Markets: Can the Big Tech rally last?
Are we in the middle of another dot-com bubble? asked Robert Cyran in Breaking Views.com. “The pandemic has accelerated shifts to online activities and automation,” and American tech behemoths such as Apple, Amazon, Microsoft, and Google are racking up record valuations. A handful of Big Tech firms now “account for 31 percent of the $33 trillion equity market capitalization of the 1,000 biggest companies in the U.S.,” and analysts expect those same giants to deliver “about a quarter of S&P 500 profit this year.” Such a concentration of value in such a small number of firms has some market watchers worried that investors are “placing a lot of eggs in precious few baskets.” But the current tech rally “can’t be dismissed as easily as the one two decades ago.” In 1999, Cisco Systems was trading at 190 times its historic earnings—an absurd valuation. Over the past year, though, Google, Apple, Facebook, and Microsoft have traded at 30 to 40 times their earnings.
Investors are confident that nothing will stop Apple’s phenomenal growth, said Dan Gallagher in The Wall Street Journal. The tech colossus last week became the first U.S. company to notch a $2 trillion valuation. The market is ignoring the fact that Apple is “facing an unprecedented challenge to its App Store.” Lawmakers and regulators on both sides of the Atlantic are poking around that crucial business. And the
App Store is at the heart of a new lawsuit by Epic Games, maker of Fortnite, which accuses Apple of violating antitrust laws by forcing developers to use its in-app payment system. Without Apple and five of its Big Tech cohorts, the S&P 500 would actually be down 4 percent this year, said David Lynch in The Washington Post. The outsize role played by those giants “creates risks for individuals trying to save for retirement” with a markettracking index fund. If the tech giants trip up, the rest of the S&P could tumble.
But there’s a reason Big Tech firms have “trounced the market,” said Nicholas Jasinski in Barrons.com. Their earnings have remained solidly positive during the pandemic while the rest of the economy has contracted. They also have plenty of cash on their balance sheets, so “they can withstand shocks.” For all this attention on the big guys, the market’s top 10 performers since spring are mostly little-known tech firms, said Matthew Winkler in Bloomberg.com. Twilio (up 180 percent) creates voice and video communication tools for companies like Uber and WhatsApp. CrowdStrike (94 percent) uses “artificial intelligence algorithms” to thwart cybercrimes. Datadog (129 percent) provides cloudmonitoring tools. What do these “big winners” have in common? They’re “nourishing the roots of remotely engaged commerce.”