Even though tech companies currently tend to trade at low multiples relative to historic earnings, from a market cap standpoint, the leaders of the sector are still gargantuan. Three of the four largest companies in the S&P 500 are tech companies: $AAPL, $GOOG and $MSFT, with a combined market cap greater than $1 Trillion.
Looking at the top 30 US companies in each sector (by sector ETF) Technology stands out as having significantly more market value than other sectors. The 30 largest US tech companies have a market value of $2.8 Trillion compared to an average of $1.46 Trillion in all other sectors.
That’s a big spread, but given Tech’s relatively tame multiple it’s easy to argue that the value gap is justified. Technology companies sell high value, high margin merchandise and therefore make a lot of money. But is this sustainable over time? Can tech companies continue to provide significantly more economic value to society than other industries, or will the value erode over time? Multiples seem to imply erosion, but market caps disagree.