BigTech has been a big driver of the stock market for the past decade. The names are familiar – Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, Meta, Oracle, Cisco, Salesforce, AMD.
Others, past and present, have included Netflix, Uber, Lyft, Peleton, Shopify, Spotify, Airbnb, WeWork, Workday, Bookings, PayPal, and Adyen.
I have two questions: (1) are some of these companies really “tech” companies and (2) why would it matter if the answer is “No”.
Through the convergence of the internet and smart phones, many companies have arisen that use this convergence to develop new services to the public. How we hail cabs, rent videos, buy used cars and shop for food and booze, just to name a few, have been radically altered. With this technology, we can book a flight to Dublin as well as the place to stay, grab a table for dinner in the Temple Bar district, split the check with our traveling companions and summon a ride home after one too many pints. This technology has truly changed the way we live our lives.
Yet, are the companies using these technologies themselves technology companies? I say “No”. Just because your public interface is a mobile device, that does not make you a tech company. Uber is a cab company. Netflix rents videos. Peleton is a stationary bike with an iPad attached. Airbnb is a vacation rental agency and WeWork rents office space. I can go on and on, but you get the point. Using technology to provide a new service doesn’t grant you a visa into BigTech country.
Okay, so who cares? Why are you being pedantic, Bill? Well, because if one is looking at what sectors are driving the market, it behooves one to know which companies are in those sectors. Currently, 2023’s rally in the S&P 500 is being driven by seven tech companies, Alphabet, Apple, Meta, Nvidia, Amazon, Microsoft and Tesla. The narrowness of the rally might be of concern to some investors. However, we are told by many analysts that this is actually good news, as it’s the start of a “tech rally” and thus, there is plenty of upside once the other tech companies take part.
Hence, my point. If you are counting on tech companies who are not really tech companies to broaden a rally, you are going to be counting a long time. WeWork is driven by the demand for office space, which is collapsing. Airbnb is driven by consumer spending for vacations at a time when many are predicting a recession. The same for Shopify, Uber, Lyft and Bookings. Netflix is facing backlash from their password sharing decision, sketchy new content and a hangover from the excesses of COVID. Ditto for Peleton. None of these so-called tech companies are being driven by the boom in tech. They are being driven by forces that having nothing to do with tech.
True tech companies will continue to prosper due to AI mania (I’ll have an upcoming post on that) and the very nature of the industry. But so-called BigTech will get no help from the tech wannabes who are nothing but service companies. If you are buying tech, buy the actual tech companies, not the ETFs littered with “me too’s”.