Cash is King, but will it Hurt Big Tech?

IBM, Microsoft, Oracle, Intel, Qualcomm and Apple could be vulnerable here.

I've always found large cap tech stocks to be appealing because these company's are humungous cash cows.  They sit on large pools of cash that enable them to get through a nuclear winter like the current one and still invest in new developments.  But, these companies have been able to return great growth on their balance sheets over the last several years and to finance further growth through putting this cash to work safely in places where it is growing at 5 to 6% a year. 

As we now know from our own cash management (or as we can see on, cash can't be put to work safely anywhere where it grows at 5 to 6% a year.  Suddenly, we are looking at around 2% in online savings accounts or short-term CDs or maybe a little higher in we look at municipal bonds.  And for corporations that have billions to put to work and don't have any reason to invest in municipals, the choices are probably closer to the ones that you see in short term Treasuries or money market funds (less than 1%). 

For the large tech companies, this hurts cash flow directly.  These companies are going to instantly look less profitable over the next quarter or two.  More troubling is the reality that it hampers investment and low interest rate periods undermine development efforts at large cash-rich technology companies.

Aron Livrone
Aron Livrone: Aron is a 2008 Wharton MBA with a consulting background prior to moving from Sweden to the US to begin his MBA.

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