Under the Hood Revived: What’s In Your Index? The Metamorphosis of the Mega-Cap IT Company Business Model
Here at Horizon Kinetics, we’ve spilled plenty of ink on the immense weighting of technology giants in the S&P 500 Index. But there’s more to the story. A look under the (index) hood reveals the changing nature of these mega-cap tech giants to "hyperscalers," as they are now required to invest in and operate enormous data centers. Recent data exposes a surge in capital expenditures—for which the consequences are unavoidable.
"We do not wish to leave the impression that the new technologies will not transform human life for the better. The issue is simply that, in any investment sense, a participant in these industries is subject to considerable valuation risk that we do not wish to accept. We much prefer the 'time risk' of a dormant asset, such as land that is to be developed, or unused frequency spectrum that generates no cash but is likely to be needed by the grand technologies currently being deployed. It is the old story of the need for patience—which, as always, is a commodity in short supply. In other words, as in La Fontaine’s fable of the ant and the grasshopper, we prefer to play the role of the ant."
-Murray Stahl, 2015
Home / Resources / Under the Hood Revived: What’s In Your Index? The Metamorphosis of the Mega-Cap IT Company Business Model
Under the Hood Revived: What’s In Your Index? The Metamorphosis of the Mega-Cap IT Company Business Model
Here at Horizon Kinetics, we’ve spilled plenty of ink on the immense weighting of technology giants in the S&P 500 Index. But there’s more to the story. A look under the (index) hood reveals the changing nature of these mega-cap tech giants to "hyperscalers," as they are now required to invest in and operate enormous data centers. Recent data exposes a surge in capital expenditures—for which the consequences are unavoidable.
"We do not wish to leave the impression that the new technologies will not transform human life for the better. The issue is simply that, in any investment sense, a participant in these industries is subject to considerable valuation risk that we do not wish to accept. We much prefer the 'time risk' of a dormant asset, such as land that is to be developed, or unused frequency spectrum that generates no cash but is likely to be needed by the grand technologies currently being deployed. It is the old story of the need for patience—which, as always, is a commodity in short supply. In other words, as in La Fontaine’s fable of the ant and the grasshopper, we prefer to play the role of the ant."
-Murray Stahl, 2015
Under the Hood Revived: What’s In Your Index? The Metamorphosis of the Mega-Cap IT Company Business Model