How BIG Are The Big Five Tech Companies?

The top five U.S. tech giants collectively known as FAAMG have had astonishing grown in the past few years. The onset of the Coronovirus pandemic has led to further growth and concentration power for these tech leaders as most people working from home and cooped up at home depend increasingly more on technology to continue their daily lives. The current market cap of the FAAMG stocks show the strength and scope of these companies:

  • Facebook(FB) – $684.0 Billion
  • Amazon(AMZN) – $1.50 Trillion
  • Apple(AAPL) – $1.60 Trillion
  • Microsoft(MSFT) – $1.59 Trillion
  • Alphabet(GOOG) – $1.02 Trillion

As a result of their sky-high growth, these firms have made many of the major equity indices highly concentrated. For example, they account for over 20% of the S&P 500 index.

Listed below are three charts from three different articles that discussed the market power of the FAAMG companies.

1.From an article at Schroder’s:

The rise of big tech

How big are these companies?

Sean Markowicz: “In terms of market weight, big tech has grown immensely over the last few years. Its combined weight in the S&P 500 index of US shares has more than doubled from roughly 8% in 2015. Today, FAMAGs make up 20% of the index in terms of market capitalisation.

“That means these five stocks account for a larger slice of the market than the five largest stocks at the peak of the dot com bubble in 1999 did.”

Source: Refinitiv Datastream and Schroders. Data as at 8 June 2020

Source: Big tech vs the market: what you need to know, David Breet, Schroders

2.Since 2013, the FAAMG’s market share of the S&P 500 has rises year after year as shown in the chart below:

The rich get richer and the poor get poorer:

Source:Stocks and the Matthew effect, Investment Office

3. FAAMG stocks now account for an incredible 36.9% of the Russell 1000 Growth Index:

Just five companies accounting for about 37% of a major growth index is indeed extreme.

Source: Lopsided Equity Rally Highlights Growing Market Risks, Alliance Bernstein

It remains to be seen if growth is infinite for these tech titans. At the end of the day there is only a finite amount of ad dollars to go around and there is a limit to how much visitors can be bombarded with ads. So in some ways the growth is not endless for Alphabet and Facebook which are mainly advertising platforms that pretend to be high tech firms. They just use technology to show ads better than say a billboard on the highway and track users for better targeting.

Disclosure: No Positions

Emerging Markets Performance For First Half 2020: Chart

The single country index returns chart for emerging markets was recently updated by Novel Investor for the first half of this year. The best performing marker was China with a return of 3.6% and the worst market was Colombia with a loss around 45%. Chinese equities have held especially well this year as China was the first country to be ravaged by the novel Coronavirus and subsequently emerged first. Moreover the economy has held up better than in other countries and the relatively loss of lives and infections has led to Chinese stocks performing better than other emerging markets. The next best performing markets were Taiwan and South Korea. The semiconductor industry has soared so far this year due to the rising dominance of tech companies. So it is not surprising that Taiwan is the 2nd best emerging market.

Colombia was the worst performer because of its heavy dependence on Ecopetrol(EC), one of the world’s top oil producers. As the price of crude oil collapse earlier this year Ecopetrol and Colombia in general was adversely impacted. In addition to Ecopetrol, the largest bank by assets Bancolombia (CIB) also fell heavily. Other countries such as Russia and Brazil which are also concentrated by the energy industry have also done poorly so far.

The following chart shows the returns of emerging markets thru first half of 2020:

Click to enlarge

Note: The returns noted above are based on MSCI country index returns.

Source: Novel Investor

Disclosure: Long EC

 

Quick Post: Two Foreign Competitors of Amazon

Amazon(AMZN) is the world’s largest e-commerce company with a market capitalization of over $1.40 Trillion. The stock price has jumped from under $500 in 2017 to a recent 52-week of $2,955. While Amazon dominates the US market it is not a major player in many other countries. In this quick post, lets take a look at two competitors: Sea Ltd (SE) and Mercadolibre Inc(MELI).

Sea Ltd(SE):

Singapore-based Sea Ltd is the largest internet-based retailer in South East Asia. Below is a brief profile of the firm:

Sea Limited is an Internet platform provider. The Company has developed an integrated platform consisting of digital entertainment, e-commerce, and digital financial services. The Company operates three businesses Garena, Shopee, and SeaMoney. The Company’s digital entertainment business, Garena, is a global game developer and publisher with a presence in Southeast Asia, Taiwan and Latin America. Garena provides access to mobile and personal computer online games. Shopee provides users with a shopping environment that is supported by integrated payment, logistics, fulfillment, and other value-added services. SeaMoney business is a digital financial services provider. SeaMoney offers e-wallet services, payment processing, credit related digital financial offerings, and other financial products.

NYSE-listed SE reached a 52-week high of $119.23 on July 2nd.Currently it has market cap of over $49.0 billion.

1-Year return of Sea Ltd:

Click to enlarge

Source: Google Finance

Mercadolibre Inc(MELI):

Argentina-based MELI is the largest e-commerce retailer in Latin America easily beating Amazon. NASDAQ-listed MELI is a highly volatile stock. Similar to SE, MELI also has a market of around $48 billion. A brief profile:

MercadoLibre, Inc. is an e-commerce company. The Company enables commerce through its marketplace platform in Latin America, which is designed to provide users with a portfolio of services to facilitate commercial transactions. Its geographic segments are Brazil, Argentina, Mexico Venezuela and Other Countries (which includes Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, Panama, Peru, Portugal, Guatemala, Bolivia, Paraguay, Uruguay and the United States of America). It also operates online commerce platforms in the Dominican Republic, Honduras, Nicaragua, Salvador, Panama, Bolivia, Guatemala, Paraguay and Portugal. It offers an ecosystem of six integrated e-commerce services: the MercadoLibre Marketplace, the MercadoLibre Classifieds Service, the MercadoPago payments solution, the MercadoLibre advertising program, the MercadoShops online Webstores solution and the MercadoEnvios shipping service.

1-Year return of MELI:

Source: Google Finance

Performance of AMZN, MELI and SE over the past 2 years:

 

Source: Yahoo Finance

Investors looking at gain exposure to the fast growing e-commerce sector abroad can consider MELI and SE. However the prices have soared already and it is wise wait for pullbacks.

Disclosure: No Positions

China’s Economic Miracle From 1949 To 2019: Infographic

China has come a long way since the early part of the 20th century. From a rural “backward” country China has transformed its economy in the 70 years since 1949 to become the world’s second largest economy. While other communist countries collapsed and converted to democracy, China followed a different approach called “Market Socialism”. In this form of government, there is only one party that runs the state and things like democracy are frowned upon. In China’s case it is the communist party (CCP) that keeps a tight lid on power and crushes any form of opposition to it. However China threw open its economy to market forces basically turning to capitalist principles. Hence the term “Market Socialism”. This unique form of government has led to the dramatic economic growth over the past few decades.

The following infographic shows some of the major achievements of China from 1949 to 2019:

Click to enlarge

Source: China Daily