The rally in the biggest tech stocks is poised to close a final chapter in the history of the dot-com bubble.
After a 17-year hiatus, it’s put the S&P 500 Information Technology Index within spitting distance of a record, making it one of the last of the benchmark’s 11 major industry groups to complete the circuit.
“Buying stampede”: The shares of Alphabet, Apple, Microsoft, Amazon and Facebook, have gained an average 24 per cent in 2017. Photo: AP
The computer and software gauge has soared 17 per cent this year, leaving it less than 5 per cent from its high on March 27, 2000.
It’s testament to the excesses of the internet era that it hasn’t happened yet, at a time when technology stocks are in such ascendance.
The five biggest US companies by sharemarket value, Apple, Google parent Alphabet, Microsoft, Amazon and Facebook, are up an average 24 per cent in 2017, adding $US500 billion ($875 million) to their share capitalisation.
At just under $US3 trillion, their combined value is 17 per cent of America’s gross domestic product — a greater share than ever happened during the first internet age.
“It’s almost like you’re seeing a buying stampede,” said Michael Ball, president and lead portfolio manager of Colorado-based Weatherstone Capital Management.
“Not many investors are around who remember the 1970s and the stories about the Nifty Fifty and how they were always going to be good. The same type of feeling seems to be percolating around the big tech names.”
From big things bigger things grow
How big are they? If they were a nation defined by market value, it would rank as the world’s fifth-biggest economy. Only half the time since 2000 has the entire Nasdaq 100 Index been worth more than its five biggest constituents are now.
The sheer size reflects technology’s increased role in society as it has evolved from a source of raw computing power decades ago to a defining force behind everything from shopping to entertainment and communication today.
Instead of a hurdle to growth, the companies’ vastness is a platform that allows them to introduce new products and expand faster than others.
According to analyst forecasts, the five companies are likely to increase earnings by an average 22 per cent this year, almost double the pace in the S&P 500.
“As you think about where they are going, these companies are penetrating more industries,”‘ said Daniel Flax, an analyst with Neuberger Berman in New York, said by phone.
“More and more of the so called old economy is being impacted, perhaps more so than what was apparent in 2000.”