By Nirav Karkera

The current dynamics of big tech remain in a state of flux. While there are detractors in the near term, many hold a strong promise for a robust future.

US big tech companies continue to thrive thanks to their investment in research and development, cost-cutting measures, and expansion of technical infrastructure. However, they also face several challenges that can impact their growth and profitability, including moderation in earnings, currency fluctuations, rising inflation, changes in demand and spending patterns, and supply chain disruption.

Here is a brief insight into the big tech’s current position, tailwinds and possible headwinds from a near-term perspective.

Alphabet

Alphabet (the parent company of Google) places high value on its employees, considering them essential for its ongoing success. The company plans to recruit talented professionals globally and provide competitive compensation programs. The company has been investing heavily in research and development, to create new and improved products. The same has increased by $7.9 billion YoY in 2022.

Alphabet is also investing in technical infrastructure such as servers, network equipment, and data centers to support the growth of the business and their long-term initiatives, particularly in artificial intelligence.

However, it faces challenges from various macroeconomic factors such as fluctuation in currencies against the U.S. dollar, rising inflation, moderation in demand, and a change in spending patterns.

Also Read – US Big Tech: Is it the best time to take profits off the table?

Amazon

Amazon is taking a strategic approach to cost management, optimizing its variable and fixed costs to achieve greater efficiency and profitability. The company plans to invest in Amazon Web Services (AWS), which offers a broad set of on-demand technology services, including compute, storage, database, analytics, and machine learning, among others. This investment is expected to help the company improve its technology infrastructure and enhance its ability to innovate and deploy new products and services efficiently.

In addition to investing in AWS, Amazon plans to develop innovative and efficient software and electronic devices, as well as a satellite network for global broadband service and autonomous vehicles for ride-hailing services. These initiatives are expected to help the company expand its product offerings and service capabilities, as well as increase its competitive advantage in the market.

The company expects to increase its spending on technology and content over time, which would allow Amazon to continue innovating and expanding its product offerings and service capabilities.

However, Amazon’s net sales growth has declined from 22% in 2021 to 9% year over year. The company faces challenges related to macroeconomic factors, particularly in the North America and International segments. These factors have contributed to increases in operating costs, due to a return to more normal, seasonal demand volumes, increased transportation and utility costs, and increased wage rates. Amazon also faces challenges related to rising interest rates and recessionary fears, which may impact customer demand and the company’s ability to forecast consumer spending patterns.

In addition, the current macroeconomic environment and enterprise customer cost optimization efforts are expected to impact the company’s AWS revenue growth rates.

Overall, Amazon acknowledges that the macroeconomic factors are likely to continue to impact its operations into Q1 2023. The company will need to closely monitor these factors and adjust its operations and strategies accordingly to mitigate the impact of these factors on its business performance.

Apple

While Apple’s net sales decreased by 5% or $6.8 billion, mainly due to an 8% and 29% drop in iPhone and Mac sales, respectively, iPad sales increased by 30% while service revenue recorded a new high. The pandemic has caused challenges for Apple’s outsourcing partners, component suppliers, and logistical service providers, which could lead to supply shortages and affect product shipments.

The company is aware of the potential impact of macroeconomic conditions, such as inflation, rising interest rates, and currency fluctuations, which could directly or indirectly affect the company’s financial performance. These factors could increase the cost of raw materials, affect consumer demand and spending patterns, and affect the company’s ability to forecast financial performance. Additionally, foreign currencies’ weakness compared to the US dollar is a potential risk.

Meta

Meta is making cost-cutting efforts and improving reel monetization, but it faces challenges related to changes in rules by Apple with respect to targeting and tracking and foreign exchange risk.

Microsoft

Microsoft’s net sales increased by 2%, with Microsoft Cloud revenue reaching $27.1 billion, a 22% increase. At the same time, Microsoft’s investment in R&D increased by 19%. However,Microsoft’s reliance on third-party contract manufacturers could pose a risk to product availability, and the company may need to consider alternative sourcing strategies and contingency plans.Changes in currency exchange rates could affect Microsoft’s financial performance since most of its revenue and expenses are in currencies other than the US dollar.

These companies must remain vigilant to the challenges they face in order to maintain their dominance in a rapidly evolving digital landscape. The future of the US big tech industry will depend on how these companies navigate macroeconomic headwinds and continue to innovate and adapt to meet the changing needs of their customers.

(Author is Head of Research at Fisdom)