Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Big Tech And Its Impact On Stock Markets

By Howard GoldsteinStock MarketsOct 18, 2018 11:30PM ET
www.investing.com/analysis/big-tech-and-their-impact-on-stock-markets-200349281
Big Tech And Its Impact On Stock Markets
By Howard Goldstein   |  Oct 18, 2018 11:30PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Large technology companies have been dominating the headlines recently. Whether it is Facebook’s relationship with data, Amazon’s relationship with their workforce or Netflix’s booming subscriber base, it’s all about these companies.

These companies are getting so big people have even started to create acronyms for them – FAANG (Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), Google (NASDAQ:GOOGL).

With the President of the United States pinning all political success to the performance of the stock market, the power of large technology companies can’t be underestimated.

Technology as a sector is almost as large as the second and third sectors combined in with the S&P 500. Five technology companies account for over 15% of the S&P 500! If Trump is relying on the stock market to determine his success, it’s clear that he is relying on large technology companies to continue to grow rapidly.

Relationship between large and small technology companies

Perhaps unsurprisingly, large technology companies can exert their power over smaller technology companies. Recent frustrations from website posters, as pointed out in this post, show how much power Google has over smaller companies.

All Google must do is change their algorithm, or in this instance change the Google Search Console, and smaller businesses will be under a lot of pressure unless they can adapt. And who can these smaller companies go to adapt? The large technology companies.

The reason for this power is two-fold. Firstly, as I eluded to above, smaller companies rely on larger companies for their web services. Whether it be pay-per-click advertising via Google or Facebook. Making use of Amazon Web Services, or using Microsoft’s Cloud, small technology companies have an over-reliance on larger technology companies.

The second predominantly stems from the current technology bubble that has formed. It’s clear that there is a bubble by the fact that eight technology companies account for 122% of the S&P 500’s total returns for the 12 months to July 2018.

The current model for smaller technology companies is a path to acquisition. The entrepreneur will come up with an idea, create a minimum viable product (MVP), get seed-stage investment and possibly a second or third round of funding. Once the technology product has been established and has a client base, they will be bought out by a much larger company.

The entrepreneur, and other shareholders, get a large pay-out and in some instances continue to work for the company that they have helped to build. The larger company gets a client book and possible entry to a new market. Amazon is applying this strategy to large companies such as Whole Foods, let alone small ones.

The technology market, as a whole, is following this trend. Company valuations have flown through the roof in recent years as more and more venture capitalists want to be involved. This is driving wages up, but it is also having an impact on the workforce.

A lot of technology workers may be used to working in shorts, but venture capitalists want results, so it may come as a shock to the system when everything comes down to results.

Should we be worried?

In terms of the bubble bursting, yes, but we should also be worried if the bubble doesn’t burst in the short-term and large technology companies continue to consolidate their market power.

Big Tech And Its Impact On Stock Markets
 

Related Articles

Big Tech And Its Impact On Stock Markets

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email