The prices of the “tech stocks” Amazon, Apple, Netflix and Tesla have been rising continuously since the share crash in the Corona crisis. At the end of August, US technology stocks were more valuable than the entire European stock market according to the Bank of America Global Research.
The investment bank said in a note that this was the first time the market valuation of the US technology sector, which amounted to 9.1 trillion dollars, exceeds the market capitalization of stock exchanges in Europe, including the United Kingdom and Switzerland – 8.9 trillion dollars. Company data shows that in 2007 the European stock market was four times larger than the US public technology sector.
A trading giant, the most expensive brand in the world, an electric car manufacturer and a media group – the stars of Wall Street all trade under the term “tech stocks”. There is one thing in common between Amazon, Apple, Tesla and Netflix: their shares continue to gain value since the deep dip in April when the corona crisis drove all stock market values into the ground.
“Tech stocks” hides more than it explains. What does the success of these market stocks have to do with sophisticated technology? Nothing at all they use the supplier’s kit – but do a very good job of integrating technical components. Technology-driven companies look somehow different. They shine through basic innovations and continuously outrun the competition.
Even the strongest companies tend to cut spending on research and development during a crisis. Amazon, Apple, Tesla and Netflix all benefit from the unstoppable trend of online sales. They either sell exclusively (Amazon, Netflix) or at least mainly (Apple, Tesla) over the Internet. And if 2020 has massively changed anything around the world, this is the shopping behavior of most consumers. Online shopping wins, stores lose.
The great champion
Amazon is the great champion among the “tech stocks”.
Not all Wall Street stars benefit equally. Take a closer look. Tesla and Apple are not among the big winners of the new online boom. When you look at Netflix you must see whether everyone would stay home when everything is back to normal. The real winner is called Amazon. There is nothing that could slow Jeff Bezos now.
The company is a dominant force in e-commerce since the 1990s but the explosion in the cloud industry has been the one that has helped its stocks rise the most over the past decade. The company’s share price was about 20 times higher on August 27 than in August 2010.
However, there is one thing that can put Amazon in jeopardy: The growing political debate about the giant’s market power. More and more politicians are looking for a way to slow down the retailer’s triumphant advantage.
“Too much power“
”You have too much power”. Amazon’s boss Jeff Bezos, Apple’s Tim Cook, Facebook’s Mark Zuckerberg and Alphabet’s (owner of Google) Sundar Pichai heard this from members of the US House of Representatives’ antitrust subcommittee. At the end of July there was a hearing with intense questions from Republicans and Democrats.
So, do the tech stocks have a cloudless future? If wе analyze the moves of the influential investor Warren Buffet, maybe not.
This year the “Oracle of Omaha” increased his bet by Apple to 245 million shares, now worth more than $95 billion. But Buffet himself sees his stake as more of a consumer goods stock. This shows that tech is simply not and will not remain the playground of his company – Berkshire Hathaway. He selects exciting, long-term opportunities and prefers stocks with established business models and high cash flows that would generate solid returns in the future.
While markets are unstable, large technology companies are likely to remain preferred. So what could bring the big technology companies back to earth? Ironically, the biggest threat may come from a better economic picture. If a vaccine shows signs of effectiveness, the normalization of global economic growth is likely to make market participants expect a new mini-cycle to begin. This can lead to rotation and diversification from large technology companies to more traditional stocks.
Related topics: News 2020 the “new normal” of work