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Investing's trillion-dollar question

In January, Microsoft stunned the gaming industry by announcing it was buying game publisher Activision Blizzard for $68.7 billion.

john HeadshotsTRY sq John Berry 3 minute read

Although investing in 2022 started with a sell off, Apple, which is the largest listed company in the US, still has a market value of around NZ$4 trillion. Apple isn’t alone, it’s joined by six other US stock exchange listed companies valued above NZ$t each.

We used to measure extreme amounts of money in billions, we’ve now moved to trillions.

This started with the US national debt growing exponentially during the Global Financial Crisis. Now at US$30t it’s so large our brains struggle to process what the number means.

Measuring trillions has shifted from the size of US debt and GDP to the size of US mega-corporations like Microsoft, Apple and Amazon.

Rather than say Microsoft is worth NZ$3.3t, it’s better understood by considering that Microsoft has the same value as all listed shares in Germany. Meanwhile, Apple’s size is bigger than the GDP of large countries like India or the UK. As for Amazon, it’s worth more than ten times all listed shares here in New Zealand.

Their immense size might reflect success as leading and innovative tech businesses. But framing size simply as success masks the mega-challenges raised by these mega-corporations.

The likes of Meta (Facebook), Alphabet (Google) and Amazon are not simply big-tech businesses. They should be seen as big-data companies and even as infrastructure companies. They own much of the social connectivity, search tools, advertising and e-commerce for the online world in North America and Europe.

The first issue is whether they engage in anti-competitive behaviour and abuse their market dominance. This could be protecting their position by buying up competitors before they are large or influential enough to seriously challenge. Meta (Facebook) has been accused of this with its 80 acquisitions including Instagram and WhatsApp.

Or it could be using a dominant position to channel business to their own interests, which is a complaint that has been levelled at Microsoft and Amazon, especially by European regulators.

Aside from monopolistic concerns, a broader social and political question has grown much louder. When does a company with massive scale become a wider social concern?

Massive size can be reflected in extensive lobbying of political interests or pressure for very large tax breaks in return for delivering jobs. It may be reflected in holding an extraordinary amount of data on a vast number of people. Or it could be power to censor – or refusal to censor – extreme views and opinions. Maybe it’s reflected in super-profits for a near-monopoly.

There are examples of massive monopolistic US companies that have been forced to break up.

Current oil majors like BP, ExxonMobil and Chevron trace their origins to the breakup of Standard Oil’s monopoly. More recently US telecom giant AT&T was broken up into seven regional businesses on anti-competition grounds.

The world’s largest companies will need to prove they are not using their dominance to behave anti-competitively, and that forcing break-ups would not serve any social purpose.

Choosing to invest in them requires some thinking about whether they can, and should, keep growing their scale and dominance forever.

That’s not just a question about the robustness and adaptability of their business model, it’s also a question of whether regulators, politicians and society at large will let that happen.

These trillion-dollar companies are now comparable in size to large countries and wield immense global influence. Where they go from here – or where they are allowed to go from here - will be in the spotlight over 2022.

This commentary is general information only – it is always a good idea to seek professional financial advice for your personal circumstances.

-John Berry is the chief executive at ethical fund manager and KiwiSaver provider Pathfinder Asset Management.

Originally published in Stuff 3/2/2022

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