Stocktake: Have big tech stocks found the ‘antidote to ageing’?

Veteran companies Netflix, Facebook, Microsoft, Apple are all continuing to grow

The Apple store on Regent Street, London. In June, Apple and Microsoft were jostling for the position of America’s most valuable company. Photograph: Victoria Jones/PA Wire

The Apple store on Regent Street, London. In June, Apple and Microsoft were jostling for the position of America’s most valuable company. Photograph: Victoria Jones/PA Wire

 

Have America’s biggest tech stocks found the “antidote to ageing”? That description was recently used by valuation expert and New York University finance professor Aswath Damodaran, referring to the fact that historically, “even the very best companies reach mature growth” – that is, they remain profitable but growth levels off.

In contrast, today’s tech giants are “continuing to grow even as they get larger, while sustaining or even improving profit margins”.

This trend was encapsulated in last Wednesday’s market action. Ritholtz Wealth Management’s Michael Batnick notes software giant Salesforce, valued at $195 billion before the trading day began, soared 26 per cent. Netflix, which started the day with a market capitalisation of $216 billion, gained 12 per cent.

Facebook, worth some $800 billion on Tuesday, gained another $70 billion on Wednesday. Most extreme of all has been Apple. In June, notes Batnick, Apple and Microsoft were jostling for the position of America’s most valuable company, with both worth $1.4 trillion.

Now Apple is way out in front, having added $760 billion in market capitalisation over the next 56 days. Poor Microsoft added “only” $230 billion over the same period.

Trees don’t grow to the sky, although everyone’s been saying that for some time now. In July 2018, Batnick noted the five biggest S&P 500 stocks were worth as much as the smallest 282 stocks in the index. Today, they are worth as much as the 389 smallest index stocks, having gained $3.5 trillion in market cap. Apple alone is now as big as the smallest 201 stocks in the index, as the big stocks keep getting bigger.