In one of the strongest signs yet of the long-term effects of the economic recovery, for the first time since 1974, the world’s five largest corporations by market capitalization are both US-based and all in the same sector.
While the last two years have been particularly bullish for tech stocks, the broader-market slowdown combined with continued growth in the internet sector have shifted the focus away from the traditional market titans, energy and heavy industry. This change reflects the shift in the employment market as well, with the smallest share of American labor involved in manufacturing since pre-industrial times.
The five largest companies, as of the close of trading today, are Apple (AAPL +32.7% YTD), Alphabet (GOOGL +25.7%), Microsoft (MSFT +13.3%), Amazon (AMZN +32.9%) and Facebook (FB +32.4%), all of which easily outperformed the S&P 500 index (SPY +8.1%).
Amazon’s ascendance to fourth place globally in market capitalization is even more shocking considering that for the first twenty years, Amazon ran at a loss, although with such large, and exponentially growing, revenue and market share that investors continued to believe in its sustainability and continued growth, even before two consecutive profitable years sent its stock into the stratosphere, wish share prices reaching an intraday high over $1000 today.
Is there any reason to believe tech stocks will continue to grow? Are silicon chips the new blue chips, or are we headed for a new dot-com bubble? Or perhaps neither in particular, just a continued reign at the top, without too much additional return for investors just buying in now?
At least for now, signs point against a bubble. While 1999’s dot-com stocks were fueled by speculation, to the point that nearly any NASDAQ IPO with “.com” in its name would be guaranteed quick returns, this year’s tech titans are all established corporations, with Facebook being the newest addition, traded publicly since 2012 (but established in 2004), and Apple and Microsoft, at the other extreme, already 41 years old.
Growth is, of course, much harder to predict. Conventional wisdom would suggest that, just by cornering market share, the potential for growth is nearly complete. Apple and Microsoft together provide operating systems for over 97% of computers; Apple and Google account for 99% of smartphones, through iOS and Android. Google and Microsoft (Bing) combine for over 90% of the search engine market, and Google and Facebook together add up to 83% of the web’s display advertising market.
Amazon has one of the few sectors with room for growth; despite their titanic revenue stream, and already massive logistics network, only 41% of online shopping in the US takes place through Amazon.com; both new and established retailers might eventually be under economic pressure to integrate with Amazon, both for readier access to consumers as Amazon becomes an A-to-Z one-stop shop for just about everything that can be bought, and to take advantage of the servers and logistical advantages a company the size of Amazon could provide.
Every bull needs a bear, though, and there is just as much of a downward pressure toward Amazon: their business model has previously relied on undercutting smaller retailers on price, which does necessarily limit profitability. However, market saturation hasn’t been an obstacle for any of the other four tech winners, so there’s no reason to think Amazon would be held to a different standard.
Whichever of these stocks you choose to invest in, if any, it’s important to realize that the largest-cap stocks have changed, and there are more options out there than just the Dow 30.