Big Tech Raked It in Again. Why No Celebration?
(Bloomberg Opinion) -- For a second straight quarter, Big Tech displayed its unparalleled ability to generate impressive profits during a global pandemic. Investors shouldn’t get too complacent, though. The industry’s sizable share-price gains this year, along with embedded high expectations, make betting on a “three-peat” a riskier proposition. Even the tech giants may be vulnerable in a Covid-19 winter.
Late Thursday, Apple Inc., Amazon.com Inc., Facebook Inc., Google parent Alphabet Inc. and Twitter Inc. all reported better-than-expected financial results. As with many companies, they benefited from a rebound in economic activity following government stimulus programs and a general lifting of shelter-in-place restrictions around the world. But unlike many other businesses, the tech giants were able to make money even during worst the parts of the earlier lockdowns thanks to their dominant business models and market positions.
The latest quarter continued that trend, with Apple beating Wall Street estimates on strong sales of its iPads and Mac laptops and Amazon surging on the back of soaring e-commerce sales and demand for its cloud-computing services. Meanwhile, the big players in digital advertising — Facebook, Google and Twitter — all handily beat sales estimates as marketers opened up their ad budgets amid the improving economic environment.
While the technology sector has been resilient and a good place to hide for investors during the worst of the Covid crisis, valuations now leave little room for error. In fact, with the exception of Alphabet, the rest of the group’s stocks fell markedly in after-hours trading following the earnings reports, a sign of how much investors expect from these companies. Simply beating expectations isn’t enough. And what if the economic situation worsens? Consumers could delay purchases or lower their spending for the holidays. Then not even Big Tech will be immune.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tae Kim is a Bloomberg Opinion columnist covering technology. He previously covered technology for Barron's, following an earlier career as an equity analyst.
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