The Covid crisis has turbo-charged profits and share prices. But are the big six now too powerful for regulators to ignore?
The coronavirus pandemic has wrought economic disruption on a global scale, but one sector has marched on throughout the chaos: big tech.
Further evidence of the industry’s relentless progress has come in recent weeks with the news that Apple and Amazon both raked in sales of $100bn (£72bn) over the past three months – 25% more than Tesco brings in over a full year.
Amazon also revealed that its founder, Jeff Bezos, is to step down as chief executive. It was a big moment for the company founded in Seattle 26 years ago. But the shares barely stuttered, and few expect the company to, either.
The relentless rise of the big six tech firms – Facebook, Amazon, Netflix, Google owner Alphabet, Apple and Microsoft, now known as the Fangam stocks – powered US markets last year.
The S&P index – the barometer of corporate America – ended the year up more than 18%, an extraordinary outcome given the market crash of March. But two-thirds of that gain was entirely down to the increases in value registered by the six Fangam stocks.
The gains are eye-watering. Amazon’s share price is up 62% over the past year, valuing the business at $1.7tn, $650m more than a year ago. Apple stock is up 70% over the same period, an increase which has taken its valuation up by more than $1tn, to $2.3tn.
Results published so far in 2021 show no sign that the gains will let up. Apple in January reported its most profitable quarter ever, and Facebook also said the pandemic had helped it grow.
Amazon recorded sales of more than $100bn for the first time in the last quarter of 2020 – allowing Bezos to sound a positive note as he changed roles to focus on his ambitions in space, his Earth Fund and his ownership of the Washington Post – and Alphabet posted record revenues for the second successive quarter.
The eye-catching performance of big tech has prompted increased political scrutiny and the threat of heightened regulation from Washington, especially now that the Democrats have won control of the Senate. There is now a real possibility that President Biden will take on tech companies over issues such as privacy, liability and market dominance. And such is the collective scale of the US tech titans, it will be difficult for them to hide.
How big is big tech?
The extraordinary size of these companies can be difficult to comprehend. Alphabet’s $162bn of revenues outweighed the size of Hungary’s economy in 2019.
Apple’s $67bn earnings before tax from its last financial year would pay for the UK government’s combined spending on defence and transport.
Amazon’s army of workers worldwide now numbers 1.2 million and it is rated the third biggest employer in the world, after Walmart and the China Petroleum & Chemical Corporation.
A late (and perhaps debatable) entrant to the big tech ranks is Tesla. Investors appear to be valuing the US electric car manufacturer more like a tech platform, in the hope it will use its brand and nascent autonomous driving software to dominate transportation in the future.
That logic has propelled it into the ranks of the world’s most valuable companies (and has recently made its chief executive, Elon Musk, the world’s richest man). Its shares have rocketed from $86 at the start of 2020 to $845 now, with some investors fearing it is in the throes of an investment bubble.
So, how did big tech get so big?
One common complaint about the stock market is that it is disconnected from economic reality, with booming growth in share prices even as economies suffer historic recessions.
The flip side is the argument that these companies are more connected to our new reality than ever before: in fact, between them the big tech companies are involved in a huge proportion of human interactions with digital tech every day, from mobile phones for locked down families to the computers used in businesses all over the world.
The electric car technology pioneered by Tesla will play a key role in fighting the climate crisis – and investors have belatedly got on board.
But big tech’s fate has become disconnected from the rest of the corporate world. As Jeremy Grantham, a high-profile investor, pointed out last month, Tesla’s stock market value is equal to about $1.25m for every car it sells over a year. At rival carmaker General Motors, the company is valued at $9,000 per car.
Tech’s rise has meant the concentration of market value in the five biggest companies has returned to levels last seen in the early 1970s.
Back then the stock market was dominated by the old industrial economy: photographic film company Eastman Kodak, ExxonMobil predecessor Standard Oil, and General Motors were in the top five, along with IBM and AT&T. Big tech has completely displaced older industries in the top five.