Video: Is Big Tech under threat?
In this short video Sean Markowicz explains why the market dominance of big tech firms might prove to be a threat to their own future performance.
While many businesses are struggling under the global lockdown, the largest technology companies are thriving. Firms such as Amazon, Microsoft, Apple, Google and Facebook have all seen increased demand for their digital services, as more people shop online and work from home. As a result, their share prices have vastly outperformed the US equity market.
But is their dominance ringing alarm bells? The tech giants have already faced a great deal of criticism over their anti-competitive behaviour and the pandemic has only intensified the scrutiny. The more powerful these firms become, the higher the likelihood of regulatory action being taken to supress their market control. History is replete with such examples.
At the same time, the US equity market is increasingly concentrated in just these five tech stocks.
Their combined market-cap (i.e. the total value of all of their outstanding shares) weighting in the S&P 500 index has more than doubled from roughly 8% in 2015 to 20% today.
A market this narrow should give some cause for concern. These narrow rallies tend to end when investors pile into the market leaders until they no longer justify their valuations, or when an economic recovery helps the laggards to catch up.
Either way, these firms may find it increasingly difficult to repeat their stellar market performance going forward.
This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.
Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.
This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.
All data contained within this document is sourced from Cazenove Capital unless otherwise stated.