Tech giants’ next acquisition could be themselves

Big U.S. technology companies can look in the mirror for their next acquisition. Alphabet, Amazon.com, Apple , Facebook and Microsoft have around $600 billion of cash in their coffers altogether. With revenue hitting new highs, investors will be keen to see it put to work. Buying back more shares may become the default.

Google’s parent said on Tuesday that second-quarter revenue jumped 62% year-over-year to $62 billion thanks to a surge in online advertising. Microsoft saw a 21% increase to $46 billion in its fourth fiscal quarter, ending June 30, while Apple’s top line grew by 36% to $81 billion in the three months ending June 26.

The record levels of revenue have left the companies awash in cash. For example, Microsoft’s war chest totals about $130 billion, bigger than, say, Snap’s (SNAP.N) market capitalization. Apple has even more firepower, at $194 billion in cash and marketable securities.

Buying other companies has fueled growth but it’s a risky choice for now. The Federal Trade Commission is now run by Silicon Valley critic Lina Khan, while President Joe Biden has named Google foe Jonathan Kanter to run the antitrust unit of the Justice Department. With those top watchdogs, even acquiring startups – a habit of Apple’s in particular – may face scrutiny.

Another area where Big Tech could splurge is hiring. Last year, Alphabet shelved plans to add 20,000 people. If it increased its payroll by that amount, it would cost $2.4 billion per year based on an average software engineer salary of $120,000, according to PayScale. That would barely dent boss Sundar Pichai’s $136 billion cash pile, and presumably the new employees’ efforts would bring in more. Research and development is already a high priority for Big Tech.

That leaves rewarding shareholders. Apple and Microsoft pay dividends. Other tech giants have focused only on buying back stock. The software firm run by Satya Nadella has nearly worked its way through $40 billion authorized in 2019. Last July, Alphabet said it would repurchase $28 billion worth of stock, and in April it added another $50 billion.

With stock prices riding high, there’s a risk companies will overpay. Alphabet’s shares are up 72% over the last year, compared with a 37% bump for the S&P 500 Index. Still, investors like buybacks. And Apple boss Tim Cook and his peers are short of options. Reuters