The combined value of the S&P 500’s five biggest companies - Apple Inc (AAPL.O), Amazon.com Inc (AMZN.O), Microsoft Corp (MSFT.O), Facebook Inc (FB.O) and Google parent Alphabet Inc (GOOGL.O) - now stands at more than $7 trillion, accounting for almost 25% of the index’s market capitalization. That compares with less than 20% pre-pandemic.
The quintet’s burgeoning share prices reflect a transition to an increasingly technology-driven economy that has been accelerated by the coronavirus outbreak, as doorways fill with Amazon packages, homebound families stream movies and friends commiserate on Facebook.
Yet the companies are drawing opposition. U.S. lawmakers are accusing them of stifling competition, a charge also leveled in recent days against Apple by Epic Games, creator of the popular game Fortnite.
Some investors worry the companies powering this year’s equity rally could become the market’s Achilles’ heel if a legal assault, a shift to undervalued names or a move higher in bond yields dries up appetite for technology stocks.
“People see these companies as winners and investors are willing to pay any price to own them,” said Michael O’Rourke, chief market strategist at JonesTrading. “That’s always a risk.”
One potential threat comes from an array of investigations and legal actions.
The latest came Monday, when a federal judge temporarily blocked Apple from cutting off all the developer accounts of Epic Games, pending a full hearing on the issue. It was a partial win for Epic, which had called Apple’s rules an anticompetitive abuse of power.
The standoff centers on Apple’s App Store, which forms the centerpiece of a $46.3 billion-per-year services business that has helped buoy the company’s share price.
The decision “is just a first battle of many on the horizon,” said Dan Ives, an analyst at Wedbush Securities. “From a valuation perspective, there’s clearly an overhang around antitrust.”
Wedbush nevertheless raised its target price for Apple on Wednesday to $700 a share in a “bull case” scenario, citing a “once in a decade” opportunity to take advantage of as many as 950 million potential iPhone upgrades worldwide.
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