Tech firms hoard huge cash piles – Schumpeter The Economist May 31st 2017


Their excuses for doing so don’t add up

TAKE a moment to admire—and fear—the ascent of America’s big-five tech firms. Apple, Alphabet, Microsoft, Amazon and Facebook have recently become the five most valuable listed companies in the world, in that order. With a total market value of $2.9trn, they are worth more than any five firms in history.
Elevated tech valuations used to be a sign of hysteria. Today’s investors believe they are making an ice-cold judgment that these firms are the dominant oligopolies of the 21st century and will extract a vast, rising, flow of profits. There is one gnawing doubt, however: the formidable five’s cash-rich balance-sheets, which are built as if they expect a crisis, not to dominate the world.

It is easy to see why investors are keen. Billions of users are tied into these firms’ social-media networks, digital assistants, operating systems and cloud-computing platforms. The five firms are squeezing traditional competitors such as IBM and Macy’s. Together they make $100bn of profits. Analysts forecast this will rise to $170bn by 2020. The rebels of Silicon Valley have evolved into slick moneymaking machines with high market shares. For investors it just doesn’t get any better.

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