Big Tech Is Proving Resilient as the Economy Cools

No explosion lasts forever, even for the richest companies in technology. Investors penalized the biggest tech companies earlier this year, stripping $2 trillion of their market value on fears the industry could collapse amid rising inflation and a slowing economy.

But this week, after the United States reported economic output fell for a second straight quarter, Microsoft, Alphabet, Amazon and Apple all reported sales and earnings that showed their companies had the dominance and diversity to cope with the economic woes affecting small companies.

Microsoft and Amazon have proven that their profitable cloud businesses continue to thrive even as the economy slows. Google’s alphabet subsidiary has shown that search advertising is still in demand among travel companies and retailers. And Apple has made up for the decline in its device business by increasing sales of apps and subscription services.

Overall, this is a sign that technology may have bottomed out and is starting to recover, said Dave Harden, chief investment officer at Summit Global, a company based near Salt Lake City with investments of about $2 billion, including Apple.

“These people are still delivering,” said Mr. Harden. “You take responsibility and you’re going through a tough time.”

The better-than-expected result pushed the company’s share price higher and rattled the stock market, although Alphabet and Microsoft fell short of Wall Street’s expectations.

The results clearly show that companies are not immune to problems such as supply chain disruptions, cost increases, and changes in customer spending. But their corporate giants aren’t as vulnerable to the challenges that roam the economy as small companies like Twitter and Snap, the owners of Snapchat.

When talking to analysts, the company’s CEO warned investors about the months ahead, using words like “challenge” and “uncertainty.” Worries about the economy have prompted some, including Alphabet, to slow hiring and take other precautions, but no one has said they plan to initiate layoffs.

Alphabet chief executive Sundar Pichai presented the slowing economy as an opportunity, saying the company would sharpen its focus and be “more disciplined going forward.” He added: “When you’re in growth mode it’s hard to always take the time to make all the necessary adjustments and times like this give us a chance.”

In what many investors took as evidence of industry optimism, Microsoft said it expects double-digit revenue growth next year, and Amazon said it expects revenue to grow at least 13 percent in the current quarter.

Microsoft chief executive Satya Nadella said the company would invest throughout the year to acquire shares and grow its business, while Amazon’s chief financial officer Brian Olsavsky said it would have more products in stock and faster delivery.

“This is not a recession forecast,” said Sean Stannard-Stockton, president of Ensemble Capital, a San Francisco-based investment firm with $1.3 billion in assets under management. “If we avoid a great recession, it’s clear that many of these companies will get back on track.”

Although Apple and Alphabet did not provide guidance, the companies bought back tens of billions of dollars worth of stock over the period. Apple’s $21.7 billion purchase and Alphabet’s $15.2 billion purchase are testament to the company’s belief that their business will continue to grow in the years to come.

Meta, formerly known as Facebook, has been an outlier among the biggest tech companies, reporting its first quarterly revenue drop since going public a decade ago. The problem is the result of increased competition from TikTok, which is depriving users and advertisers alike, and the challenges of Apple’s iPhone privacy changes.

According to GroupM, a market research firm, the advertising market is expected to grow by 8.4% this year and 6.4% in 2023. Facebook’s revenue growth over the past year, as quarterly revenue soared 56 percent, makes it “remarkable that growth continues to grow.” continues,” said Brian Weiser, president of business intelligence at GroupM.

Similar challenges have hit the e-commerce market. Believing that the surge in online orders during the pandemic is a major change in the way people shop, Amazon has unveiled an ambitious plan to open dozens of new department stores. But as sales cooled — the number of items sold rose just 1 percent last quarter — the company reversed course and decided to close, postpone or cancel at least 35 warehouse openings.

Amazon’s smaller e-commerce rival, Shopify, said it would cut about 10 percent of its workforce. Harley Finkelstein, President of Shopify, said this year will be “a transition year, pretty much resetting e-commerce to pre-Covid-19 growth rates.”

Apple’s biggest obstacle is its dependence on China to manufacture most of its devices. In April, the company said it would lose about $4 billion in revenue due to the closure of the Shanghai factory where it makes iPads and Macs. However, the company managed to increase iPhone sales by 3 percent during the period and set a record quarterly for the number of people switching from Android smartphones to iPhones.

Apple chief executive Tim Cook said Apple had seen “constraints” including supply shortages, a stronger dollar that has pushed up device prices overseas, and a slowing global economy.

“If you think about the number of challenges we faced this quarter, we’re very pleased with the growth we’ve had,” said Mr. Cook. He added that the company would invest during the downturn, but would “be aware of and acknowledge environmental realities.”