Yahoo Finance Four top Big Tech stocks gain $1.3tn this year despite pandemic
“Make America Great Again” was the slogan across baseball caps, buses and bumper stickers during US President Donald Trump’s election campaign.
Now, it is being applied to four technology firms on a seemingly gravity defying surge despite fears of a second coronavirus wave.
The world’s four biggest technology companies have gained more than $1.3tn (£1.03 tn) in combined value since the start of the year. That compares to the $1.7tn combined market cap of all the FTSE 100 firms.
This has helped Wall Street to its best quarter since 1998, despite the US leading the charts with more than 55,000 cases per day.
Four tech giants are now all priced at more than $1tn in total market cap. They are Microsoft, Apple, Google’s parent company Alphabet, and Amazon.
The buoyancy of these stocks has even gained them the acronym MAGA, bestowed by the share price obsessed President Trump.
In February, the President said: “Four trillion dollar companies: Apple, Amazon, Google, Microsoft. You have Made America Great Again. The trillion dollar club.”
While their shares have surged – as have other so-called “FANG” stocks including Netflix and even Facebook – most have also torn up guidance. This means investors do not know what to expect from their next results. With earnings just a fortnight away, what is keeping these technology firms so far ahead of the market?
In a crisis, it is normally software stocks that fall hardest. Typically, technology firms are favourably valued during boom times as they paint an optimistic thesis of what will happen in the far future. But this means when the market falls, investors flee these overhyped stocks first.
In previous financial crises, the dotcom bubble or the 2008 crash, tech stocks fell hard.
But this time, they have thrived. “There has been a secular, underpinning trend,” says Richard Windsor, a technology analyst at Radio Free Mobile, formerly of investment bank Nomura.
“Lockdown showed the start of the work-from-home trend. That has extended into the second quarter and will extend beyond the end of lockdown.”
Windsor says that, while some predicted most office workers would be returning to work, it now appears many of these roles in the near future will stay remote.
This trend has disproportionately benefited big technology firms, as well as a number of smaller, fast-growing peers. Amazon’s Web Services business, which sells internet services to businesses, is in high demand across Governments and in new sectors. Microsoft’s Azure, its rival, is similarly well-placed, as are its workplace lines such as Microsoft Office and its video conferencing app Teams.
Google, too, has been investing in its own cloud computing business and work from home apps like Hangouts.
Of the four, Windsor says Apple may have the toughest results. Demand for smartphones has declined between 10pc and 20pc due to the financial crunch.
However, Amazon appears well positioned. “Amazon will have the best quarter of them all,” he says, “people have continued to order online. It has not suffered in advertising like Google has, and it has a lot of exposure to cloud computing.”
On Monday, Amazon hit an all time high share price of more than $3,000. It is up more than 61pc this year.
Of the other trillion dollar firms, Microsoft is up 31pc, Alphabet 10pc and Apple 25pc. All have recovered their losses from the crash in March as lockdowns engulfed Europe and the US. These rises leave Alphabet worth $1.02tn, Amazon $1.52tn, Microsoft $1.6tn and Apple $1.62tn. With a combined value of roughly $5.7tn they are valued at more than double the FTSE 100.
Microsoft is now competing with Apple for status as the world’s most valuable company. A recent note from investment bank Jefferies argued the firm “has a portfolio of products to sustain growth in any environment, be it in the office or work from home”.
Despite the soaring valuations, investment bank analysts have grown ever more bullish on technology stocks. In a note last month, Morgan Stanley sent a note to clients titled “Technology Eating the World”. It said: “We are in the early innings of a technology-driven, decade-long investment cycle… importantly, Covid-19 is a wake-up call to accelerate this digital transformation.”
It should also be pointed out it is not just these big four stocks booming among tech, although combined they are worth more than the next 19 firms on the S&P 500.
Zoom, the video conferencing app, is up 280pc this year. Netflix, the streaming service, is up 50pc. Shopify, a US listed Amazon competitor, is up 141pc. Tesla, the electric car maker, is now worth more than Toyota.
But further afield things suggest a less rosy outlook. Banks, in particular, have performed poorly during the crisis. Unemployment in the US is still 14.7m people higher than in February. This weekend, Goldman Sachs posted a gloomy forecast that the US economy would shrink 4.6pc this year.
Yet while traditional work in retail, hospitality and travel plummets, tech stocks are still going up. “Tech is seen as a safe haven,” says Windsor. However, with prices so high and an uncertain set of results coming up, he adds: “I wouldn’t be too keen on buying any stocks at the moment.”
