Big Five Tech Growth Expected to Slow, Should Crypto Care?

The growth of the five biggest tech companies – Alphabet, Amazon, Apple, Meta and Microsoft – is expected to slow in the third quarter, but how could this affect crypto?

With tech stocks and crypto markets now showing remarkable correlation, any negative news for the tech major could point to trouble for cryptocurrency.

Traditional markets and crypto show correlation

In a side by side comparison posted earlier this month to Twitter, a 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 peaks.

This led to the user, who goes by the pseudonym “Jumbo” on Twitter, to conclude that Wall Street “treats Bitcoin and crypto simply as an extension of the tech sector.”

Whether or not individual investors come to the same conclusion, the correlation means that the success or failure of tech companies remains of great interest to investors in the crypto sector.

The “big five” tech companies will each update investors this week. Alphabet and Microsoft will be the first to announce their Q3 numbers at the close on Tuesday, Meta will announce their numbers at the close on Wednesday, and Apple and Amazon will complete the set when they announce their numbers at the close on Thursday.

Will Crypto Snap with Snap?

On Friday last week, Snap (Snapchat’s parent company) announced worse-than-expected results, with revenue rising just 6% to $1.13 billion, while net loss increased 400% from $72 million to $360 million. The figures caused shares in the company to fall by 20% in the hours following the announcement.

If Snap’s woes were to be repeated across the tech sector, the results could be catastrophic for both tech and crypto. However, there are reasons to believe that Snap’s problems are specific to the company itself, and will not marry with the broader tech sector.

Snap recently restructured its organization and laid off 6,500 employees at a cost of $150 million. This one-time cost has weighed heavily on the company, suggesting that their results may be an anomaly rather than the norm. The company’s revenue is also heavily ad-focused, which is not true of all of its larger peers.

Slower growth predicted for technology companies

Technology and crypto have become increasingly intertwined since 2021, but this may partly be a consequence of broader economic conditions. Recent turbulence in nation-state economies around the world shows that few markets are immune to global conditions.

According to a report in Financial Times on Monday, the growth of the top five tech companies is expected to slow to around 10% this quarter, down from 29% in the same period last year.

If the Big Five announce numbers broadly in line with these expectations, the impact on the market could be minimal. If the results deviate a lot from the predictions, the price action may be more pronounced.

Of the Big Five, Meta is perhaps 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, the core business has come under increasing pressure.

Like Snap, Meta relies heavily on ad revenue, and ad budgets tend to be the first cost-cutting companies make in difficult economic conditions. Changes to Apple’s terms have also made ad targeting more difficult for the company.

Meta is expected to announce that revenue fell 5% in Q3, following a 1% drop in the previous quarter.

Now at least one major shareholder is demanding that the company change its strategy, by sharply reducing its Metaverse expenses and cutting staff.

Meta encouraged to make cost savings

In an open letter to Meta, Altimeter Capital’s chairman and CEO Brad Gerstner demanded that the company reduce staff costs by 20%. Gerstner further urged Mark Zuckerberg to focus on artificial intelligence (AI) over the metaverse and cut spending on the latter.

According to Gerstner, Meta must now limit metaverse-related spending to $5 billion per year. Echoing the general uneasiness of traditional investors, Gerstner said that “Meta needs to get its mojo back” and get “fit and focused.” Gerstner added that “people are confused about what the metaverse even means.”

The investment manager indicated that Metaverse is a long-term project that may not bear fruit for at least 10 years. At current annual spending levels of $10 billion or more, these spending levels have investors spooked.

“An estimated $100B+ investment in an unknown future is super big and scary, even by Silicon Valley standards,” Gerstner said.

While Gerstner may not get his way, there are some signs that Meta intends to tighten its belt a bit. Last month, Mark Zuckerberg confirmed that Meta will exit 2023 as a “somewhat smaller” organization after a hiring freeze.

That small concession could provide thin gruel for Wall Street sharks chasing more immediate returns.

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