What are major US tech companies investing in?

 

The Economist analyzed a number of data on the activities of the Big Five:

• the technology focus of their recently acquired companies,
• companies in which they received minority stakes,
• employee profiles on LinkedIn,
• publications and patents.

The article gives an idea of the direction of the phenomenal surge in investment.

The five largest US companies - Alphabet, Amazon, Apple, Meta and Microsoft (MAAMA) have invested $280 billion in 2021. This is 9% of the investments of all American companies. Five years ago it was 4%.

Research and development

The Big Five spent $149 billion on research and development (R&D) in 2021, up 34% since 2019. Product development accounts for a significant portion of this spending.

Over the past 12 months, the share of cash flows of MAAMA companies for R&D and capital expenditures amounted to 53% . For comparison: on average, all companies included in the S&P500 index spend 32% on research.

One reason for the huge R&D spending is the really large size of the companies. The Big Five's revenues almost tripled between 2015 and 2020. The combined market value of the largest technology companies is over $9 trillion.

Companies have specific goals that require high R&D expenditures:

• Apple is in search of a new device - a car or a virtual reality headset.
• Amazon is improving the efficiency of its warehouses and delivery system. Expands the range of industries using Amazon Web Services.
• Meta has faced a cooling of interest in Facebook among young people. Something big new, like the Metaverse, might be the only way to ensure survival.

Cars, the Metaverse, and Everything Else

Between 5% and 20% of tech giants' huge R&D spending goes to "frontier technologies":

• metaverse,
• unmanned vehicles,
• healthcare,
• space,
• robotics,
• fintech,
• cryptocurrencies,
• quantum Computing,
• Artificial Intelligence.

Over the past three years, the Big Five tech companies have acquired more than 110 companies, according to research firm PitchBook. The disclosed value of 40 transactions was about $50 billion. 25% of the acquired companies specialized in artificial intelligence or data processing. And about a quarter more were engaged in the development of "frontier technologies".

Microsoft in April 2021 bought Nuance Communications, a provider of cloud computing and healthcare software, for $19.7 billion. For the development of cloud services, the following were bought: Mover.io - data transfer to the cloud and CloudKnox - cybersecurity. In January 2022, the company offered $69 billion for video game company Activision Blizzard. The biggest deal in history.

Google is lagging behind Microsoft and Amazon in its cloud offerings. And so he acquired 3 cloud startups, including Actifio. As part of the growing interest in healthcare, the company has acquired three manufacturers of wearable medical trackers. $2.1 billion was spent on the purchase of Fitbit. Google's venture investments include genome editing company Editas Medicine and drug development company Adagio Therapeutics.

virtual reality companies , Meta has acquired eight, including BigBox and Downpour Interactive. Apple bought four more, including Next vr and IKinema. But artificial intelligence has become the top priority. Of the 22 purchases since 2019, more than half are AI -related startups .

Amazon has invested in car manufacturers Aurora and Rivian. The latter went public in November 2020 and is valued at $67 billion. Amazon also bought Zoox, which specializes in autonomous cars, for $1.3 billion. Amazon's interest in this sector stems from a desire to make its delivery service cheaper and more efficient.

Google has invested in two self -driving car companies : Waymo and Nuro. Apple acquired automotive startup Drive.ai in 2019, with plans to release cars in 2025. In January 2022, Microsoft invested in Wayve, a London-based self-driving car company. 9% of large tech companies' investments are in cars and mobility - venture capital invests just 2.4%.

45 investments from the financial divisions of Google were directed to the company's fintech . For example, Botkeeper is an automated accounting service. Other tech companies are taking similar steps. In 2020, Apple acquired Mobeewave to use the iPhone as a mobile contactless payment terminal. Amazon has bought Indian fintech company Perpule and is partnering with Goldman Sachs to expand its lending offerings.

Perpule and a number of other fintech companies are part of a different trend: Of the 101 companies in which the tech giants have taken stakes since 2019, 24 are from India. Amazon has acquired a stake in BankBazaar, which serves the financial market of Chennai (the sixth largest city in India). Google plans to invest $10 billion in Indian tech companies over the next five to seven years. Big tech companies are much more willing to invest in India than US venture capital firms.

Microsoft, Amazon and Google have recently filed for patents related to quantum computing. More than half of Meta's patent filings since 2019 mention augmented or virtual reality. The patents of Microsoft and Google often talk about artificial intelligence.

Company employees

The Economist looked at the LinkedIn profiles of Big Five employees for the most frequently used keywords.

In "big five" job postings, mention of augmented or virtual reality has risen from 75 in August 2020 to 567 in early 2021, according to research firm Thinknum Alternative Data. Meta and Amazon each post about 200 of these jobs. A similar rise is seen in car-related ads.

On average, about 0.5% of employees of large technology companies mention quantum technologies on their LinkedIn pages. Amazon and Alphabet are increasingly mentioning him in job postings.

In addition to investment potential, there are also risks of technology companies.

Joseph Marc Blumenthal