Has Big Tech had its Big Run?

‘The long trade’ moves to the overall market, minus oil

Another round of inflation reports coming in high has caused a drop in stock market indices from all-time highs. GDP growth has slowed to 1.6%. The outlook for Big Tech appears mixed, as Google [GOOGL] charges to all-time highs while Apple [AAPL] sits more than $20 below where it was late last year. Nvidia [NVDA] is down a bit in the last month but still sits on big gains for 2024.

When I consider the advantages held by Big Tech now as compared to about a decade ago in the mid-2010s, it seems like a lot of the market leads that they possessed then have already mostly been utilized to enter new markets or have evaporated.

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These companies (Apple, Google, Nvidia, Amazon [AMZN], Microsoft [MSFT]) have seen considerable out-performance when compared to the S&P 500 over this last decade (the “FAANG” acronym dates back to 2013)—but consider: at that time there was barely any serious talk about anti-trust, which meant that these companies could freely acquire potential competitors and fight off rivals with ‘dumping’ (temporarily under-pricing) tactics. Overall that era of disruption has largely happened—many earlier competitors have been seen off, but more will come, and in greater numbers.

The growth of the Tech Giants over this last decade also means that they have become the biggest share of many of the weighted ETFs that track major averages—for example in the SPDR S&P 500 ETF Trust (SPY), Apple, Microsoft, Amazon, Nvidia, and Google [via 2 share types] make up the five largest holdings. So there is less and less difference between holding the Tech Giants and holding a market-weighted portfolio.

So will these companies under-perform going forward? Have they reached a point of maturity in the market where decline is inevitable? Nahh. They could very likely see stellar performance in the medium term. However I don’t think that it’s as obvious that they will out-perform the market as it was about 10 years ago and for that reason I am advising trading some Big Tech holdings for simple broad market ETFs.

While re-allocating I would look to avoid fossil fuel stocks especially over the long term. As the “unstoppable” green energy transition happens, if unevenly, oil industry players will be forced to change their businesses in order to play a role in a low-emission, electrified future. It seems easier to let them sort all that out while avoiding owning any of their shares. For this reason I recommend swapping some of those Tech Giant shares for the SPDR S&P 500 Fossil Fuel Reserves Free ETF (SPYX), which offers the same exposure to the S&P average as SPY except without the fossil fuel companies.

This era could be challenging for management, with protests over Israel and lingering resentment over the recent waves of layoffs. The risks of exogenous events rocking the Tech Giants has seemingly increased, with no commensurate rise in reward. The vague but persistent “techlash” has been with us since 2018. The AI race is costing every one of these companies (except Nvidia) a lot of money without a clear payoff in sight. It might be time to lower risk with a little re-allocation away from Big Tech shares.

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Disclosure: I trade stocks and ETFs.

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