The valuations of the Big Five tech companies is way more than that of major oil and media conglomerates
This just shows how dominant these giants are in our lives, particularly with the rise of digital and electronics demands. Big Tech companies from Amazon to Apple have the resources to be more vertically integrated, buying up Hollywood studios and creating original content for their platforms.
Alphabet and Meta, Amazon, Meta and Microsoft manage everything, from advertising and hardware to cloud service and logistics. Apple and Microsoft have well exceeded $2 trillion market cap. Alphabet parent Google is closely behind with $1.8 trillion. Amazon isn’t far behind at nearly $1.6 trillion, while Facebook parent Meta is worth $557 billion after reaching a $1 trillion market cap for the first time last year.
“These are durable businesses they have all built,”Mandeep Singh, tech analyst with Bloomberg Intelligence, said that. “They have grown their top line and done so in a way that margins are much better than the traditional media companies.”
There’s no telling how much bigger Big Tech can get, and it seems like nothing can hurt them so far. Experts say that while some companies may experience slowdowns in advertising or supply chain problems, they still have a core business that is strong enough to sustain short-term losses.
“[Tech has] such a big weight on the profitability of the S&P 500, and they have created a moat around their businesses. All of them have been compounding in top line and earnings,”Singh also said.
For example, while Microsoft wrestles with supply chain challenges affecting its hardware side, it’s cushioned by a booming enterprise software business. In 2021, Microsoft’s server and cloud business alone Increased $11.2 BillionIn revenue, the company will earn $60 billion by 2020. The company’s total revenue last year reached $168 billion, up 18% year-over-year.
Meta is spending billions to develop metaverse tech but it still holds the majority of the ads market that is driven by its social media platforms. In the United States, Instagram and Facebook together account for almost half of the digital display advertising market share (42%) in 2022. According to Google, YouTube and Facebook account for 10% of the second-place position. data firm Statista.
One way to see the sheer size of tech is to look at media giants. These companies control everything, including publishing and theme parks. Compared to tech’s trillions of dollars in value, Netflix’s market cap is (just) $163 billion. Even legacy media is but a fraction of Big Tech valuations: Disney’s current market cap is $251 billion and AT&T’s is $166 billion just ahead of its offloading of WarnerMedia to Discovery. That means it takes about 11 Disneys to amount to Apple’s $2.7 trillion market cap.
“Big tech has undoubtedly been able to grow at a faster pace than most other sectors,”Sahak Manuelian, Wedbush’s head of equity trade, stated. “A world that is dominated by … meaningfully technological services or products has certainly buoyed these mega-caps in what has been a technological revolution. These trends can last many more decades, and these companies are still in the sweet spot.”
Only one of these corporations worth $2-plus trillion is even close to the size of California’s gross state product of some $3 trillion — the largest economy in the U.S. The tech industry is so large that it rivals entire nations. In 2020, Germany, Europe’s largest economy, had a gross domestic product of $3.8 trillion, while France had a $2.6 trillion GDP, according to the World Bank.
Except for Meta, all four “have enormous scale”Manuelian stated that the company will continue to expand. They’re navigating the supply chain issues better than most and benefiting from strong leadership. Although Meta’s recent earnings met some analyst expectations, its flagship platform is starting to shrink with global user growth mostly stagnant. The company is also dealing with Apple’s privacy changes that affect its ad business. Meta is the least diversified of the five. This is something that investors are looking for in large tech companies.
“[Meta] is more exposed to advertising [changes] and making a big bet on building the metaverse. Investors are skeptical about the metaverse this year,”Singh stated.
Analysts are monitoring how the federal interest rate, high inflation, and the ongoing war in Ukraine will impact the tech sector over the next year. Manuelian mentioned that tech valuations have been falling (for those that might be overvalued), but Big Tech will be mostly unscathed.
“It has been a choppy and challenging start to the year, and we think this probably continues as there are so many moving parts in play,”Manuelian mentioned.
