The stock index of the United States, the S&P 500, rose above 5600 points last week, reaching a record high. This is mainly due to a small number of large tech companies, such as Alphabet (Google), Microsoft, and Nvidia. According to Thijs Knaap, chief economist at APG, this carries some vulnerability, although it is not unusual.
Knaap was a guest on the investors' panel on BNR Nieuwsradio yesterday. The discussion mainly focused on the dominance of Big Tech in the markets. For instance, Alphabet, Google's parent company, is in advanced talks to acquire Wiz for approximately $23 billion. This would be its largest acquisition ever.
"Wiz offers an all-in-one approach to cloud security, and already processing data from Google Cloud and other cloud platforms. They are complementary, and presumably, Alphabet's executives see the acquisition as a way to strengthen Google's cloud activities", says Knaap. Whether the acquisition will actually happen remains to be seen. "Regulators, who are critical of Big Tech's market power, will certainly have something to say about it."
Significant Influence
The significant influence of the big tech companies on the economy is also evident from their position within the S&P 500. The top 10 companies account for 40 percent of the market value. "Look, this is not entirely unknown. Major oil companies have also had a dominant position in the index in the past. But still, there is a vulnerability", Knaap acknowledges.
He specifically points to the explosive growth of AI chip company Nvidia. "This is a hardware company, and hardware companies are super cyclical. In other words, revenue goes up and down within a few years. For instance, their revenue was at the bottom last March, and it is expected to peak by the end of this year. So if you rely on insights from the past, it will be interesting to see how sustainable the growth is."
Thijs Knaap also discussed the dividend payouts by tech companies and Noordzeker, which focuses on large-scale wind energy generation in the North Sea and is an initiative by a consortium of ABP, APG, and SSE Renewables. Listen to the broadcast here (in Dutch).