It is impossible to imagine our daily lives without technology. We shop online, communicate via social media and order a pizza or taxi via an app. This is also reflected in the stock market. Technology stocks have been excelling in the stock market for years. The US technology sector, for example, has posted a positive total return over the past ten years of 20.2% per year on average (as of 9 March 2022). This means that the sector has done significantly better than the broad US equity market, as reflected by the widely used S&P 500, which rose by an average of 14.6% per year.
Unlike the dot-com bubble at the beginning of this century, most technology companies have long since passed the start-up phase and are structurally profitable. Where in 2000 mainly hardware companies played a leading role in the sector, now software, communication services and fintech companies are dominant. Only a handful of tech giants are responsible for the sector's outperformance on the US stock exchange. They have gained a dominant position in specific segments of the digital economy. We list the 5 biggest US tech companies based on their market capitalisation.
Apple has been one of the biggest companies in the world for years. In 2018, the iPhone maker was the first company to break through the $1 trillion barrier. In early 2022, the share even briefly surpassed $3 trillion, but could not maintain that level. Currently, the market capitalisation stands at $2.66 billion. That still makes Apple by far the most valuable listed company in the world. The Cupertino-based company benefits from the continued popularity of the iPhone, iPad, Mac and apps from the App Store. During the corona crisis, Apple's devices and gadgets were in short supply as people became even more dependent on technology to work from home.
With a market capitalisation of $2.16 trillion, Microsoft is firmly in second place. The veteran company still thrives on the success of Windows and the office software package Office. But in recent years, Microsoft has also gained a foothold in the market for cloud services, where customers purchase the software and underlying infrastructure such as servers via the Internet under a subscription formula. The advance in the cloud is doing the company good: its stock market value has increased tenfold in ten years.
Number three on the list is Alphabet. Google's parent company is worth $1.77 trillion on the stock exchange. If the slogan Big Tech applies anywhere, it is to Google. With its search engine of the same name and the internet browser Chrome, the company has a dominant market position. In addition, the free mobile operating system Android is used on around 80% of all smartphones sold worldwide. Together with Facebook and Amazon, Google will swallow 74% of global online advertising expenditure by 2021. Not surprisingly, Alphabet is regularly involved in antitrust cases. In 2018, the European Commission imposed a mega fine of €4.34 billion on Google for violating EU competition rules. Investors seem to have little concern about it: Alphabet's share price has been in an upward trend for years.
In fourth place is Amazon. In a quarter of a century, the company has developed from an online bookstore to an internet conglomerate with an astronomical stock market value of $1.42 trillion. Amazon's online shop carries millions of products. In addition, the group includes the Whole Foods supermarket chain, Amazon Prime Video video streaming service and the Amazon Web Services (AWS) web and cloud service. AWS was founded in 2003 and is currently the mainstay of Amazon. Large companies such as McDonalds, Volkswagen and Airbnb are customers. Besides cloud services, Amazon earns a lot with Prime subscriptions and advertisements. These activities exceed the profits of the e-commerce branch. Nevertheless, the web shop also continues to grow rapidly. Investors have not failed to notice Amazon's success: at the beginning of this century, the company was still worth 'only' $4 billion.
A newcomer in the top-5 is Tesla. In a relatively short time, the company has developed into the world's largest producer of electric cars. With its advanced battery technology and software, Tesla has a clear lead on the established order. After some hiccups, production is now well underway and losses have turned into profits. Thanks to the positive free cash flow, Tesla can continue to invest and at the same time reduce its debts. Investors are totally enthusiastic about Elon Musk's baby and have driven the share price to a great height. This has increased the market value to $887.8 billion.
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Sources: SSGA, companiesmarketcap.com, Digiday