Tech stocks seem poised to take over the stock market as the space is becoming massively top-heavy. According to the research data analyzed and published by Stock Apps, the collective market cap of the top 10 companies on the S&P 500 had grown to approximately $8 trillion.
These companies include Apple whose market cap at the time was $2.1 trillion, Microsoft with $1.7 trillion, Amazon with $1.4 trillion, Facebook with $700 billion and Alphabet Inc. Class A with $488.9 billion. The other five are Alphabet Inc. Class C at $477.9 billion, Berkshire Hathaway at $423.9 billion, Johnson & Johnson at $404.4 billion, Visa Inc. at $357.7 billion and Procter & Gamble at $342.5 billion.
Together, these companies make up more than 26% of the S&P 500. According to Credit Suisse, the stocks of the top 5 companies on the index increased a collective 37% between January and the end of July 2020. Notably, all five are technology stocks. During the same period, all other stocks on the S&P 500 shed a collective 6%.
Towards the end of July, Amazon had recorded the best YTD performance of the five stocks. It was up 70% according to Goldman Sachs Global Investment Research. Apple and Microsoft were up 33% each while Facebook and Alphabet were up 18% and 16% respectively. The other 495 companies were down 5% at the time.
In mid-August 2020, the five constituted more than 20% of the total worth of the stock market. This kind of performance has not been witnessed by a single industry for at least the past seven decades.
Tech companies’ dominant role has to do with the extent to which technology is dominating human life. Their unprecedented reach has deepened significantly during the pandemic. More people are shopping online, surfing the internet and spending time on social media. As a result, these service providers get the lion’s share of consumer spend.
Notably, Alphabet, Facebook and Amazon own the top four most visited websites in the United States. Web traffic numbers shot up in March following the implementation of stay-at-home orders.
According to SimilarWeb, Facebook experienced a 15% upsurge while YouTube went up by 10%. In total, the big four websites record approximately 1 billion visits every day. Daily and monthly active users on Facebook increased by 12% YoY to reach 1.79 billion and 2.7 billion respectively. Synergy Research substantiates these statistics, revealing that global spending on cloud computing increased by 33% in Q2 2020 to reach more than $30 billion.
Q2 results for four of the five big tech companies reveal that each of them surpassed expectations. Apple’s revenue for the period was $59.7 billion, an increase of 11% YoY. According to Yahoo Finance Averages, The Street had anticipated $52.25 billion. Earnings per share (EPS) increased 18% to reach $2.58, against expectations of $2.04.
iPhone revenue reached $26.4 billion, an increase of 1.7% YoY, while services revenue reached $13.1 billion up from $11.5 billion during the same quarter of the previous year. The wearables segment similarly reported an increase from $5.5 billion to $6.4 billion YoY.
Even though Alphabet reported a decline in revenue for the first time in its trading history, it still managed to beat analyst expectations. Revenue for Q2 2020 was $38.3 billion against an expected $37.36 billion. On the other hand, EPS was $10.13 ahead of the anticipated $8.34. Cloud revenue during the quarter was $3.01 billion while YouTube ad revenue was $3.81 billion.
Amazon revenue was $88.9 billion against an expected $81.53 billion and up from $63.4 in Q2 2019. The EPS was $10.30, way ahead of the expected $1.46. Similarly, for Facebook, Q2 revenue was $18.7 billion, an increase of 11% from $16.9 billion in Q2 2019. It was also ahead of the expected $17.4 billion. EPS was $1.8, ahead of the expected $1.39.
These four companies collectively added about $200 billion to their market capitalization during the quarter. Apple and Amazon each added roughly $74.4 billion while Facebook added $42.6 billion and Alphabet, $7.6 billion.
While these American tech titans and their investors are reaping big from their performance, analysts are concerned about the top-heavy stock market. According to Goldman Sachs analysts, their dominance makes the market vulnerable to shock. They point to the fact that the dot-com bubble ended around the same time that the US government prevailed over Microsoft on an antitrust case.
Nica is a BA Political Science graduate, startup founder and financial expert. She has an entrepreneurial spirit and started several startups from a young age, eventually becoming fascinated with stocks, cryptocurrencies and the blockchain economy. She specializes in financial tech and her expertise is in writing detailed tutorials and guides on how to invest in stocks and cryptocurrencies. Nica has written for many other websites, including Crypto Browser, Coin Review, LearnBonds, and Inside Bitcoins.
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