Is the Tech Boom Coming to an End?

of nine eight six point six billion dollars. For part of a single trading day. In September, Amazon also preached the threshold we start with. Amazing Amazon somewhere CEO Jeff Bezos is smiling, maybe even laughing, as the company becomes a second one ever to hit a trillion dollar valuation, coming in right behind Apple a month ago. It's a sign of just how much the tech industry has come to dominate the economy, but perhaps also represented some kind

of high water mark for tech. Apple is lost about of its market value since the peak. Amazon is down around twenty and Wall Street is punishing other tech stocks. Alphabet's down about from its peak, Facebook's down twice that much. What had been a simmering problem for tech stocks seemed to reach a boil just before Thanksgiving, as the tech inferno rages on. How much worse can they get? What

do you do with tech? The closing bell ending one of the worst days on Wall Street, a drop of over six hundred points on the Dow, bringing financial markets to the lowest levels since March two thousand nine. For the last decade, Americans have been very enthusiastic about the big tech companies, but that mood is shifting. Social media undermining democracy. How scared should we be about our loss of privacy? And should the government break up the big

tech companies like Amazon? This market turmoil comes after months of these mounting concerns. Now seems like a good time to ask if there are leaner times ahead, what does it mean for big tech and how does that affect the rest of US? I am brab Stone and I'm Joshua Brewsting, and this week on Decrypted, we'll take a look at what's driving investors on Wall Streets to start jumping tech stocks and masks, and if the market continues

to punish Silicon Valley, what unintended copquence is gonna play out? Elsewhere. Now, it is worth noting that predicting a tech shakeout has been a pretty sure fire way to be dead wrong over the last couple of years. Back in smart people warned that Facebook would be laid low by its inability to adapt the smartphone. Others at the time said Apple's growth would soon hit some basic limits of economics. The debate over the bubble in the tech industry continued on

through last year and straight onto today. So we'll see if this time is different. Stay with us, So, Josh, we're keeping this on the Tuesday before the Thanksgiving holiday here in the US, and uh, the last few weeks have been pretty brutal for tik stocks, right. There have been some recent events that have caused a real directional shift.

There were some reports from suppliers to Apple that a large customer was reducing its orders, and this really forwarded the same narrative that's coming out from Apple itself that iPhone sales are probably not going to be what they have been in the past. For Facebook. At the same time, there have been increasing reports about the way that it's really mishandled its response to some of the criticism regarding disinformation um and election issues, and those two companies have

really been hit hard. You've seen the other companies go with them. These tech companies, by any tangible standard, have been phenomenally successful and continue to be successful. You know, Amazon is not going out of business, but at the same time, they are entering a period where growth seems like it's going to be harder to come by. And that's partially just because they are so big and they've infiltrated so deeply into our lives that how can they

really get much deeper? Right, Well, let's take these companies one at a time. You mentioned Apple. Obviously, you know that the company seems to have cut its own expectations for the iPhone. Certainly suppliers have been more public about that. A Golden Sacks lowered its rating on Apple recently, and we're seeing reports of week iPhone demand in China and other emerging markets not a great reception for that kind of top of the line iPhone X Are Is Apple

a victim of its own success here? Yeah? I think that sounds right. One thing about Apple um is that it started making smartphones that people really wanted to buy I every two years if they already had one, or maybe by their first smartphone, and both of those trends have kind of reached, um, you know, they're really reaching their limit. People are buying new smartphones much less, and people who wanted smartphones pretty much already have one at

this point. Apple has acknowledged this. In its most recent earnings report. It said it was just gonna stop saying how many smartphones it selled, and UM, you don't stop saying how many smartphones you sell if you think you're going to continue to sell more and more and more. Um. It also said that it was going to look to make more money from services. So Apple's acknowledging that, you know, it's reached a point where it's going to be a

slightly different company going forward. Josh, let's talk about Amazon. Now, certainly, you know, one of the companies that has performed the best in in in the markets over the last five years, and yet since it hit that intra day high of a trillion dollars a few weeks ago, it's been really nothing but down since. Um. One big component of the market pessimism seems to be is that core retail business, which grew at just eleven percent in the third quarter.

