Sources: Datastream from Refinitiv; Bloomberg; BEA; eMarketer; Open Secrets;The Economist *At July 31st †To Q2 ‡Forecast §To Q1Amazon Amazon
MicrosoftAlphabetAlphabetAppleAlphabetMicrosoftFacebookFacebook FacebookApple
AmazonCisco
IntelTop-five tech
firms in each
monthDotcom
bubbleIBMUS non-financial corporate profits R&D spending among S&P 500 firms US advertising revenue Federal lobbying spending0369122010 12 14 16 18 19† 2010 12 14 16 18 19† 2010 12 14 16 18 19‡ 2010 12 14 16 18 19§01020304001020304000.51.01.52.0Today’s biggest tech firms have surpassed their predecessors’ peakUS technology companies
Share of total US stockmarket value, %Top-five technology companies
Share of total, %0510152025301990 95 2000 05 10 15 19*The EconomistAugust 10th 2019 73T
he techwobble of 2018 has turned out
to be short-lived. In the final three
months of last year, American technology
shares dropped by 16%. Since then, how-
ever, the biggest firms, including Apple
and Facebook, have come roaring back,
with their stock prices today sitting near
record highs. Meanwhile a parade of small-
er digital companies have rushed to float
their shares, including Uber and Slack.
Airbnb could be next. All told, listed tech-
nology firms make up more than a quarter
of the value of America’s stockmarkets.
The last time tech companies were so
important was back in 2000, when they
were briefly worth a third of the value of all
listed equities in America. Turmoil ensued
soon after, with share prices in the sector
falling by 66%. Compared with the dotcombubble, the industry is more concentrated
today: Microsoft, Amazon, Apple, Alphabet
(Google’s parent) and Facebook represent
half of its market capitalisation. The pre-
vailing concern is not that tech firms are
too flimsy to justify their valuations, but
that their position is too powerful.
The lofty prices for the big five rest on
strong fundamentals. In 2010, they made
4% of the pre-tax profits of non-financial
firms in America; that figure is now 12%.
Their valuations imply that investors ex-
pect earnings to grow fast. They have good
reason to be bullish, because today’s giants
are protected by high barriers to entry.
One element of this is that the big tech
firms are spending heavily on innovation
to try to ensure they remain at the cutting
edge. In 2010 the big five tech companies
accounted for 10% of the s&p500’s total
spending on research and development.
Today, their share is 30%.
The big tech firms have also been keen
to gobble up potential rivals. When Face-
book was young, it rejected myriad acquisi-
tion offers, but it is now a predator, not
prey, paying $19bn for WhatsApp in 2014.
Since 2010, the big five have spent a net$100bn in cash (and more in stock) to buy
would-be rivals. Partly as a result, the num-
ber of listed American firms worth at least
$1bn that produce software or hardware
has been flat since 2000.
The public has a love-hate relationship
with big tech. Amazon delivers goods
cheaply and makes only a slim margin.
Studies suggest that many Americans
would pay thousands of dollars a year rath-
er than forfeit access to the digital services
they get free. As a result, advertisers still
throw mountains of money at tech firms in
order to get access to their users. In 2019,
one-third of the $240bn spent on advertis-
ing in America will be with two firms, Face-
book and Google.
Nonetheless, the spectre of big tech
firms abusing their troves of user data has
sullied their image. In a new survey by Pew,
a pollster, 33% of Americans say that tech
companies have a negative effect on soci-
ety, twice the share in 2015. In July the De-
partment of Justice announced an anti-
trust review of the industry’s leading firms.
If you type “Should Google...” into the firm’s
own search bar, the first autocomplete re-
sponse is “be broken up”. 7America’s technology giants look more
entrenched than ever beforeExalted valley
Graphic detailTech titans