The Biggest Threat to Tech

The tech giant’s growth continues unabated. The big six now command nearly one-quarter of the entire S&P 500 by market cap.

The most amazing part about this whole thing is that it is justified. It’s hard to claim that these stocks are in a bubble when analyst estimates are continually behind the curve. They just continue to raise the bar.

For example, the iPad, which is the smallest of Apple’s five segments, made more revenue last quarter than Netflix or McDonald’s. It did more than the combined revenue of Spotify, Twitter, Shopify, and Zoom!

The tech companies have gotten so big that some people worry that they’re engaging in anti-competitive behavior. It seems like regulation is the only thing that can slow them down. Should shareholders be worried about this? I’m not so sure about that. You can argue that breaking up these companies would actually unlock shareholder value.

Let’s look at Amazon Web Services, for example. That segment reported $48 billion in revenue over the last 12 months.

AWS is growing 30% a year and has 30% operating margins. Given the market environment, I think a 35x multiple on earnings is reasonable. Apple, for comparison purposes, has similar operating margins but isn’t growing nearly as fast, is trading at 28x earnings. If we assume that AWS’s net income is $15 billion and slap a 35 multiple on that, we get to ~$500 billion, a third of Amazon’s market cap today.

I don’t know what slows down big tech’s growth, but I’m not so sure regulation would do it.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

The Compound Media, Inc., an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here:

Please see disclosures here.