Are the big tech stocks immune to viruses? Amazon and Microsoft are thriving 

There are two distinct categories of virus.

Organic, microscopic living ones that have existed since the earliest stages of life on Earth billions of years ago, and digital computer-based ones that have only become widespread in the past 20 to 30 years. 

Both organic and digital viruses can potentially cause huge harm and disruption but it is certainly the former which is proving a much bigger problem for humanity at the moment.

The reason why the second category is also now a great danger is our reliance on the technology humans have created. 

The products and services provided by the big tech firms are deeply embedded in the lives of individuals and the business practices of companies.

While being a risk factor for nations and the world, this reliance has meant the big tech companies are very well positioned to ride out economic downturns like the lockdown-induced one we are in the midst of now.

The things they supply can be used wherever you find yourself as long as you can connect to the internet, meaning they do not rely on people having to venture out of their homes to specific locations. If anything, the lockdown has made us more reliant on them rather than less. 

Sean Markowicz, a strategist at Schroders explains: ‘Microsoft has reported a surge in usage of its cloud computing service Azure, as millions of people work from home.’

‘Amazon is hiring an additional 75,000 workers, on top of the 100,000 it hired last month, to cope with increased demand for its online delivery service.’

‘The number of video calls and messaging on Facebook has exploded, while a record number of gaming apps were downloaded in China on Apple’s app store. YouTube Kids, owned by Google, was the most streamed app in the first quarter of 2020 according to a report by Apptopia and Braze, following the closure of most nurseries and schools,’ he continued. 

‘Unsurprisingly, the FAMAG stocks – Facebook, Amazon, Microsoft, Apple and Google – have significantly outperformed broader market indices as a result of stay-at-home orders,’ Markowicz said. 

‘The more common FAANG acronym includes Netflix but not Microsoft. We use an alternative grouping because Microsoft is the most valuable public US company – the total value of its shares makes it seven times larger than Netflix.’

Markowicz also pointed out that these companies have accrued vast piles of cash over the years which leaves them more than capable of riding out even a severe recession.

So buying tech shares is a complete no-brainer right? Not necessarily. 

A global recession does have implications for them and you could make the argument all the good news and resilience is already priced in.

The fact is, that if people around the world have less money to spend overall as is the case in a recession, tech firms will feel that in their earnings to some degree over time.

As well as direct to customer sales potentiality slowing, the likes of Google and Facebook can also take a hit from the inevitable advertising drop-off that comes with a recession. Whether these things will be enough to seriously hurt the share price is questionable though.

The real major risk area for big tech stocks is governments intervening to break them up or restrict their market power in other ways. This is something which is growing increasingly likely. 

There is also always a possibility of them being hit with huge fines if deemed to have behaved in anti-competitive or reckless ways by regulators.

‘Over the past 18 months, the FAMAGs have already faced a barrage of criticism over their anticompetitive behaviour,’ noted Markowicz. ‘The bigger tech becomes, the more likely they will become more heavily regulated. History is replete with such examples. At some point, this could have serious implications for their growth prospects.

‘With a number of governments turning to tech companies to help manage the virus outbreak, one possibility is that the major digital platforms could become regulated like public utilities given their increasing size and influence.’

‘In the past, governments did not hesitate to regulate services that were deemed essential public goods such as railways and energy suppliers. New regulations could be imposed that limit how these firms monetise data and which markets they can participate in.’