Tech’s reality check: How the industry lost $7.4 trillion in one year
Pedestrians walk past the NASDAQ MarketSite in New York’s Times Square.
Eric Thayer | Reuters
It seems like an eternity ago, but it’s just been a year.
At this time in 2021, the Nasdaq Composite had just peaked, doubling since the early days of the pandemic. Rivian’s blockbuster IPO was the latest in a record year for new issues. Hiring was booming and tech employees were frolicking in the high value of their stock options.
Twelve months later, the landscape is markedly different.
Not one of the 15 most valuable U.S. tech companies has generated positive returns in 2021. Microsoft has shed roughly $700 billion in market cap. Meta’s market cap has contracted by over 70% from its highs, wiping out over $600 billion in value this year.
In total, investors have lost roughly $7.4 trillion, based on the 12-month drop in the Nasdaq.
Interest rate hikes have choked off access to easy capital, and soaring inflation has made all those companies promising future profit a lot less valuable today. Cloud stocks have cratered alongside crypto.
There’s plenty of pain to go around. Companies across the industry are cutting costs, freezing new hires, and laying off staff. Employees who joined those hyped pre-IPO companies and took much of their compensation in the form of stock options are now deep underwater and can only hope for a future rebound.
IPOs this year slowed to a trickle after banner years in 2020 and 2021, when companies pushed through the pandemic and took advantage of an emerging world of remote work and play and an economy flush with government-backed funds. Private market darlings that raised billions in public offerings, swelling the coffers of investment banks and venture firms, saw their valuations marked down. And then down some more.
Rivian has fallen more than 80% from its peak after reaching a stratospheric market cap of over $150 billion. The Renaissance IPO ETF, a basket of newly listed U.S. companies, is down 57% over the past year.
Tech executives by the handful have come forward to admit that they were wrong.
The Covid-19 bump didn’t, in fact, change forever how we work, play, shop and learn. Hiring and investing as if we’d forever be convening happy hours on video, working out in our living room and avoiding airplanes, malls and indoor dining was — as it turns out — a bad bet.
Loading chart…
Add it up and, for the first time in nearly two decades, the Nasdaq is on the cusp of losing to the S&P 500 in consecutive years. The last time it happened the tech-heavy Nasdaq was at the tail end of an extended stretch of underperformance that began with the bursting of the dot-com bubble. Between 2000 and 2006, the Nasdaq only beat the S&P 500 once.
Is technology headed for the same reality check today? It would be foolish to count out Silicon Valley or the many attempted replicas that have popped up across the globe in recent years. But are there reasons to question the magnitude of the industry’s misfire?
Perhaps that depends on how much you trust Mark Zuckerberg.
Meta’s no good, very bad, year
It was supposed to be the year of Meta. Prior to changing its name in late 2021, Facebook had consistently delivered investors sterling returns, beating estimates and growing profitably with historic speed.
The company had already successfully pivoted once, establishing a dominant presence on mobile platforms and refocusing the user experience away from the desktop. Even against the backdrop of a reopening world and damaging whistleblower allegations about user privacy, the stock gained over 20% last year.
But Zuckerberg doesn’t see the future the way his investors do. His commitment to spend billions of dollars a year on the metaverse has perplexed Wall Street, which just wants the company to get its footing back with online ads.
The big and immediate problem is Apple, which updated its privacy policy in iOS in a way that makes it harder for Facebook and others to target users with ads.
With its stock down by two-thirds and the company on the verge of a third straight quarter of declining revenue, Meta said earlier this month it’s laying off 13% of its workforce, or 11,000 employees, its first large-scale reduction ever.
“I got this wrong, and I take responsibility for that,” Zuckerberg said.
Loading chart…
Mammoth spending on staff is nothing new for Silicon Valley, and Zuckerberg was in good company on that front.
Software engineers had long been able to count on outsized compensation packages from major players, led by Google. In the war for talent and the free flow of capital, tech pay reached new heights.
Recruiters at Amazon could throw more than $700,000 at a qualified engineer or project manager. At gaming company Roblox, a top-level engineer could make $1.2 million, according to Levels.fyi. Productivity software firm Asana, which held its stock market debut in 2020, has never turned a profit but offered engineers starting salaries of up to $198,000, according to H1-B visa data.