You know, things like AWS the cloud business, advertising continue to grow so quickly, but you know, maybe they hit a saturation point. I mean in the US, I think it's like sixty percent of all households are already Amazon Prime members, So what room do they have to grow? Yeah, I think the story here is that you'd rather be Amazon than any other e commerce company, but that eventually Amazon is going to reach the limits of its own

growth in the same way that Apple does. Really, yeah, I think Amazon kind of foresaw this moment, and yet the things that it was relying on to to save it and continue the fast pace of retail growth were were businesses like their business in India, the grocery business and the acquisition the Whole Foods, and those just haven't paid the immediate dividends that Amazon is needed to keep

growing at in the retail business. And when we talk about the kind of hail Mary passes to continue growth, it also kind of reminds me of Google, because you know, Google sort of the same slowdown as the other tech companies, and it's those businesses like um self driving cars with the Waymo division, and and and maybe like a revived business in China that haven't come in and rescued the slowdown in the in the core business. Yeah, I think

Google has a real disconnect. There are the things that people like to talk about that Google is doing, as you mentioned, the self driving cars, sort of the moon shots as they've been called, and then there's the way that Google makes money, and that's selling digital advertising. It's a great business for Google, it continues to be, but there are is a limited amount of advertising that the

businesses of the world are willing to buy. And Google is such a large proportion of the digital ad sales at this point that it's going to have trouble continuing to grow at the rates it has in the past. Um And that's a similar dynamic with Facebook because it's the other kind of big player in the digital ad market. But Brad uh, Facebook's also had some other problems which I think are kind of the leading edge of sort of broader concerns about tech and and those are the

social problems. What do you think about those? Well, I mean I think they're existential for Facebook. I mean people spend so much other lives on on the service, on you know, ancillary services like Instagram and WhatsApp, and you know, part part of the like The contract I think Facebook has with its users is that you know that the service like improves their lives. It helps them connect to uh to friends and family and and there it's a

productive use of their time. And I think all the criticism, criticism and scandals around the company has made people feel a lot more ambivalent about about the service, you know, And so I think Facebook faces some real challenges and we're seeing the impact of these controversies in its quarterly numbers. You know, the membership growth has slowed, the revenue growth is now slower than investors expected. So I think we're beginning to see the impact from what has really been

a year of NonStop conflict and controversy. Yeah. Think Facebook kind of represents the extreme view of a number of dynamics that are sort of broadly within the tech company.

You know, people don't necessarily feel good about using Facebook. Um, there have been Facebook has been sort of front and center and the questions about its role in democracy and the political debate, and then also its response to these problems has been kind of the most tenured, uh the most bungled of of any company really, and so you have all of the things that are bothering people about tech in general seem to be happening at Facebook to

the greatest extent. But Facebook doesn't have a monopoly on those concerns. And and speaking of monopoly, I think it's another thing that it's maybe worrying investors and kind of challenging some of the expectations of growth around these companies that you know, they're now being thought of as kind of monolithic companies who whose impacts on communities might not

be great. The appetite for new regulation is rising to a certain extent in Washington, in d C. But certainly in in Europe, where you know, Google is appealing a five billion dollar fine. Uh, it's not. The discussion hasn't completely connected to the stock price issue, but I mean, I do think that the weight in the worry of regulation is beginning to kind of impact the growth prospects

of these companies. Okay, Josh, So calls for regulation of big tech are getting louder, But people are calling for different things, right, and they fall into a couple of different buckets. Yeah. I think the first one's antitrust, and that's just the idea that a company that is the size of a Google or an Amazon is just going to be able to use its market power to um to disadvantages competitors in one way or another. One typical remedy is breaking up the company's I personally find that

to be a kind of wildly impractical solution. You know, it took it took like two decades for the Microsoft antitrust case to wing its way through the courts. I think it also took a couple of decades for the IBM anti trust case before then, tech moves so quickly right now. And I don't know about you, but I have not heard a coherent plan for what breaking up

any of these companies would look like. You know, Donald Trump has made some comments about how he thinks that Amazon is too big, are Google is too powerful, But the Republican Party is generally not one that will take such actions. So it would really be Congress or regulators that would step in here. And it's hard to see

the GOP really taking that on as a crusade. So the other avenue of antitrust enforcement is merger approval, and it's difficult for me to see um, you know, an Amazon buying another company like Whole Foods, or or Google buying a YouTube or Facebook buying and Instagram without you know, some serious scrutiny and maybe even even the federal government

blocking such an acquisition. Yeah. And I think this could be an interesting area because when I talk to people about what might be the impacts of a slower market for tech, a lot of them said, look, these companies have a lot of cash, their current forms of growth are slowing, and so on. Logical thing for them to do is to try to buy new companies. But as they go to do that, as you said, the next acquisition that looks kind of like the Instagram acquisition, it

probably won't sail through quite so easily. So that's the potential for antitrust enforcement against the big tech companies. But the other big bucket of regulatory enforcement is likely to come around privacy, um and data protection. We saw a few months ago a major data protection law take effect in Europe called g DPR. Tell us a little bit

