I keep writing about the insane amounts of dollars that big tech companies are generating in revenue and profits. Yet even more impressive is the expense that the tech giants are making to keep their businesses running and on a growth path for many years to come.
I have watched, my jaw drop, as the five biggest superstars in the American tech industry – Apple, Microsoft, Google, Amazon, and Facebook – have squandered on expensive investments for their businesses. That includes specialized equipment to assemble iPhones, massive data centers, underwater internet cables that send YouTube videos to your phone at full speed, and warehouses for Amazon workers to assemble and ship orders.
Spending companies on physical assets designed to last for many years – “capital investment,” for the geek-is one of the best ways to get a glimpse of how big tech companies use their success to become even more successful.
In the past year, according to financial statements, the combined profits of these five companies rose more than 25 percent. The tech giants have the cash and the permission of their investors to spend just about anything to stay on top. It is an advantage that few companies can match.
One example: In the last year, UPS spent the equivalent of about 5 cents of every dollar of its sales on more planes, trucks, delivery warehouses, equipment to handle packages and software to manage it all, according to the company’s financial statements. From the information released by Amazon, I estimate that a similar category of company spending equates to 13 cents for every dollar of its sales.
UPS and Amazon don’t exactly do the same thing. Amazon’s top investments include technology hubs for its cloud computing business. UPS makes deliveries for many businesses, while Amazon for the most part handles package delivery from its own business.
Both companies have done excellently in the online shopping pandemic. However, UPS is reducing its spending on long-lived assets while Amazon is spending much more each year.
The good news is that this is exactly what we want rich and successful companies to do: invest a large chunk of their wealth in improving their business, for their benefit and ours. When Microsoft spends a lot of money on upgrading its computer centers, it helps all businesses that use the online versions of Excel and Outlook. When Amazon equips its warehouses with new assembly lines, orders can be moved more efficiently to our homes.
This can shock us and still make us wonder if there is someone who can be at the investment level of the big tech companies.