Tech’s Critical Balancing Act

They’re under increased scrutiny from governments around the world, some of their employees are angry, and users are demanding more say over the use of their data. But the one group that has no problems with Big Tech companies this year are investors, who have sent shares soaring.

Shares of Microsoft, which reported strong second-quarter profits last week, are up 37% this year and at an all-time high. Year to date, Facebook, Amazon, and Apple are up more than 25% each, and Google parent company Alphabet is up 8%. (However, all of the stocks fell after the close of market Tuesday, as the US Department of Justice formally announced an antitrust review into the industry.)

The stock-price gains underscore how all these companies have responded to the operational and disruptive challenges this sector faces. In most cases, they’ve shifted strategy or product design and been more intentional about their management of consumer data. “Leaders in technology organizations are acutely aware of the balancing act at play between functionality, monetization, and privacy that go hand in hand with their business models,” says Paul Dinan, a Korn Ferry senior client partner and global technology market advisory leader. 

Tech companies have also revived their growth prospects, which is why investors are diving back into their stocks. With uncertainty around trade, falling interest rates, and slowing global growth, experts say tech is one of the few areas left that offers investors the prospect of big returns.

Still, tech is also an industry that attracts fickle fans, both of its stocks and its products. For his part, Korn Ferry senior partner Jamen Graves cautions that while investors are quick to pour money into companies that show growth, they are just as fast to pull it out when the trend reverses. “Tech leaders ride the highs and lows of market volatility more than others,” says Graves. “They’ve become accustomed to both the high expectations that they will yield great returns and quick backlash when they don’t.”

Equally important, though, is that leaders are taking key steps to improve the security of user data, if only to avoid future big scandals and fines by regulatory agencies. Just this week, the Federal Trade Commission fined Facebook a record $5 billion for violating users’ privacy. Indeed, Graves says, keeping the rally going hinges on continuing to build confidence and stability among consumers.

“There is such a direct link between consumer behavior and what these stocks do that leaders have to be careful not to over-rotate towards investor sentiment at the expense of their long-term consumer view,” Graves says.

Authors

  • Paul Dinan

    Senior Client Partner
    Global Technology Market Advisory Leader

    Bio >
  • Jamen Graves

    Senior Partner

    Bio >