As Apple skyrockets past the title of World’s Most Valuable company, the company’s financial phenomenon makes it a little hard to put its fellow business cohorts in perspective. While Apple is sitting comfortably on $178 billion, news of runner ups like Microsoft and Google tend to get washed away in their wake. As investors keep an eye on Apple’s rising cash pile, hopefully, they keep the bigger picture in mind, and that many US tech companies are doing exceedingly well regardless of Apple’s position.
Lauren Gensler, a journalist at Forbes, details the spending and savings of some of the giants in tech. According to Gensler, while Apple sits on the hoarding throne, Microsoft is runner-up with a $90.2 billion dollar pile of money. Bringing up the rear is Google, who’s $64.5 billion mountain of reserved cash, contributed to a $1.73 trillion dollars in cash holds from non-financial US companies. That money reserve is up 4% from just over a year and a half ago when it sat at $1.67 trillion. The trend looks to continue upwards as Moody’s Investors Service tracks more U.S. companies favoring overseas financial holdings.
Gensler reports, “Nearly two-thirds of all this cash, or a whopping $1.1 trillion, is sitting aboard somewhere.” Unfortunately, due to the taxation rates for businesses and imports, overseas money hoarding has become an established practice for US companies. As it’s becoming second nature for many companies to avoid the tax pinch, they are becoming very adept at accessing their overseas cash for their domestic gains. According to Gensler, “Capital spending, dividends and stock buybacks all climbed to record highs in 2014. Acquisition spending rose 20% to $322 billion, reflecting a corporate shopping spree.” This trend is no more evident than watching key assets like Israeli Camera tech company LinX being bought by Apple, or Swedish owned Minecraft being acquired by Microsoft for a mere $2.5 billion untouched by US taxes.
Apple, Microsoft, and Google are among the highlighted few, but they are in company with around 50 other tax evading cohorts contributing 62% or $1.08 trillion to the stashed $1.73 trillion dollars. However, the secret money society is closing its ranks and becoming a bit more selective as a barrier to entry rises yearly. In order to be among the trillion dollar holding club, companies need to have at least $6.1 billion in cash, according to Gensler’s report. Last year companies managed to be apart of the stashed money club by only having $5.7 billion and prior to that, in 2007 a company only needed $2.8 billion.
As a casual viewer, much of this may seem like shady business practices, but for investors, this is a tolerated practice because most companies still provide buybacks or dividends to loyal investors. Gensler does note that among the big three tech giants, Google is still the only one that doesn’t participate in this tradition. For better or for worse, Google qualifies their money reserve for investment in future products, rather than directly giving some of that money back to investors. Regardless of their investors expenditures, Google remains part of the tech sector that is responsible for 56% of an increasing overseas American cash pile. According to Moody’s analyst Richard Lane, “We expect the concentration of cash in the technology sector to grind higher over the next year because the sector generates over half of the total free cash flow among rated non-financial companies.”
As Microsoft continues to expand their portfolio through acquisitions, keep an eye on where the companies originate from, it may help you decipher whether the business is playing with “house money” or not.