In a recent Wall Street Journal article, Goldman Sachs compared the top 5 companies in 2000 to the top 5 companies today. In that comparison, Goldman concludes that the market is not repeating the problems of 2000 that caused the stock bubble in today's market.

The top 5 companies in the S&P 500 today are:

  1. Facebook Inc.  [stckqut]FB[/stckqut],
  2. Apple Inc.  [stckqut]AAPL[/stckqut],
  3. Amazon.com Inc.  [stckqut]AMZN[/stckqut],
  4. Microsoft Corp.  [stckqut]MSFT[/stckqut],
  5. Alphabet Inc.  [stckqut]GOOGL[/stckqut].

and of 2000 were:

  1. Microsoft,
  2. Cisco Systems Inc.  [stckqut]CSCO[/stckqut],
  3. General Electric Co.  [stckqut]GE[/stckqut],
  4. Intel Corp.  [stckqut]INTC[/stckqut],
  5. Exxon Mobil Corp.  [stckqut]XOM[/stckqut].

The five companies in 2000 traded at 47 times expected earnings, according to Goldman. Today’s five biggest companies trade at 30 times expected earnings—making them by no means a bargain, but still less expensive than the stocks that dominated the stock run in the early 2000s.

The tech giants powering the S&P 500 today also reinvest far more of their profits into their businesses than their predecessors did. The five companies funnel about 48% of their cash flow from operations into capital expenditure and research and development spending, according to Goldman, well above the S&P 500’s 21% average and the 26% average for the five biggest companies in March 2000.

According to Goldman, "Lower growth expectations, lower valuations and a greater reinvestment ratio suggest the current concentration may be more sustainable than it proved to be in 2000."

The world’s largest tech companies further their advantage by building out extensive, global networks to deliver online services to businesses and consumers. This has never been an inexpensive endeavor, but the need for further sophistication and computing power has the bills growing larger each year and there are no signs of a slowdown on the horizon.

Take, for example, the largest three U.S.-based operators of cloud computing services. Amazon.com [stckqut]AMZN[/stckqut], Microsoft [stckqut]MSFT[/stckqut], and Alphabet Inc.’s[stckqut]GOOGL[/stckqut] Google had a combined $41.6 billion in capital expenditures and capital lease deals in 2017. That is up 33% from the previous year and represents an acceleration from the 23% growth in spending seen in 2016. Not all of this goes to data-center construction, though all three have identified network expansion as a major area of focus for their capital spending plans.

Source: Cloud Bills Will Get Loftier

Big Tech can generate big numbers, but it was fast growth in the cloud business that helped ignite a buying frenzy Friday that drove up market values by nearly $139 billion in 30 minutes.

The stunning growth of the cloud businesses at Amazon.com Inc. [stckqut]AMZN[/stckqut] Microsoft Corp. [stckqut]MSFT[/stckqut], and Google parent Alphabet Inc. [stckqut]GOOGL[/stckqut] were a relatively small part of the strong quarterly results the three companies reported Thursday. But fast growth in cloud revenue, along with relatively stable service prices that helped profit margins during the quarter, gave investors reasons to bet the three giants could maintain their growth trajectories.

Shares of the three companies kept rising Friday, with their combined $147 billion market-value gain topping the value of more than 90% of the other companies in the S&P 500, including nearly every other company selling cloud-based software services.

Source: Tech Rally Is Juiced by Highflying Cloud Business - WSJ

Ten analysts now predict Amazon’s shares will eclipse the $1,000 mark in the next year, and 13 others have price targets within 5% of that goal. Since I follow the company, I will be putting out my price recommendation in the next couple weeks.

Amazon is now the fourth-largest company in the S&P 500 by market cap, ranking behind only Apple, Microsoft and Google parent Alphabet. Its stock price is now setting new all-time highs above the $900 mark. Incidentally, after adjusting for stock splits, that $400 target on Amazon in 1998 equates to about $67 today.

Amazon’s soaring market value—up more than 50% in the past 12 months to more than $430 billion—allows founder and CEO Jeff Bezos to sell about $1 billion of his shares each year to fund his space exploration venture. But that hasn’t stopped Wall Street from seeing the stars. Ten analysts now predict Amazon’s shares will eclipse the $1,000 mark in the next year, and 13 others have price targets within 5% of that goal, according to S&P Global Market Intelligence.

Still, Amazon today isn’t quite the Amazon of old, trying to survive on razor-thin retail margins. Its fast-growing Web-services business has altered the company’s earnings and cash flow dramatically, as have other offerings. Brian Nowak of Morgan Stanley estimates that Amazon’s Prime membership, advertising and credit card programs generated about $9.3 billion in revenue last year and will grow to about $12.7 billion this year—all with a combined operating margin of around 70%. Helpful, as Amazon still needs all the fuel it can get.

Source: Amazon at $1,000, Wall Street’s Not-So-Bold Call