The quarter was hardly kind to tech stocks. The Nasdaq Composite and the tech-heavy Nasdaq-100 index are both down 9% year-to-date. Shares of thirteen Nasdaq-100 companies posted losses exceeding 20%, including tech giants like Meta, Netflix, and Adobe. Once-hot speculative stocks also are way down.

But large tech companies mostly weathered the chaos of Q1 without their shares suffering debilitating losses that would definitively signal widespread, long-term concerns about the sector.

Shares of most well-established tech outfits emerged with manageable losses or eked out minimal gains, shrugging off the ominous headlines of January. (A sampling: “Nasdaq 100’s Unrelenting Declines Ring a Dot-Com Bust Alarm Bell,” “Let the wild rumpus start: is the US facing a stock market ‘super-bubble’?”)

They’ve stayed afloat despite numerous domestic and global challenges: high inflation, an interest-rate hike, Russia’s invasion of Ukraine, the Omicron COVID variant, lingering supply chain issues, and China’s ongoing crackdown on tech. 

Several of the world’s largest tech companies were particularly adept wielding their size and diversified portfolios to minimize the headwinds. 

In particular, a strong rally in the second half of March signaled investors’ faith in the value of Alphabet, Apple, Amazon, Microsoft, Tesla, and Nvidia. All six companies are on track to finish the quarter down roughly 2% to 10%.

“The selloff got overdone, and took these big tech names down to levels that were very attractive,” David Katz, chief investment officer at Matrix Asset Advisors, told Bloomberg earlier this week. 

The picture remains more muddied for tech giants facing cloudy growth prospects, large-cap firms with questionable business fundamentals, and unprofitable outfits stung hardest by tenuous economic conditions.

Meta and Netflix, which are off about 35% year-to-date, face questions about sagging user growth and slowing subscriptions, respectively. Unlike their diversified tech rivals, Meta relies on ad sales for nearly all of its revenue, while Netflix has struggled to branch out beyond video-streaming subscriptions.

So-called “pandemic stocks”—Zoom, Peloton, Shopify, DocuSign, Etsy, PayPal—continue to shoulder huge losses as investors question their post-COVID outlook. Newly public companies—Rivian, Coupang, Grab, Didi—also have cooled as investors retreat to less-risky equities. 

Chinese tech stocks remain similarly tenuous amid a government crackdown on the industry’s power, with the Hang Seng Tech Index down 20% year-to-date despite a huge two-day rally in March. In a notable development Thursday, The Financial Times reported that SoftBank, the world’s largest tech investor, will start curtailing some spending following heavy losses in China and the broader tech market.

The split in performance between massive tech giants and smaller firms figures to persist into the second quarter, as the market continues to work against risk-forward investments.

“We think from here investors are going to, at some point, realize, ‘Wait a second, growth is slowing and interest rates are rising and inflation is still high.’” Erik Knutzen, the chief investment officer for multi-asset class strategies at Neuberger Berman, told CNBC this week. “This is still a challenging set-up for equities.”

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Jacob Carpenter

NEWSWORTHY

A closer look. Four U.S. senators called Thursday on the Federal Trade Commission to review whether Microsoft’s planned $68.7 billion acquisition of video game developer Activision Blizzard will impede reform efforts at the gaming company, which is accused of mishandling sexual harassment and assault allegations made by employees, The Wall Street Journal reported. The four senators—Cory Booker, D-N.J.; Bernie Sanders, I-Vt.; Elizabeth Warren, D-Mass.; and Sheldon Whitehouse, D-R.I.—argued that the merger could weaken Activision Blizzard employees’ negotiating position as staffers push for changes within the company. The quartet generally opposes acquisitions by large tech companies on competition grounds.

The lines remain closed. Tesla is extending the shutdown of its Shanghai manufacturing plant through Saturday as the Chinese government continues to institute COVID-related lockdowns across parts of the city, Reuters reported. The Shanghai factory, a key producer of Model 3 and Model Y vehicles, has been idle since Monday as Chinese officials look to quash an increase in COVID cases in the city. Tesla delivers nearly 2,000 vehicles daily from the Shanghai plant.

