{"id":6411,"date":"2020-02-04T18:19:35","date_gmt":"2020-02-04T22:19:35","guid":{"rendered":"http:\/\/stateofthenation.co\/?p=6411"},"modified":"2020-02-04T18:19:35","modified_gmt":"2020-02-04T22:19:35","slug":"when-18-of-the-stock-market-is-comprised-of-these-5-darpa-conceived-tech-companies-the-bubble-to-end-all-bubbles-is-about-to-pop","status":"publish","type":"post","link":"http:\/\/stateofthenation.co\/?p=6411","title":{"rendered":"When 18% of the stock market is comprised of these 5 DARPA-conceived tech companies, the BUBBLE to end all bubbles is about to pop!"},"content":{"rendered":"

5 powerful tech companies now make up 18% of the stock market \u2014 here’s why this could be a bad thing<\/h1>\n

Brian Sozzi, Editor-at-Large
\nYahoo Finance<\/p>\n

We are here to say that yes, there is life outside of investing in Apple, Microsoft, Amazon, Google and Facebook. Unfortunately, most investors don\u2019t agree \u2014 and it could end badly for them at some point.<\/p>\n

Those five powerful tech companies now comprise a hearty 18% of the S&P 500\u2019s market cap, points out Goldman Sachs strategist David Kostin. That has put the S&P 500 in an unwelcome category: the dot com bubble. In 2000, Kostin notes, Microsoft, Cisco, General Electric, Intel and ExxonMobil also made up 18% of the S&P 500\u2019s market cap. Obviously that didn\u2019t end too well back in 2000 for the simplest of reasons.<\/p>\n

Investors were too concentrated in tech and cyclicals such as Microsoft and GE during a time when the market turned rapidly risk off and economic growth slowed sharply. The lack of diversification bit investors in the rear, plain and simple.<\/p>\n

Kostin is a little more hopeful investors won\u2019t be burned this time around, however.<\/p>\n

For one, valuations on the aforementioned big cap tech companies are more appropriate relative to the top five market cap names in 2000. In other words, tech valuations could be justified given their recent and projected growth rates in sales and profits.<\/p>\n

Apple, Microsoft, Amazon, Google and Facebook trade at a forward price-to-earnings multiple of 30 times versus a healthy 14% expected sales growth rate. Back in 2000, Microsoft, Cisco, General Electric, Intel and ExxonMobil traded on a rich 47 times price-to-earnings multiple… realized sales turned out diving 7%.<\/p>\n

\u201cIn order to avoid repeating the share price collapse experienced by their predecessors, today\u2019s market cap leaders will need to at least meet \u2013 and preferably exceed \u2013 current consensus growth expectations. This time, expectations seem more achievable based on recent results and management guidance,\u201d Kostin says.<\/p>\n

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A picture taken on August 28, 2019 shows the US multinational technology and Internet-related services company Google logo (top L), US online store application Amazon (top C), US online social media and social networking service, Facebook (top R) and US multinational technology company Apple logo application (down C) displayed on a tablet in Lille. (Photo by DENIS CHARLET \/ AFP) (Photo credit should read DENIS CHARLET\/AFP\/Getty Images)<\/div>\n<\/figcaption><\/figure>\n

In the meantime, today\u2019s big cap leaders remain aggressive in reinvesting in their business to drive future profits. That suggests, according to Kostin, valuations could prove sustainable.<\/p>\n

The collective three-year growth investment ratio (measured by Goldman as growth in capital expenditures and R&D spending as a share of cash flow from operations) for today\u2019s S&P 500 top five equals 48% vs. 21% for the broader index, Kostin\u2019s data shows. In contrast, the five largest stocks in March 2000 invested less of their cash flow back into their businesses than the rest of the index (26% vs. 34%).<\/p>\n

Despite Kostin\u2019s compelling data, being too bullish on five big cap tech stocks right now seems folly.<\/p>\n

First, not all of the companies are performing at their very best \u2014 Microsoft<\/a> is fresh off another mind-blowing quarter, Facebook<\/a> not so much. Investors don\u2019t have to own both names, they could be more scrutinizing. Further, privacy concerns and antitrust investigations will likely be major headwinds over the next decade for Amazon, Google and Facebook. At some point those issues could come to a head and trigger a re-rating in all three names.<\/p>\n

Remember the lessons of 2000, folks.<\/p>\n

___
\nhttps:\/\/finance.yahoo.com\/news\/5-powerful-tech-companies-now-make-up-18-of-the-stock-market-heres-why-this-could-be-a-bad-thing-145710881.html<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

5 powerful tech companies now make up 18% of the stock market \u2014 here’s why this could be a bad thing<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-6411","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"http:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/posts\/6411","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/stateofthenation.co\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=6411"}],"version-history":[{"count":0,"href":"http:\/\/stateofthenation.co\/index.php?rest_route=\/wp\/v2\/posts\/6411\/revisions"}],"wp:attachment":[{"href":"http:\/\/stateofthenation.co\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=6411"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/stateofthenation.co\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=6411"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/stateofthenation.co\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=6411"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}