Large technology stocks like Amazon, Microsoft and Apple have fallen either in line or significantly less than the broader Standard and Poor's Index. Amazon, even, is up 27% year to date, while the S&P 500 is down 6 % year to date.
During earlier crises like the dot-com boom and subsequent bust and the Great Recession in 2009 technology stocks have been laggards. Why the outperformance or good performance of the large technology stocks like Amazon, Microsoft and Apple? For Amazon's outperformance there are two drivers cited - online retailing and its cloud business. Since, the global economy is in a lockdown and people are social distancing, people are buying even more online. Firms are using more and more cloud services, in which Amazon boasts an approximately 32% market share, to save on costs, boost productivity and collaborate remotely in an online environment efficiently. For Microsoft, the second largest firm in cloud computing measured by circa 15% market share, cloud services and its Microsoft Windows and Office units are cited for Microsoft's remarkable share price stability, as well.
Apple is an interesting case. Apple does not have a significant cloud business. It is difficult to imagine that consumers are thinking consistently of buying new iPhones, Mac or iPads in the current economic environment. An explanation for Apple's tock resilience could be that mobile phones, tablets and computers where Apple is a leader have become an utility, or with other words indispensable parts of our lives. What is more, the sheer scale, size and large cash on hand and low debts of Amazon, Microsoft and Apple provide for stability which institutional investors are actively seeking.
However! However, I have a more benign suspicion which would partly explain the resilience of Amazon, Microsoft and Apple's stock prices. Amazon, Microsoft, Apple along with Google, Netflix and Facebook have been the leaders of the remarkable stock market rally we have witnessed since March 2009. The Nasdaq Composite of predominantly technology stocks has outperformed the S&P 500 and the Dow Jones Industrial Average by a wide margin. Many institutional investors like pension funds, endowments, hedge funds and sovereign wealth funds are sitting on large positions of Amazon, Microsoft, Apple, Google, Netflix and Facebook's stocks.
Basically, institutional investors with large positions in technology stocks are in both denial and fear. They are clinging on their technology stocks investments, because they know if they start selling them massively they are going to incur large mark to market losses and will not fulfill the promises they made to their investors. They are using explanations like cloud business, personal computing utility, mobile phones utility to justify clinging to their technology stocks holdings.
My forecast: large technology stocks like Amazon, Microsoft, Apple along with Google, Netflix and Facebook's stock prices are going to crash massively from their current levels. The whole global economy is in a mess. It is hard to believe that large technology stocks will remain unaffected by the economic malaise we are in because of the coronavirus disease COVID-19.
Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
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Respectfully yours,
Petar Posledovich
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