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If you follow the US markets, you would have come across the term ‘big tech’ almost every other day- a name used to describe the five major tech giants, namely Apple, Facebook, Google, Amazon, and Microsoft. There are other ways to refer to these big tech companies, the acronyms- FAAMG or FAANG companies. ( FAANG includes Netflix in place of Microsoft; Read more on FAANG). After Facebook was named as Meta, these companies are also referred to as the MAANG companies. To put it simply, these big tech companies are called so because they are really very, very, big.
In this blog, we will tell you about big tech companies are such a big deal.
2021 started with the world still suffering from the pandemic and there were a lot of challenges big tech companies faced- namely supply chain disruptions, labor shortages, and rising prices, but even then their performance in 2021 was staggering. The five tech giants generated revenues of more than $1.4 trillion which means that they would have ranked 13th in GDP if they were a nation. According to the Generally Accepted Accounting Principles ( GAAP), they generated a profit of $320 billion! In fact, the tremendous growth generated by these tech giants has helped drive S&P 500’s rapid growth in the last decade or so. These companies have continued to dominate the market because they have shaped how individuals and businesses use technology and provided them with immense value.
But it is not just strong financial performance that makes these big tech companies so significant. Each of these companies has total dominance in their respective sectors. Millions of people across the globe are dependent on their products and services. Think of Apple – they have created niche products that have a loyal fanbase (millions of people love the iPhone), Google leads the Internet search business, Facebook is the world’s biggest social network and Amazon is the leading player in e-commerce services. Come to think of it, these big tech companies have a strong influence on every aspect of our lives, including the economy, society, and politics.
Economy : The big tech companies may be based in the US but with their presence across the globe and immense market power, they impact the economy across the globe.
Society : Since millions of people depend so much on the products and services of these companies, they have a huge impact on how we perform daily activities or interact with others.
Politics : Because big tech companies are so pervasive in our lives, they influence the minds of the users, voter bases, and even funding that goes into elections.
Big tech regulation
There has been much talk about the need to regulate big tech companies because big tech is too big. This is because these companies are rapidly gobbling up smaller companies, forcing their competitors to work under unfair terms and creating monopolies and that take away the power of choice from customers. This has led to several anti-trust lawsuits against them. The idea of these anti-trust lawsuits is to create an atmosphere of healthy competition and competitive pricing. A recent survey reveals that 2 in 3 US adults feel that the benefits provided by these companies do not outweigh the power these companies have or the need to regulate it. 38% of adults also feel that the government needs to regulate big tech more. Going ahead, it would be interesting to see how this pans out.
What to keep in mind
Now that we have got an idea of what big tech is all about, let us see the part it plays in your investments in the US stock markets. While you should definitely look to have these big tech stocks in your portfolio, remember that your US investment portfolio should not just be focused on these stocks. Investing a large sum of money in individual stocks could skew your portfolio and also be a risky bet for a beginner investor. One smart way to get exposure to these companies is through ETFs. For example, the Invesco QQQ Trust Series 1 ETF tracks the Nasdaq 100 index and some of its largest holdings include big tech stocks. The iShares Russell 1000 Growth ETF which provides exposure to US companies whose earnings are expected to grow at a rate that beats the market average also includes stocks of these tech giants among its top holdings. It is important to consider adding big tech stocks to your portfolio based on your risk appetite and to stay invested in them for the long term.
