Connect with us

Hi, what are you looking for?

Trending News

Big Tech’s Might in Five Charts – Investment Watch

by visualcapitalist

Techs market dominance in 5 charts

American’s tech giants have caught the public’s attention as of late.



Four of the Big Five recently appeared in front of U.S. Congress to discuss their anti-competitive business practices and privacy concerns.

Yet business is booming. Compared to the traditional economy, Big Tech operates within an intangible realm of business. This enables them to move faster, cheaper, and more profitably—with business models that possess widespread scale via the internet.

The above five charts are a reflection of Big Tech’s momentum and the significant role they have played in the swift and vigorous market recovery. Let’s take a closer look at the data.

Company Market Capitalization (In Billions) Weighting in the S&P 500 Index
Apple $1,930 7.1%
Microsoft $1,590 5.9%
Amazon $1,590 5.9%
Alphabet $1,030 3.8%
Facebook $742 2.7%
Total $6,883 25.41%
S&P 500 $27,050 100%

Not All Stocks Are Created Equal

Of the 505 stocks that make up the S&P 500 Index, only about a third have experienced positive returns year-to-date (YTD), with the remaining stocks in the red.

Despite the majority of companies underperforming, the S&P 500 has generated a positive year-to-date return. This is due to the fact that companies are weighted according to market capitalization. For example, the Big Five now represent 25% of the index, despite being just five of the 505 stocks listed.

Big Tech’s dominance is being driven by ballooning market valuations. For instance, Apple reached the $1 trillion valuation in August 2018, and now the company is awfully close to topping the $2 trillion mark after just two years. This is just one of many examples that illustrate the growing power of Big Tech.

Pandemic Proof?

The five Big Tech companies are also seeing business as usual, with revenues in the first half of the year growing steadily compared to the first half of 2019.

Company YTD Price Returns Revenue Growth (H1 2020 vs. 2019)
Apple 52% 6%
Microsoft 31% 14%
Amazon 68% 34%
Facebook 24% 14%
Alphabet 11% 6%
S&P 500 4.5%

Their respective stock prices have followed suit, adding to the divergence between the performance of tech and the overall S&P 500 Index.

The equal-weighted S&P 500 Index provides diversification, but it has underperformed recently. Year-to-date, the equal-weighted index is down -3.5% relative to the positive 4.5% seen for the S&P 500, a spread of 8%. The combination of Big Tech’s outperformance and large weighting is likely behind the index staying afloat.

Dissecting the Disconnect

You may notice the phrase “stock market disconnect” reverberating recently, reflecting consumer views on the state of financial markets and their relationship with the economy, or lack thereof. While the economy combats record levels of unemployment and a plethora of bankruptcies, major American indexes edge closer to record highs.

This disconnect can be explained by the market capitalization weighted qualities of these indexes as well as the geographic source of company revenues in the S&P 500.

The most visible businesses to the everyday individual represent a small and vulnerable basket of companies that account for a undersized component of the stock market. No matter how clobbered they get, their effects on the market as a whole are miniscule.

A Global Footprint

In the era of globalization, American companies are more diversified than ever. Their revenue streams carry a greater global presence, meaning domestic revenues in the United States are less crucial than in times past. For example, the S&P 500’s foreign revenue exposure stands at 42.9% in 2018 and these figures are even higher for Big Tech stocks.

Revenues Recognized Outside of North America/America
Apple 55%
Microsoft 41%
Amazon 31%
Alphabet 51%
Facebook 54%
Average 46%

Big Tech has outdone itself by virtually any measure.

They’ve shown their capacity to translate headwinds to tailwinds, even under challenging economic circumstances. Going forward, estimates by analysts on Wall Street suggest that even more growth for these companies could be on the horizon.

 

 




Source link

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

You May Also Like

Trending News

via blogmaverick I wanted to get an understanding of what opening meant to businesses around Dallas. Were they opening? What precautions were they taking? Were...

Trending News

by Dr. Eowyn Washington State governor Jay Inslee is not only a rabid leftist (see “Washington Gov. Jay Inslee Signs Seven Anti Gun Bills...

Trending News

Canada Life has extended its segregated portfolio service (SPS) to a wider range of bonds. The SPS provides clients with access to an offering...

Trending News

by Tom Wigand Cross-posted from trevorloudon.com An ordained minister from Chicago. A former Black Panther. Supported by the Democrat Socialists of...