more of a reset of what investors think these companies are worth. But one changing mood matters† Fast-growing start-ups, in particular, need the confidence of investors, customers and employees to keep up the momentum. If that forward progress falters, it can kill businesses.
Shira: What signs are you watching that could tell us whether this technical collapse could be more than temporary?
in it: First, if more start-ups go bankrupt overnight. Recently, a payment company called Fast, which was worth hundreds of millions of dollars, ran into trouble and… shut down relatively fast. If that continues to happen, it’s a sign that many of the so-called unicorns we thought were built on solid ground are in danger.
And second, when the so-called “good” companies start to feel the pain. So far, the start-ups that have closed or announced significant layoffs have been the ones that took big risks, burned a lot of money, and assumed that investors would always be willing to give them more. If start-ups that preached responsible spending and reasonable growth are also pulling out, that could be a sign that things are different this time around.
Shira: What could happen next?
in it: The biggest question is how long the technical meltdown will last. If stock prices bounce back in a few months, investors start putting money back into start-ups and the IPO market thaws, the industry may be fine. But if investors remain skittish for many months or years, it can lead to a major shock.
The technology industry has essentially been booming since the end of the recession in 2010. Now it is a huge part of the economy. We don’t know what will happen to this gigantic and rich industry in a broad downturn.
Before we go…
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Apple Store Confrontation: My colleague Tripp Mickle reports why some Apple store employees are trying to join a union, and explains the company’s concerns about the labor movement.
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The single-issue message from a senate candidate: A billionaire software manager is running for a California Senate seat with one campaign problem: He believes Tesla’s automated vehicle technology should not be used on the road. In the On Politics newsletter, my colleague Blake Hounshell explains the motivations of Dan O’Dowd, the executive, who may be trying to get a message across instead of winning a political race.
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The magical alchemy behind a popular vampire video game: It’s hard to stand out among the many thousands of computer video games, but a small video game studio in Sweden has a hit game that puts players in the role of vampires fighting to survive, Bloomberg News reports. (A subscription may be required.)
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