It is possible to learn a lot about a company and the society it operates in from the financial numbers that U.S. law requires publicly-traded corporations to divulge every few months. My interest in one sometimes overlooked financial number led to a rather fascinating conclusion: The center of financial power in the United States may have shifted from Wall Street to Silicon Valley, and nobody seems to have noticed.
I drew this conclusion from a figure that many investors like to ignore: “cash and short-term investments,” in layperson’s terms, the amount of money that a publicly-traded corporation has in the bank. What shocked me was the amount of cash that some tech companies had in the bank at the end of the second quarter of 2015.
Here are some fantastic numbers that should shock you:
- Microsoft Inc. (NASDAQ: MSFT) reported having $96.53 billion (€85.16 billion) in cash and short-term investments on June 30, 2015, an amount that actually exceeded its revenues (total sales), which were $93.58 billion.
- Google Inc. (NASDAQ: GOOG & GOOGL) reported holding cash and short-term investments totaling $69.78 billion (€61.56 billion) on June 30, 2015. Google was actually holding more cash than Warren Buffett’s Berkshire Hathaway (NYSE: BRK.B & BRK.A), a company famous for holding a staggering amount of cash, which reported having $66.59 billion (€58.75 billion) in the bank on June 30, 2015.
- Oracle Inc. (NYSE: ORCL) was holding $54.37 billion (€47.97 billion) in cash and short-term investments on August 31, 2015, an amount that exceeded its revenues by nearly $17 billion. For the record, Oracle reported revenues of $38.08 billion on August 31, 2015.
- Apple Inc. (NASDAQ: AAPL) Apple too was holding a lot of cash in the bank on June 30, 2015—$34.7 billion (€30.61 billion). Yet that wasn’t the most astounding thing about it. What was truly staggering was the amount of cash the company was generating. It reported making $81.04 billion (€71.5 billion) in cash from operations during the second quarter. That gave Apple a net income of $50.74 billion (€44.76 billion) from a revenue of $224.34 billion (€197.92 billion).
- Cisco Systems (NASDAQ: CSCO) was holding $60.42 billion (€53.43 billion) in cash and short-term investments on July 31, 2015.
These figures are absolutely astounding, but they appear to be just the tip of the iceberg. Some lesser technology companies also had a lot of cash stored up. Facebook (NASDAQ: FB) reported having cash and short-term investments of $14.12 billion (€12.46 billion) on June 30, 2015. PayPal Holdings (NASDAQ: PYPL), which only resumed life as an independent company in July, was holding $4.408 billion (€3.57 billion) when its ticker symbol returned to the stock markets. Even Amazon.com Inc. (NASDAQ: AMZN), a company famous for never earning a profit, reported having $14 billion (€12.35 billion) in the bank.
No, It Is Not Taxes
Okay, cynics will say those companies are storing up that much cash in overseas accounts because of the high rate at which the U.S. government taxes corporate income. The problem with that argument is that other giant companies that do a lot of business overseas do not have that much in the bank.
ExxonMobil (NYSE: XOM), the world’s largest oil company, reported having just $4.34 billion (€3.84 billion) in cash and short-term investments on June 30, 2015, although it reported revenues of $335.25 billion (€296.46 billion) on the same day. The world’s largest retailer, Walmart Stores Inc. (NYSE: WMT), was holding $5.751 billion (€5.08 billion) in the bank on July 31, 2015, although it had reported revenues of $485.62 billion (€429.43) on the same day.
Is Silicon Valley Richer Than Wall Street?
This, of course, raises an interesting question: Is Silicon Valley now richer than Wall Street and, by implication, more powerful and influential? Money, after all, is power, and the old adage states he who has the gold (or the money) makes the rules.
The answer to that question as provided by the raw numbers seems to be yes. Goldman Sachs Group (NYSE: GS), widely considered the most influential investment bank on Wall Street, reported holding cash and short-term investments of $60.84 billion (€53.8 billion) on June 30, 2015. Another investment giant, Morgan Stanley (NYSE: MS), was holding $46.36 billion (€41 billion) in the bank on the same day.
To make things more interesting, the amount of cash and short-term investments held by organizations like Goldman and Morgan Stanley was falling, while that held by tech giants was increasing. Morgan Stanley was holding $100.93 billion in the bank in September 2014 for example.
