My Big Tech Bets: MAGA

Excuse the Trump-ism whether you swing his way or not. We’re here to talk stocks, not politics.

The ‘Big Tech’ moniker was coined in honor of the biggest technology companies, like present day Big Pharma and Big Oil or the former Big Tobacco and Big Steel of the now distant 20th century. Unlike those other Bigs though, Big Tech has come to dominate world markets. These behemoths, already the biggest companies in the world as of several years ago, have further ballooned in the COVID-19 era. Several of them have **market capitalizations greater than the GDP of all but the [10 richest countries](https://www.worldometers.info/gdp/gdp-by-country/)**.

Together, they account for around a quarter of the S&P500, closer to 30%+ when you consider Tesla and Tencent and others climbing the trillion dollar ladder. This handful of companies have become the stock market bellwethers, a designation once held by names like Exxon $XOM, IBM $IBM, and Boeing. They’re the modern blue chips, bigger than ever before, and they’re **tech stocks**.

Here are the world’s five biggest tech companies, all from the good ol’ USA:

Google | Apple | Facebook | Amazon | Microsoft

The acronym bandied about in the past years has been ‘FAANG’ but that’s a misnomer given its exclusion of Microsoft, the world’s second biggest company. Rather, the five FAAMG companies listed here make up 5/6 of the **world’s largest companies** — the only exception is the $2 trillion Aramco oil company, the prized possession of OPEC leader Saudi Arabia.

After the four MAGA stalwarts Facebook’s market cap is a far fifth under $1 trillion, and then FAANG’s Netflix a further sixth at $300 billion. Market cap is important.

I associate a bigger market cap with greater stability and price support, an extension of Too Big To Fail. Hear me out:

I think of it as similar to the government’s bailouts of the Too Big To Fail banks and automakers of the Financial Crisis, and now the Too Big To Fail airlines of COVID-19. And even the government’s unprecedented measures pale in comparison to the Fed’s broadened powers these last 13 years. Rockbottom rates and QE on demand have kept money cheap and markets bubbling. Eventually the party will end, conventional economics dictates, but so far it’s made for a historic bull market.

So you have the government, the Fed, and cheap money flowing through the economy. Where does the money go? Stocks, which are at a [70-year high](http://at a 70-year high as a share of household financial wealth) as a share of US household financial wealth.

Lots of that money also flows to the ever-increasing and eye-popping **$7 trillion in passive index funds**, which essentially poor money into Big Tech companies thanks to their large portions of the index pies — due to their market caps.

Big Tech companies represent an increasing chunk of people’s wealth. Whether it’s the government or the Fed or free market forces, I can’t imagine the pillars upon which that wealth is built to collapse.

Theories aside, market cap is the least of my reasons for excluding Facebook from my Big Tech bets. I don’t like Facebook because:

• TRUST: They’ve lost the trust of their users thanks to data privacy concerns. It’s hard for a community to recover after a breach of trust, let alone several over the **past [few](https://www.cbsnews.com/news/sean-parker-facebook-takes-advantage-of-vulnerability-in-human-psychology/) [years](https://www.forbes.com/sites/carlieporterfield/2021/09/13/facebook-reportedly-allowed-powerful-users-to-break-platform-rules/?sh=58e4e0874d4e) and recently**.
• iOS PRIVACY: Here’s a big one: the impact of Apple’s new privacy policies on Facebook’s core advertising business. This is the biggest short term threat, both in the news cycle and potentially on their bottom line numbers. Last week, Snapchat plummeted ~25% on the news that Apple’s new policies hurt their quarter’s results. A 25% drop?! Based on one’s quarter’s less-than-stellar numbers, resulting from a policy change whose impact on ad dollars is still largely unknown? Yikes. Toss it up to frothy markets and fickle traders.
• RELEVANCE: Their core revenue generators Facebook and then Instagram haven’t been successful in reaching generations boomer to millennial through Z. Entire age groups have barely heard of these platforms, teens and 20-somethings rolling their eyes at the static news feeds their parents consume. Instead, they’re on newer and more dynamic TikTok and Snapchat.
• COMPETITION: More competition for ad dollars every year from other internet platforms like Snapchat, Twitter, Pinterest, LinkedIn and the mammoth YouTube — all of which are younger in higher growth mode and whose monetization strategies have only recently yielded fruit— and a host of specialized social networks that are increasingly successful in ‘going viral’ and attracting hosts of new users, like Telegram and Discord. Facebook’s WhatsApp and Instagram acquisitions saved their butts. Looking forward, acquisitions is not a great long-term strategy for any business and especially in this political climate.
• $DWAC: The threat newly posed by Donald Trump and his viral SPAC Digital World Acquisition Group $DWAC, set to create his TRUTH social media empire-to-be. Could be nothing, but it’s another headwind in the news cycle at a precarious point in time. More bad news for Zuck.
• REGULATION: This is the token risk associated with all internet companies. Too hard to predict so I won’t. Not much of a factor in my mind, but it’s another question mark accompanied with bad PR. And some pocket change for legal fees and lobbying expenses.
• ONE-TRICK PONY: 97% of their revenue comes from advertising. That makes them more vulnerable to the other issues mentioned here.

Now, turning to the most immediate market concern: Facebook reports quarterly earning later today. Apple’s privacy changes will be discussed, and if investors react poorly it could get ugly. I can see some serious damage to the stock over the next week and I expect strong headwinds until they’ve convinced investors they figured out how to adjust their advertising machine. **Tim Cook has bested Mark Zuckerberg**.

Moving on, Netflix is a powerhouse and they’ve done a terrific job in delivering fresh content to their growing user base. I’ve foolishly dabbled in shorting them over the years and they’ve mostly proven me wrong.

But the streaming wars have only just begun and in less than two years Disney has captured a big chunk; AT&T / Discovery’s entertainment empire has yet to take form; and Amazon and Apple also have their own streaming library — free, in Amazon’s case, if you’re one of their 100M+ prime members. And there are others. Lots of stiff, well-funded competition.

I’d keep holding if I had a sizeable stake, but at current prices I don’t intend to buy in.

So, in the big world of Big Tech, I’m picking the four biggest S&P500 stocks Apple, Google, Amazon, and Microsoft — in descending order. You might say my top four is entirely unoriginal and I’m just replicating the market, and you’d be right! I guess I’m trying to avoid **being stupid**. If Big Tech is as big as it is then who am I to argue with Mr. Market? Maybe this is 2021’s version of playing it safe.

Conveniently, the acronym is easy to remember: MAGA.

[Disclosure: I have positions in Apple, Amazon, Google, Microsoft, Exxon, IBM, and Digital World Acquisition. I am an **amateur investor**.]