The growth of the five biggest tech companies – Alphabet, Amazon, Apple, Meta, and Microsoft – is expected to slow in Q3, but how might this impact crypto?
With tech stocks and crypto markets now demonstrating remarkable correlation, any negative news for the big tech could point to trouble for cryptocurrency.
Traditional Markets and Crypto Show Correlation
In a side-by-side comparison posted earlier this month to Twitter, one user demonstrated how traditional markets and crypto have become increasingly linked. Since early 2021, traditional markets and crypto have shared general trend lines as well as spikes.
This led that user, who goes by the pseudonym “Jumbo” on Twitter, to conclude that Wall Street “treats Bitcoin and crypto simply as an extension to the tech sector.”
Whether individual investors come to the same conclusion, the correlation means that the success or failure of technology companies remains of strong interest to investors in the crypto sector.
The “big five” technology companies will each update investors this week. Alphabet and Microsoft will be first to announce their Q3 figures at the close of markets on Tuesday, Meta will announce its figures at the close of markets on Wednesday, and Apple and Amazon will complete the set when they announce their figures at the close of markets on Thursday.
Will Crypto Snap with Snap?
On Friday last week, Snap (Snapchat’s parent company) announced poorer-than-expected results, with revenues rising by only 6% to $1.13 billion, while net losses increased by 400% from $72 million to $360 million. The figures caused stocks in the company to tumble by 20% in the hours following the announcement.
If Snap’s woes were to be repeated across the technology sector, the results could be disastrous for both tech and crypto. There are, however, reasons to believe that Snap’s issues are specific to the company itself, and will not marry with the wider technology sector.
Snap recently restructured its organization laying off 6,500 staff at a cost of $150 million. This one-time cost has weighed heavily on the company suggesting their results may be an outlier rather than the norm. The company’s revenues are also heavily ad-focused which is not true of all of its bigger peers.
Slower Growth Predicted for Tech Companies
Tech and crypto have become increasingly linked since 2021, but this could partly be a consequence of wider economic conditions. Recent turbulence in nation-state economies around the world demonstrates there are few markets immune to global conditions.
According to a report in the Financial Times on Monday, it is expected that the growth of the top five technology companies will slow to around 10% this quarter, down from 29% over the same period last year.
If the big five announce figures broadly in line with these expectations the impact on the market may be minimal. If results differ wildly from predictions then price action could be more pronounced.
Meta Metaverse Strategy Has Yet To Pay Off
Of the big five perhaps Meta is the one that investors may be most concerned about. Since rebranding from Facebook, the company has invested heavily in metaverse and Web3 technologies. At the same time, its core business has come under increasing pressure.
Like Snap, Meta relies heavily on advertising revenues, and advertising budgets tend to be the first cost-savings companies make during difficult economic conditions. Changes to Apple’s terms have also made ad targeting more difficult for the company.
Meta is expected to announce that revenues slipped by 5% in Q3, following a fall of 1% in the previous quarter.
Now at least one major shareholder is demanding that the company change its strategy, by severely curtailing its Metaverse spending and cutting staff.
Meta Encouraged to Make Cost Savings
In an open letter to Meta, Altimeter Capital Chair and CEO Brad Gerstner demanded that the company reduce staff expenditure by 20%. Gerstner further urged Mark Zuckerberg to focus on Artificial Intelligence (AI) over the metaverse and to slash spending on the latter.
According to Gerstner Meta now needs to limit metaverse-related spending to $5 billion per annum. Expressing the general disquiet of traditional investors Gerstner stated, that “Meta needs to get its mojo back” and get “fit and focused.” Gerstner went on to add that, “people are confused by what the metaverse even means.”
The investment chief indicated that the Metaverse is a long-term project which may not bear fruit for at least 10 years. At current yearly spending levels of $10 billion or more, those spending levels have investors spooked.
“An estimated $100B+ investment in an unknown future is super-sized and terrifying, even by Silicon Valley standards,” said Gerstner.
While Gerstner may not get his wish, there are some signs that Meta does intend to tighten its belt just a little. Last month, Mark Zuckerberg confirmed that Meta will end 2023 as a “somewhat smaller” organization following a hiring freeze.
That small concession may provide thin gruel for Wall Street sharks chasing more immediate returns.
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