Fast forward to the last quarter of 2022, and those halcyon days are a distant memory.
Layoffs at Cisco, Meta, Amazon and Twitter have totaled nearly 29,000 workers, according to data collected by the website Layoffs.fyi. Across the tech industry, the cuts add up to over 130,000 workers. HP announced this week it’s eliminating 4,000 to 6,000 jobs over the next three years.
For many investors, it was just a matter of time.
“It is a poorly kept secret in Silicon Valley that companies ranging from Google to Meta to Twitter to Uber could achieve similar levels of revenue with far fewer people,” Brad Gerstner, a tech investor at Altimeter Capital, wrote last month.
Gerstner’s letter was specifically targeted at Zuckerberg, urging him to slash spending, but he was perfectly willing to apply the criticism more broadly.
“I would take it a step further and argue that these incredible companies would run even better and more efficiently without the layers and lethargy that comes with this extreme rate of employee expansion,” Gerstner wrote.
Activist investor TCI Fund Management echoed that sentiment in a letter to Google CEO Sundar Pichai, whose company just recorded its slowest growth rate for any quarter since 2013, other than one period during the pandemic.
“Our conversations with former executives suggest that the business could be operated more effectively with significantly fewer employees,” the letter read. As CNBC reported this week, Google employees are growing worried that layoffs could be coming.
SPAC frenzy
Remember SPACs?
Those special purpose acquisition companies, or blank-check entities, created so they could go find tech startups to buy and turn public were a phenomenon of 2020 and 2021. Investment banks were eager to underwrite them, and investors jumped in with new pools of capital.
Loading chart…
SPACs allowed companies that didn’t quite have the profile to satisfy traditional IPO investors to backdoor their way onto the public market. In the U.S. last year, 619 SPACs went public, compared with 496 traditional IPOs.
This year, that market has been a bloodbath.
The CNBC Post SPAC Index, which tracks the performance of SPAC stocks after debut, is down over 70% since inception and by about two-thirds in the past year. Many SPACs never found a target and gave the money back to investors. Chamath Palihapitiya, once dubbed the SPAC king, shut down two deals last month after failing to find suitable merger targets and returned $1.6 billion to investors.
Then there’s the startup world, which for over a half-decade was known for minting unicorns.
Last year, investors plowed $325 billion into venture-backed companies, according to EY’s venture capital team, peaking in the fourth quarter of 2021. The easy money is long gone. Now companies are much more defensive than offensive in their financings, raising capital because they need it and often not on favorable terms.
“You just don’t know what it’s going to be like going forward,” EY venture capital leader Jeff Grabow told CNBC. “VCs are rationalizing their portfolio and supporting those that still clear the hurdle.”
The word profit gets thrown around a lot more these days than in recent years. That’s because companies can’t count on venture investors to subsidize their growth and public markets are no longer paying up for high-growth, high-burn names. The forward revenue multiple for top cloud companies is now just over 10, down from a peak of 40, 50 or even higher for some companies at the height in 2021.
The trickle down has made it impossible for many companies to go public without a massive markdown to their private valuation. A slowing IPO market informs how earlier-stage investors behave, said David Golden, managing partner at Revolution Ventures in San Francisco.
“When the IPO market becomes more constricted, that circumscribes one’s ability to find liquidity through the public market,” said Golden, who previously ran telecom, media and tech banking at JPMorgan. “Most early-stage investors aren’t counting on an IPO exit. The odds against it are so high, particularly compared against an M&A exit.”
Loading chart…
There have been just 173 IPOs in the U.S. this year, compared with 961 at the same point in 2021. In the VC world, there haven’t been any deals of note.
“We’re reverting to the mean,” Golden said.
An average year might see 100 to 200 U.S. IPOs, according to FactSet research. Data compiled by Jay Ritter, an IPO expert and finance professor at the University of Florida, shows there were 123 tech IPOs last year, compared with an average of 38 a year between 2010 and 2020.
Buy now, pay never
There’s no better example of the intersection between venture capital and consumer spending than the industry known as buy now, pay later.
