Nov 1, 2021 - Economy & Business

Big Tech's reshuffle

Data: FactSet; Chart: Jared Whalen/Axios
Data: FactSet; Chart: Jared Whalen/Axios

Last week may go down in the Big Tech history books.

Driving the news: Tesla displaced Facebook — which unveiled a new name, Meta Platforms — in the S&P 500’s top five companies by market cap. And Microsoft overtook Apple as the world’s most valuable company, for the first time in over a year.

Catch up quick: Earnings reports for Big Tech’s top five broke across a few dominant themes.

  • Cloud and services outperformed, driving Alphabet and Microsoft to new heights. But supply chain and labor costs dragged down Apple and Amazon's physical businesses, weighing on their stock prices after pre-earnings bumps.

Why it matters: These trends set the tone for the next few quarters, as many of the dynamics are unlikely to change in the short term.

  • As these giants go, so goes the market. The five largest companies in the S&P — Microsoft, Apple, Alphabet, Amazon, and now Tesla — make up 23.4% of the index as of Friday (as recently as year-end 2019, the top five S&P constituents were just 17% of the index).

What they’re saying: “It’s really a story of two different types of companies,” says Tony Roth, CIO at Wilmington Trust.

  • “Service providers’ input costs are not rising significantly. … On the other hand, [for Apple and Amazon], it's all stuff and people. And stuff and people bring lots of challenges as it relates to price pressure,” he says.

Reality check: Last week's tech stock laggards still made unfathomable sums of money. And the supply chain problems may start to iron themselves out sometime next year.

The bottom line: That kept valuations from falling further — and helped the S&P and Nasdaq surge to new record highs by Friday's close.

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