about that. Yeah, g DPR tries to come in and address the concern that the way that the technology companies use private data, mostly to target ads, has just gone too far. You saw California actually pass its own privacy law in the wake of g DPR passage, and there's the general idea that there's going to be more of

this going ahead in the future. UM. The big tech lobby in Washington is actually really prepping up to try to pass a national privacy law under the idea that UM what it's going to get if it doesn't work on this law will be worse. And I think there's more tension ahead here. Basically, when you have more privacy, these tech companies are going to become less profitable because

they use your personal data to target ads. And as these companies are squeezed, they're really going to find more urgency into not allowing some of the more rigorous privacy protections to take place. Although Josh, there is an argument, and you often hear it from the tech companies themselves, that regulation could actually be good for them because it would harm smaller players. It would hurt it would hurt competition, UM, it would strengthen perhaps even their monopolistic positions. Do you

buy that. I think that there's something intellectually satisfying about that. It does make sense generally that smaller competitors UM would face uh more challenge nges and trying to deal with regulations. On the other hand, it's just so transparently self serving that it's hard to think that that's really their concern here. So, Josh, one of the one of the salves for you know, some of the regulatory pressure that might slow growth for

these companies is pushing in the new businesses. So where do you see say, Google and Facebook, you know, trying to grow their business and make up some of the

some of the shortfalls in their core areas. Yeah. I think the one thing for Google and Facebook that's probably a commonality between them is that they've both taken a large part of the digital ad market, but there's this huge bucket of television advertising that both of them would love to get into UM, and that's money that's already being spent that they could take away from other advertisers. So I think you'll see them look there. For Google,

there's obviously the moon shots. It really is moving ahead on autonomous vehicles, and hopefully we'll be able to do UM more with that in the next year or so and also move into other markets. As you mentioned, China is a problematic one, but clearly it wants to get in there. UM. Google CEO soon Dar Pachai, has not backed away from UM from China very much, even after

some pushback from employees. With Facebook, most of its growth is already coming from these acquisitions like Instagram and What's App that looked like pretty rich at the time but have really paid off for the company. Um. Instagram is a big place that it's focusing on, and it's looking to develop new kinds of ad products that it can use not in the timeline but in other places. And so I think that's really where it's going to go. And Brad, you're the Amazon expert, So why don't you

tell us about where Amazon might go from here? Yeah, I mean, I think, uh, they're all already planning for kind of slowing growth in that core business, particularly in the US, you know, which is kind of quite saturated. Amazon already accounts for I think sixt of online sales in the in the US. Um, I think, you know, the future is overseas. It's in countries like India and Australia and Brazil. Uh, you know, where they have just

started new businesses and they're really kind of struggling. You know, we've heard a lot about Amazon's entrance into the healthcare market. You know, that's very new and very long term and I think physical stores, you know, the bookstores and the Amazon Go grocery stores, the four Star gift stores are popping up all over the country. That could be another major avenue for growth. And then you know Apple, I think we talked a little bit already about the service

business making up for the shortfall of iPhones. But you know, just as like Waymo is the great hope for Google, for Alphabet in the long term. I think, you know, you can't discount Apple's ambitions and cars. You know, they hired an engineer from Tesla named Doug Field, and there has long been a rumor that Apple is working on kind of autonomous vehicle software who knows, maybe even an

actual Apple automobile. And so as these companies prepare for slowing growth and more regulatory scrutiny, I think they're probably pinning at least some of their hopes on some of these future, more futuristic businesses. What about kind of their role in society. I think one of the big one of the big draws to work at these companies, aside from the money obviously, in the past, has been that, you know, they've really been kind of mission driven companies

that felt like they were changing the world. Everybody loved them, and now they're kind of getting it from all sides. How do you think that Silicon Valley is going to deal with not being sort of the darling of American business going forward. I don't know that Silicon Valley is ready to accept that, to be honest. You know, I think it's why Amazon works on things like drones, and Facebook's working on VR and the apples, you know, building a car, and and Google, you know, is trying to

help people live longer. I mean, they thank the solution for all these challenges, these perceptual challenges, is to go and like start inventing again. And that's it for this week. Decrypted, thanks for listening. We always want to know what you think of the show. You can email us at Decrypted at Bloomberg dot net or I'm a Twitter at Joshua Broosting and I'm at brad Stone. If you're a fan of the show, please take a moment to rate and review us. It helps new listeners find the show. This

episode was produced by Pio Gudkari and Magnus Hendrickson. Our story editor was Aka Eto. Thanks also to Ann Vandermay, Emily Buso, and Liz Smith, Francesco Levi is ahead of Bloomberg Podcasts. We'll see you next week.