The Covid-19 crisis has created an unprecedented boom among global tech stocks, but it has become clear that the largest technology companies are expensive, and possibly in their own stock market bubble. While their revenues increased during lockdown, and many technology trends have accelerated, their valuations have skyrocketed.

The largest five companies in the world are now all technology companies, excluding Saudi state oil company Saudi Aramco, which was established in 2019 with an initial public offering that gave it a market capitalisation of $1.9-trillion. However, only 1.5% of the company was floated on the Saudi stock exchange.

Taken together, the largest 10 tech companies, including Chinese giants Alibaba and Tencent, enjoy market capitalisation of $9-trillion, about 10% of the total world stock market. Their revenues amount to just more than $1-trillion, about 1% of world GDP. Apple revels in 21% net profit margins, which for a computer manufacturing company is insanely high, while Amazon makes just 4% net profit margin, the secret to its own success.

The collective secret lying behind the exponential success of these companies? Screen time. According to a recent global survey by Globalwebindex, on average we spend six hours and 42 minutes of each day looking at a screen (and this was before lockdown). SA screen time is barely believable at an average of eight hours and 25 minutes per day. The Philippines is worst at over 10 hours per day, with the Japanese the sanest at three hours and 45 minutes.

While the market cap of the tech goliaths is not in dispute, how they actually make their money is less clear; our role as end users in helping to monetise their models even less so. The top-performing tech shares, the so-called Faang stocks (Facebook, Amazon, Apple, Netflix and Google), are all different companies with different business models and motives.

However, their extraordinary success has given rise to a number of issues, as covered in the recent Netflix documentary The Social Dilemma. There is alarm over the rampant and unchecked influence of social media platforms on our lives, and the prospect of it exploding into the future.

These companies now affect every aspect of our lives, yet are completely unregulated and enjoy power over societies (and elections) unparallelled in history. Let’s look at some of these issues more closely from an ethical perspective:

  • Privacy. In the 2016 US election the now infamous Cambridge Analytica harvested — without their consent — millions of US psychological profiles to identify those users with a predilection towards Donald Trump, so that they could receive targeted election adverts. They were established using Facebook data on every aspect of our private lives, leading to profiles that were almost 100% accurate. A shocking statistic. Privacy abuses are an issue particularly prevalent among the dominant social media companies, but the risk remains across all of the major tech companies that collect data on their users.
  • Manipulation. Humans are treated as products to be sold, with their daily behaviour deliberately manipulated to tie them to their phones so that they are more profitable to the corporate. Again, a shockingly dystopian reality.
  • Monopolies. Facebook owns the top four of the five largest social media apps, while Amazon owns 44% of US online e-commerce. Google owns 92% of US search activity and Netflix dominates TV streaming services (though competitors are catching up). Apple acts like a monopolist, recently strangling the Spotify app on its platform and allegedly ensuring that Apple phone speeds fade about two years into ownership, prompting a profitable upgrade. Would this be tolerated in the traditional corporate space, where company activity is more closely regulated?
  • Tax. These companies have used offshore tax techniques extensively to actively reduce their tax bills. Not only do their outsized, unregulated profits accrue to a small collection of employees, shareholders and billionaire founders, but their giveback to society through taxes paid is well below where it should be.
  • Polarisation in society. This is probably the worst problem. It is hard to believe the statistic, but 67% of people in America get their news from social media, in other words, predominantly from Facebook and Google, which tweak your newsfeed based on your personality assessment and interests and preferences (not as stated by you, but as gleaned from your online browsing).

That newsfeed will feed your biases, so if you are right-wing in politics, you will get a lot of Fox News-type right-wing “news” and opinions, feeding your existing biases. As such your views will harden as your existing views get reinforced. Again, this is done deliberately because we enjoy having our views validated, therefore will spend more time on the platform.

  • Political influence. Views get entrenched on each side of the divide and society becomes polarised. Intelligent discourse between opposing groups gets crushed. We are seeing the effects of this right now across the US. Such a level of public hostility across society is truly alarming, and is being fed at scale by these platforms. With no regulation, fake news becomes real news and any view becomes acceptable and entrenched.

To top this off, malign forces such as Russia can influence an election outcome, not by hacking Facebook but by simply using its platform. It is a problem in plain sight, yet the overall influence of technology can be confusing. This is because, as The Social Dilemma documentary points out, technology can be viewed as simultaneously utopian and dystopian — a car, information or social connections are just a click away, but at the same time we don’t realise how we’re being manipulated.

This will have to be dealt with, and I suspect an election victory for Joe Biden may be the trigger. He has been publicly more critical of the tech companies, calling for more regulation and breaking up of monopolies. A long overdue day of reckoning is most likely at hand.

Ultimately, it is our youth who are being damaged by this technological phenomenon. Another important matter, the focus on a “perfect” online presence, is harming our children. The incidence of suicide in the US of 10- to 14-year-old girls is up 190% in 10 years. Intervention is becoming increasingly urgent. 

Looking at technology stocks from a pure investment perspective, they have their good points and their bad; they are strong and growing organisations, but they are expensive. However, from a responsible investment perspective, some are more bad than good. They have evolved from modest and erstwhile beginnings to, in some cases, a business model that actively does harm to keep the profits flowing. This is a completely unsustainable model for society as a whole.

• George is director of investments at Old Mutual Investment Group.


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