Tech and AI Dominating the Stock Market Is Nothing New

Technology and innovation have always been intertwined.  But over time, tech became so innovative as to claim its own sector of the economy.  Its launch point may be best marked by the 1970’s, with the creation of the Nasdaq (a tech-heavy stock exchange) in 1971 perhaps serving as an omen. 

Every decade since has let a new genie out of the bottle; technological advances that disrupt the norm exiling the old way of doing things never to return.  Tech may be synonymous with brand new and cutting edge, making it easy to forget that technology as a sector has been running wild for quite some time.  Nowhere has this form of disruption been more apparent than in big tech’s dominance of the stock market.  Here’s a quick refresher…

The Tech Timeline

In the 1970’s, it was the computer mainframe that became a technological mainstay.  IBM took over most of the market and earned its spot as the top publicly traded tech firm in 1980 with a market cap of $38 billion.  Throughout the 1980s, the personal computer embedded itself in homes and offices around the world.  IBM continued to climb to a market cap of $54 billion in 1990, but other companies like Panasonic, who introduced their first notebook computer that year, watched their market cap reach $33 billion.

The 1990s brought about the advent of the internet.  As Y2K fears subsided and the new millennium arrived, Microsoft achieved an unheard-of market cap of $604 billion, almost $100 billion bigger than the 2nd largest company at the time—General Electric.  As a testament to the speed of economic growth possible in tech, GE was founded in 1892, whereas Microsoft went public in 1986, taking just over one decade to become the biggest company ever.  Cisco shared a similar story having gone public in 1990 and growing to become the 2nd largest tech firm in 2000 (market cap $355 billion).   The internet craze inflated the dot-com bubble, which eventually crashed in 2000.  However, history showed this to be an economic speed bump on tech’s fast track.

The 2000’s was a decade when smaller became bigger.  The power of mobile and cloud technology was unleashed on the world.  Google went public in 2004 and became the 2nd biggest tech company in the world by 2010 (market cap $197 billion).  The first iPhone was released in 2007 and by the end of the decade, Apple, which had never been a top 10 tech company before, soared to a market cap of $191 billion in 2010.

The 2010’s furthered the all-encompassing power of mobile and cloud technologies as big tech became mega tech.  In the year 2020, Apple’s market cap eclipsed $2.2 trillion, more than 11x its size ten years prior.  Microsoft, Amazon, and Alphabet (Google) also passed the trillion-dollar milestone.  Along the way, OpenAI (creator of ChatGPT) was founded in 2015 as an artificial intelligence research lab.  AI and large language models (LLMs) are already the 2020’s disruptor of computing, but its impact on remaking other sectors of the economy is in the early innings.  As AI gets better each day at finishing our sentences, perhaps the 2030’s will see an iteration that begins our sentences.

Tech’s Dominance in the Stock Market

The stock market can add relevance and context to the story of tech.  Since 1980, the average annual rate of return for the Nasdaq is 13.92% versus the S&P500 at 10.15%.  The spread is meaningful, but not extreme.  However, as mentioned earlier, the expansion of tech has led to the blending of tech in other sectors and as well as other indexes.  Before the year 2000, the Nasdaq-100 (the 100 largest companies in the Nasdaq) made up a fraction of the S&P500.  Now, roughly 80% of the Nasdaq-100 is represented in the S&P 500.  The top 8 companies in the S&P500 are all tech stocks.

The actors on the tech stage will inevitably change.  Some will aggressively invest and adapt to stay ahead of the curve, like Microsoft has done to remain one of the top 3 tech companies over the past 3 decades, while new names appear like Tesla and Tencent.  Those who do not continue to innovative are likely to disappear as quickly as they burst onto the scene, supporting the notion of diversification in the tech sector.  No investment is immune to hubris and overvaluation, as tech returns during the 2000’s or even 2022 can show, but tech can be expected to expand its footprint as a sector at the same time it blends into every other facet of the economy.  

Written by Bryan Kuderna.
This article is not a recommendation for any particular company or sector of the stock market.  Past performance is not an indicator of future performance.