Tue. Oct 19th, 2021

If government regulators around the world thought Big Tech was too big last year, 2021 hasn’t changed its mind.

Alphabet Inc. GOOGL,

+ 0.12%,
Amazon.com Inc. AMZN,
Apple Inc. AAPL,
+ 0.46%,
Facebook Inc. FB,
and Microsoft Corp. MSFT,
+ 0.10%
it experienced an unprecedented first half of the year economically, with $ 650 billion in sales. If the second half unfolds as analysts currently expect, these five companies will collectively exceed $ 1.4 trillion in revenue this year, which will add to a stack of profits during the pandemic that could reach $ 500 billion. dollars.

The five companies disclosed second-quarter financial results over the past three days, and reported a combined total (with a “big” emphasis) of $ 75.8 billion in profits and $ 331.6 billion in revenue. Big Tech dashed expectations and previous performance in the first half, continuing to find phenomenal success amid a global pandemic that has boosted more online commerce and consumption.

Currently, growth in the second half of the year is expected to slow overall, but corporate revenues are expected to exceed both total in the first half and the second half of last year by more of $ 100 billion. Estimates will change as analysts update their models, but Wall Street was looking for revenue of about $ 760.5 billion in the second half, according to FactSet estimates, a jump of about 21% from the previous year , after 38% growth in the first half.

“It simply came to our notice then [in the second half], but it’s not like growth is falling off the scale, ”Wedbush Securities analyst Dan Ives told MarketWatch, adding that“ the digital transformation for the consumer and the business is accelerating rather than moderate “.

If these projections are met, or anywhere nearby, the numbers would be really staggering. Projected revenue of $ 1.41 trillion this year would be higher than Australia’s gross domestic product by 2020, the world’s twelfth largest economy according to World Bank data, while profits would exceed $ 300 billion a year. year and the $ 500 billion for the two affected by the pandemic. calendar years of 2020 and 2021.

Big Tech’s continued gains are essential to the market right now. The five Big Tech companies accounted for 24.9% of the total SPX in the S&P 500 index,
+ 0.42%
market capitalization at the end of Tuesday’s session, according to Dow Jones Market Data, after growing in percentage of this index for years.

Big Tech is dangerously close to a brand that an investment advisor said he had to consider.

“Every time a sector reaches around 30% [of the S&P], something bad is happening and it will go down again, “said Brendan Connaughton, founder and managing partner of Catalyst Private Wealth. His examples: the industrial sector of the 1930s, the oil and energy companies of the 1970s, and when the dot bubble -as it exploded more than 20 years ago.

“Technology exceeds 30% of S&P [in the early 2000s] and we saw it explode, ”he said. “At some point, things get too heavy and unfold.”

There’s reason to think the current tech boom may have peaked with this quarter’s results and Apple didn’t live up to its expectations. Amazon’s sales growth appeared to be halted in Thursday’s report, with chief financial officer Brian Olsavsky revealing “some notable changes in the quarter in our revenue execution rate.” While Amazon’s AWS cloud business remains strong, Olsavsky mentioned the impact of a gradual reopening of the pandemic on the company’s overall growth rate.

“I think the impact of people getting vaccinated and leaving the world, not only offline shopping, but also living and going out. It takes time to shop, ”he said. “It’s a good phenomenon, it’s fantastic and we just have to properly measure our pace of execution in the future.”

We could see similar effects to other companies, although Microsoft seems to have few weaknesses, while largely escaping any regulatory control so far. Google and Facebook are benefiting from an explosion in online ad prices, which also helped Amazon’s growing advertising business, but Pinterest Inc.’s PINS,
Thursday’s results suggested that users may be actually shutting down their social networking apps to get back to the real world. Facebook chief financial officer David Wehner warned of the slowdown in revenue growth in the third and fourth quarters, “as we go through periods of increasingly strong growth,” though that may be just his thing.

Although without the same rapid growth rates, these companies have established themselves as central in important market sectors. They will continue to make amazing money with cloud computing, selling devices and services, and advertising wherever they can.

“Amazon will show some moderation as we return to restaurants, malls and stores, etc., but I think the street has underestimated the digital transformation,” bullish analyst Ives said. “We think it’s going to cost $ 2 trillion over the next decade.”

Big Tech intends to get that money, but there will be a cost to regulators ’attention. Google, which has been hit by the most American antitrust lawsuits, revealed about $ 800 million in legal fees in the quarter.

With a quarterly profit of $ 18.5 billion, however, it seems like a reasonable cost to do big business for Alphabet and the rest of Big Tech.

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