Big Tech added R40-trillion in market value in 2021

Big Tech powered US stocks to a third straight winning year in 2021, as giants such as Apple and Microsoft continued to see strong demand almost regardless of the economic environment.

Five of the market’s most notable Internet and technology names — Apple, Microsoft, Google parent Alphabet, Amazon.com and Facebook parent Meta Platforms — rose this year. While their performances varied from Alphabet’s almost 70% surge to Amazon’s 4% slog, the group collectively added more than US$2.5-trillion (R40-trillion) in market valuation.

Microsoft, Apple and Alphabet were the three biggest contributors to the S&P 500 Index’s 2021 gains. Without the trio, the S&P’s total return of 29% would’ve been 26%.

“Investors have recognised that these companies continue to do extremely well,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott, which has about $125-billion in assets under management. The rapid growth of their profits, their competitive moats and the strong balance sheets have protected them from some of this year’s risks, he added.

“While I believe in the merits of tilting toward cyclical names going into 2022, I would not abandon tech,” Luschini said.

Here’s how the group performed, starting with its biggest gainer:

Alphabet

Google’s parent company soared 67% in 2021, making it the top performer among Wall Street’s biggest names. This was the strongest year for the stock since 2009, and it briefly joined Apple and Microsoft with a $2-trillion market valuation.

Alphabet benefitted from growth in its cloud business as well as a rebound in digital ad spending, particularly in key categories like travel that were hurt by the pandemic in 2020. Earlier this week, CFRA upgraded the stock to a strong buy based on its “attractive valuation versus large-cap tech peers” as well as a “belief that it can sustain a mid-teen annual revenue growth pace over the next three years”.

Microsoft

The software giant surged 53% in 2021, pushing it into the $2-trillion market capitalisation club. The stock has gained for 10 consecutive years, its longest such rally ever, and it’s put up double-digit returns for nine straight years. The shares have risen more than 1 200% since the end of 2011.

Microsoft’s strength came from steady demand for its cloud computing and enterprise software.

Apple

The iPhone maker rose 34% in 2021, beating the S&P 500 for a third straight year. While 2021 marked its weakest performances of the three — the stock rose more than 80% in both 2019 and 2020 — the rally has brought the company within striking distance of a historic $3-trillion market capitalisation.

Despite issues like a shortage of chips and the ongoing pandemic, which recently prompted Apple to shut its New York City retail stores, the stock remained a favourite with investors in 2021.

The company continues to benefit from the global popularity of its products, the potential for new offerings to maintain steady sales growth and a strong cash balance. And the future looks bright with investors favouring equities that considered high quality with long records of growth amid the uncertainty related to Federal Reserve policy and the prospect of higher rates.

Meta Platforms

Shares rose 26% in 2021, roughly in line with the S&P 500, despite one of the most tumultuous years in the company’s history. While Facebook’s parent continued to benefit from high user engagement across its platforms and an ongoing shift of advertising budgets toward social media, it struggled with the impact of Apple’s changed privacy policy and intense scrutiny of its products, especially after the release of documents from a whistleblower

In October, the company announced a new focus on the metaverse, an immersive virtual reality technology, and a new name to reflect the shift.

Meta’s gains came mainly in the first half of 2021, as the stock hasn’t traded at a record since September. However, Wall Street is optimistic about the company’s prospects in 2022, given what’s seen as an attractive valuation and a powerful engine for generating profits. Baird just named it one of its top large-cap Internet picks for 2022.

Amazon.com

The e-commerce company was a notable under-performer in 2021 relative to its megacap peers and the market as a whole. The stock gained 3.6%, marking a seventh straight positive year, its longest winning streak ever. Since the end of 2014, the shares have soared nearly 1 000%.

Amazon traded within a fairly narrow range throughout the second half of the year, as a pair of disappointing quarterly reports, rising labour costs and supply-chain disruptions weighed on shares. Last Wednesday, Mizuho Securities MD Jordan Klein wrote that among investors there’s a “clear view that the sell-side seems to be mis-modelling 1H22 (as in much too high)”. Still, a number of firms have named Amazon their top pick for 2022.  — (c) 2022 Bloomberg LP