What If The Top Big Tech Companies See A Profit Decline In 2024?

There have been conversations surrounding the question of what would possibly cause a profit decline in big tech. The possibility of a profit decline in 2024 for the biggest tech companies—Apple, Amazon, Google’s Alphabet, Meta, Microsoft, and Nvidia—brings many questions up. Different contributors such as market cycles, economic conditions, and competitive pressures play very important parts in this:

Market Cycles & Economic Conditions

Jonathan Golub, Chief U.S. Equity Strategist at UBS, focuses on the cyclical nature of the tech industry. “Our downgrade of the Big 6—from Overweight to Neutral—is not predicated on extended valuations or doubts about AI,” he explains. Instead, it acknowledges difficult comparisons and cyclical forces affecting these stocks.

The pandemic disrupted earning cycles, with lockdowns boosting demand for PCs, online shopping, and gaming, followed by declines as economies reopened. Earnings growth surged during the pandemic but is now expected to normalie, leading to potential profit declines.

AI & Cloud Computing

Although concerns about profit decline exist, AI and cloud computing continue to drive revenue growth. UBS Editorial Team reports that capital expenditure among top tech companies like Microsoft, Alphabet, Meta, and Amazon is projected to reach USD 205 billion this year, largely driven by AI infrastructure. This spending supports a positive outlook for the semiconductor industry, with expected revenues increasing by over 50% to USD 164 billion next year.

Cloud platforms from Microsoft, Alphabet, and Amazon report accelerated revenue growth, nearing 24% year over year, compared to below 20% in the previous quarter. This shows strong monetsation of AI, contributing positively to software earnings growth.

Investor Expectations

Investor expectations play an important part in tech stock performance. Geo-political and economic uncertainties, and changes in Federal Reserve policies, can bring more volatility into the market. Nasdaq experienced a 7% decline over 6 trading days in April due to these very kinds of uncertainties.

The more earnings normalise and economic conditions fluctuate, investor sentiment may see a shift. Structured strategies can help investors position for potential upside while protecting against market downturns.

What Are Tech Companies Planning?

Tech companies are likely to adjust their plans to face possible profit declines. Increasing cash-flow generation and defensive financial actions, such as Apple’s share buy-back programme and dividend increases, show strength. UBS expects big tech’s combined free cash flows to grow by 22% to USD 560 billion in 2025, providing a sense of security against economic difficulties.

So, What Are The Experts Saying?

We asked experts in the industry what they think would happen if we saw a profit decline this year as well. Interesting commentary with different angles have been shared, and we have noted them below:

Our Experts:

James Leaver, CEO, Multilocal
Kate Leaman, Chief Market Analyst, AvaTrade
Phillip Burr, Head of Product, Lumai.
Carl Uminski, Partner, CI&T
Avinav Nigam, Founder, TERN Group & Member, Forbes Technology Council

James Leaver, CEO, Multilocal

“Today, there is a tendency to rely on tech giants because they are omnipresent in our lives – not just at work, but everywhere. This, of course, is why their walled gardens are so appealing to advertisers.

“As a self-funded startup in adtech we have always been very focused on ensuring that we de-risk our business at every turn, which means not relying on any one source for our growth. We therefore believe that regardless of what happens with the Big 6, we know what long-term success looks like for our business and remain focused on driving towards that.”