Is the era of tech giants coming to an end?

The dominance of the Big Seven has led to a rapid increase in the market value of the tech giants, now reaching several trillion dollars. For example, as of today, the two most valuable companies in the US, Apple and Microsoft, are each worth three trillion dollars. To illustrate the growing interest in technology, a textbook example is Nvidia. It took the graphics chip maker nearly 20 years to reach a trillion dollar market cap. It took almost a year and a half to reach the second trillion, and the third trillion was achieved in only four months. Jokingly, it can be said that it could take a company just a few days to reach a market value of four trillion. Although the biggest IT giants continue to be the most favored stocks for most investors, their ability to generate trillions of dollars in profits is still not as certain as it once was. Despite the fact that the efficiency and competitiveness of large companies continue to be high, their market values ​​may remain close to the current level due to the increasingly central role of regulatory requirements and thus the declining attractiveness of investments.

The problem, however, is that governments around the world are paying more and more attention to the market leaders. At the same time, national budget deficits are becoming a threat to macroeconomic stability, as a result of which the state authorities may impose more fiscal pressure on the largest players in the economy. Systemic anti-competitive investigations in both the USA and Europe have announced this. As a result of this orientation, Nvidia was the last major technology company to experience a decline in market capitalization, whose shares fell by a record $279 billion on September 3, according to Wall Street.

While stocks of the tech giants shouldn’t be abandoned, the Big 7 should be wary because, despite their significant profits, they are likely to face increasingly stringent regulations in the future, with companies having to share with more parties than just shareholders. Therefore, when investing, you should not stick to old patterns, but look for other ways to reap the benefits of investing money.

In May 2022, the Freedom24 team and I built a mock portfolio of promising small- and mid-cap companies. At that time, the Nasdaq 100 index had fallen by several percentage points since the beginning of the year, thereby affecting many efficient and profitable companies whose market values ​​were significantly lower, but which still managed to keep their fundamental indicators strong. In the first months of growing the portfolio, the goal of the investments was to take advantage of the recovery in the stock prices of these companies, with the total value of the assets increasing by 30-40%. The best return on investment was provided by ShockWave Medical, a company engaged in the development and commercial use of a medical technique – intravascular lithotripsy – for the treatment of coronary diseases. Buoyed by a deal with pharma giant Johnson & Johnson ( JNJ ), which acquired ShockWave earlier this year for $13.1 billion, its price has risen 126% since its initial investment.

Two years later, however, the portfolio is slightly lower than its initial value, which illustrates well the concentration of the stock market. Investors have continued to increase their holdings in the largest IT companies while ignoring mid-caps. Leaders have seen all sorts of gains, while small- and mid-caps have reported little to no change in their market values. In other words, if we look at the performance of the Nasdaq 100 without the influence of the Big Seven, it turns out that nothing significant is happening to the index.

However, the situation is likely to change over time, because the market is developing certain conditions, as a result of which investors should be prepared for possible increases in the volatility of the stock market, especially in relation to the shares of technology giants.