The tech bloodbath won’t last forever

To paraphrase the American senator famously talking about government spending, a trillion dollars here or there and very soon you are talking about serious money. Over the last week, a massive $1 trillion has been wiped off the value of the major American technology companies, and, if measured since the start of the year, the carnage is far worse. But is it all as bad as it seems? Sure, some of the excesses of lockdown are being trimmed, and rising interest rates are starting to hurt some wildly over-valued companies. But nevertheless, tech is still where the growth is. And in reality the bloodbath will soon be over.

It has been a terrible week for investors in tech. Since last Wednesday, Apple has lost $220 billion in value. Tesla has lost $199 billion, Microsoft $180 billion and Amazon $170 billion. Some of the smaller companies, at least compared to those giants, have done even worse. Netflix has lost more than 60 per cent of its value over the last year as subscriber numbers fall and it contemplates running adverts for the first time. Meanwhile the exercise bike manufacturer Peloton has seen its shares crash by 90 per cent over the last year, and fell heavily again this week. Overall, the tech heavy Nasdaq index is now down by 4,000 points, or 25 per cent, since the start of the year.

It would be easy to conclude that the tech boom is over. And yet it is more complex than that. In reality, there are two obvious explanations for why share prices have been under so much pressure. First, a lot of the froth that built up during lockdown is starting to get blown away. No one should be surprised that people don’t really need an over-priced, subscription, web-connected exercise bike when they could buy a much simpler one for far less. Or even, come to think of it, just go for a cycle ride around the park. Likewise, now that restrictions have been lifted it turns out that we don’t really want to spend the rest of our lives chatting on Zoom, watching Netflix, and ordering in Deliveroo meals. We’d rather get out of the house from time to time. Next, interest rates have finally started to rise from close to zero to more normal levels, and central banks have stopped printing vast quantities of money, which means there is less cash flooding into the market. The result? A few flimsy companies have collapsed, and some overvalued ones have started to be repriced once more.

But that does not mean the tech boom is finished. In reality, while people are drifting back to the office, and the shops are open again, more and more of our lives are lived online than ever before. The tech bubble has corrected, and the main companies may see further modest falls in their value. But this remains the most exciting industry in the world, and the one with the strongest growth potential. The bloodbath will be over soon, and tech will start growing again - and within a few months that trillion of losses will have been easily recovered.