Skip to Content

Tech had a rough day. But don’t call it a dot-com meltdown moment yet

By Clare Duffy, CNN

New York (CNN) — It’s only Tuesday, but it’s already been a rough week for the tech world.

A tech sell-off on Monday, spurred by disappointing earnings, helped to drag down wider markets. The “Magnificent Seven” tech stocks ultimately lost $615.6 billion in value on Monday, according to data from S&P Global.

Investors were also rattled by questions about whether the tens of billions of dollars tech companies have invested in artificial intelligence will ever lead to real revenue increases, or if AI will prove to be a money sink that creates only modest efficiency gains.

On Monday afternoon, a federal judge ruled that Google violated US antitrust law with its search business. The decision marked a stunning rebuke of Google’s core business that could upend its dominance in online search, and also may have ripple effects for fellow tech giants fighting their own antitrust battles.

And then, of course, there were broader economic concerns fueled by a worse-than-expected unemployment figure and impatience for the US Federal Reserve to cut rates; in the past, recession fears have led key tech customers to pull back on spending.

The confluence of factors gave the impression that Big Tech — which has fueled markets with its AI hype over the past 18 months — may now be on shaky ground.

But for now industry watchers say this moment is just a correction, rather than some downward spiral.

Charlie Miner, an analyst at research firm Third Bridge, said that to compare the current tech slowdown to anything like a dot-com bubble burst moment would be “a serious stretch.”

“Coming off a week of earnings where we heard world-class CEOs discuss not only a continuation but an acceleration in AI infrastructure spending, our experts believe investors should be inspired by this ongoing innovation cycle,” Miner told CNN in an email.

Tech valuations in early July “got to their most expensive point in more than 20 years … you have to digest some of those gains before you move ahead,” CFRA Research technology analyst Angelo Zino told CNN.

A return to fundamentals?

It’s not as if the tech giants are at risk of running out of money: In the last quarter alone, Apple, Google, Microsoft, Meta and Amazon brought in more than $94 billion in profits. And despite yesterday’s decline, which already appears to have begun reversing, shares of Apple, Amazon, Microsoft, Meta, Google and Nvidia all remain up strongly year-to-date.

Tech stocks may simply be returning to trading on the fundamentals of their core businesses, rather than on the hopes of an AI future, now that the monetization potential of that technology looks to be at least a decade away. But those fundamentals are strong.

“The two most important trends for Big Tech are cloud and digital ad spend, and both of them are running very good, essentially in line with expectations to ahead of expectations,” Zino said.

When it comes to AI spending, “what else these guys going to spend money on?” Zino said. “There’s only two ways you can deal with your money right now: aggressively spend for future growth, or return more of it back to shareholders. And they’re actually doing both.”

Indeed, Google and Meta announced plans to begin paying out quarterly dividends for the first time earlier this year.

The Google question

The biggest question mark overhanging the tech industry is what could happen to Google now that it’s been ruled a monopoly. The company has said it will appeal the ruling. But if it stands, it could lead to remedies ranging from a fine to the dismantling of the exclusive contracts that have made Google the default search engine, and potentially even a break-up of the company.

Google’s dominance in online search has fueled its massive online advertising business. Anything that threatens its market share could also put that core business — already facing competitive threats from emerging AI tools — at risk.

What’s more, the judge’s decision on Monday could color how courts evaluate other, ongoing antitrust cases against Apple, Amazon, Microsoft and Meta. A changing definition of what constitutes anticompetitive behavior in tech could hit at the heart of those companies’ core businesses, as well — for example, how Apple makes its exclusive services available to users or how Amazon works with third-party retail sellers.

It could also embolden lawmakers who have been looking to crack down further on the power of Big Tech.

“This is a huge victory for the American people and shows the importance of enforcing our antitrust laws and why I am advocating for competition rules of the road for big tech companies,” Sen. Amy Klobuchar said in a statement following the decision.

But it will be months, if not years, before any potential consequences befall Google, as proceedings over potential remedies and an appeal play out.

And most analysts believe that a breakup of Google is unlikely, and the company’s strength would help it weather the government’s other potential fixes.

“Consumers generally like Google, are comfortable with it, and, even if faced with a choice upon opening a new device, are going to stick with what they know,” Miner said. “This ruling will inspire short-term confidence for DuckDuckGo, Yahoo and other Google Search competitors. Still, they face an uphill battle in forming partnerships and building their brands to chip away at Google’s ~90% market share.”

The-CNN-Wire
™ & © 2024 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.

Article Topic Follows: CNN - Business/Consumer

Jump to comments ↓

CNN Newsource

BE PART OF THE CONVERSATION

ABC 17 News is committed to providing a forum for civil and constructive conversation.

Please keep your comments respectful and relevant. You can review our Community Guidelines by clicking here

If you would like to share a story idea, please submit it here.

Skip to content