The Tech Sector Is Leaving the Rest of the US Economy In Its Dust (theverge.com)

Yesterday afternoon, the S&P 500 closed at a record high, and is up over $1.5 trillion since the start of 2017. "And the companies doing the most to drive that rally are all tech firms," reports The Verge. "Apple, Alphabet, Facebook, Amazon, and Microsoft make up a whopping 37 percent of the total gains." From the report: All of these companies saw their share prices touch record highs in recent months. This is in stark contrast to the rest of the U.S. economy, which grew at a rate of less than 1 percent during the first three months of this year. That divide is the culmination of a long-term trend, according to a recent report featured in The Wall Street Journal: "In digital industries -- technology, communications, media, software, finance and professional services -- productivity grew 2.7% annually over the past 15 years...The slowdown is concentrated in physical industries -- health care, transportation, education, manufacturing, retail -- where productivity grew a mere 0.7% annually over the same period." There is no industry where these players aren't competing. Music, movies, shipping, delivery, transportation, energy -- the list goes on and on. As these companies continue to scale, the network effects bolstering their business are strengthening. Facebook and Google accounted for over three-quarters of the growth in the digital advertising industry in 2016, leaving the rest to be divided among small fry like Twitter, Snapchat, and the entire American media industry. Meanwhile Apple and Alphabet have achieved a virtual duopoly on mobile operating systems, with only a tiny sliver of consumers choosing an alternative for their smartphones and tablets.

Comments

Digital advertising

[Anonymous Coward]

Digital advertising isn't an industry.

At best it is a digital parasite.

Re:Digital advertising

[Anonymous Coward]

If you would stop clicking on the spam mail promising to increase your penis size by taking a pill, a pump, or a secret diet then they'd stop. I blame you for all the crappy digital spam.

This isn't surprising

[rsilvergun]

The #1 cost of most things are the raw materials needed to product followed by the labor (and their benefits). Tech needs almost nothing to produce since it includes software and even then needs a fraction of the employees of most sectors. Tech has amazing ROI because you just plain don't need to invest very much.

The trouble is that a lot of tech is either useless (Twitter) or evil (Uber).

Re:This isn't surprising

[Kiuas]

Tech needs almost nothing to produce since it includes software

Uhm... what? You do know that increased demand for tech has caused the demand for raw materials involved in making tech, such as rare-earth minerals, to skyrocket?

Take, for instance, one of the world’s fastest-improving technologies: silicon-based semiconductors. Over the last few decades, technological improvements in the efficiency of semiconductors have greatly reduced the amount of material needed to make a single transistor. As a result, today’s smartphones, tablets, and computers are far more powerful and compact than computers built in the 1970s.
Nonetheless, the researchers find that consumers’ demand for silicon has outpaced the rate of its technological change, and that the world’s consumption of silicon has grown by 345 percent over the last four decades. As others have found, by 2005, there were more transistors used than printed text characters.
“Despite how fast technology is racing, there’s actually more silicon used today, because we now just put more stuff on, like movies, and photos, and things we couldn’t even think of 20 years ago,” says Christopher Magee, a professor of the practice of engineering systems in MIT’s Institute for Data, Systems, and Society.
“So we’re still using a little more material all the time.”
The researchers found similar trends in 56 other materials, goods, and services, from basic resources such as aluminum and formaldehyde to hardware and energy technologies such as hard disk drives, transistors, wind energy, and photovoltaics. In all cases, they found no evidence of dematerialization, or an overall reduction in their use, despite technological improvements to their performance.
“There is a techno-optimist’s position that says technological change will fix the environment,” Magee observes. “This says, probably not.” - -

“[Technology] will get us to a sustainable world — it has to,” says J. Doyne Farmer, a professor of mathematics at the University of Oxford who was not involved in the research. “I say this not only because we need it, but because there is only so much we can suck out of the Earth, and eventually we will be forced into a sustainable world, one way or another. The question is whether we can do that without great pain. Magee’s paper shows that we need to expect more pain than some of us thought.”

