When those results come only days after the Nasdaq index of mainly tech stocks passed the 6,000 mark for the first time, moving further above its dotcom bubble peak, those results call for even closer scrutiny.
Apple chief Tim Cook blamed leaks about the next iPhone for the surprise dip in iPhone sales. The unexpected weakness in sales, saw the share price slip, nonetheless the tech giant still posted strong figures with a 10% rise in earnings and the dividend.
In recent months, Apple’s share price has soared, rising by around 50% since last summer. Most analysts put the dip in iPhone sales down to customers putting off purchases to wait for the new model of the company’s flagship device.
Meanwhile, the Nasdaq index, which holds Apple as its biggest constituent has reached a level no-one would have believed possible after the implosion of the tech bubble 15 years ago. Having bottomed out at less than 1,300, the Nasdaq has risen nearly five-fold. The 13% rise in the tech-heavy index so far this year is twice the rate of growth for the broader S&P 500 index.
The rip-roaring Nasdaq, coupled with a swathe of results from the world’s biggest technology companies, has put the tech sector firmly back in focus. Is this the most exciting place for investors to be right now? Or are we headed for a worrying re-run of the dot.com bubble?
Before you make that call, it’s worth taking a closer look at the rapid rise of the so-called "Fangs", an acronym coined four years ago by US finance expert, Jim Cramer as an abbreviation for Facebook, Amazon, Netflix and Alphabet’s Google, with Cramer later adding another "A" for Apple.
According to a recent report in the Guardian, these tech giants have ballooned in value by $250bn since January - that’s double the value of all the gold mined in a year (1) - in just four months. The report points out that share prices of Facebook, Amazon, Netflix and Google have climbed so far, so fast, that together they are now worth $250bn more than just four months ago. The four firms combined are now valued on Wall Street at more than $1.5tn, about the same as the Russian economy.
A key factor behind the astronomical rise in the value of the Fangs has been president Donald Trump. Or to be more precise, the so-called "Trump trade". As the Fangs all have huge international earnings, the market expects them to be huge beneficiaries of Trump’s promised tax reform.
Take Apple as a case in point. The company has made a ton of profits outside the US but due to current tax laws chooses to keep money outside of America rather than return it and pay America’s relatively high corporate tax rate.
The US president’s plans for significant corporate tax cuts and the easing of tax restrictions on profits made abroad, has driven market optimism that companies like Apple would return more cash to shareholders in the form of dividends and buybacks.
As part of its latest announcement, Apple has said that it would buy back more of its own stock and raise its dividend, which should bode well for the stock price. That’s the result investors were hoping for (although some would prefer Apple to rather spend its money on developing new products.)
But the key here is how long the "Trump tide" that’s lifted all US shares, most notably those with international earnings like the Fangs, will last? Last week’s tax roadmap left the market disappointed - it was thin on detail and, crucially, even thinner on just how it would all be paid for.
Back to the question of whether we are headed for another tech wreck? Today’s Nasdaq looks quite different from the one associated with the days of dotcom euphoria. The index is much more diversified across sectors than it was back then. And while tech stocks still make up almost half of the index, these are very different beasts to the companies that had gone public back in the late ‘90s in a bid to cash in on investors’ insatiable appetite for anything tech. These were young, overzealous companies with no earnings to speak of whatsoever.
Today the tech stocks that make up the bulk of the Nasdaq are some of the world’s most successful companies. While some might argue that valuations are looking a bit stretched, at least these companies have viable business models and are making substantial profits.
Maike Currie is an investment director at Fidelity International and the author of The Search for Income – an investor’s guide to income-paying investments. She acts as a spokesperson and commentator on investments and consumer finance with a special focus on income, interest rates and inflation. Prior to joining Fidelity, Maike worked as a financial journalist across a number of titles in the Financial Times Group. She continues to write a regular column for the FT.
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