Companies such as Affirm, Afterpay (acquired by Block, formerly Square) and Sweden’s Klarna took advantage of low interest rates and pandemic-fueled discretionary incomes to put high-end purchases, such as Peloton exercise bikes, within reach of nearly every consumer.
Affirm went public in January 2021 and peaked at over $168 some 10 months later. Affirm grew rapidly in the early days of the Covid-19 pandemic, as brands and retailers raced to make it easier for consumers to buy online.
Loading chart…
By November of last year, buy now, pay later was everywhere, from Amazon to Urban Outfitters‘ Anthropologie. Customers had excess savings in the trillions. Default rates remained low — Affirm was recording a net charge-off rate of around 5%.
Affirm has fallen 92% from its high. Charge-offs peaked over the summer at nearly 12%. Inflation paired with higher interest rates muted formerly buoyant consumers. Klarna, which is privately held, saw its valuation slashed by 85% in a July financing round, from $45.6 billion to $6.7 billion.
The road ahead
That’s all before we get to Elon Musk.
The world’s richest person — even after an almost 50% slide in the value of Tesla — is now the owner of Twitter following an on-again, off-again, on-again drama that lasted six months and was about to land in court.
Musk swiftly fired half of Twitter’s workforce and then welcomed former President Donald Trump back onto the platform after running an informal poll. Many advertisers have fled.
And corporate governance is back on the docket after this month’s sudden collapse of cryptocurrency exchange FTX, which managed to grow to a $32 billion valuation with no board of directors or finance chief. Top-shelf firms such as Sequoia, BlackRock and Tiger Global saw their investments wiped out overnight.
“We are in the business of taking risk,” Sequoia wrote in a letter to limited partners, informing them that the firm was marking its FTX investment of over $210 million down to zero. “Some investments will surprise to the upside, and some will surprise to the downside.”
Even with the crypto meltdown, mounting layoffs and the overall market turmoil, it’s not all doom and gloom a year after the market peak.
Golden points to optimism out of Washington, D.C., where President Joe Biden’s Inflation Reduction Act and the Chips and Science Act will lead to investments in key areas in tech in the coming year.
Funds from those bills start flowing in January. Intel, Micron and Taiwan Semiconductor Manufacturing Company have already announced expansions in the U.S. Additionally, Golden anticipates growth in health care, clean water and energy, and broadband in 2023.
“All of us are a little optimistic about that,” Golden said, “despite the macro headwinds.”
Technology
France is betting Eutelsat can become Europe’s answer to Starlink — but experts aren’t convinced
France views Eutelsat as a strategic asset in the EU’s push for technological sovereignty.
Benoit Tessier | AFP via Getty Images
For years, France’s Eutelsat has been trying to build a European alternative to Elon Musk’s Starlink satellite broadband service.
The company merged with British satellite venture OneWeb in 2023, consolidating the region’s satellite communications industry in an effort to catch up to Starlink, which is owned by SpaceX.
Last week, the French state led a 1.35-billion-euro ($1.58 billion) investment in Eutelsat, making it the company’s biggest shareholder with a roughly 30% stake.
Europe largely lags behind the U.S. in the global space race. Starlink’s constellation of over 7,000 satellites dwarfs Eutelsat’s. Meanwhile, Europe’s launch capabilities are more limited than the U.S. The region still relies heavily on America for certain launch services, which is a market dominated by SpaceX.
Eutelsat currently has a market capitalization of 1.6 billion euros, much lower than estimates for Starlink owner SpaceX’s value, which was pegged at $350 billion in a secondary share sale last year. In 2020, analysts at Morgan Stanley said that they see Starlink growing to $80.9 billion in their “base case valuation” for the firm.
Luke Kehoe, industry analyst at network monitoring firm Ookla, said France’s investment in Eutelsat shows the country “is now treating Eutelsat less like a commercial telco and more like a dual-use critical-infrastructure provider” and a “strategic asset” in the European Union’s push for technological sovereignty.
However, building a European competitor to Starlink will be no mean feat.
A matter of scale
Communications industry experts tell CNBC that, while Eutelsat could boost Europe’s efforts to create a sovereign satellite internet provider, challenging its U.S. rival Starlink would require a significant increase in investments in Low Earth Orbit (LEO) satellites.