Google, in contrast, was holding $61.2 billion in the bank in June 2014 and $69.78 billion in June 2015. Cisco’s cash holdings grew from $52.07 billion to $60.42 billion between July 2014 and July 2015. During the same period, Goldman Sachs’ cash holdings increased from $56.98 billion to $60.84 billion in the same period.
One reason for this disparity could be the investment banks’ dependence on the stock market for revenue. The tech companies can tap a fairly constant stream of revenue from such sources as advertising and software licenses in contrast.
If the numbers are accurate, Silicon Valley is now richer than Wall Street, which has implications for us all. The only institutions in America richer than the tech companies appear to be the big banks and the federal government.
The Growing Political Power of Silicon Valley
There are some obvious implications from Silicon Valley’s newfound wealth, the most obvious of which is political. The tech giants now have a vast amount of cash to throw at elections if they wish, which could lead to some very interesting results since the U.S. Supreme Court essentially removed all restrictions on corporate campaign spending with the extremely controversial Citizens United decision.
One has to wonder if this is partially responsible for the leftward tilt in American politics—for example, the growing acceptance of gay rights and gay marriage; both Hillary Clinton and Barrack Obama, who formerly opposed gay marriage, now support it. The fact that current Apple CEO Tom Cook is openly gay might have something to do with their change of heart.
Since elections are more expensive than ever, Silicon Valley will have an incredible amount of sway over the 2016 elections. Hillary Clinton alone raised $45 million during the second quarter of 2015, according to The Wall Street Journal.
Therefore it is a certainty that issues important to the tech industry, such as NSA surveillance and corporate tax rates, are going to be center stage during next year’s campaign. It is also likely that other issues, like health insurance and student loan debt, which the tech crowd does not care about, could be ignored.
Some critics, including Bernie Sanders, are already making an issue of this and charging that such wealth subverts democracy itself and threatens the common man. Ironically enough, Sanders himself has benefited from technology and the tech savvy of his supporters.
Much of his campaign’s success comes from its ability to sidestep traditional media, such as television, and appeal directly to voters using tools provided by Silicon Valley, such as social media. One has to wonder how the tech companies will react if Sanders and his followers turn on them or demand restrictions on their power.
This wealth combined with the ability to manipulate data could make companies like Google the most potent force in American politics. Researchers Robert Epstein and Ronald E. Robertson made a good case last month that Google could have the power to affect election outcomes by manipulating search results.
The Virtual Economy and Income Inequality
Silicon Valley’s wealth is also fueling income inequality and the social and political unrest it creates. Silicon Valley houses both the mansions of the tech kings and growing shanty towns, the only place where the working class can afford to live. One called the Jungle, along San Jose’s Coyote Creek, housed 300 people and covered six acres.
In San Francisco, buses hauling Google employees to work at the Googleplex were blocked by protestors in January 2015. The protesters were angry because working people in the city were being evicted from homes to make room for wealthier tech industry employees. A month earlier a window on a Google bus was smashed across the bay in Oakland.
One has to wonder when the growing frustration at the virtualization of the American economy will spread to the rest of the country. For around a decade intellectuals have complained of the “financialization” of the American economy, the process in which more and more resources and power were devoted to the financial industry.
Now we face virtualization in which the power and wealth is shifting to the technology industry. The results of this paradigm shift will be profound. One obvious one is that the tech industry’s values, such as openness and tolerance, will be imposed on the rest of the country whether people want them or not. Traditional believers such as Evangelical Christians, devout Muslims and practicing Catholics may not appreciate that imposition
Another is that average people will feel increasingly powerless in the face of the growing technocracy. Nutty conspiracy theories about technocracy are already proliferating on the Internet. Such frustration could give rise to organized technophobia and violence. One has to wonder when a popular movement to overthrow the tech elite and restore “power to the people” will appear and some demagogue will pick up on this issue.
This process will be fueled by the growing disruption of the traditional economy and society that accompanies the tech industry’s rise; for example, the main street shops that close because they cannot compete with the prices on Amazon and the insurance agent forced to start delivering pizza because everybody is buying their policies from Google.
One has to wonder if we are ready for a world in which Silicon Valley is the dominant source in America. The financial figures indicate that we are living in such a reality whether we are ready to deal with it or not.
Disclosure: the blogger and author owns shares of PayPal Holdings Inc.