Illustration: Annelise Capossela/Axios
2022 is looking unhappily like 2000 for the tech industry.
The big picture: In both this year and 2000, tech stocks took a tumble in the spring after peaking in the stratosphere. Then six months later, with a recession looming, big companies started cutting payrolls and startups began measuring burn-rate runways.
Other parallels: The 2000 market, like today’s, got hit by the Fed’s tightening interest rates after a spell of easy-money policies (in 2000, it was to protect against Y2K bug problems). And in November 2000, as today, the US was heading into a tight national election.
Back in the fall of 2000, CEOs and workers knew that dotcom mania was over.
- But they couldn’t know they were on the precipice of a massive market collapse that would last several years, level much of the industry landscape, and clear the field for a new generation of platforms and winners.
- They also could not know that a nascent market revival in 2001 would get swamped by the aftermath of 9/11, prolonging the slump.
What we’re watching: Nobody today knows whether our current replay of 2000 will keep going into the full-on “bust” phase.
Why it matters: Generations of companies and workers who joined tech over the past two decades have no memory of what a big downturn feels like or how bad it can get.
- The industry’s boom over the past 20 years has been punctuated by occasional moments of doubt, but none of those pull-backs turned into a full rout.
- That taught younger workers to view tech as immune to recessions and “numbers go up” as the natural state of the market.
Of note: In every dip and downturn since 2000 — most notably, the Great Recession and financial crisis of 2008-9 — tech has been a haven for investors. But this year, as in 2000, tech firms took the lead in taking losses.
Driving the news: Weak earnings last week punished Big Tech stocks and brought the dotcom-era parallels home, as Axios’ Matt Phillips reported.
- Meta (Facebook) reported its second consecutive quarter of year-over-year revenue declines.
- Alphabet (Google) said its ad sales seriously slowed, causing profits to drop by 27% last quarter compared to the same quarter the year before, and also saw a deceleration in growth in its cloud business.
- Microsoft’s stock slid after it said growth in its Azure cloud business slowed compared to the same quarter the year before.
- Amazon’s AWS cloud business had its slowest ever quarter in revenue growth, but its advertising business proved slightly more resilient than some of its peers, given its tie to commerce.
- Apple fared best among the tech giants, as it generally has in recent quarters.
In one sign of change, the long-overheated market for software developers appears to be cooling down, with a 29% decrease in job postings this year.
The biggest losers in any downturn are likely to be tech-made billionaires. They saw their net worth balloon for years and now face massive losses on paper.
- Employees who counted on stock-option rewards — particularly the newest ones who joined big companies during a big hiring splurge over the past year — will also face disappointment.
Between the lines: Tech has always been a cyclical industry, and its pendulum tends to overshoot at both peaks and bottoms.
The bottom line: A prolonged tech downturn could foster long-term structural changes in the tech sector, hobbling some of today’s leaders and opening breakthrough opportunities for newcomers.
- In 2000, AOL and Yahoo were the kings of the online ad business and Microsoft was the “evil empire” targeted by a federal antitrust crusade.
- There was also a little company called Google, just two years old, that earned near-zero revenue but ran a knockout search engine.
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