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What’s Next for Big Tech?


The coronavirus pandemic shocked the global economy, and the stock market reflected that, with stocks tumbling to record lows in March. However, the stock market has bounced back astoundingly quickly since then, and, in my opinion, the resilience of the technology sector has a lot to do with this, especially the tech giants of Apple, Amazon, Facebook, and Alphabet.


Credit: Financial Times


Technology stocks are not known for being a safe bet, especially during a market downtown like we have experienced in recent months. They typically have inflated price-to-earnings (P/E) ratios which, during previous market crashes, has seen their valuations plummet, but not this time. So why is this?


The Big Tech stocks were suitably set up for the world to be turned upside down and the new norm of working from home. Their digital business models are not reliant on the geographical location of their customers, as with other sectors such as retail. Instead, their wide online presence has allowed them to operate as usual with demand for their goods and services even increasing.


Amazon’s net sales increased by 26 per cent in the first quarter this year, and the firm has since hired over 175,000 extra workers to meet the increased demand during lockdown. Apple saw their demand for products also skyrocket with a 31 per cent increase in iPad sales, as people are increasingly adapting to working from home.

Earnings reports


The end of July saw the Tech Giants I have highlighted above release their latest quarterly results of the year, which revealed blockbuster earnings, highlighting the strength and resilience of the technology sector during the pandemic.


Apple saw their revenue grow eleven per cent on a yearly basis, even after having had to shut their stores due to lockdown restrictions. The company’s stock price has surged over 100 per cent since March, reaching an all-time high market capitalisation of $1.9 trillion.

Amazon has also seen tremendous growth with sales increasing by 40 per cent compared to last year, and net profit doubling to a record $5.2 billion. Amazon saw great growth in both its online sales, but also their cloud computing usage by businesses. These figures are impressive, especially when considering that the company spent $4 billion on Covid-19 related initiatives

Credit: The Guardian plans to spend another $2 billion in the coming

months.


Similar to Apple, Facebook also saw an eleven per cent rise in revenue and impressive stock gains, with 77 per cent growth since March (at the time of writing).


Alphabet, the parent company of Google, was the only one of the tech giants to not see their revenues increase, reporting a fall in revenue of two per cent. However, considering their business model relies heavily on advertising, they have done surprisingly well during the pandemic, as they saw sales fall by far less than analysts had forecast. Furthermore, some of Google’s major competitors witnessed much larger declines in sales.


The resilience of Big Tech shown above shows just how strong the technology sector has been and how greatly it has benefited from a shift in consumer behaviour to be more online focused.

What is Next?


The strength of the technology sector, especially the four giants, has been very impressive, but can

this extraordinary growth continue?


The four Tech Giants have seen their valuations and P/E ratio’s skyrocket to unprecedented numbers, which when not backed up by earnings like we have here has proven to be very risky in the past. Therefore, many experts believe the technology sector is in a bubble similar to that of the dot-com boom in 2000. If this is the case, it is likely that we are at just the start, and with new technology like the introduction of 5G, the sector is looking very strong, even with some crazy valuations.

However, due to the great size of these Big Tech giants, at the end of last month, they were all subject to anti-trust hearings over concerns that their size and power is stifling market competition.


The CEO’s of these tech giants fended off inquiries from Congress about their data collection practices, disinformation miscues, and efforts to stomp out competitors. Credit: The Verge


Now, we will have to wait and see what follows from these hearings, but you should expect to see some sort of action being taken by the U.S. government soon. They are likely to change or introduce new regulations and laws restricting the power of these companies, and so it will be interesting to see how these Tech Giants might be affected by this.


Many experts believe these companies to be “too big to fail.” After all, their performance through the pandemic has been truly impressive. However, could U.S. Congress put a stop to their winning ways? And if they do, should they? Or, should these tech giants who provide jobs and money for the economy be left alone?