The missing link. Apple followed through Wednesday on its pledge to let some developers post links for payment to their websites within their apps, a modest concession made as part of a settlement with Japanese regulators last year, CNBC reported. Developers overseeing “reader apps” with libraries of content, such as Spotify and Netflix, can now seek permission from Apple to solicit subscription sign-ups and other payments through their own websites. Apple has fought to keep all app-related payments within its App Store, where the company takes a 15% or 30% cut of all revenue. Separate regulations nearing approval by the European Union would force Apple to allow app developers to direct customers to outside payment processors.

It wasn’t me, officer. Apple, Meta, and Discord unknowingly gave customer data to hackers posing as law enforcement officials last year, Bloomberg reported Wednesday, citing sources familiar with the matter. Investigators suspect the hackers forged legal documents and sent them from email addresses affiliated with law enforcement agencies, mimicking routine requests for user data submitted by police. The Bloomberg report does not specify how many users’ addresses, phone numbers, IP addresses, and other personal identifying information were illicitly obtained.

FOOD FOR THOUGHT

Going vertical. Tesla is forcing yet another shift in the automotive world: less reliance on suppliers. As Reuters reported Thursday, several leading automakers developing electric vehicles plan to bring more sourcing, manufacturing, and software development in-house, mimicking the trailblazing Tesla’s approach. The shift toward vertical integration follows a decades-long practice of gathering parts and technology from suppliers across the globe, often in countries with lower labor costs. Ford, General Motors, Volkswagen, and Mercedes-Benz have all made moves to curtail supplier dependence in recent months.

From the article:

The investments by automakers in mines, motors, and batteries are a departure from decades of handing control over development and production to suppliers, who could produce steering controls, semiconductors, and electronic components at greater scale and lower cost for multiple vehicle manufacturers.

In the new world of electric vehicles, however, investors have decided that Tesla's approach of buying raw materials directly, building its own batteries, and engineering its own software is the winning strategy. Tesla's market capitalization has soared back above $1 trillion in recent weeks, outweighing that of Toyota, Volkswagen, GM and Ford combined.

IN CASE YOU MISSED IT

Waymo’s ‘free’ driverless cars arrive in San Francisco’s trillion-dollar robotaxi battleground, by Christiaan Hetzner

Payments juggernaut Adyen wants to provide banking to eBay and Etsy sellers, by Jeremy Kahn

Artificial intelligence keeps beating humans at games. This time it’s the card game Bridge—but it’s weirder than you think, by Jonathan Vanian

Petromasculinity is the leading dealbreaker for dating app users, OKCupid says. Here’s what that means, by Carmela Chirinos

California tech hub Bitwise expands to five new cities in quest to diversify industry, by Nimah Quadri

Binance’s founder, who accumulated as much wealth as Mark Zuckerberg in a quarter the time, explains how it feels to become unfathomably rich virtually overnight, by Marco Quiroz-Gutierrez

Here’s how women in tech can break the bias and be their own advocates, by Priya Rajagopal

BEFORE YOU GO

Ryan Atwood, crypto critic. As Matt Damon and Kim Kardashian rake in money hawking cryptocurrency, a lower-level celebrity has emerged as an unlikely, vocal skeptic: Ben McKenzie, also known as Ryan from The O.C. The one-time teen heartthrob (he’s now 43) got the New York Times treatment Thursday, with a profile that delves into the actor’s unusual fascination with crypto. McKenzie proselytizes daily about the digital currency’s potential pitfalls to his 274,000 Twitter followers, and he’s sold a book he plans to co-write with The New Republic scribe Jacob Silverman. If you’re confused by the whole thing, so are McKenzie’s friends and family. Said the actor’s father: “It was a leap sideways from the rest of his life.” No kidding.