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The sell-off of tech stocks, which has wiped out millions of dollars of value for both small and large companies, is likely to have an effect on the whole sector. The Dow Jones, Nasdaq composite, and S&P 500 are all down more than 10% since the beginning of 2022. As of May 26, the tech-heavy Nasdaq is down more than 25%. Amazon, Google, and Microsoft, which are all big names in cloud computing, are all down this year. Amazon is down 37%, and its online retail business has been hit especially hard.
Snowflake is down more than 60% so far this year compared to other publicly traded data, AI, augmented intelligence, and analytics companies. In September 2020, Snowflake set a record for the largest IPO by a tech company. Others are also down a lot, including analytics and business intelligence companies Domo and MicroStrategy and the AI hardware and software giant Nvidia. Not only are stock prices going down, but The first public offerings of tech companies have also slowed down.
The analytics and business intelligence (BI) company Qlik filed for an IPO months ago, but it hasn’t moved forward yet. But on February 1, MariaDB said it would go public in the second half of 2022 by merging with a special-purpose acquisition company. The combined value of the two companies was set at $672 million. In a statement, the company said that it doesn’t see any changes to the plan it laid out in February.
Since the middle of the pandemic, venture capital funding rounds have exploded in the data, AI, analytics, and other tech sectors almost every month, with investments often exceeding $100 million and sometimes reaching $1 billion. These rounds have slowed down a lot, but they haven’t stopped completely.
“Everyone’s ability to raise capital funding is affected by the tech sell-off,” said Vanessa Larco, a partner at the venture capital investment firm New Enterprise Associates. “Every quarter, we’re already seeing less money go into the tech ecosystem.”
Layoffs
The Russia-Ukraine war and the way it has messed up the economy’s supply chain have also led to layoffs in the tech industry. This hasn’t happened since the first wave of the coronavirus pandemic hit in March 2020.
Since it was founded in 2012, AI and automation company DataRobot has grown quickly and now competes with tech giants in the market for automated machine learning (AutoML). However, earlier this month, it let go of about 70 employees. In March 2020, the Boston-based vendor let some people go, but in August 2021, it raised $300 million in a Series G funding round, which raised its market value to $6.3 billion. In a statement, DataRobot said that the decision to cut its workforce by 7% was “difficult but necessary.”
“Like any healthy business, we’re always looking at how to improve operations based on customer needs and market conditions,” the vendor said. “This is especially important in a market as complicated and unpredictable as the one we’re all in.” As the market has dropped over the past three months, two other big tech companies have also cut jobs.
Early in March, New York City-based software automation company Hyperscience let go of 100 employees, which was 25% of its workforce. In late March, conversational AI company Rasa, with offices in Berlin and San Francisco, let go of 59 employees, which was 40% of its workforce, according to the site Layoffs.fyi, which keeps track of layoffs.
When asked for a comment, neither company replied.
AutoML vendor BeyondMinds, which is based in Israel, told its 65 employees on May 23 that the company is going out of business. The company started in 2018 and had raised $16 million by the end of the year.
The sell-off affects the whole tech industry.
The tech sell-off has a clear effect on companies that are traded on the stock market. When their stocks go down, they’re worth less, and when they’re worth less, it’s harder to use their company value as leverage to invest in new technologies (through acquisitions or research and development) or marketing campaigns that bring in new customers and boost cash flow, earnings, and growth.
The downturn also affects privately held companies, whether they are well-known vendors like AI and data warehouse vendor Databricks, which raised $1 billion in February 2021, or startups like open-source graph database vendor ArangoDB, which has only gone through a few rounds of venture capital funding. Their values are tied to the values of publicly traded companies, so as the value of those companies goes down, so does their value. Now, it’s harder for them to get the venture capital money they need to grow.
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