Tech Anxiety Retreats Into Semi-Distant Memory
(Bloomberg Opinion) -- In the distance, the clouds started to look more ominous for some American technology companies in the last few months. But that’s way far off, and the storms might never come. As far as the eye can see, it’s sunny skies for the industry.
That is quite a change from just a few months ago, when slowing sales growth, jitters about U.S. trade policies and other concerns walloped tech company share prices. The tech-heavy Nasdaq 100 index dipped 17% in the final three months of 2018. (The broader S&P 500 declined as well, but not by as much.)
Tech shares also took a hit in the wake of March quarter earnings this year. Muscular companies such as Google parent company Alphabet Inc. and Amazon.com Inc. looked vulnerable as the pace of revenue slipped, profits got pinched or both. And investors were sometimes doubtful about the companies’ explanations.
It’s almost hard to remember those problems considering the second-quarter tech earnings season so far. Revenue growth re-accelerated or held strong for many of the American tech superpowers. There was good news for many less-supersized tech companies, too. Even as U.S. regulators and lawmakers study the tech giants for evidence of anti-competitive abuses, smiles have replaced the tech investor anxiety of recent months.
In the second quarter, Facebook’s sales growth picked up after a years-long string of slowing growth on a currency-adjusted basis. Amazon and Google also bounced back from disappointing sales paces. Two of the mid-tier internet companies that looked rough around the edges for a while, Snapchat parent company Snap Inc. and Twitter Inc., seem to have recovered their footing. Some of the tech companies that went public in the second quarter such as Slack Technologies Inc. and Pinterest Inc., received warm receptions. Computer chipmaker Intel Corp. continues to grapple with continuing U.S. tariffs and a spending pause by some big customers, but it appeared to be on a sounder path.
The mostly sunny tech earnings have so far continued to reverse the stock market drag of seven months ago. This year through Friday, the biggest contributors to gains in the S&P 500 are Microsoft Corp., Apple Inc., Amazon and Facebook — with Alphabet and Cisco Systems Inc. not far behind, according to Bloomberg data. The Nasdaq 100 hit a high on Friday, marking a 36% upswing from a low point just before Christmas.
Not everything is completely fine in the land of technology, of course. The second-quarter numbers from Facebook, Intel and Amazon, for example, would have looked merely passable a year ago. Investors definitely aren’t sold on the business plans for newly public Uber Technologies Inc. and Lyft Inc. Apple, which reports earnings on Tuesday, will have a hard time outrunning the end of growth for the smartphone industry. A second-quarter growth stumble at Netflix inc. was swiftly punished by investors, showing that it doesn’t take much for smiles to turn upside down.
But mostly, investors are once again choosing to look on the bright side of technology companies, and expectations got turned down a bit. Interest rates heading lower also makes growth assets like tech stocks look more alluring.
Even those antitrust investigations, litigation and scolding from powerful lawmakers feel like risks of a storm that may never appear. All the same disquiet is still there, it’s just quieted again.
Mostly, the long-term opportunity in technology is simply compelling enough to outweigh the scary part. Economies, labor markets, consumer entertainment, marketing, corporate technology spending and transportation are going through profound and probably permanent shifts that most likely help many of the tech companies.
It’s a matter of time and taking advantage of the opportunities. Many of the tech companies such as the big five American tech powers and Netflix are putting their foot on the gas to improve their position, and investors have given them the permission to do so. That helps tech successes breed more success.
Investor sentiment and the tech companies’ financial results remain fragile. There are no assurances of anything. But right now, all that potential is making it easy to ignore the rumblings of thunder.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Shira Ovide is a Bloomberg Opinion columnist covering technology. She previously was a reporter for the Wall Street Journal.
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