Tech giants have matured and are sitting on a pile of cash

When history comes to record the moment at which the hot hi-tech companies of today became the staid big corporations of yesteryear, they may well turn to the recently issued Moody’s report showing how much cash these companies are sitting on with little evident intention of investing it.

This is the first time in US stock market history that the top five cash hoarders consist exclusively of tech companies. Indeed the top five account for one third of cash balances held by all US non-financial companies. Alphabet, the parent of Google, Apple, Cisco, Microsoft and Oracle, had collectively amassed a cash pile totaling US$504 billion by the end of last year.

Such large cash holdings are a sure sign of companies somewhere at their peak, raking in money and sitting on it because they no longer have pressing investment needs and are unable to decide what to do with it, other than pay out bigger dividends.

When companies are growing they tend to be cash hungry and likely to be keen to put their cash straight back to work but there comes a time — and it is now for the hi-tech giants — when they are short on new ideas and are developing the kind of conservatism that is typical of large corporations.

There is another straw in the wind, which comes from Warren Buffett’s Berkshire Hathaway that has a strict policy of investing only in companies with stable cash flows and a high degree of predictability based on long-term performance. In other words it invests in rather boring but reliable companies.

Now Berkshire has taken a US$1billion punt on Apple, apparently at the urging of Buffett’s deputies, because the old man continues to insist that he does not understand hi-tech companies and avoids investing in things he does not understand. However he evidently trusts his deputies and has therefore been persuaded to take this significant position.