Big Tech's Path To $4 Trillion Is Fraught: Or Is It?

As a general rule, the words 'this time it's different' should send investors, business partners, suppliers, customers - and regulators running screaming for the hills.

IBM, Microsoft and America Online - hey, remember them? - can all attest to how quickly circumstances can change.

Big tech dominates, operationally and financially. The question is to what degree the unprecedented scale of  these companies' dominance is economically sustainable - and insulates them from a dotcom-like fall. It won't be like the last time, but there will be change.JL 

Dan Gallagher reports in the Wall Street Journal:

Tech firms now make up five of the 10 most valuable American companies. Three not named Apple now have market values exceeding $800 billion. Amazon.com,  Alphabet and Microsoft—along with Apple and Facebook —together comprise 16% of the S&P’s total value.The last time tech companies made up half of the S&P’s top 10 was 1999, when they accounted for 13% of the index’s value. Market values rise and fall quickly, but scale tends to stick around longer. Does Big Tech have too much sway in the market? That could soon be a $4 trillion question.

Apple Inc. AAPL 0.52% became the first U.S. company ever to hit $1 trillion in market value. The milestone was notable, if seemingly inevitable. Apple has been the world’s most valuable public company since 2012, when it was worth about half as much. It is also now nearly 14 times its value compared to when the first iPhone was introduced in early 2007. The S&P 500 has merely doubled in value over that time. At $1 trillion, Apple accounts for just under 4% of the S&P 500’s total market value. But, while heavy, that sort of weight isn’t unheard of. Exxon Mobil accounted for 5% of the index’s value 10 years ago, when it ranked as the world’s most valuable company, according to senior S&P analyst Howard Silverblatt. Apple’s representation isn’t even tops for tech. Microsoft  MSFT 0.08%▲  was once the world’s most valuable public company and accounted for 4.9% of the index at the height of the first tech bubble in 1999. And when IBM was at the peak of its power in the mid-1980s, Big Blue represented more than 6% of the S&P 500’s total value.





But the fact that Apple has company gives Big Tech an unprecedented amount of sway. Tech firms now make up five of the 10 most valuable American companies. Three not named Apple now have market values exceeding $800 billion. Amazon.com ,  AMZN 1.34%▲  Alphabet  Inc.  GOOGL -0.04%▲  and Microsoft—along with Apple and Facebook —together comprise about 16% of the S&P’s total value. The last time tech companies made up half of the S&P’s top 10 was 1999, when they accounted for just 13% of the index’s value.

That is also when America Online was the country’s 10th most valuable business, which naturally leads to the question of just how sustainable Big Tech’s current market dominance really is. Past isn’t always prologue, but the technology landscape tends to shift rapidly and humble even the most powerful players. IBM can attest to that.
Big market corrections also tend to wreak havoc on richly valued tech stocks. The Nasdaq Composite plunged 41% in 2008 at the height of the financial crisis. By the end of that year, Microsoft was the only tech company ranked among the S&P 500’s top 10.
One important difference now is that the business of today’s technology giants stretches well beyond tech. Amazon, whose market value is now less than 12% away from the $1 trillion threshold, now sells everything from washing machines to cutting-edge corporate computing services. Google, less than 16% away, powers much of the world’s internet use in a way AOL could only have imagined. And people all over the world now rely on Facebook to remember who their friends and relatives are. Market values rise and fall quickly, but scale tends to stick around longer.