In the past three years you could have made a lot of money with a two-word investment strategy: own stocks. The S&P 500 returned 65 per cent over the period. Add a third word and you were really cooking. Owning tech stocks, in the form of the S&P 500 tech index, returned 116 per cent.
And no, it is not only Apple. Three old stalwarts that make up a quarter of the tech index – IBM, Microsoft and Intel – all beat the market over the period. All three also reported earnings last week and the bad news is that IBM and Intel’s numbers suggest tech’s momentum might be winding down. Quarterly revenue growth slowed to a virtual halt at both, after nine quarters of expansion. That is admittedly more important for Intel than IBM, which prizes profits over revenues. But pretax profit at IBM rose by less than 1 per cent – the slowest since the annus horribilis 2009.
Which leaves Microsoft looking like a standout with 6 per cent top-line growth. Microsoft’s ability to grind growth out of its operating system and office software businesses, even without benefit of an upgrade cycle, is well known. What was striking in the latest quarter, however, was the rapid expansion of its datacentre software unit, which now makes up a quarter of sales. Many people do not know Microsoft is in that business, but it could be worth $70bn or more if it stood alone.