Eutelsat’s OneWeb arm operates a total of 650 LEO satellites, which is less than a tenth of Starlink’s 7,600-strong global satellite constellation.
“To offer greater capacity and coverage, [Eutelsat] needs to increase the number of satellites in space, a task made more difficult due to the fact that many of OneWeb’s satellites are nearing the end of their lifespan and will need to be first replaced before growing the constellation’s size,” Joe Gardiner, research analyst at market research firm CCS Insight, told CNBC via email.
Ookla’s Kehoe echoed this view. “Eutelsat’s chances of achieving parity with Starlink in the mass-market satellite broadband segment within the next five years remain limited, given SpaceX’s unmatched global scale in LEO infrastructure,” he said.
“Even with the latest injection of capital from the French state, Eutelsat continues to lag behind Starlink in several key areas, including capital, manufacturing throughput, launch access, spectrum and user terminals.”
Nevertheless, he thinks the company is “well positioned to succeed in European-sovereign, security-sensitive and enterprise segments that prioritise jurisdictional control and sovereignty over raw constellation capacity.” The enterprise segment refers to the market for corporate space clients.
Could Eutelsat replace Starlink in Europe?
That’s certainly the hope. France’s Emmanuel Macron has urged Europe to ramp up its investment in space, saying last week that “space has in some way become a gauge of international power.”
When Eutelsat announced its investment from France last week, the firm stressed its role as “the only European operator with a fully operational LEO network” as well as the “strategic role of the LEO constellation in France’s model for sovereign defense and space communications.”
Earlier this year, Eutelsat was rumoured to be in the running to replace Starlink in Ukraine. For years, Starlink has offered Ukraine’s military its satellite internet services to assist with the war effort amid Russia’s ongoing invasion.
Relations between the U.S. and Ukraine soured following the election of President Donald Trump and reports surfaced that U.S. negotiators had raised the possibility of cutting Ukraine’s access to Starlink.
Germany set up 1,000 Eutelsat terminals in Ukraine in April with the aim of providing an alternative — rather than a replacement — for Starlink’s 50,000 terminals in the war-torn country.
Since then, U.S.-Ukraine tensions have somewhat cooled, and Starlink remains the primary satellite broadband provider to the Ukrainian military.
Eutelsat’s former CEO Eva Berneke has herself admitted that the company cannot yet match Starlink’s scale.
“If we were to take over the entire connectivity capacity for Ukraine and all the citizens — we wouldn’t be able to do that. Let’s just be very honest,” she said in an April interview with Politico.
Berneke was replaced as CEO in May by Jean-Francois-Fallacher, a former executive of French telecoms giant Orange.
Apples and oranges
Meanwhile, even though Eutelsat has been ramping up investments in LEO satellite with its OneWeb unit, experts say its technical architectures and orbital designs are ultimately different from Starlink’s.
“The OneWeb constellation currently uses a bent-pipe architecture, which is not as capable as Starlink satellites; therefore, OneWeb will also need to invest in second-generation satellites,” he added.
The French firm’s use cases also differ to Starlink’s. Eutelsat operates a constellation of geostationary orbit (GEO) as well as LEO satellites. GEO satellites orbit the earth at a much higher altitude than their LEO equivalents and can typically cover more land with fewer satellites.
“Eutelsat’s higher altitude satellites are leveraged for specialized use cases, such as polar coverage for companies and research facilities in remote regions like Greenland and Alaska,” said Joe Vaccaro, vice president and general manager at Cisco’s ThousandEyes network intelligence unit.
Looking ahead, Eutelsat said it plans to “build upon its operation improvements” with a “differentiated go-to-market model” and “strong European anchoring.” It also noted that the U.K. government could also increase its investment in Eutelsat “in due course.”
A Tesla logo outside the company’s Tilburg Factory and Delivery Center.
Karol Serewis | Getty Images
Tesla CEO Elon Musk said the automaker completed its first driverless delivery of a new car to a customer, routing a Model Y SUV from the company’s Austin, Texas, Gigafactory to an apartment building in the area on June 27.
The Tesla account on social network X, which is also owned by Musk, shared a video overnight showing the Model Y traversing public roads in Austin, including highways, with no human in the driver’s seat or front passenger seat of the car.
