This analysis was first published in SvD Näringsliv, in Swedish, on January 30th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
Ten trillion dollars in market cap is reporting its quarterly results this week — and just five tech companies account for all of it. The stock market’s dependence on the tech giants has never been greater.
In 2011, venture capitalist Marc Andreessen wrote the now-famous words “software is eating the world.” But not even he could likely have imagined that we would find ourselves in the position we are in today, less than fifteen years later.
That technology has had a profound effect on society is uncontroversial.
But that investors around the world would be watching Silicon Valley so closely for the sake of their own savings — that is new.
When five of the seven largest tech companies all report their quarterly results in the same week, the effects for both funds and individual investors are enormous — even for those who have no interest in the sector, or do not follow the current tech gospel.
They are called “the Magnificent Seven” — seven tech companies that make up just 1.4 percent of the S&P 500 index by number, but represent more than 29 percent of its total value. The companies in question are Apple, Meta, Amazon, Alphabet (Google), Microsoft, Tesla, and Nvidia. The first five all report between Tuesday and Thursday this week, together representing over ten trillion dollars in market capitalisation.
Given their enormous influence on the market, the whole world is now watching carefully for signs that the record levels for the S&P 500 reached earlier in January could be surpassed.
As SvD has previously reported, Swedish investors’ exposure to these stocks is also very high. Many popular Swedish global index funds, or funds focused on the US, have these stocks among their largest holdings. Even the so-called “sofa fund,” AP7 Såfa — owned by more than 5 million Swedes — has nine of its ten largest positions in international tech giants. All seven major American companies are represented.
Tech stocks have become a kind of people’s share — hidden in plain sight. Without Swedes having actively chosen it.
First to report is Microsoft, which has recently taken over the position of the world’s most highly valued company. After a share price rise of more than 66 percent over the past year, it has just crossed the almost incomprehensible threshold of three trillion dollars in market capitalisation.
The optimism surrounding the company is enormous. Its AI investments through the partnership with OpenAI in San Francisco have placed it among the very heaviest hitters in the tech world — again. And it continues to make large, transformative bets. The acquisition of gaming company Activision Blizzard was the largest in gaming history. Now that the deal has finally gone through, the door is open for further acquisitions, even if likely of a smaller nature. Microsoft has momentum, and CEO Satya Nadella shows no sign of holding back.
Next is Alphabet, the name of Google’s parent company — changed to encompass more businesses in its portfolio. But in all material respects, it is only Google and its wholly owned YouTube that move the needle. In 2016, incoming CEO Sundar Pichai announced that Google would become an “AI first company.” That may have been the ambition, but executing on it has proven harder. In the enormous AI wave, Google has been a participant rather than a leader — at least so far.
It has, however, impressed by continuing to grow its enormously profitable advertising business and new cloud initiatives in parallel with the surging AI development. The battle for AI has only just begun, and Google has a long history of innovation in this area. The “T” in ChatGPT — transformer — is a technology first developed by Google. Expect many major announcements from their side in the year to come.
Last — but far from least — comes the event that will arguably have the greatest effect on the market of all.
On Wednesday, US Federal Reserve chair Jerome Powell will announce whether the Fed intends to cut interest rates for the first time since 2020. And you remember what happened to tech stocks the last time we had low interest rates? Microsoft’s market cap has more than doubled since then. Even the slightest hint that we are heading that way again could put fresh wind in the sails of tech stocks — and many more than just the biggest seven.
Hold on — the market’s week of reckoning has just begun.
