Market jitters over tech are justified but tell us little
Bad news this week from Intel, which has announced plans to slash 15% of its workforce following continued poor results, and good news from Apple, which saw revenues rise by 5% despite slowing sales. Just another day in the markets.
What is not just another day in the market, though, is the frayed nerves of investors, many of whom have profited handsomely from the value of tech companies ballooning.
Warnings abound and there is a widespread feeling that tech companies are overvalued, notably the Internet giants Amazon, Google and Meta Platforms, as well as stalwarts Microsoft and Apple, and chip designer Nvidia.
Such has been the success of the sector that it has, in 2024 alone, led an almost 15% rise in the S&P 500 index of the value of the 500 largest publicly traded companies in the US, despite the majority of the companies the index tracks seeing no price growth at all.
This has prompted analysts and, indeed, institutional investors to speak of a coming ‘great rotation’ that would see money flee the tech giants and rush into ‘small’ businesses.
That doesn’t mean a crash is coming, though, and anyone betting on a collapse should be cautious. As the old saying, usually attributed to John Maynard Keynes, goes: “The market can stay irrational longer than you can stay solvent”.
Still, growing concerns that generative AI is not going to deliver on the firehose of capital sprayed at it indicate that what has gone up will, at some point, come down. Researchers at the universities of Oxford, Cambridge, Toronto and Imperial College are only the latest critics. Their paper, entitled The Curse of Recursion: Training on generated data makes models forget’, joins critical research from investment banks and others saying that AI will not be the productivity revolution boosters claim. Indeed, one report recently found it was adding to the burden of work, not reducing it.
For my money, though, there is something more fundamental going on.
The tech story has been one of consolidation, not just through mergers and acquisitions, which are tricky to pull off once you get to a certain – gigantic – size, but increasingly through data landgrabs, vendor lock-in, intentionally addictive social media, and strong pushes to drop the provision of in-person services and replace them with low-cost apps.
If there is growing uneasiness with this, then it joins a generalised uneasiness inflamed by renewed geopolitical tensions, a seemingly global housing crisis, obvious political instability, trade wars, culture wars, and actual non-metaphorical wars, not to mention the crazed and angry outworkings of social media.
There are real problems in the world, more important than this or that company’s share price, but the last thing we need right now is a market crash, particularly if it is severe enough to harm the real economy. That probably is worth being nervous about.
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