The tech industry is experiencing an earthquake.
The five biggest technology giants in the US have collectively lost more than $ 2 trillion in stock market value this year. Across big and small companies, there are regular announcements of hiring slowdowns or layoffs, including at Facebook, Uber, Robinhood and the celebrity video app Cameo. Start-up founders who were turning away eager investors for a few months now must make an effort to get more money. (Gasp.)
The big unknown: Is this meltdown the BIG ONE that will boot out of its position as the most dynamic and successful industry in the world? Or, like so many times in the decade-long technology boom, is this a temporary panic?
I asked my colleague Erin Griffith, who reports on tech start-ups and venture capital, to evaluate the current moment for fear of technology.
Shira: Is this tech doom and gloom meaningful?
Erin: I go back and forth, because I’ve seen this cycle so many times. Every couple of years for the past decade, anytime there were some wobbles in technology or moments of skepticism, smart people predicted that the growth of the tech economy since the Great Recession could possibly last. And each time, those predictions were wrong.
As recently as the Covid-19 pandemic of the early months, technology investors thought a bunch of companies would be wiped out. But within a few months, oodles of money flowed into all things tech, and companies of value went to the moon. The past two years of tech money were madness like nothing I had seen before. Now we ‘re hearing the warnings again.
Shira: Sorry, but I have to ask: Is this time different?
Erin: Maybe. We have not seen this combination of economic anxiety and high inflation before. Economists are weighing the risks of a US recession, and companies in many industries are worried that their businesses are slowing down. During other uncertain moments for tech, there was not the same combination of economic stresses.
And because there has been so much hype, growth and cash in technology since 2020, there may be a bunch of companies that aren’t worth anywhere close to what they were worth a year or two ago, and others are shaky to begin with and Maybe not withstand a contraction.
Shira: Has anything really changed? Amazon, Zoom Video and the grocery delivery start-up Instacart They are worth far less than they were six months ago, but are they worse companies?
Erin: Not really! So far this has been more of a reset on what investors think these companies are worth. But a changing mood does matter. Fast growing start-ups especially need to keep the faith of investors, customers and employees going the momentum. If that forward progress stutters, it can kill companies.
Shira: What signs are you watching for that might tell us if this tech meltdown might be more temporary?
Erin: First, if more start-ups go bust overnight. Recently, a payments company called Fast that was worth hundreds of millions of dollars ran into trouble and shut down relatively quickly. If that keeps happening, it’s a sign that many of the so-called unicorns that we thought were built on solid ground might be at risk.
And second is if the so-called “good” companies start to feel the pain. So far, the start-ups that have closed or announced significant layoffs are the ones that took big risks, burned through a bunch of money and assumed that investors would always be willing to give them more. If start-ups that have preached responsible spending and reasonable growth also pull back, that could be a sign that this time is different.
Shira: What might happen next?
Erin: The biggest question is how long the tech meltdown will last. If within a few months, stock prices bounce back, investors start putting money into start-ups again and the initial public offerings for the market unfreezes, so the industry may be fine. But if investors stay skittish for many months or years, that could lead to a major shake-up.
The tech industry has basically been booming since the tail end of the recession in 2010. Now, it’s a big part of the economy. We do not know what will happen to this titanic and rich industry in a broad downturn.
Before we go…
Apple store showdown: My colleague Tripp Mickle reports why some workers at Apple stores are trying to unionize, and explains the company’s concerns about the labor movement.
A Senate candidate’s single-issue message: A billionaire software executive is running for a Senate seat in California with a campaign issue: He believes Tesla’s automated vehicle technology should not be allowed to operate on the roads. In the On Politics newsletter, my colleague Blake Hounshell explains the motivations of Dan O’Dowd, the executive, who may be trying to send a message rather than win a political race.
A popular vampire video game behind the magical alchemy: It’s tough to stand out among 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 for survival, Bloomberg News reports. (A subscription may be required.)
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