New York (CNN) – It's only Tuesday, but it's already been a tough week for the tech world.
Monday’s sell-off in tech stocks, driven by disappointing earnings, contributed to a broader market decline. The “Magnificent Seven” of tech lost $615.6 billion on Monday, according to data from S&P Global.
Investors were also shaken by doubts about whether the tens of billions of dollars that tech companies have invested in artificial intelligence (AI) will ever translate into real revenue increases, or whether AI will turn out to be a money sink that generates only modest efficiency gains.
On Monday afternoon, a federal judge ruled that Google had violated U.S. antitrust laws with its search business. The decision was a sharp rebuke to Google’s core business that could call into question its dominance in online search, and could also have ripple effects for other tech giants fighting their own antitrust battles.
And then, of course, there were broader economic concerns fueled by a worse-than-expected unemployment figure and impatience for the US Federal Reserve to cut rates; in the past, recession fears have led major technology customers to cut spending.
The confluence of these factors has given the impression that Big Tech, which has driven markets with its hype about artificial intelligence over the past 18 months, may now be on shaky ground.
But for now, industry observers say this is just a correction, not a downward spiral.
Charlie Miner, an analyst at research firm Third Bridge, said comparing the current tech downturn to something like the dot-com bubble burst would be “a huge stretch.”
“Coming off an earnings week where we heard world-class CEOs discuss not just a continuation, but an acceleration in AI infrastructure spending, our experts believe investors should take inspiration from this ongoing innovation cycle,” Miner told CNN in an email.
Tech valuations in early July “hit their highest point in over 20 years… you have to digest some of those gains before moving forward,” Angelo Zino, a technology analyst at CFRA Research, told CNN.
It's not as if the tech giants are in danger of running out of money. In the last quarter alone, Apple, Google, Microsoft, Meta and Amazon reported more than $94 billion in profits. And despite yesterday's drop, which now appears to have begun to reverse, shares of Apple, Amazon, Microsoft, Meta, Google and Nvidia are still up strongly so far this year.
It’s possible that tech stocks are simply returning to trading on the fundamentals of their core businesses, rather than on hopes for an AI future, now that the potential for monetizing that technology appears to be at least a decade away. But those fundamentals are solid.
“The two biggest trends for Big Tech are cloud and digital ad spending, and both are performing very well, essentially in line with or above expectations,” Zino said.
When it comes to AI spending, “what else are these guys going to spend money on?” Zino said. “Right now there are only two ways to manage money: spend aggressively for future growth or return more to shareholders. And they’re actually doing both.”
In fact, Google and Meta announced plans to start paying quarterly dividends for the first time earlier this year.
The biggest question hanging over the tech industry is what might happen to Google now that it has been ruled a monopoly. The company has announced it will appeal the ruling. But if it stands, it could lead to measures ranging from a fine to the dismantling of the exclusivity contracts that have made Google the default search engine, and even the possible dissolution of the company.
Google's dominance in online search has boosted its massive online advertising business. Anything that threatens its market share could jeopardize its core business, which is already facing competitive threats from new artificial intelligence tools.
In addition, the judge’s decision on Monday could influence how courts evaluate other ongoing antitrust cases against Apple, Amazon, Microsoft and Meta. A change in the definition of what constitutes anticompetitive behavior in technology could affect the foundation of those companies’ core businesses — such as how Apple makes its proprietary services available to users or how Amazon works with third-party retailers.
It could also embolden lawmakers who have been seeking to crack down on the power of Big Tech companies.
“This is a huge victory for the American people and demonstrates the importance of enforcing our antitrust laws and why I am advocating for antitrust rules for Big Tech,” Sen. Amy Klobuchar said in a statement following the decision.
But it will be months, if not years, before Google faces any potential consequences as proceedings on possible remedies and an appeal play out.
And most analysts believe a Google breakup is unlikely, and that the company's strength would help it weather any potential government solutions.
“In general, consumers like Google, are comfortable with it, and even if they have to choose when opening a new device, they will stick with what they know,” Miner said. “This ruling will instill short-term confidence in DuckDuckGo, Yahoo, and other Google Search competitors. Still, they face an uphill battle in forming partnerships and building their brands to take a bite out of Google’s ~90% market share.”
