Tech Earnings Give a Wake-Up Call to Investors

A new era of austerity

Shares in tech companies are in retreat after investors got sobering news on Thursday about three of the industry’s giants — Alphabet, Amazon and Apple — including slowing demand for everything from iPhones to digital ads to cloud services.

“You’re hearing that from, I would think, everybody,” Tim Cook of Apple said of the challenging environment on CNBC. That outlook is largely responsible for Nasdaq 100 futures being down 1.4 percent this morning, eroding Thursday’s big tech stock gains after investors hoped that the Facebook parent Meta had shown tech how to operate in leaner times.

Plenty of headwinds are hitting the tech sector. Central bankers this week reiterated that they’re not done raising interest rates (even if market participants don’t fully believe it). Together with a slowing economy, that has led companies and consumers alike to spend less — a move toward austerity that tech companies have now embraced, after years of rocketing head counts and cushy perks to retain employees.

All three tech titans that reported earnings on Thursday made sure to talk about cost cuts, after Meta added roughly $100 billion in market value in the wake of an earnings report in which its C.E.O., Mark Zuckerberg, touted 2023 as a “year of efficiency.”

Here are the big takeaways from Thursday’s earnings reports:

• Alphabet disclosed its fourth consecutive decline in profit, as ad sales at YouTube fell below $8 billion, falling short of analyst forecasts. On expense-cutting efforts, its C.E.O., Sundar Pichai, said: “I see this as an important journey to re-engineer the company’s cost base in a durable way.”

• Amazon said its cloud business had slowed, as had its e-commerce operations. In his first earnings call with analysts since taking over as C.E.O., Andy Jassy said “there is a lot to figure out how to optimize and how to make more efficient.”

• Apple reported its worst holiday season since 2018, in large part because of Covid lockdowns that disrupted its largest iPhone factory in China. The company emphasized its efforts to spend less: “We’re doing a lot of work around costs,” said Luca Maestri, Apple’s C.F.O. “That is paying off.”

Meanwhile, doubts are growing about the durability of January’s market rally. Michael Hartnett, Bank of America’s chief investment strategist, warned clients this morning that while investors are snapping up risky assets like cryptocurrencies and high-yield bonds, he sees a looming “bear risk” for stocks as recession appears likely later this year.

And Michael Burry, the investor whose bet against the housing market was memorably chronicled in “The Big Short,” tweeted one word on Wednesday — “Sell” — and then deleted his account.

HERE’S WHAT’S HAPPENING

Job growth has cooled, economists forecast. Investors will be closely watching Friday’s nonfarm payrolls report, scheduled for 8:30 a.m. Eastern. The consensus estimate is that 187,000 new jobs were created last month. Investors will also be watching wage data for signs of the labor market’s effect on inflation.

A top economic aide to President Biden will step down. Brian Deese, the director of the National Economic Council and an architect of many of Biden’s sweeping economic policies, will leave the White House this month. His potential successors include Lael Brainard, the Fed’s vice chair, and Wally Adeyemo, the deputy Treasury secretary.

A Democratic lawmaker calls on Apple and Google to remove TikTok from their app stores. Senator Michael Bennet of Colorado became the first member of Congress to urge an immediate ban of the Chinese-owned video app from leading smartphone platforms, calling TikTok “an unacceptable threat to the national security of the United States.” It’s the latest sign of pressure on TikTok from all corners in Washington.

A former Goldman Sachs president is reportedly in talks to become Carlyle’s next chief. Harvey Schwartz, who lost the race to become Goldman’s C.E.O. to David Solomon, is a top candidate to lead the private equity giant, according to Semafor. Carlyle has been looking for a permanent C.E.O. since August, when Kewsong Lee resigned following a power struggle with the firm’s founders.

Nordstrom meets a meme-stock activist

Shares in Nordstrom jumped 30 percent in after-hours trading on Thursday following a report by The Wall Street Journal that the activist investor Ryan Cohen had taken a significant stake in the department store chain. (DealBook has confirmed his investment.)

Mr. Cohen has shaken up companies before, having focused on so-called meme-stock companies like GameStop and Bed Bath & Beyond, bringing with him flurries of supportive online traders. But it’s unclear how Nordstrom will respond to its newest gadfly.

Mr. Cohen hasn’t made many demands yet. He has asked Nordstrom to replace at least some of its board; one clear target is Mark Tritton, whose compensation as C.E.O. of Bed Bath & Beyond was a target of his criticism. But it’s not clear at the moment what Cohen thinks Nordstrom should do to better navigate the challenging environment for clothing retailers.

