Tech’s big four defy Covid upheaval by forming elite trillion-dollar club
Home working revolution has only entrenched the dominance of the digital giants, finds Matthew Field
‘Make America Great Again” was the slogan across baseball caps, buses and bumper stickers during US president Donald Trump’s election campaign.
Now, it is being applied to four technology firms on a seemingly gravity-defying surge, despite fears of a second coronavirus wave.
The world’s four biggest technology companies have gained more than $1.3 trillion (£1 trillion) in combined value since the start of the year. That compares to the $1.7 trillion combined market cap of all the FTSE 100 firms.
This has helped Wall Street to its best quarter since 1998, despite the US leading the Covid charts with more than 55,000 cases per day. The four tech giants – Microsoft, Apple,
Google’s parent company Alphabet and Amazon – are now all priced at more than $1 trillion in total market cap. The buoyancy of these stocks has even gained them the acronym “Maga”, bestowed by the share price-obsessed Trump.
In February, the president said: “Four trillion-dollar companies: Apple, Amazon, Google, Microsoft. You have Made America Great Again. The trillion-dollar club.”
While their shares have surged – as have other so-called “Fang” stocks including Netflix and Facebook – most have also torn up guidance. This means investors do not know what to expect from their next results.
With earnings just a fortnight away, what is keeping these technology firms so far ahead of the market?
In previous financial crises, the dotcom bubble or the 2008 crash, tech stocks fell hard. But this time, they have thrived. “There has been a secular, underpinning trend,” says Richard Windsor, a technology analyst at Radio Free Mobile, formerly of investment bank Nomura. “Lockdown showed the start of the work-fromhome trend. That has extended into the second quarter and will extend beyond the end of lockdown.”
He says that, while some predicted most office workers would be returning to work, it now appears many of these roles in the near future will stay remote.
This trend has disproportionately benefited big technology firms, as well as a number of smaller, fast-growing peers. Amazon’s Web Services business, which sells internet services to companies, is in high demand across governments and in new sectors. Microsoft’s Azure, its rival, is similarly well-placed, as are its workplace lines such as Microsoft Office and its video conferencing app Teams. Google, too, has been investing in its own cloud computing business and work-fromhome apps such as Hangouts.
Of the four, Windsor says Apple may have the toughest results. Demand for smartphones has declined between 10pc and 20pc. However, Amazon appears well positioned. “Amazon will have the best quarter of them all,” he says. “People have continued to order online. It has not suffered in advertising like Google has, and it has a lot of exposure to cloud computing.”
On Monday, Amazon hit an all-time high share price of more than $3,000.
It is up more than 61pc this year. Of the other trillion-dollar firms, Microsoft is up 31pc, Alphabet 10pc and Apple 25pc. All have recovered their losses from the crash in March as lockdowns engulfed Europe and the US.
These rises leave Alphabet worth $1.02 trillion, Amazon $1.52 trillion, Microsoft $1.6 trillion and Apple $1.62 trillion. With a combined value of
roughly $5.7 trillion, they are valued at more than triple the FTSE 100.
Microsoft is now competing with Apple for status as the world’s most valuable company. A recent note from investment bank Jefferies argued the firm “has a portfolio of products to sustain growth in any environment, be it in the office or work from home”.
Despite the soaring valuations, Wall Street analysts have grown ever more bullish on technology stocks. Morgan Stanley recently sent a note to clients titled “Technology Eating the World”.
It said: “We are in the early innings of a technology-driven, decade-long investment cycle … importantly, Covid-19 is a wake-up call to accelerate this digital transformation.”
It is not just these big four stocks booming among tech, although combined they are worth more than the next 19 firms on the S&P 500.
Zoom, the video conferencing app, is up 280pc this year. Netflix is up 50pc. Shopify, a US-listed Amazon competitor, is up 141pc. Tesla is now worth more than Toyota.
‘With a combined value of roughly $5.7 trillion, the four are valued at more than triple the FTSE 100’