Jan 25, 2022 - Technology

Market bubble or bust, Big Tech wins

Illustration of hand about to pop a bubble with a computer

Illustration: Eniola Odetunde/Axios

With many bellwether tech stocks down more than 10% since the year's start, the industry is once again debating whether it faces a "big one" — a financial earthquake that will end a two-decade run of spectacular growth.

The big picture: Whether January's downs prove a turning point or just a minor "correction," tech's giants know that, either way, they'll come out on top.

Driving the news: Wall Street took a rollercoaster ride Monday, with major indices dropping as much as 4% before closing a bit up.

  • That followed weeks of woe for investors in many tech stocks, including industry leaders like Netflix as well as trendy high-fliers like Peloton.
  • Crypto is just beginning to emerge as an alternative method of funding tech enterprises — but it's way down, too.
  • Axios' Dan Primack called a market top in startup investments at the end of last week.

Although their market caps have taken a modest beating, don't shed too many tears for tech's giants.

  • If this drop ends up a minor blip, like the deep but only momentary price collapse at the start of the pandemic two years ago, then Apple, Google, Microsoft, Amazon and Meta/Facebook can just go back to business as usual.

But even if stocks' retreat deepens, these companies still wind up ahead.

  • Each of them is sitting on an enviable hoard of cash — in the tens or hundreds of billions of dollars — that they can use to buy whatever's left of value in the rubble that a crash would leave.
  • Antitrust and regulatory efforts to limit these companies' acquisitions will have less traction if a down market leads to recession. More candidates and lawmakers will become boosters of business in the name of economic recovery.

Big Tech firms will, to be sure, pay some price in any stock collapse.

  • Declining share value and underwater stock option prices make it harder for them to recruit and retain talented engineers and managers.
  • The bigger price will be paid by smaller firms with less cushion, and by venture-backed startups who see their runways to profitability shorten or vanish.

Flashback: Tech's last bust, at the start of the 2000s, is now seen as the birthpoint of much of today's internet.

  • Many believe the dotcom bust, with all its pain, also cleared a space for developers and entrepreneurs to begin afresh with new ideas.
  • It's hard to imagine how any downturn today could unseat the current industry leaders.

Be smart: Asset prices have been borne aloft for the past two years thanks to the Federal Reserve's and the U.S. government's stimulative policies. As the flood of cash recedes, some retrenchment is inevitable.

Yes, but: Some bears foresee an even more catastrophic "super bubble" bust, encompassing not just tech but most stocks, bonds, real estate — much of the economy.

  • If that were to happen, even companies as mighty as Apple and Google will face real trouble. As will we all.

What's next: With all the tech giants set to report earnings over the next nine days, beginning with Microsoft on Tuesday, we should get a better fix on how these companies are doing — and whether their numbers can mollify the markets.

Go deeper