His activism history doesn’t give Nordstrom much to go on. While investors usually know what to expect when veteran activist shareholders like Elliott Management target a company, Mr. Cohen has less of an obvious playbook:

• Though he became chairman of GameStop and changed up its board and management team, some analysts have said he hasn’t fundamentally improved the video game retailer’s operations.

• At Bed Bath & Beyond, Cohen called for a board revamp and urged the sale of the retailer’s Buy Buy Baby subsidiary — but the latter hasn’t happened. He has since sold off his stake, and Bed Bath & Beyond is now likely to file for bankruptcy.

Nordstrom has some protections, including a founding family that owns about 30 percent of its stock. For now, the company is striking a cordial tone: “While Mr. Cohen hasn’t sought any discussions with us in several years, we are open to hearing his views, as we do with all Nordstrom shareholders,” a company representative said in a statement.

Adani gets some breathing room

Investors again dumped shares this morning in some companies tied to the Indian tycoon Gautam Adani, as his business empire has shed over $100 billion in market value since an American short seller accused its leaders of market manipulation and fraud.

Nevertheless, some good news for the Adani Group has emerged — even if the long-term prospects for the conglomerate remain cloudy.

The positive developments: The ratings agency Fitch said it had no immediate plans to downgrade the bonds of the Adani companies it follows; that led to a modest rally in those notes. Meanwhile, Goldman Sachs and JPMorgan Chase have reportedly told some clients that Adani-related debt could still be a good investment. And the Adani Group said it was in talks to prepay some of its outstanding loans to restore confidence in its finances.

All this may come as a relief to Adani investors, a group that’s surprisingly global. BlackRock and TIAA are among those that own Adani bonds; Total, the French energy giant, told investors that it has about $3.1 billion worth of stakes in Adani Group companies.

Not everything is looking up, however. S&P Dow Jones said on Friday that it was removing the flagship Adani Enterprises from its sustainability index, citing the allegations by the short seller, Hindenburg Research. Meanwhile, shares of Adani Green Energy and Adani Total Gas again fell sharply on Friday, and Adani Enterprises’ stock finished down 2.2 percent on the day.

And while the credit ratings agency Moody’s, like Fitch, didn’t downgrade any Adani debt, it warned that further stock slides in Adani Group companies could hurt their ability to raise money over the next one to two years.

$1.1 trillion

— The combined 2022 revenue of Chevron, ConocoPhillips, Exxon Mobil and Shell, as the oil industry enjoyed a record year amid higher energy prices.

The hurried rollout of ChatGPT

ChatGPT has become one of the biggest breakout technologies in years, with its ability to write poems (and, somewhat controversially, news reports), generate code and more having captured the popular imagination. It has stoked ever-growing enthusiasm about the possibilities of A.I.: Bill Gates recently told Forbes, “This is every bit as important as the PC, as the internet.”

But ChatGPT’s public debut wasn’t part of an intricately planned rollout by its parent company, OpenAI. Instead, the start-up’s employees were surprised when its leaders directed them to release a public version of their chatbot technology in two weeks, according to The Times’s Kevin Roose in his latest column:

The results are hard to argue with. ChatGPT has more than 30 million users and gets roughly five million visits a day, Roose writes, citing two sources. That makes it one of the fastest-growing software products in recent memory.

THE SPEED READ

Deals

• Trian called on Disney to replace an existing board member, Michael Froman, with the activist investor’s co-founder, Nelson Peltz. Separately, how a former head of Marvel is playing a key role in the Disney-Trian fight. (CNBC, FT)

• Bridgewater Associates appointed Karen Karniol-Tambour as a third co-chief investment officer, the first woman to hold the post at the hedge fund. (Bloomberg)

• A top-10 shareholder in 3M urged the company to improve its operations or replace its C.E.O. (FT)

• The F.T.C. rejected a request by Meta to force the recusal of Lina Khan, the regulator’s chair, from its effort to block the company from buying a virtual-reality start-up. (Reuters)

Policy

• “Can a Trillion-Dollar Coin Resolve the Debt Ceiling Crisis?” (NYT)

• Ryan Salame, FTX’s co-C.E.O., donated $500,000 to a G.O.P. governors group days before the crypto exchange went bankrupt. (Politico)

Best of the rest

• In a cooling labor market, the bosses are back in charge. (WSJ)

• The Pentagon says it’s detected a Chinese surveillance balloon hovering over the American Northwest. (NYT)

• “Forget Pandemic Puppies. Meet the Inflation Chicken” (NYT)

We’d like your feedback! Please email thoughts and suggestions to [email protected].