What's going on here?
Amazon’s stock price hit $1,000 for the first time on Tuesday! (tweet this) While that news makes for a nice headline, it more importantly acts as a timely marker of just how well tech* stocks have performed this year.
What does this mean?
Tech stocks, like Facebook and Alphabet, are up about 20% so far this year, making it the best performing sector among US stocks (by comparison, US stocks are up about 8% overall). One reason for this is that overall economic growth remains quite sluggish by historical standards, which encourages investors to focus their attention on companies that are exhibiting outsized growth. Amazon, for example, increased its sales by 23% in its latest quarter (versus a year ago), dramatically more than the 8% sales growth exhibited by US stocks overall.
Why should I care?
For markets: What goes up must come down… or does it?!
The latest huge rally in tech stocks (Amazon’s share price is up more than 30% this year alone) is causing some investors to reminisce about the “dot-com bubble” of 1997-2001. The subsequent crash caused widespread pain among investors. And yet, as the world becomes far more digital, there is a strong argument that today’s big tech companies, with their bundles of cash and expertise, are best placed to capitalize on this trend.
The bigger picture: Innovation drives value creation over the long term.
Amazon, which began life as an online bookstore, pioneered the commercialization of cloud computing (as it, of course, also revolutionized ecommerce). One of its next targets is the digitization of our homes via Alexa and associated artificial intelligence technology. None of this necessarily means that Amazon is a good investment today, but it does show that being truly innovative (you know, actually inventing stuff) can be hugely rewarding.
*Amazon is technically classed as a “consumer discretionary” company because it’s, well, like a store – but many investors think of it as a tech company