Chips don't grow on trees. This is a classic case of the Jevon's paradox which has been noticed since the very beginning of industrialization: as you increase the efficiency of a technology, whether it's coal plants, internal combustion engines or microchips, the demand for said technology goes up.

We have a limited amount of raw-materials in the ground and the extraction of the remaining resources will grow increasingly difficult and expensive with time, which means recycling of old electronics more efficiently is the only sustainable option in the long run. Same goes for plastics: we currently dump billions of dollars worth of plastic to dumps and the oceans but as the cost of oil keeps rising and plastics become more expensive, we should start to see the market turn towards a greener economy not because they care about the environment but because picking floating plastic out of the sea and reprocessing it will at one point (hopefully soon) become more cost-efficient than making new plastics out of a perishing resource.

What idiot...

[Nutria]

conflates the "stock market" with "the economy"????

Oh, right: journalists. I'd be unhappy as hell if my kids became lawyers, but kill the one that becomes a journalist.

Re:Bubble

[unixisc]

Of all the above, Apple is the only company that actually manufactures, and can bring jobs back to the US. The others - Alphabet, Microsoft, Facebook & Twitter, don't make squat (okay, Alphabet does a bit w/ the Pixel). And it's just as easy for them to offshore work as it is to hire within the US, since most software jobs now are remote jobs that can be done on 'the cloud'.

You could try shorting Snap, Inc stocks: those are definitely overvalued, and given that their main selling point is that kids love them, kids can just as easily do to them what they did to MySpace. But I thought that the value you'd lose to taxes would be more like 27% or thereabouts.

Re: Bubble

[SuperKendall]

Those types of jobs are in fact coming back, for good reasons - Apple wants somewhere closer to home to make more things so they can contribute leaks.

Apple may be at the forefront but MOST manufacturing is going to go local in the next decade or so.

How can it come back? Greatly increased use of automation means you don't have to hire nearly so many expensive U.S. workers, so automation actually makes more locally sourced manufacture more desirable again.

There will not be as many jobs, sure, but they will be there and they will be better than what came before.

Bubble?

[thogard]

The reason those stocks are increasing is that millions of people have their 401K investing in "tech stocks" The people who manage some of those get a billion a week that they are obligated to invest before the next billion shows up next week. The result is the tech stocks are over valued and the price keeps going up as the game continues.

This gets worse when they go to prove their investment works. Say they bought a billion in shares in GOOG 5 years ago at $300. They can sell them this week for $950 or so they make a 2.16 billion profit which they can keep for weeks since it was a result of a sale of stock. Next week they dump another billion into GOOG stock at say $1000 and they other 3.16 billion from last weeks sale may go to something else like IBM and MSFT just after the investment firm reports wonderful profits.

There is a class of investment in the UK that is limited to something like 60 tech companies and there are retirement funds that are limited to those 60.

The high speed computer traders know this and have been gaming the system for decades.

Re:Bubble?

[swillden]

The reason those stocks are increasing is that millions of people have their 401K investing in "tech stocks"

All evidence suggests that you're completely wrong. Tech stocks are soaring because tech revenues and profits are soaring, not because their prices are being artificially bid up.

If your argument were correct, we should expect to see crazy P/E ratios in those tech stocks, as they're bid way up ahead of earnings growth. The three you mentioned, GOOG, IBM and MSFT have P/E ratios of around 30, 12 and 30, respectively. The GOOG and MSFT numbers are slightly higher than is normal, but seem totally justifiable given that the companies both still have excellent growth prospects (rational stock prices should represent the net present value of future income). Now, if you want to look at an inflated P/E, AMZN is about 180... but that's only because AMZN chooses to keep its profits low, reinvesting instead to increase shareholder value a different way. Everyone knows that Bezos could decide to flip a switch and start generating profits an order of magnitude larger, instantly dropping his P/E to 18, where AAPL's is.

P/E is just one measure. You can do the same analysis on several others, and you'll find exactly the same thing.