Tesla did not say which version of its software and hardware had been installed and used in the car shown in the clip — or if and when that technology would be commercially available to its customers.
A Model Y owners’ manual, available on the Tesla website, says that in order to use Tesla’s Full Self-Driving (Supervised) option — which is the company’s most advanced, partially automated driving system available today — owners must keep their hands on the wheel, and remain ready to take over steering or braking at any time.
The vehicle in Tesla’s video was shown operating without a driver on the highway, passing through residential streets and around parking lots before arriving and stopping for a handoff to a customer. The buyer was waiting by the curb at an apartment building alongside Tesla employees, some sporting logo-emblazoned shirts. (The curb was painted red, indicating it is a no-stop fire lane.)
In 2016, Tesla shared an Autopilot video — known as the “Paint It Black” video — that had been staged in a manner which exaggerated its cars self-driving capabilities, depositions later revealed.
The National Highway Traffic Safety Administration (NHTSA) is investigating Tesla over possible safety defects in their FSD systems, and recently sought more information from the company about its robotaxi debut after its cars were seen violating some traffic rules.
In posts on X on Friday, Musk wrote: “The first fully autonomous delivery of a Tesla Model Y from factory to a customer home across town, including highways, was just completed a day ahead of schedule!! Congratulations to the @Tesla_AI teams, both software & AI chip design!”
He also wrote, “There were no people in the car at all and no remote operators in control at any point. FULLY autonomous! To the best of our knowledge, this is the first fully autonomous drive with no people in the car or remotely operating the car on a public highway.”
Musk’s claim about the “first fully autonomous drive” on a public highway was not accurate. Alphabet-owned Waymo, which is already operating commercial robotaxi services across multiple U.S. cities, has been offering employees fully autonomous rides on Phoenix freeways since 2024, and has since expanded those rides to Los Angeles and San Francisco.
Head of AI at Tesla, Ashok Elluswamy, said in posts on X that the automaker “literally chose a random customer who ordered a Model Y in the Austin area” to participate. He also said the vehicle delivered is “exactly the same as every Model Y produced in the Tesla factory.”
Elluswamy also noted in a post on X that the Model Y in the driverless delivery traveled at a “max speed of 72 mph.” Most highways in Texas have a maximum speed limit of 70 miles per hour, according to the Texas Department of Transportation website.
Separately, Tesla began a robotaxi pilot program in Austin last weekend involving 10 to 20 of its Model Y SUVs equipped with technology, about which Tesla has revealed little to the public.
The Tesla robotaxi service is available only to select, invited riders who have mostly been influencers and analysts, many of whom generate income by posting Tesla-fan content on platforms like X and YouTube. The Tesla robotaxi vehicles run with a human safety supervisor on board in the front passenger seat, and are remotely supervised by employees in an operations center.
Since 2016, Musk has been promising that Tesla would soon be able to turn all of its existing EVs into fully autonomous vehicles with a simple, over-the-air software update. In his Master Plan, Part Deux, he outlined a future where every Tesla owner would be able to add their car to a “Tesla shared fleet just by tapping a button on the Tesla phone app,” enabling their car to generate income for them while they sleep.
In 2019, Musk said Tesla would have 1 million robotaxis on the road by 2020 — a claim that helped him raise $2 billion at the time from institutional investors.
While Tesla has not fulfilled those promises thus far, the driverless delivery in Texas this week has elicited excitement among believers in Musk and his vision.
Meanwhile, Tesla is battling a brand backlash in response to the CEO’s often incendiary political rhetoric, his endorsements of Germany’s far-right extremist party AfD, and his work for the Trump administration.
Tesla sales have declined year-over-year in key markets, especially throughout Europe, in the first five months of 2025 partly as a result of that backlash. The company is also facing increased competition from EV makers, particularly Chinese brands such as BYD, Nio and Xiaomi, offering more affordable and newer models.
Tesla is expected to disclose its second-quarter vehicle production and delivery numbers on July 2.
Technology
Stablecoins go mainstream: Why banks and credit card firms are issuing their own crypto tokens
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports1 year agoStory injured on diving stop, exits Red Sox game
-
Sports2 years agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Sports2 years agoButton battles heat exhaustion in NASCAR debut
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike