High levels of volatility are giving tech investors the ick, says Mike Maynard
There have been more than 5,000 layoffs in the tech sector this year, dashing hopes that the trigger-happiness of 2023 would end in January. But analysts say good times are ahead. The industry is set to grow this year, and certain tech jobs will be at “extreme” levels of demand, according to at least one job site. Tech, evidently, has been going through some ups and downs. But will this year be a boom year, or a bust year? And what does that mean for people, customers and investors?
Tech, of course, has always had boom and bust cycles. And in the past, they’ve been far rougher than they are right now. The semiconductor industry, for example, had violent swings around the turn of the century. When times were tough, companies didn’t build their own semiconductor fabrication plants – wafer fabs, in industry-speak. Then the economy improved, so they did. But that took time, and when the plants were finished there was overcapacity. Prices dropped, and times were tough again.
Boom and bust periods like these damage trust, creating the impression that the industry isn’t quite in control of itself. It goes without saying that such volatility leads to over-hiring, followed by layoffs. In 2023, tens of thousands of workers at some of the world’s biggest tech companies lost their jobs. And unsurprisingly, workers don’t feel enormously sympathetic to their former (and often current) employers. The Alphabet Workers Union called Google’s most recent round of sackings “needless”. Sackings create huge uncertainty – one of the reasons why companies who have to lay off a lot of staff should do it in one go.
This also spooks future talent. Companies might hire in one area and fire in another: roles in AI, data science, data infrastructure, and cybersecurity are all highly desirable. But all you see as that person looking for their next position, regardless of your skills, is a company that’s sacking people. Nobody likes job insecurity, and when an industry is in flux, no job looks secure.
Customers, too, can find these periods disorientating. Sometimes they’ll boycott a company they perceive as treating their customers poorly. The Company Formerly Known as Twitter’s layoffs may have had less to do with change in the industry and more to do with Elon Musk’s grand plan. But many people left the platform, and others were reluctant to support the company when the apparent ruthlessness of those job cuts became apparent.
Investors, too, dislike booms and busts – though they’re part of the reason why they happen. Company valuations aren’t just based on current profits. They’re largely driven by expectations for the future. Consider the hype about the Metaverse. Inflated expectations led to inflated valuations, companies hired like crazy, and then investors, along with the rest of the world, decided the Metaverse wasn’t the future, so valuations plummeted. We saw something similar during Covid. Investors thought remote work was the future, driving up company valuations. Now that people are returning to the office, the valuations of those companies (Zoom, for example) are falling.
And this is one reason why the AI field is interesting. Today, investors are overvaluing it in the majority of cases. Companies are hiring people in AI-related roles, and when it becomes clear that there isn’t much shareholder value there, there will be layoffs. What confuses the AI conversation is that some companies – those with the right infrastructure in place – will make the most of AI and their investors will benefit hugely, just as those who invested in other disruptive technologies such as social media companies like Facebook, but not Friendster did. But it’ll seem as if it’s boom to bust for the other companies, which will reflect on the sector as a whole.
Most people aren’t comfortable with volatility or rapid change. It’s hard to feel secure, let alone make decisions about the future, when everything is up in the air. And this, ultimately, is why boom and bust cycles in tech have eroded trust across the board.
They make it seem as if the industry is out of control, full of big egos and 20-something billionaires, all of them chasing after the shiniest new advance without concern for anything, or anyone, else.
