Earnings reports for the Big Five tech stocks — Apple Inc. (NASDAQ: AAPL), Alphabet Inc. (NASDAQ: GOOGL), Amazon.com Inc. (NASDAQ: AMZN), Microsoft Corp. (NASDAQ: MSFT) and Facebook Inc. (NASDAQ: FB) — pushed their combined market cap close to $3 trillion. In particular, Amazon and Alphabet rallied sharply after better-than-expected results. Just a year ago, the value of the group was closer to $2 trillion.
Apple still has to report earnings. With shares trading near an all-time high, it will need extremely strong numbers for its stock to rise sharply. However, some analysts have price targets near $180, well above the current $143 level. The same is true for Facebook, a stock on which the great majority of analysts have Buy ratings and price targets well above its $149 level.
The stock prices year to date are already extraordinary, except for Microsoft, which is up 8% before reaction to its earnings. Alphabet’s shares are up 11%, Amazon’s 18%, Apple’s 23% and Facebook’s 27%.
The dominance of these five companies in terms of their market values is fairly recent, and it shows the huge rotation toward tech as Wall Street’s favorite sector. A decade ago, a list based on the same criteria would have included Berkshire Hathaway, Exxon Mobil, Johnson & Johnson, JPMorgan, General Electric and Procter & Gamble. Four of these companies are over a century old. The old economy dominated by consumer products, energy and banking has started to fade away.
There are reasonable arguments that the money that has moved into tech stocks will continue. Cloud computing may be the largest single business in enterprise computing. It is dominated by Amazon, Alphabet and Microsoft. Google and Facebook control over half of all online advertising, and that market share is growing. Apple’s iPhone 8 release could drive sales more than any of its predecessors. Artificial intelligence consumer products are starting to be as much a part of consumer spending as traditional consumer goods. The rise of e-commerce continues to destroy the traditional parts of the retail business.
The value of the Big Five may break the $3 trillion mark within a month or two, depending on Apple and Facebook earnings.