Is the tech slump over? Some good news from Silicon Valley – San Francisco Examiner

Paul Sakuma/ap file photo

Paul Sakuma/ap file photo
Tech earnings season has begun, and there are some signs that the slump that triggered plummeting stock prices and massive layoffs might be ending.
“Tech investors went into this week with some white knuckles and heartburn,” Wedbush analyst Daniel Ives told clients in a Saturday note, citing fears of downbeat reports from major tech companies — including Silicon Valley giants such as Google parent Alphabet, Facebook parent Meta and chip giant Intel.
But instead, investors likely spent last weekend “drinking a relaxing cappuccino with much better than feared tech earnings,” said Ives. “The narrative for the tech sector is becoming clearer and clearer despite many tech haters yelling fire in a crowded theater.”
Crawford Del Prete, president of tech research firm IDC, said the decision of big tech companies to scale back their spending is paying off. “The cuts made earlier this year are turning into profitability gains,” he told The Examiner.
After missing targets in the last four quarters, Alphabet exceeded Wall Street projections for revenue and profit. Meta posted sales that were also better than expected after reporting dismal results in recent quarters.
“This is a good quarter, and we’re seeing growing momentum in our products and business,” CEO Mark Zuckerberg told analysts on the company’s earnings call.
Intel, the world’s biggest semiconductor company, posted a huge loss that was not as bad as Wall Street expected. “While we remain cautious on the macroeconomic outlook, we are focused on what we can control,” CEO Pat Gelsinger said in a statement.
It was good news for the Santa Clara company, which dominated the chip market for decades but has struggled with production missteps and stiffer competition.
“When you’re already on the ground, it’s easier to look up,” Bernstein Research analyst Stacy Rasgon told clients in a note. “Investors have been wrestling with a simple question lately, namely, ‘Is it as bad as it can get?’”
But while serious issues remain for Intel, he said, “In general, it does seem like we have mostly seen the worst of things.”
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Intel’s report also bodes well for the broader tech industry. Semiconductor companies are typically viewed as indicators of the direction of the broader market since they have to build their products ahead of any upswing in demand for end-customer goods.
There’s also positive news in the corporate market — particularly cloud computing, through which businesses and large organizations access computing power through web-based networks instead of in-house data centers.
“Cloud growth is stable and very resilient with Microsoft, Google, and Amazon further confirming the strong cloud growth narrative thesis,” Ives said in his note. After a big pullback on corporate spending, including major layoffs, corporate budgets for information technology “are showing modest growth with some weak spots.”
The cloud market is dominated by Amazon, Microsoft and Google. The latter has been the weakest of the three major players, but in a sign that the Mountain View company is emerging as a stronger cloud player, Google posted its first-ever quarterly profit.
Del Prete said the road ahead is still bumpy. “Demand is uneven,” he said. “Infrastructure spending has been fairly strong, but there are signs that this is starting to slow.”
But the push toward expanded cloud adoption is clear. “If I were going to characterize IT demand coming out of what we saw this quarter, I would say it’s decelerating, but still resilient,” Del Prete said. Businesses “need to invest in IT in order to capture the efficiency gains needed to stay competitive.”
The tech sector got more good news this week after Apple posted results that beat expectations. The tech giant also released “a relatively upbeat outlook” that offers investors “further confidence that Cupertino is riding out this macro storm in Rock-of-Gibraltar fashion,” Ives told clients in a note.
The industry also got a boost from robust jobs numbers that sent the Dow Jones Industrial Average rallying more than 600 points. The tech-heavy Nasdaq Composite Index rose more than 260 points.
“In a nutshell, the macro is not roses and champagne, but overall tech earnings are holding up much better than feared from the doomsday crowd,” Ives said.
With lingering fears of another recession, investors are still cautious, and many of them “are watching from the sidelines waiting for the next shoe to drop with the R-word lingering,” he said.
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Benjamin Pimentel is The Examiner’s senior technology reporter.
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