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Big Tech hit by dollar’s strength (Axios)

6 August 2022

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Axios Markets title: Big Tech hit by dollar’s strength
By: Matt Phillips and Emily Peck
Date: 1 August 2022

Big technology companies are reaping the whirlwind of a strong dollar, as the sector becomes an unlikely victim of foreign exchange volatility, Axios’ Javier E. David writes.

Why it matters: In normal times, car companies and other multinationals that sell physical goods are the most sensitive to fluctuations in the dollar.

Driving the news: During the Q2 reporting season, Netflix, Google, IBM, Microsoft, Apple and Spotify are among Big Tech names citing the “super dollar” as a drag on earnings.

  • Particularly against the euro and yen, the U.S. currency is creating what the Financial Times referred to last week as a “currency shock [that’s] muddled an earnings period that was being closely studied for signs of a weakening global economy.”

It’s unusual to see Big Tech (certainly not this many companies at the same time) cite currency volatility as an issue. Most of them sell software-based services, rather than physical goods like cars or makeup.

What they’re saying: Still, foreign exchange volatility is “a headwind for Big Tech,” as 35%-40% of the industry’s sales are in Europe, veteran tech analyst Dan Ives tells Axios in an email.

  • “As they sell in local currency this will be a negative theme over the coming year with a strong greenback,” Ives added.

What we’re watching: The Fed’s next policy moves. If the current economic angst gives way to a deep recession, the central bank may reverse course. That would narrow the interest rate differential boosting the greenback.

Go deeper.”


Go Deeper note: Dollar’s gain, Big Tech’s pain


Source:
https://www.axios.com/newsletters/axios-markets-ad509b43-3fb4-447a-8d2a-9771a777f90e.html

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