Has Silicon Valley Lost its Wall Street Magic?


Tech giants are no longer untouchable. It’s not just that their stocks are cheap enough to tempt activists, but rather that they’ve lost the armor that once protected them: investors’ unbridled FOMO.

Activists are mostly what Wall Street calls “value” investors. They sift through thousands of listed stocks to find the ones that should trade higher, then push them to do things — spin off underperforming divisions, replace their CEOs, sell their real estate — that might close the gap.

But for the past half-decade or so, tech stocks have been the opposite of a value play. They’ve traded well above the sum of their parts, or any historically rational multiple of their earnings, and flourished despite obvious flaws in their governance and strategies.

No matter whether Salesforce lost two co-CEOs in three years, or Zuckerberg alienated needed allies in Washington. The louder old-school investors shouted that a bubble was forming and that short-sighted investors were cheering on unsustainable growth, the higher their stocks went.

Low-interest rates pushed investors into riskier bets. The higher tech shares went, the more emboldened their leaders became to keep spending — on streaming, on the metaverse, on hacking the human lifespan. “Like many other companies in a zero rate world,” Altimeter wrote, “Meta has drifted into the land of excess — too many people, too many ideas, too little urgency.”

Companies might howl (Disney has thrown up a particularly robust stiff-arm) but I suspect some CEOs might privately welcome the outside pressure. It makes it easier for them to take on workforces that, already pampered by free massages and a steady stream of headhunter calls, were only further emboldened by the pandemic.

Tech companies had a hard time getting their workers back to the office, and the tug-of-war showed just how much power sat with employees who are now facing management — and shareholders — who think they’re overpaid at best and superfluous at worst.

It all has a very early-2010s vibe to it. In 2013, ValueAct got a board seat at Microsoft. A year later, Apple boosted its stock buyback program after a pair of activists, Carl Icahn and David Einhorn, urged it to do so.

The first half of that decade was perhaps the heyday of large-cap activism, with Mondelez (market value at the time of $76 billion), Procter & Gamble ($177 billion), and Apache ($38 billion) all facing down restless shareholders. Since then, bets have been smaller, and campaigns less headline-grabbing.



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