If this summer’s heat wave and accompanying series of natural disasters were any indication, the composition of the S&P 500 may be the least of humanity’s concerns in half a century.
But, if we assume our species is still around and in good enough shape to care about non-existential matters by, say, 2070, it’s worth noting that the next generation (or two) of investors will likely have a portfolio full of companies we’ve never even heard of in 2023.
“It would appear reasonable to assume the Fortune 500 list 60 years from now will include very few of the current dominant companies — at least in their current form and structure,” Goldman’s Peter Oppenheimer remarked, in a lengthy new note assessing the future of tech investment.
Barely 10% of today’s Fortune 500 companies were on the list when it was established in 1955, he went on to observe, adding that “none of the 10 largest companies in the S&P 500 in 1985 were still in the top 10 in 2020.”
And yet, if you ask Goldman, there are at least three reasons to believe today’s top companies — which is to say mega-cap tech or names we associate with tech even if they aren’t categorized as such — will have more staying power than has generally been the case historically.
Although a common refrain in today’s political discourse says there are only two bipartisan issues in Washington, China and big-tech regulation, there’s a powerful incentive for politicians not to push the envelope too far when it comes to attacking tech: The sector is a disinflationary force in the economy.
“In this way the tech sector from a policy perspective may be different from others, such as banks, supermarkets or energy companies, where politicians often argue that the benefits are not being passed on to consumers,” Oppenheimer said.
It’s a good observation. To be sure, it hasn’t stopped both Democrats and Republicans from going after big-tech so far, but the read-through is that as long as tech is willing to at least make a show of caring about privacy and data security, politicians will be inclined to leave it alone over time, particularly given how important it is to the US economic exceptionalism story and, increasingly, to national security.
Indeed, national security is the second reason Goldman suspects today’s tech titans might retain their dominance. “Technology, including cyber security, chips and increasingly A.I., are seen as a critical part of national infrastructure and strategic defense,” Oppenheimer wrote, adding that “this has become more important as geopolitical tensions rise across the world.”
Finally, today’s tech behemoths mint money, which means they can afford to invest unfathomable sums in R&D, which in turn helps cement their incumbent status.
The figure above from Goldman shows growth capex and R&D as a share of operating cash flow. It’s highest in tech at nearly 60%, triple the MSCI All-Country World.
The takeaway, from Oppenheimer: America’s “dominant tech companies may stay bigger for longer,” at least vis-à-vis historical tech cycles.
It’s strange to think: It wasn’t so long ago when there was no Google. I’m quite sure of it. I was there. And yet, now I can’t imagine a world without it.
I’ve had similar thoughts re: coming after big tech. We need it to keep supremacy.
Though, eventually they will collapse on their own weight. Working at big tech is boring. It’s bloated by a bunch a type a people who are more interested in collecting paychecks than pushing the needle. Eric Schmidt said as much when they lost an engineer to Uber.
“Technology, including cyber security… are seen as a critical part of national infrastructure and strategic defense,” Oppenheimer wrote…
My highest-conviction investment is a cyber-security ETF. It doesn’t matter how much technology changes or the ways in which it changes, there will always be a need for this. Tech change is by its very nature unpredictable, but even if someone invents a brand new chip technology that runs on light beams and diamonds tomorrow and it puts NVDA out of business in a year, even if someone launches a world-conquering free social media platform that everyone moves to, even if a new operating system dethrones every incumbent out there, there will be a need to secure it all.
It’s also definitely an arena where you want to go with the ETF instead of picking individual companies. I mean, that’s almost always the smarter choice regardless, but picking stocks can be kind of fun. With cybersecurity though, you can never predict who will suffer some kind of catastrophic failure and lose half their business. No amount of due diligence will allow you to foresee that outcome; but, one company’s loss is all its competitors gains, as businesses are all reminded yet again that their budget for security could always be larger.
I agree with the big picture presented in the article, but a large stable supply of raw material for social media is political entertainment parading as news, or the intense promotion of social hatred based on culture, and i just wonder if that is sustainable for 50 years. They are deep veins presently, but surely that is the low hanging fruit, at least for these influential arears of the devil tech. What do they mine when they run out of culture war humans.
I’m not holding my breath. I’ve been watching big companies come and go since I was a kid. I first subscribed to Fortune in the late 1950s, along with Popular Science and Popular Mechanics. There was a surprising level of prescience in all of them. Decades ago one of Michael Porter’s doctoral students did an exhaustive study of ongoing industry decline. Even then she found that more than half the industries in the US were in decline, defined as real output falling. [An industry defined economically, is a group of firms all making products that are close substitutes for one another. As in there is no such thing as the tech industry. Tesla and Intel are not industry competitors, for ex. AMD, INTC, and Nvidia are industry competitors, so they are part of the chip industry.] Today, much the same thing is happening. For ex. Weyerhauser is no longer a lumber company, even though it is a leader. It is now classified as a REIT. The bigger the giants get, the harder it is to remain as the monoliths they are. The base becomes too large to maintain historical growth. Parts start to disappear. Look at GE, Xerox, Kodak, etc. All former titans, now not so much. Whether growth is organic or external (by acquisitions) each business unit in a multi-unit entity eventually nears a market saturation position and stops growing so the company must add other units to keep growing. By the math alone, half of all those units will produce below average results and lose value. None of our titans can retain supremacy for as long as we would like. The five oldest recognizable companies in the US were all founded around the same time, in the 1830s. Only one, to my knowledge is a “titan,” Deere and Company.